Designing Organizational Structures Chapter 8 Designing Organizational Structures Prepared by Norm Althouse University of Calgary Copyright © 2011 by Nelson Education Ltd.

Chapter 8 Learning Outcomes 1 Identify the five structural building blocks that managers use to design organizations. 2 Examine the tools companies use to establish relationships within their organizations. 3 Show how the degree of centralization/decentralization can be altered to make an organization more successful. 4 Describe the differences between a mechanistic and organic organization. 5 Discuss the contemporary organizational structures companies are using. 6 Summarize why companies are using team-based organizational structures. 7 Explain how the informal organization affects the performance of the company. 8 List some of the trends that are influencing the way businesses organize. Copyright © 2011 by Nelson Education Ltd.

Organizational Structures Chapter 8 Organizational Structures In today’s dynamic business environment, business structures need to be designed so that the organization can quickly respond to new competitive threats and changing customer needs. Organizational Structures Harnessing the power of information technology gives a company a significant competitive advantage. Information is at the heart of all organizations. Without information about the processes of and participants in an organization, a business cannot operate. Copyright © 2011 by Nelson Education Ltd.

Building Organizational Structures Chapter 8 Building Organizational Structures Span of Control Centralization of Decision Making Division of Labour Departmental- ization Delegation Organizing involves coordinating and allocating a firm’s resources so that the firm can carry out its plans and achieve its goals. This organization process is accomplished by determining work activities and dividing up tasks, grouping jobs and employees, and assigning authority and responsibilities. The result is a formal organizational structure, which is the order and design of relationships within the firm. Formal organizations have well-defined lines of authority, channels for information flow, and means of control. Five structural building blocks are used in designing an efficient and effective organizational structure. They are division of laboru, departmentalization, managerial hierarchy, span of control, and centralization of decision making. Copyright © 2011 by Nelson Education Ltd.

Structural Building Blocks Division of Labour specialization of tasks Departmentalization creating an organization chart Delegation (formerly: Managerial Hierarchy) chain of command delegation of authority Span of Control narrow span wide span Centralization of Decision Making degree of centralization vs. decentralization Copyright © 2008 by Nelson, a division of Thomson Canada Limited

Five Types of Departmentalization Chapter 8 Five Types of Departmentalization Functional Based on the primary functions performed Product Based on the goods/services produced or sold Process Based on the production process used Five types of departmentalization are commonly used in organizations. Functional departmentalization. Based on the primary functions performed within an organization. Examples are marketing, finance, production. Produce departmentalization. Based on the goods or services produced or sold by the organizational unit. Examples are outpatient/emergency services, pediatrics, cardiology. Process departmentalization. Based on the production process used by the organizational unit. Examples are lumber cutting, furniture finishing, shipping. Customer departmentalization. Based on the primary type of customer served by the organizational unit. Examples are wholesale or retail purchasers. Geographic departmentalization. Based on the geographic segmentation of organizational units. Examples are Canadian marketing, European marketing, South American marketing. Many large organizations use several types of departmentalization. For instance, a global company may be departmentalized first geographically, then by product line, and finally by functional area. Customer Based on the primary type of customer served Geographic Based on the geographic segmentation of organizational units Copyright © 2011 by Nelson Education Ltd.

Functional Organization Copyright © 2008 by Nelson, a division of Thomson Canada Limited

Product (or Service) Organization Copyright © 2008 by Nelson, a division of Thomson Canada Limited

Organization by Process Copyright © 2008 by Nelson, a division of Thomson Canada Limited

Organization by Customer Copyright © 2008 by Nelson, a division of Thomson Canada Limited

Geographic Organization Copyright © 2008 by Nelson, a division of Thomson Canada Limited

Organizational Chart Example Chapter 8 Organizational Chart Example Copyright © 2011 by Nelson Education Ltd.

Supervisory Management Chapter 8 Managerial Hierarchy Middle Management Supervisory Management Top Management Power Employees The third building block used to create effective organizational structure is the managerial hierarchy, or the levels of management within the organization. Generally, the management structure has three levels: top, middle, and supervisory management. In a managerial hierarchy, each organizational unit is controlled by a manager in a higher unit. The higher a manager, the more power he or she has. Thus, the amount of power decreases as you move down the management pyramid. The number of employees increases as you move down the hierarchy. An interesting trend is the inverted pyramid, with the top manager at the bottom and the front-line employees at the top. The reason for this is to graphically show that the employees are the priority within the company. Copyright © 2011 by Nelson Education Ltd.

Chapter 8 Chain of Command The line of authority that extends from one level of an organization’s hierarchy to the next, from top to bottom, and makes clear who reports to whom. Chain of Command Copyright © 2011 by Nelson Education Ltd.

Chapter 8 Span of Control The number of employees a manager directly supervises; also called span of management. Span of Control (span of management) The fourth building block is the managerial span of control. ach firm must decide how many managers are needed at each level of the management hierarchy to supervise the work performed. A manager’s span of control is the number of employees the manager directly supervises. It can be as narrow as 2 or 3 employees, or as wide as 50 or more. In general, the larger the span of control, the more efficient the organization. Narrow Span: few subordinates Wide Span: many subordinates Copyright © 2011 by Nelson Education Ltd.

Optimal Span of Control Factors Determining Optimal Span of Control Nature of the task Location of the workers Ability of the manager to delegate responsibility Amount of interaction and feedback between workers and manager Level of skill and motivation of the workers Copyright © 2008 by Nelson, a division of Thomson Canada Limited

Degree of Centralization Chapter 8 Degree of Centralization The degree to which formal authority is concentrated in one area or level of an organization. Centralization The process of pushing decision-making authority down the organizational hierarchy. Decentralization The final component in building an effective organizational structure is deciding at what level in the organization decisions should be made. In a highly centralized structure, top management makes most of the key decisions, with very little input from lower-level employees. Copyright © 2011 by Nelson Education Ltd.

Mechanistic Versus Organic Organization Chapter 8 Mechanistic Versus Organic Organization Using different combinations of the building blocks described previously, organizations can build a wide variety of organizational structures. Nevertheless, structural design generally follows one of the two basic models: mechanistic or organic. A mechanistic organization is characterized by the traits listed on this slide. This combination of elements results in what is called a tall organizational structure. Copyright © 2011 by Nelson Education Ltd.

Flat Versus Tall Organizational Structures Chapter 8 Flat Versus Tall Organizational Structures Copyright © 2011 by Nelson Education Ltd.

Common Organizational Structures Chapter 8 Common Organizational Structures Line Organization An organizational structure with direct, clear lines of authority and communication flowing from the top managers downward. Within the basic mechanistic and organic models and the hybrids that contain elements of both, an almost infinite variety of organizational structures can be developed. Some of the most common structural designs are discussed in this section. The organization chart for a line organization would show that all positions in the firm are directly connected via an imaginary line extending from the highest position in the organization to the lowest. It is well suited for small, entrepreneurial firms. As an organization grows and becomes more complex, the line organization can be enhanced by adding staff positions to the design. Line-and-Staff Organization An organizational structure that includes both line and staff positions. Copyright © 2011 by Nelson Education Ltd.

Line versus Staff Positions Chapter 8 Line versus Staff Positions All positions in the organization directly concerned with producing goods and services and that are directly connected from top to bottom Line Position Within the basic mechanistic and organic models and the hybrids that contain elements of both, an almost infinite variety of organizational structures can be developed. Some of the most common structural designs are discussed in this section. The organization chart for a line organization would show that all positions in the firm are directly connected via an imaginary line extending from the highest position in the organization to the lowest. It is well suited for small, entrepreneurial firms. As an organization grows and becomes more complex, the line organization can be enhanced by adding staff positions to the design. Positions held by individuals who provide the administrative and support services that the line employees need to achieve the firm’s goals Staff Position Copyright © 2011 by Nelson Education Ltd.

Common Organizational Structures Chapter 8 Common Organizational Structures An organizational structure that combines functional and product departmentalization by bringing together people from different functional areas to work on a special project. Matrix Organization In a committee structure, committees are typically part of a larger line-and-staff organization. Often the committee’s role is only advisory, but the committee has the power to make and implement decisions. The matrix structure is sometimes used in conjunction with the line-and-staff structure. In a matrix structure, each employee has two direct supervisors: the line manager from his/her specific functional area and the project manager. Because of the dual chain of command. the matrix structure presents unique challenges. An organizational structure in which authority and responsibility are held by a group rather than an individual. Committee Structure Copyright © 2011 by Nelson Education Ltd.

Matrix Structure Copyright © 2008 by Nelson, a division of Thomson Canada Limited

Chapter 8 Teams Work Groups: Groups that share resources and coordinate efforts to help members better perform their individual jobs. Work Teams: Similar to work groups, but also requires the pooling of knowledge, skills, abilities, and resources to achieve a common goal. Copyright © 2011 by Nelson Education Ltd.

Matrix Structure Advantages Disadvantages teamwork efficient use of resources flexibility ability to balance conflicting objectives higher performance opportunities for personal and professional growth Disadvantages power struggles confusion among team members lack of cohesiveness Copyright © 2008 by Nelson, a division of Thomson Canada Limited

Group Decision Making Chapter 8 Copyright © 2011 by Nelson Education Ltd.

Chapter 8 Types of Teams Problem-Solving Teams Generate ideas and alternatives and may recommend a course of action Self-Managed Work Teams Manage themselves without formal supervision, take responsibility for goal setting, planning work activities Cross-Functional Teams Made up of employees from same hierarchical level, but different functional areas Copyright © 2011 by Nelson Education Ltd.

Functions of the Informal Organization Chapter 8 Functions of the Informal Organization Source of friendships and social contact Helps employees feel better informed and connected with what is going on Provides informal status and recognition Aids the socialization of new employees The network of connections and channels of communication based on the informal relationships of individuals inside the organization is known as the informal organization. Copyright © 2011 by Nelson Education Ltd.

Trends in Organizational Structures Chapter 8 Trends in Organizational Structures Re-engineering Organizational Structure Virtual Corporation Virtual Teams Outsourcing Structuring for Global Mergers Copyright © 2011 by Nelson Education Ltd.