Basic Organization Designs BSM 12

ORGANIZING The function of management that creates the organization’s structure

INTRODUCTION  Once decisions regarding corporate strategies are made, an effective structure must be put in place to allow achievement of those goals  When managers develop or change the organization’s structure, they are engaging in organization design.  Decisions must be made about how specialized jobs should be allocated, the rules to guide employee’s behaviours, and at what level decisions are to be made.

 Organization design decisions are usually made by senior managers.  Organization design applies to any type of organization.  It is important to understand the process so we understand why we are grouped as we are.

The framework for dividing, assigning, and coordinating work Developments in or changes to the structure of an organization Organization Structure Organization Design

Key Elements of Organization Structure DepartmentalizationSpan of Control Work Specialization Chain of Command Authority and Responsibility Centralization vs. Decentralization

1. Work specialization  jobs are broken down into a number of steps and each step is completed by a separate individual example: one person installs only motherboards and/or hard disk drives in a computer assembly line  advantage: efficient use of diversity of skills that workers have  disadvantage: division of labour may cause boredom, fatigue or stress leading to low production, poor work quality, increased absenteeism and high staff turnover

2. Chain of command  the principle that no person should report to more than one boss District A District B District C District D District E District F District G Region 1 Region 2 Region 3 Region 4 Region 5 Vice President Vice President Vice President Vice President Vice President Chief Executive Officer Executive Vice President Executive Vice President President

3. Span of control  refers to the number of subordinates a manager can direct efficiently and effectively  Factors that will influence how many: level of management: top managers need a smaller span than middle, etc. the more training and experience employees have, the less direct supervision they require similarity of tasks, difficulty of tasks, how close employees are physically, degree of standardization

4. Authority and responsibility  an obligation to perform assigned duties  no one should be held responsible for something over which he/she has no authority  the rights, that come with a managerial position, to give orders and expect them to be obeyed  related to one’s position--not the characteristics of the individual manager

Two forms of authority  Line authority: the level of authority that entitles a manager to direct the work of an employee A line manager directs the work of employees and makes certain decisions without consulting anyone  Staff authority: positions created to assist, support, and advise those holders of line authority

Authority vs Power  A right based on a position in an organization  An individual’s capacity to influence decisions

Example:  Administrative assistants (secretaries) are powerful in a company even though they have little authority. How and why?

How and why?  They are gatekeepers for bosses and can influence who bosses see and when.  They are relied up to pass information on to bosses and can control what they hear.

ExpertLegitimate Coercive Referent Reward Power

Five sources of power 1. Coercive power– based on fear 2. Reward power– based on the ability to distribute anything others may value 3. Legitimate power – based on one’s position in the formal hierarchy 4. Expert power – based on one’s special skills or knowledge 5. Referent power – based on identification with a person who has desirable resources or personal traits

5. Centralization vs decentralization  Centralization is a function of how much decision-making authority is pushed down to lower levels in an organization. The more centralized an organization is, the higher is the level at which decisions are made.  Decentralization is the pushing down of decision-making authority to the lowest levels of an organization

The Degree of Centralization Higher Employee Empowerment Centralization Decentralization HigherLower Top Management Control Lower

6. Departmentalization  Coordination of specialists together in departments under the direction of a manager as a result of work specialization

Five Ways to Departmentalize Process Functional Customer Product Geographic

 Grouping of activities by functions performed Functional

Product  Grouping of activities by products produced

Customer or client  Grouping of activities by common customers

Geographic  Grouping of activities by territory or location

Process  Grouping of activities by work or customer flow

Contemporary View  Most large organizations continue to use most or all of the departmental groups Example: Black and Decker Divisions are organized around function Manufacturing around processes Sales around geographic Sales regions around customer groupings  80% of big firms are using teams  There is no single ideal organization structure

Line vs Staff Authority