1. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-1

2. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-2 Chapter Organizational Structure and Design 16

3. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-3 Organization structure – the pattern of jobs and groups of jobs in an organization. It is an important cause of individual and group behavior.

4. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-4 The Concept of Organization Structure Structure as an influence on behavior Structure as recurring activities

5. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-5 Organization design – management decisions and actions that result in a specific organization structure.

6. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-6 Organizational Design Decisions 1.Managers decide how to divide the overall task into successively smaller jobs 2.Managers decide the bases by which to group the jobs 3.Managers decide the appropriate size of the group reporting to each superior 4.Managers distribute authority among the jobs 1.Managers decide how to divide the overall task into successively smaller jobs 2.Managers decide the bases by which to group the jobs 3.Managers decide the appropriate size of the group reporting to each superior 4.Managers distribute authority among the jobs

7. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-7 Division of Labor: Departmentalization: Span of Control: High Low Homogeneous Heterogeneous Many Few Authority: Low High Specialization Basis Number Delegation The Four Key Design Decisions

8. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-8 Division of Labor Division of labor – concerns the extent to which jobs are specialized It is the process of dividing work into relatively specialized jobs to achieve advantages of specialization

9. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-9 Division of Labor Occurs in Three Different Ways: 1. Personal specialties e.g., accountants, software engineers, graphic designers, scientists, etc. 2. Natural sequence of work e.g., dividing work in a manufacturing plant into fabricating and assembly ( horizontal specialization ) 3. Vertical plane e.g., hierarchy of authority from lowest-level manager to highest-level manager

10. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-10 Delegation of Authority Managers decide how much authority should be delegated to each job and to each jobholder Delegation of authority – process of distributing authority downward in an organization

11. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-11 Reasons to Decentralize Authority 1.Relatively high delegation of authority encourages the development of professional managers 2.High delegation of authority can lead to a competitive climate within the organization 3.Managers who have relatively high authority can exercise more autonomy, and thus satisfy their desires to participate in problem solving

12. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-12 Reasons to Centralize Authority (1 of 2) 1.Managers must be trained to make the decisions that go with delegated authority 2.Many managers are accustomed to making decisions and resist delegating authority to their subordinates

13. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-13 Reasons to Centralize Authority (2 of 2) 3.Administrative costs are incurred because new control systems must be developed to provide top management with information about the effects of subordinates’ decisions 4.Decentralization means duplication of functions

14. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-14 Delegation Decision Guidelines (1 of 2) How routine and straightforward are the job’s or unit’s required decisions? The authority for routine decisions can be centralized Are individuals competent to make the decision? Even if the decision is non-routine, if the local manager is not capable, then the decision should be centralized Delegation of authority can differ among individuals depending upon each one’s ability to make the decision

15. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-15 Delegation Decision Guidelines (2 of 2) Are individuals motivated to make the decision? Capable individuals are not always motivated individuals Motivation must accompany competency to create conducive conditions for decentralization Do the benefits of decentralization outweigh its costs?

16. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-16 Departmentalization – process in which an organization is structurally divided by combining jobs in departments according to some shared characteristic or basis.

17. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-17 Functional Geographic Product Customer Departmentalization Bases

18. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-18 Departmental Bases: Functional Departmentalization Jobs are combined according to the functions of the organization The principal advantage is efficiency By having departments of specialists, management creates efficient units A major disadvantage is that organizational goals may be sacrificed in favor of departmental goals

19. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-19EngineeringEngineering ReliabilityReliability FinanceFinance ManufacturingManufacturingDistributionDistributionHumanResourcesHumanResources PublicRelationsPublicRelations PurchasingPurchasing OBM Company Functional Departmentalization Structure

20. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-20 Departmental Bases: Geographic Departmentalization Establish groups according to geographic area The logic is that all activities in a given region should be assigned to a manager Advantageous in large organizations because physical separation of activities makes centralized coordination difficult Provides a training ground for managerial personnel

21. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-21 NortheastMidwestSoutheastPacific OBM Company Southwest Geographic Departmentalization Structure

22. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-22 Departmental Bases: Product Departmentalization All jobs associated with producing and selling a product or product line will be placed under the direction of one manager Product becomes the preferred basis as a firm grows by increasing the number of products it markets Concentrating authority, responsibility, and accountability in a specific product department allows top management to coordinate actions

23. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-23 OBM Company SmallHouseholdAppliancesSmallHouseholdAppliancesLargeHouseholdAppliancesLargeHouseholdAppliancesCommercialAppliancesCommercialAppliancesBuilding Materials and ProductsBuilding Products Lawn and GardenProducts GardenProductsAutomotiveProductsAutomotiveProducts Product Departmentalization Structure

24. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-24 Departmental Bases: Customer Departmentalization The importance of customer satisfaction has stimulated firms to search for creative ways to serve people better Organizations with customer-based departments are better able to satisfy customer-identified needs than organizations that base departments on non-customer factors

25. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-25 Retail Stores Mail Order On-Line Sales Government Contracts OBM Company Institutional Sales Customer Departmentalization Structure

26. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-26 Span of Control (1 of 2) Number of individuals who report to a specific manager Narrow span Wide span The frequency and intensity of actual relationships is the critical consideration in determining the manager’s span of control

27. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-27 Span of Control (2 of 2) If we shift our attention from potential to actual relationships as the bases for determining optimum span of control, three factors appear to be important: Key Factors Required Contact Degree of Specialization Ability to Communicate

28. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-28 Dimensions of Structure Formalization – the extent to which expectations regarding the means and ends of work are specified, written, and enforced Centralization – the location of decision-making authority in the hierarchy Complexity – the direct outgrowth of dividing work and creating departments

29. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-29 Organization Design Models The Mechanistic Model Emphasizes importance of achieving high levels of production and efficiency through: Extensive use of rules and procedures Centralized authority High specialization of labor The Mechanistic Model Emphasizes importance of achieving high levels of production and efficiency through: Extensive use of rules and procedures Centralized authority High specialization of labor The Organic Model Emphasizes importance of achieving high levels of production and efficiency through: Limited use of rules and procedures Decentralized authority Relatively low degrees of specialization The Organic Model Emphasizes importance of achieving high levels of production and efficiency through: Limited use of rules and procedures Decentralized authority Relatively low degrees of specialization

30. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-30 Comparison of Mechanistic and Organic Structures (1 of 3) ProcessMechanistic StructureOrganic Structure 1. LeadershipIncludes no perceived confidence and trust between superiors and subordinates. Includes perceived confidence and trust between superiors and subordinates. 2. MotivationTaps only physical, security, and economic motives, through use of fear and sanctions. Taps a full range of motives through participatory methods. 3. CommunicationInformation flows downward and tends to be distorted, inaccurate, and viewed with suspicion by subordinates. Information flows freely: upward, downward, and laterally. The information is accurate and undistorted.

31. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-31 Comparison of Mechanistic and Organic Structures (2 of 3) ProcessMechanistic StructureOrganic Structure 4. InteractionClosed and restricted. Subordinates have little effect on departmental goals, methods, and activities. Open and extensive. Both superiors and subordinates are able to affect departmental goals, methods, and activities. 5. DecisionRelatively centralized. Occurs only at the top of the organization. Relatively decentralized. Occurs at all levels through group processes. 6. Goal settingLocated at the top of the organization, discouraging group participation. Encourages group participation in setting high, realistic objectives.

32. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-32 Comparison of Mechanistic and Organic Structures (3 of 3) ProcessMechanistic StructureOrganic Structure 7. ControlCentralized. Emphasizes fixing blame for mistakes. Dispersed throughout the organization. Emphasizes self-control and problem solving. 8. Performance goals Low and passively sought by managers, who make no commitment to developing the organization’s human resources. High and actively sought by superiors, who recognize the need for full commitment to developing, through training, the organization’s human resources.

33. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-33 Organization Design Models: The Matrix Model Matrix organization – attempts to maximize the strengths and minimize the weaknesses of both the functional and product bases Superimpose a horizontal structure of authority, influence, and communication on the vertical structure Facilitates the utilization of highly specialized staff and equipment

34. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-34 Project or product A Project or product B Project or product C Project or product D Project or product E Manufacturing Marketing Engineering Finance Functions Projects, products Example of the Matrix Organization Model

35. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-35 Advantages of Matrix Organization Efficient use of resources Flexibility in conditions of change and uncertainty Technical excellence Freeing top management for long-range planning Improving motivation and commitment Providing opportunities for personal development

36. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-36 Task Force Teams Product Managers Product Management Depts. (1) (2) (3) (4) Evolutionary Steps to the Matrix Model

37. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-37 Multinational Structure and Design Multinational corporation – consists of a group of geographically dispersed organizations with different national subsidiaries Multinational corporations frequently exist in very divergent environments The most prevalent departmental basis is geographic

38. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-38 Multinational Corporations: Implications for Organizational Design (1 of 2) 1.National boundaries are an important force in defining organizational environments 2.Subsidiaries or affiliates of multinational corporations can act as conduits that introduce changes into the host country’s environment

39. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-39 Multinational Corporations: Implications for Organizational Design (2 of 2) 3.Subsidiaries of multinational corporations can act as conduits through which features of the host country culture are introduced throughout the multinational organization

40. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-40 Virtual Organizations Virtual organization – a collection of geographically distributed, functionally and/or culturally diverse aggregations of individuals that is linked by electronic forms of communication Assembled and disassembled according to needs

41. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-41 Virtual Organizations: Factors in Design Considerations Personnel distributed geographically Electronically connected Differences in expertise and function Culturally diverse Work schedule differences Horizontally arranged with little emphasis on command and control authority Personnel distributed geographically Electronically connected Differences in expertise and function Culturally diverse Work schedule differences Horizontally arranged with little emphasis on command and control authority

42. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-42 Virtual Organizations: Design Implications Contractual relationships Constant change and reconfiguration No rigid boundaries Flexible Little or personal and social contact Contractual relationships Constant change and reconfiguration No rigid boundaries Flexible Little or personal and social contact

43. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-43 Virtual Organizations: Consequences Increase in overall communication and messages Relationships are tenuous Continual surety of roles, tasks, and assignments Caution needed in managing feedback, discussion, performance review, and reward systems Greater equity of participation

44. McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-44 Boundaryless Organizations Organizations in which: the hierarchy and chain of command are minimized rigidly structured departments are eliminated Implemented to reduce barriers between people and constituencies