© 2003 Prentice Hall Inc. All rights reserved.15–1 Lecture 5b ORGANIZATIONAL STRUCTURES 1.Identify the six key elements that define an organization’s structure. 2.Examine Common and New Organizational designs 3.Explain extreme models of organizational designs Contrast mechanistic and organic structural models. 4.Identify determinants of organizational structure List the factors that favor different organizational structures. L E A R N I N G O B J E C T I V E S

© 2003 Prentice Hall Inc. All rights reserved.15–2 What Is Organizational Structure?

© 2003 Prentice Hall Inc. All rights reserved.15–3 What Is Organizational Structure? Key Elements: Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization Key Elements: Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization

© 2003 Prentice Hall Inc. All rights reserved.15–4 Key Design Questions and Answers for Designing the Proper Organization Structure E X H I B I T 1

© 2003 Prentice Hall Inc. All rights reserved.15–5 Elements of Organizational Structure Division of labor: Makes efficient use of employee skills Increases employee skills through repetition Less between-job downtime increases productivity Specialized training is more efficient Allows use of specialized equipment Division of labor: Makes efficient use of employee skills Increases employee skills through repetition Less between-job downtime increases productivity Specialized training is more efficient Allows use of specialized equipment

© 2003 Prentice Hall Inc. All rights reserved.15–6 Elements of Organizational Structure Work Specialization A funny take

© 2003 Prentice Hall Inc. All rights reserved.15–7 Economies and Diseconomies of Work Specialization E X H I B I T 2

© 2003 Prentice Hall Inc. All rights reserved.15–8 Elements of Organizational Structure Grouping Activities By: Function Product Geography Process Customer Grouping Activities By: Function Product Geography Process Customer

© 2003 Prentice Hall Inc. All rights reserved.15–9 Elements of Organizational Structure

© 2003 Prentice Hall Inc. All rights reserved.15–10 Elements of Organizational Structure

© 2003 Prentice Hall Inc. All rights reserved.15–11 Elements of Organizational Structure

© 2003 Prentice Hall Inc. All rights reserved.15–12 Elements of Organizational Structure Concept: Wider spans of management increase organizational efficiency. Concept:

© 2003 Prentice Hall Inc. All rights reserved.15–13 Elements of Organizational Structure Narrow Span Drawbacks: Expense of additional layers of management. Increased complexity of vertical communication. Encouragement of overly tight supervision and discouragement of employee autonomy. Narrow Span Drawbacks: Expense of additional layers of management. Increased complexity of vertical communication. Encouragement of overly tight supervision and discouragement of employee autonomy.

© 2003 Prentice Hall Inc. All rights reserved.15–14 Elements of Organizational Structure

© 2003 Prentice Hall Inc. All rights reserved.15–15 Organization Designs E X H I B I T 3 Common Organizational Designs  Simple Structure  Bureaucracy  Matrix Structure New Organizational Designs  Team Structure  Virtual Structure  Boundaryless Organization

© 2003 Prentice Hall Inc. All rights reserved.15–16 Common Organization Designs E X H I B I T 3 A Simple Structure: Jack Gold’s Men’s Store

© 2003 Prentice Hall Inc. All rights reserved.15–17 Common Organization Designs (cont’d)

© 2003 Prentice Hall Inc. All rights reserved.15–18 The Bureaucracy

© 2003 Prentice Hall Inc. All rights reserved.15–19 The Bureaucracy

© 2003 Prentice Hall Inc. All rights reserved.15–20 The Bureaucracy

© 2003 Prentice Hall Inc. All rights reserved.15–21 The Bureaucracy  Strengths –Functional economies of scale –Minimum duplication of personnel and equipment –Enhanced communication –Centralized decision making  Weaknesses –Subunit conflicts with organizational goals –Obsessive concern with rules and regulations –Lack of employee discretion to deal with problems

© 2003 Prentice Hall Inc. All rights reserved.15–22 Common Organization Designs (cont’d) Key Elements: + Gains advantages of functional and product departmentalization while avoiding their weaknesses. + Facilitates coordination of complex and interdependent activities. – Breaks down unity-of- command concept. Key Elements: + Gains advantages of functional and product departmentalization while avoiding their weaknesses. + Facilitates coordination of complex and interdependent activities. – Breaks down unity-of- command concept.

© 2003 Prentice Hall Inc. All rights reserved.15–23 New Organizational Design Options Characteristics: Breaks down departmental barriers. Decentralizes decision making to the team level. Requires employees to be generalists as well as specialists. Creates a “flexible bureaucracy.” Characteristics: Breaks down departmental barriers. Decentralizes decision making to the team level. Requires employees to be generalists as well as specialists. Creates a “flexible bureaucracy.”

© 2003 Prentice Hall Inc. All rights reserved.15–24 New Organizational Design Options Concepts: Provides maximum flexibility while concentrating on what the organization does best. Disadvantage is reduced control over key parts of the business. Concepts: Provides maximum flexibility while concentrating on what the organization does best. Disadvantage is reduced control over key parts of the business.

© 2003 Prentice Hall Inc. All rights reserved.15–25 New Organizational Design Options

© 2003 Prentice Hall Inc. All rights reserved.15–26 A Virtual Organization E X H I B I T 4

© 2003 Prentice Hall Inc. All rights reserved.15–27 New Organizational Design Options T-form Concepts: Eliminate vertical (hierarchical) and horizontal (departmental) internal boundaries. Breakdown external barriers to customers and suppliers. T-form Concepts: Eliminate vertical (hierarchical) and horizontal (departmental) internal boundaries. Breakdown external barriers to customers and suppliers. Many companies are finding that a flexible and unstructured approach are effective means to running a company

© 2003 Prentice Hall Inc. All rights reserved.15–28 EXTREME MODELS OF ORGANIZATIONAL DESIGN AND DETERMINATS OF ORGANIZATIONAL STRUCTURE

© 2003 Prentice Hall Inc. All rights reserved.15–29 EXTREME MODELS OF ORGANIZATIONAL DESIGN Mechanistic model Organic model

© 2003 Prentice Hall Inc. All rights reserved.15–30 EXTREME MODELS OF ORGANIZATIONAL DESIGN

© 2003 Prentice Hall Inc. All rights reserved.15–31 EXTREME MODELS OF ORGANIZATIONAL DESIGN

© 2003 Prentice Hall Inc. All rights reserved.15–32 Mechanistic Versus Organic Models E X H I B I T 5

© 2003 Prentice Hall Inc. All rights reserved.15–33 DETERMINANTS OF ORGANIZATIONAL STRUCTURE Strategy Organization Size Technology Environment

© 2003 Prentice Hall Inc. All rights reserved.15–34 Why Do Structures Differ? – Strategy

© 2003 Prentice Hall Inc. All rights reserved.15–35 Why Do Structures Differ? – Strategy

© 2003 Prentice Hall Inc. All rights reserved.15–36 Why Do Structures Differ? – Strategy

© 2003 Prentice Hall Inc. All rights reserved.15–37 The Strategy-Structure Relationship E X H I B I T 6

© 2003 Prentice Hall Inc. All rights reserved.15–38 Why Do Structures Differ? – Organization Size Smaller newer organizations tend to have less formalised structure in order to facilitate flexibility responsiveness and growth

© 2003 Prentice Hall Inc. All rights reserved.15–39 Why Do Structures Differ? – Organization Size Large organizations tend to need more formalised structure in order to deliver standardised quality outputs efficiently

© 2003 Prentice Hall Inc. All rights reserved.15–40 Why Do Structures Differ? – Technology Characteristics of routineness (standardized or customized) in activities: Routine technologies are associated with tall, departmentalized structures and formalization in organizations. Routine technologies lead to centralization when formalization is low. Nonroutine technologies are associated with delegated decision authority. Characteristics of routineness (standardized or customized) in activities: Routine technologies are associated with tall, departmentalized structures and formalization in organizations. Routine technologies lead to centralization when formalization is low. Nonroutine technologies are associated with delegated decision authority.

© 2003 Prentice Hall Inc. All rights reserved.15–41 Why Do Structures Differ? – Environment Key Dimensions: Capacity: the degree to which an environment can support growth. Volatility: the degree of instability in the environment. Complexity: the degree of heterogeneity and concentration among environmental elements. Key Dimensions: Capacity: the degree to which an environment can support growth. Volatility: the degree of instability in the environment. Complexity: the degree of heterogeneity and concentration among environmental elements.

© 2003 Prentice Hall Inc. All rights reserved.15–42 The Three Dimensional Model of the Environment E X H I B I T 7 Complexity Volatility Capacity Mechanistic Structures Organic Structures

© 2003 Prentice Hall Inc. All rights reserved.15–43 Organizational Designs and Employee Behavior Research Findings: Work specialization contributes to higher employee productivity, but it reduces job satisfaction. The benefits of specialization have decreased rapidly as employees seek more intrinsically rewarding jobs. The effect of span of control on employee performance is contingent upon individual differences and abilities, task structures, and other organizational factors. Participative decision making in decentralized organizations is positively related to job satisfaction. Research Findings: Work specialization contributes to higher employee productivity, but it reduces job satisfaction. The benefits of specialization have decreased rapidly as employees seek more intrinsically rewarding jobs. The effect of span of control on employee performance is contingent upon individual differences and abilities, task structures, and other organizational factors. Participative decision making in decentralized organizations is positively related to job satisfaction.

© 2003 Prentice Hall Inc. All rights reserved.15–44 Organization Structure: Its Determinants and Outcomes E X H I B I T 8