1. Organizational Structure and Design
Chapter Twelve
Organizational Structure
and Design

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Objectives
After reading and studying this chapter, you should be able to:
Identify and define the foundation concepts of organizational structure, including the informal organization.
Specify the basic features of the bureaucratic form of organizational structure, including how it is divided into departments.
Describe three key modifications of a bureaucratic structure: matrix, flat and outsourcing.
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Objectives (cont.)
Describe the two contemporary organizational designs referred to as horizontal structures and network structures.
Specify the criteria for an effective organizational design.
Understand why a new type of organization chart called an organigraph can contribute to understanding organizational structure.
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Concepts
Organization
Is a collection of people working together to achieve a common purpose (or simply a big group).
Organizational structure
Is the arrangement of people and tasks to accomplish organizational goals
Organizational design
Is the process of creating a structure that best fits a purpose, strategy, and environment.
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5. Types of Organizational Structures
Mechanistic versus Organic structures:
Mechanistic Organization
Hierarchical bureaucracies that emphasize specialization and control and vertical communications, with heavy reliance on rules, policies, and procedures (bureaucracy)
Organic Organization
Network designed to respond to rapid changes in the environment by emphasizing horizontal specialization, personal coordination, and extensive informal communications, with loose rules, policies, and procedures
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6. Types of Organizational Structures (cont.)
Formal versus Informal Structure:
Formal organization structure
Is an official statement of the reporting relationships, rules, and regulations that guide and govern the conduct of business by members of the organization
Informal organization structure
Is a set of unofficial working relationships providing the flexibility to take care of events and transactions not covered by the formal structure.
Is revealed using social network analysis to trace informal social relationships and communication channels.
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7. Degree of Formalization
Is the degree to which expectations regarding the methods of work are specified, written down, and enforced.
A firm with high formalization is likely to have a high degree of specialization of labour and high delegation of authority.
Is associated with mechanistic (bureaucratic) organizations.
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8. Degree of Centralization
Extent to which executives delegate authority to lower organizational units
Less delegation = more centralization.
Strategic decisions are more likely to be centralized than operational decisions.
The use of functional units will be associated with greater centralization.
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9. Complexity & Differentiation
Complexity refers to the number of different job titles and organizational units in an organization.
Complexity increases the difficulty of managing an organization and typically increases with the size of the organization.
Differentiation is linked to complexity
A horizontally differentiated organization will have many different job titles & many departments doing separate work.
A vertically differentiated organization will have many different levels.
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Bureaucracy
Weber’s ideal organization, characterized by:
Rules and procedures controlling the organizational structure
A high degree of differentiation among organizational functions
A high degree of job specialization
An organization of offices determined by hierarchy, with each unit reporting to a higher unit
A heavy emphasis on rules and norms to regulate behavior
Interpersonal relations characterized by impersonality in place of favoritism
Selection and promotion based on merit
All administrative actions recorded in writing
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11. Types of Bureaucracies
Machine bureaucracy
Uses standardized work processes; is efficient.
Best use is in large organizations where work performed by production, technical & support workers
Professional bureaucracy
Standardizes skills for coordination and is composed of a core of highly trained professionals.
E.g., universities, hospitals, accounting firms
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12. Exhibit 12-1 The Bureaucratic Form of Organization
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13. Pros & Cons of Bureaucracies
Contributions:
Make possible large-scale accomplishments
Accountability for results
Managers with precious skills and expertise
Valuable organizational memory
Fulfill need for order & security
Problems:
Suppression of innovation and decision making
Lower productivity
Rigidity in handling people & problems
Passing the buck
Inconvenience and inefficiency
Slow response (red tape)
High worker frustration and low satisfaction
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Departmentalization
The process of subdividing work into specialized departments.
Typical forms of departmentalization:
Functional
Territorial
Product or service
Customer
Hybrid
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15. Functional Departmentalization
Grouping people according to their expertise
Most common type of organization
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16. Territorial Departmentalization
Grouping subunits according to the geographic areas that they serve.
Common in service organizations
Internationalization of business has increased the need for organizing subunits territorially
May supplement functional structure (e.g., field force is organized by territory while headquarters is functional)
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17. Product/Services Departmentalization
Is arranging units by the product or service they provide.
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18. Customer Departmentalization
Creates a structure based on customer needs
e.g., groups set up to work with different customers: small businesses, large businesses, institutions, government
All departmentalization forms discussed have advantage of enhancing product growth or providing service to customers, fostering employee pride in unit’s specialty
BUT all have similar problems: expense of duplicated effort, difficulty of controlling organizational units
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Other Structures
Hybrid (Mixed) Structure
Combines the advantages of different forms into one structure.
Both specialized (e.g., functions at headquarters) and self-contained units (e.g., product or territorial units) are included within the organizational structure.
Line versus staff
Line groups are responsible for the primary purposes of the firm whereas staff groups are responsible for secondary purposes.
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20. Hybrid Organization Structure
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Span of Control
How many people report to any one manager in the organization
Narrow spans characteristic of tall organizations, broad spans in flat organizations
Span affected by:
Routineness of work
Experience & skill of managers & workers
Requirements for coordination with other departments
Amount of nonsupervisory work for manager
Cost
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22. Modifying the Bureaucratic Structure: Matrix Organization
Matrix: A project structure superimposed on a functional structure to take advantage of new opportunities and solve special problems.
Projects are temporary groups of specialists working under one manager to accomplish a fixed objective such as launching a new product.
Matrix structure creates a dual reporting challenge — the involved employees may have to report to two bosses.
A key advantage is its ability to implement projects quickly.
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23. Exhibit 12-6 Matrix Organization
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24. Modifying the Bureaucratic Structure: Flat Organization
Relatively few levels
Less bureaucratic because:
There are fewer managers available to review and approve decisions.
The short chain-of-command creates less concern about authority differences among people.
Most large organizations have become flatter over last 25 years
More efficient than tall organizations only about half the time
Downsizing to a flatter structure creates substantial suffering for those laid off and has strong effects on surviving employees.
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25. Modifying the Bureaucratic Structure: Outsourcing
Outsourcing is having work done for the organization by other organizations
Reduces the need for employees and physical assets and reduces payroll costs.
Can create ethical dilemmas for companies who have no control over the actions of their outsourcing supplier.
Can cause conflict over which functions are outsourced
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26. Leading-Edge Organizational Structures
The Horizontal Structure
Is the arrangement of work by teams that are responsible for accomplishing a process.
Is a structure in which employees take collective responsibility for customers.
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27. Reengineering Leading to Horizontal Structure
One approach to switching from task to process focus in a horizontal structure is through reengineering:
The radical redesign of work to achieve substantial improvements in performance.
Searches for the most efficient way to perform a task, eliminating nonessential tasks
Organizes work horizontally rather than vertically.
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28. Leading-Edge Organizational Structures
The Network Structure (or virtual organization)
Is a temporary association of otherwise independent firms that are linked by technology to share resources and markets.
Is horizontally oriented, sacrifices hierarchy to quick decision making
Requires that its members trust one another.
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29. Exhibit 12-8: Nine Criteria for an Effective Organizational Design
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30. Organigraphs: Drawing How Companies Really Work
An organigraph is a map that provides an overview of the company’s functions and the way people organize themselves at work.
Helps understand organizational functioning:
What parts connect to one another?
How should processes & people be linked to one another?
Whose ideas have to flow to which other people?
Assists in identifying competitive opportunities in expanding into new markets and identifying opportunities.
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