Organization Structure and Design Exploring Management Chapter 8 Organization Structure and Design

Chapter 8 What is organizing as a managerial responsibility? What are the most common types of organization structures? What are the trends in organizational design?

Organizing is one of the management functions Organization charts describe the formal structures of organizations Organizations also operate with informal structures Informal structures have good points and bad points As with the other management functions, how you organize depends on what you want to do.

ORGANIZING Management Functions Arranges people and resources to work toward a goal Organizational structures are designed and re-designed to use resources such as money, assets, technology, knowledge and people in the most efficient way to interact with the external environment.

ORGANIZING Organizational Charts Structure system of tasks, reporting relationships, and communication that links people and positions within an organization. Organization Charts describe the formal structure, how an organization should ideally work. There are many different types of organizations and there is no one best way to organize them.

ORGANIZING Organizational Charts What You Can Learn from an Organization Chart Division of work Positions and titles show work responsibilities. Supervisory relationships Lines between positions show who reports to whom in the chain of command. Span of control The number of persons reporting to a supervisor. Communication channels Lines between positions show routes for formal communication flows. Major subunits Which job titles are grouped together in work units, departments, or divisions. Staff positions Staff specialists that support other positions and parts of the organization. Levels of management The number of management layers from top to bottom. Many organizations do not make detailed organizational charts public knowledge. They may be used by competitors, investors or they may not even have complete charts developed. Relationships can change rapidly.

ORGANIZING Formal Structure Organizational charts are often depicted as a dichotomy, but in reality, they are a living flow of communication and relationships.

ORGANIZING Formal Structure Division of Labor People and groups performing different jobs. Formal Structure The official structure of the organization. Informal Structure The unofficial relationships that develop among an organization’s members. The unofficial relationships are often stronger than the formal relationships. There are many explanations for this fact. One is that managers often establish informal relationships outside of the formal structure.

ORGANIZING Informal Structure Unofficial but important working relationships between members. Shadow organizations can have both a positive and a negative affect on the organization’s performance. In the case of weak management, the shadow organization can be what holds the business together.

ORGANIZING Informal Structure Informal Structures have good and bad points Social network analysis identifies communication relationships Good points include problem solving, support, friendship and fill gaps in the formal structure Bad points include rumors, inaccurate information and resistance to change Good or bad, they exist in all but the smallest organizations.

8.2 Common Types of Structures Functional structures group together people using similar skills Divisional structures group together people by products, customers or locations Matrix structures combine the functional and divisional structures Team structures use many permanent and temporary teams Network structures extensively use strategic alliances and outsourcing

COMMON ORGANIZATIONAL STRUCTURES Functional Structures Functional Structures group people with similar skills Departmentalization Grouping people and jobs into a work unit Functional Structure Work units have similar skills and tasks such as finance, marketing, production and human resources. Work best in smaller or stable organizations Functional structures attempt to group people with similar responsibilities. In many cases, small groups of workers can be stuck in larger departments with which they have little in common. For example, in a large hospital, the helicopter ambulance staff may be in the same department as the maintenance staff.

COMMON ORGANIZATIONAL STRUCTURES Functional Structures Potential Advantages of Functional Structures Economies of scale make efficient use of human resources. Functional experts are good at solving technical problems. Training within functions promotes skill development. Career paths are available within each function. The potential disadvantage of functional structures is that managers may tend not to communicate with other functional organizations. This can be solved with cross functional teams.

COMMON ORGANIZATIONAL STRUCTURES Functional Structures Common functional structure Notice that there is no formal communications across functions. Many departments feel that they work separately from all others. Adversarial relationships can occur.

COMMON ORGANIZATIONAL STRUCTURES Functional Structures Functional Chimneys or Silos Communication and performance decrease across functions The lack of communications in functional organizations is often referred to as the Functional Chimneys or Functional Silos problem.

COMMON ORGANIZATIONAL STRUCTURES Divisional Structures Divisional structures group together people who work on a similar product, work in the same geographical region, or serve the same customers Divisional structures often result from growth. As organizations grow, it is difficult for one person to manage it all. Thus the company sub divides into smaller profit and loss centers.

COMMON ORGANIZATIONAL STRUCTURES Divisional Structures Common divisional structures Divisional structures have managers who are usually responsible for the operations within the division including profit and loss responsibility.

COMMON ORGANIZATIONAL STRUCTURES Divisional Structures Potential Advantages of Divisional Structures Expertise focused on special products, customers, regions Better coordination across functions within divisions Better accountability for product or service delivery Easier to grow or shrink in size as conditions change Divisions make restructuring easier. Organizations can sell or spin off large divisions, for example GE recently spun off NBC, and Time Warner and AOL recently parted ways.

COMMON ORGANIZATIONAL STRUCTURES Matrix Structures Matrix Structures combine functional and divisional structures uses permanent cross functional teams to try to gain the advantages of both the functional and divisional approaches Matrix structures are complex and need to be closely managed. However, they do have distinct advantages.

COMMON ORGANIZATIONAL STRUCTURES Matrix Structures Notice how the matrix structure solves the communication problem of functional structures by creating cross functional teams.

COMMON ORGANIZATIONAL STRUCTURES Matrix Structures Potential advantages of Matrix structures Performance accountability rests with program, product, or project managers. Better communication exists across functions. Teams solve problems at their levels. Top managers spend more time on strategy. Functional chimneys or silos are prevented with improved communication and cross functional teams.

COMMON ORGANIZATIONAL STRUCTURES Team Structures Make use of permanent and temporary cross functional teams Improved problem solving and project management Team structures have a number of advantages but they also have some of the disadvantages of group think.

COMMON ORGANIZATIONAL STRUCTURES Team Structures Team structure example

COMMON ORGANIZATIONAL STRUCTURES Team Structures Possible advantages of Team structures Team assignments improve communication, cooperation, and decision-making. Team members get to know each other as persons, not just job titles. Team memberships boost morale, and increase enthusiasm and task involvement. Team structures may increase commitment and expertise on projects.

COMMON ORGANIZATIONAL STRUCTURES Network Structures Consist of a central core with networks of relationships with contractors Contractors and network partners supply essential services Network structures are increasingly common as information technology and supply chain integration become more sophisticated.

COMMON ORGANIZATIONAL STRUCTURES Network Structures Network structure example The network structure requires close relationships with a few trusted sub-contractors.

COMMON ORGANIZATIONAL STRUCTURES Network Structures Possible advantages of Network structures • Lower costs due to fewer full-time employees. • Better access to expertise through specialized alliance partners and contractors. • Easy to grow or shrink with market conditions. More and more organizations are using network structures. The Nike case for this chapter seems to make a case that Nike uses a network structure.

COMMON ORGANIZATIONAL STRUCTURES Network Structures Virtual Organizations Network that depends on information technology to link alliances and essential services Virtual organizations are a form of network structures. They have become an innovative way to build an organization through outsourcing.

8.3 Organizational Design Trends Organizations are becoming flatter, with fewer levels of management Organizations are increasing decentralization Organizations are increasing delegation and empowerment Organizations are becoming more horizontal and adaptive Organizations are using more alternative work schedules

ORGANIZATIONAL DESIGN TRENDS Organizational Design Aligns structure to best accomplish mission and respond to external environment If the external environment demands a change in mission, the design may also need to change in response. Difficult economic times such as a recession may require change.

ORGANIZATIONAL DESIGN TRENDS Organizational Design Span of control How many people report to a manager Narrow manger supervises few people Wide manger supervises larger number of people flatter organizations have wide span of control Wide spans of control are usually found where workers are performing similar tasks. The more diverse the functions, the more likely the span of control will be narrow.

ORGANIZATIONAL DESIGN TRENDS Organizational Design

ORGANIZATIONAL DESIGN TRENDS Decentralized Decision-making Centralization Top management keeps strong decision-making control Decentralization Decision-making is distributed throughout the organization Decentralization, empowerment and delegation require competent loyal employees, a confident manager and a good feedback and control process.

ORGANIZATIONAL DESIGN TRENDS Increased Delegation Giving others the right to make decisions and take action Steps Assign responsibility—explain task and expectations to others. Grant authority—allow others to act as needed to complete task. Create accountability—require others to report back, complete task. Without accountability, delegation does not require any individual responsibility for results.

Empowerment Empowerment Gives people freedom to do their jobs as they think best. When delegation is done well it leads to empowerment.

ORGANIZATIONAL DESIGN TRENDS Horizontal and Adaptive Organizations Bureaucracy Formal authority Rules Order Fairness Mechanistic Designs Bureaucratic Centralized Vertical structure Many organizations remain bureaucratic and mechanistic. Government organizations and colleges are often a good examples. Employees do not feel empowered and are reluctant to go outside a narrow definition of their job description.

ORGANIZATIONAL DESIGN TRENDS Horizontal and Adaptive Organizations Organic Designs Adaptable Decentralized Horizontal Structure Organic designs are more able to quickly respond do external environmental change and opportunities. Workers feel empowered to solve problems and use necessary resources to accomplish their task.

ORGANIZATIONAL DESIGN TRENDS Horizontal and Adaptive Organizations This chart shows the two extremes. There are many organizations that are in between. Students may have suggestions for organizations and how they fit within this continuum.

ORGNIZATIONAL DESIGN TRENDS Alternative Work Schedules Alternative schedules increase flexibility and increase satisfaction for employers and employees Compressed workweek Flextime Job sharing Telecommuting Best Buy’s “Results Only Work Environment” that allows employees in some departments at their corporate headquarters in Minneapolis to work anywhere, any time as long as they achieve the required results is an extreme example.