1. CHAPTER 7
Designing Organizational Structure

2. Learning Objectives (1 of 2)
7-1. Identify the factors that influence managers’ choice of an organizational structure Explain how managers group tasks into jobs that are motivating and satisfying for employees Describe the types of organizational structures managers can design, and explain why they choose one structure over another.

3. Learning Objectives (2 of 2)
7-4. Explain why managers must coordinate jobs, functions, and divisions using the hierarchy of authority and integrating mechanisms Describe how information technology (IT) is helping managers build strategic alliances and network structures to increase efficiency and effectiveness.

4. Designing Organizational Structure (1 of 3)
Organizing The process by which managers establish the structure of working relationships among employees to achieve goals
If the manger implements good organizational relationships, the staff should work efficiently and effectively.

5. Designing Organizational Structure (2 of 3)
Organizational Structure Formal system of task and reporting relationships that coordinates and motivates organizational members so that they work together to achieve organizational goals
Although there is no one, best way to design an organization, managers need to take into account the factors and circumstances that affect the company, determining what causes the organization the most uncertainty.

6. Designing Organizational Structure (3 of 3)
Organizational Design The process by which managers make specific organizing choices that result in a particular kind of organizational structure
An organization’s specific situation will determine if the organizational design should be stable and mechanistic or organic and flexible.

7. Factors Affecting Organizational Structure
Figure 7.1
The Organizational Environment
The quicker the environment changes, the more problems face managers.
Structure must be more flexible (i.e., decentralized authority) when environmental change is rapid.
Strategy
Different strategies require the use of different structures
A differentiation strategy needs a flexible structure, low cost may need a more formal structure
Increased vertical integration or diversification also requires a more flexible structure
Technology
The combination of skills, knowledge, tools, equipment, computers and machines used in the organization
More complex technology makes it harder for managers to regulate the organization
Managers must take into account all four factors (environment, strategy, technology and human resources) when designing the structure of the organization
Jump to Appendix 1 for long image description.

8. Topics for Discussion (1 of 5)
Would a flexible or a more formal structure be appropriate for these organizations: (a) a large department store, (b) a Big Four accountancy firm, or (c) a biotechnology company? Explain your reasoning. [LO 7-1, 7-2]
A large department store should utilize a formal structure. The retail business is a relatively stable environment. Resources are readily available, and uncertainty is low. Less coordination and communication among people and functions is needed to obtain resources. In a department store, most important decisions can and should be made by top managers within a clearly defined hierarchy of authority. Employees do not need to decide which products to sell, or how the store will market itself. Employee activities should be governed by extensive rules and standard operating procedures.
A Big Four accountancy firm should utilize a more flexible structure. Most of these firms are expanding globally, and global expansion is facilitated by a flexible structure that allows for more autonomy at lower levels in the organization. Also primarily, professionals staff an accounting firm. Flexible structures are best suited to the needs of highly skilled people. Most accountants have learned professional honesty and integrity in their training, and would likely resent close supervision, a distinct feature of a formal structure.
A biotechnology firm should also implement a flexible structure, due to the ever-changing and developing environment in which it operates. A flexible structure makes it easier to speed decision making and communication, and makes it easier to obtain resources. In addition to the environment, technology is also a factor. The more complicated the technology, the greater the need for a more flexible structure. Biotechnology firms have incredibly complicated skills, knowledge, tools, machines, and computers that they use to conduct research and develop products. Many of their human resources are skilled, as scientists or doctors, and do not require close management supervision.

9. Job Design (1 of 2)
Job Design The process by which managers decide how to divide tasks into specific jobs Job Simplification The process of reducing the number of tasks that each worker performs
McDonald’s goal was to deliver cheap food to customers quickly. After experimenting, they settled on a basic division of labor among the chefs and food servers.

10. Job Design (2 of 2)
Job Enlargement Increasing the number of different tasks in a given job by changing the division of labor Job Enrichment Increasing the degree of responsibility a worker has over a job
The goal of each of these, enlargement and enrichment, is to deliver quality goods and services. When an employee’s job is enlarged, the hope is that boredom and fatigue will not creep into that employee’s attitude, and will increase his or her motivation. With job enrichment, an employee might take more interest in the service and the quality of the product.

11. Job Characteristics Model
Description
Skill variety
Employee uses a wide range of skills.
Task identity
Worker is involved in all tasks of the job from the beginning to end of the production process.
Task significance
Worker feels the task is meaningful to organization.
Autonomy
Employee has freedom to schedule tasks and carry them out.
Feedback
Worker gets direct information about how well the job is done.
J. R. Hackman and G. R. Oldham’s job characteristics model. The model lists ways managers can make jobs more interesting and motivating. Their model also gives likely outcomes. In the text, examples are also given for each characteristic.

12. Topics for Discussion (2 of 5)
Using the job characteristics model as a guide, discuss how a manager can enrich or enlarge subordinates’ jobs [LO 7-2]
A university has many different departments and positions, so a typical job may not be easy to identify. Because an assistant would be found in most departments, that will be used as an example.
The assistant for a department may have duties like typing, answering the telephone, taking messages, accepting packages, and mailing out information. The skill variety may be sufficient if he or she feels that a wide range of skills, abilities, and knowledge are being used. Task identity may not be very high for the assistant because most tasks, such as typing a letter or sending out department information, probably don’t require much process. Increased task identity can be gained by asking the assistant to give input concerning the type of information the department sends out, or having he or she contribute to the content of this information. Positions such as these can often feel they have task significance when faculty or staff thank them for completing a task and, therefore, show them that their work is important.

13. Grouping Jobs into Functions (1 of 2)
Functional Structure An organizational structure composed of all the departments that an organization requires to produce its goods or services
Pier 1’s organizational structure:
the main functions include finance and administration, merchandising (purchasing the goods),
the global supply chain (managing the vendors who supply the goods),
marketing and sales, planning and allocation (managing credit and product distribution), and
human resources.
Copyright Tim Boyle/Getty Images

14. The Functional Structure of Pier 1 Imports
Figure 7.2
Jump to Appendix 2 for long image description.

15. Grouping Jobs into Functions (2 of 2)
Advantages
Encourages learning from others doing similar jobs
Easy for managers to monitor and evaluate workers
Disadvantages
Difficult for departments to communicate with others
Preoccupation with own department and losing sight of organizational goals
The example in the text of Pier 1’s marketing department shows how grouping the person responsible for the ad campaign with the employee who designs stores along with visual communication experts leads to a strong, focused marketing campaign.

16. Divisional Structures
Divisional Structure An organizational structure composed of separate business units within which are the functions that work together to produce a specific product for a specific customer
An organization might decide to change to a division structure if they need smaller, more manageable units.

17. Types of Divisional Structures
Product Structure Each product line or business is handled by a self-contained division
In a product structure, the divisions are self-contained, meaning they encompass all of the needed functions, such as marketing, research and development, finance. The goal is, as always, to provide goods or services in the most efficient and effective way.
Copyright Kim Steele/Photodisc Green/Getty Images RF

18. Product Structure
Advantages Allows functional managers to specialize in one product area. Division managers become experts in their area. Corporate managers do not need direct supervision of the division. Divisional management improves the use of resources.
With divisional managers becoming specialized and experts in their area, corporate managers are allowed to take an organization-wide view. This also allows them to better evaluate the divisional managers, taking action if needed.

19. Product, Market, and Geographic Structures
Figure 7.3
Jump to Appendix 3 long image description.

20. Types of Divisional Structures (1 of 3)
Geographic Structure
Each region of a country or area of the world is served by a self-contained division.
Global Geographic Structure
Managers locate different divisions in each of the world regions where the organization operates.
This structure used when managers are pursuing a multi-domestic strategy.
The text gives the example of FedEx: To achieve the corporate mission of providing next-day mail service, Fred Smith, CEO of FedEx, chose a geographic structure and divided up operations by creating a division in each region. If products that appeal to U.S. customers do not sell in Europe, the Pacific Rim, or South America, managers must customize the products to meet the needs of customers in those different world regions; a global geographic structure with global divisions may allow them to do this.

21. Types of Divisional Structures (2 of 3)
Global Product Structure Each product division, not the country or regional managers, takes responsibility for deciding where to manufacture its products and how to market them in foreign countries.
If a global expansion means that there will be little or no change in the product, management could decide to use this structure, allowing the product divisions oversight of the product.

22. Global Geographic and Global Product Structures
Figure 7.4
Jump to Appendix 4 for long image description.

23. Types of Divisional Structures (3 of 3)
Market Structure
Each kind of customer served by a self- contained division
Also called customer structure
In a market, or customer structure, divisions would take responsibility for each market—perhaps a business market, individual market, and educational market. See the text’s example of a PC company.

24. Topics for Discussion (3 of 5)
When and under what conditions might managers change from a functional to (a) a product, (b) a geographic, or (c) a market structure? [LO 7-1, 7-3]
A functional structure is a structure that is composed of all the necessary departments that an organization requires to produce its goods or services. A functional structure might be changed to a product structure if growth and diversification in an organization become a problem over time. Managers might create divisions according to the type of product or service they provide if they decide to diversify into new industries or to expand their range of products. By placing each distinct line or business in its own self-contained division and giving the divisional managers the responsibility for devising the right business-level strategy, the division will be in a better position to compete effectively in that industry or market.
A geographic structure may be adopted when organizations are expanding rapidly both at home and abroad. Managers find it increasingly difficult to manage, from one central location, the problems and issues that may arise in each region of the country or area of the world. When shifting to this structure, management breaks down divisions by geographic location, giving managers the flexibility they need to best meet the needs of regional customers.
A market structure is appropriate when an organization needs to group functions according to the type of customer buying the product. This structure allows managers to be more responsive to the needs of their customers and allows them to act flexibly to make decisions that are needed to quickly respond to changing customer needs. This structure is beneficial in organizations where the time factor is critical.

25. Matrix Design Structure
Matrix Structure An organizational structure that simultaneously groups people and resources by function and product
High-tech companies whose new product development is constant have found matrix structures successful.

26. Matrix and Product Team Structures
Figure 7.5
The matrix is flexible and rapid to the need for change. There is the possibility that an employee who must report to two bosses (functional and product) might feel that they cannot satisfy both.
Jump to Appendix 5 for long image description.

27. Product Team Structure
Product Team Structure Employees are permanently assigned to a cross-functional team and report only to the product team manager or to one of his direct subordinates Cross-Functional Team Group of managers brought together from different departments to perform organizational tasks
When managers are grouped into cross-functional teams, the artificial boundaries between departments disappear, and a narrow focus on departmental goals is replaced with a general interest in working together to achieve organizational goals.
Cross-functional teams:
No artificial boundaries between departments
General interest in working toward organization’s goals
See the text’s example of Sealy, the mattress company and it’s reaction to falling sales.

28. Topics for Discussion (4 of 5)
How do matrix structures and product team structures differ? Why is the product team structure more widely used? [LO 7-1, 7-3, 7-4]
In a matrix structure, managers group people and resources in two ways simultaneously: by function and by product team. In developing this structure, managers build a network of reporting relationships among product teams and functions. Each person in a product team reports to both a functional and a product team boss (known as two boss managers.) Matrix structure makes the most use of human resources because people are only part of the team when their skills are needed, and leave the team after they have completed their assignment.
A product team structure is different from a matrix structure in that (1) it does away with dual reporting relationships and two boss managers; and (2) in a product team structure, employees are permanently assigned to cross-functional team, and the team is empowered to bring a new or redesigned product to market. Members of a cross-functional team report only to the product team manager or one of his/her direct subordinates.
The product team structure is more widely used today because dual reporting relationships that characterize the matrix structure are difficult for managers and employees to handle. Often, the two bosses make conflicting demands, leaving employees confused and frustrated. Functional and product team bosses may come into conflict over who is in charge of which team members for how long, since members are not permanently assigned to a cross-functional team in a matrix structure, like they are in a product team structure. A product team structure is used because it allows flexibility with a structure that is easier to operate.

29. Coordinating Functions and Divisions
Authority The power to hold people accountable for their actions and to make decisions concerning the use of organizational resources Hierarchy of Authority An organization’s chain of command, specifying the relative authority of each manager

30. Allocating Authority Span of Control Line Manager Staff Manager
The number of subordinates who report directly to a manager
Line Manager
Someone in the direct line or chain of command who has formal authority over people and resources
Staff Manager
Someone responsible for managing a specialist function, such as finance or marketing
See the text’s example of McDonald’s President and CEO, Steve Easterbrook and his efforts to revitalize the business.

31. Jump to Appendix 6 for long image description.
The Hierarchy of Authority and Span of Control at McDonald’s Corporation
Figure 7.6
Jump to Appendix 6 for long image description.

32. Tall and Flat Organizations (1 of 3)
Tall Organization
Many levels of authority relative to company size
Flat Organization
Fewer levels of authority relative to company size
One of the drawbacks of a tall organization is the potential for communication problems. Upper-level management might find it complicated and time-consuming to communicate with lower-level management, and vice-versa.

33. Tall and Flat Organizations (2 of 3)
Figure 7.7
Tall structures have many levels of authority and narrow spans of control.
Flat structures have fewer levels and wide spans of control.

34. Tall and Flat Organizations (3 of 3)
Figure 7.7

35. Centralization and Decentralization of Authority
Decentralizing Authority Giving lower-level managers and nonmanagerial employees the right to make important decisions about how to use organizational resources
When authority is decentralized, it can become more flexible. Decentralizing can involve the empowerment of employees, the creation of self-managed work teams, the establishment of cross-functional teams, or a move to a product team structure.

36. Integrating and Coordinating Mechanisms
Integrating Mechanisms Organizing tools that managers can use to increase communication and coordination among functions and divisions
A divisional, matrix, or product team structure entails complex integration, and the more complex an organization, the greater is the need for coordination.

37. Types and Examples of Integrating Mechanisms
Figure 7.8
Jump to Appendix 7 for long image description.

38. Strategic Alliances (1 of 4)
Strategic Alliance A formal agreement that commits two or more companies to exchange or share their resources in order to produce and market a product
See the text’s example of the Coca-Cola Company and InterContinental Hotels Group (IHG).

39. Strategic Alliances (2 of 4)
B2B Network Structure
A series of strategic alliances that an organization creates with suppliers, manufacturers, and distributors to produce and market a product
Outsource
To use outside suppliers and manufacturers to produce goods and services
The text discusses Nike’s success when CEO Philip Knight decision to use an organizational architecture that would allow his company to focus on some functions, such as design, and leave others, such as manufacturing, to other organizations.

40. Strategic Alliances (3 of 4)
Boundaryless Organization An organization whose members are linked by computers, , computer-aided design systems, video-conferencing and cloud-based software, and who, rarely, if ever, see one another face-to-face
Functional experts: Form an alliance with an organization, fulfill their contract, and move to the next project.

41. Strategic Alliances (4 of 4)
Knowledge Management System A company-specific virtual information system that systematizes the knowledge of its employees and facilitates the sharing and integration of their expertise
Integration is between functions and divisions through real-time interconnected technology.

42. Topics for Discussion (5 of 5)
As high-powered, low-cost wireless technologies continue to grow, many managers soon may not need to come to an office to do their jobs but may work at home. What are the pros and cons of such an arrangement? [LO 7-5]
Managers who do not come to an office but instead do their jobs at home are taking part in boundaryless organization. Such an organization is composed of people linked by technology who may rarely, if ever, see one another face-to-face. People are utilized when their services are needed, much as in a matrix structure, but they are not formal members of an organization; they are functional experts who form an alliance with an organization, fulfill their contractual obligations, and then move on to the next project.
Like the matrix structure, the boundaryless organization offers flexibility, allowing managers to innovate quickly, form teams to meet new and changing needs, and keep pace with an increasingly complex environment. However, a disadvantage of this structure is that people who work for the company will often have little or no loyalty to the firm because they are hired experts. As a result, team chemistry and support will suffer and workers might not be motivated to do their best job.

43. BE THE MANAGER
Discuss ways in which you can improve how the current functional structure operates so that it speeds website development.
Given the project-oriented nature of the firm, the matrix structure would work well. A product team structure with cross-functional roles would expedite the process of website development.