Management

Fourteenth Edition

Chapter 11
Designing Organizational
Structure—Basic Designs
Learning Objectives

10.1 Describe six key elements in organizational design.

• Know how to delegate work to others and develop your skill at
delegating.
10.2 Contrast mechanistic and organic structures.
10.3 Discuss the contingency factors that favor either the
mechanistic model or the organic model of organizational design.
10.4 Describe traditional organizational designs.
Designing Organizational Structure (1 of 2)
• Organizing – Arranging and structuring work to accomplish an
organization’s goals.
• Organizational Structure – The formal arrangement of jobs within
an organization.
Designing Organizational Structure (2 of 2)
• Organizational Chart – The visual representation of an organization’s
structure.
• Organizational Design – A process involving decisions about six key
elements:
– Work specialization
– Departmentalization
– Chain of command
– Span of control
– Centralization and decentralization
– Formalization
Exhibit 10-1 Purposes of Organizing
• Divides work to be done into specific jobs and departments.
• Assigns tasks and responsibilities associated with individual jobs.
• Coordinates diverse organizational tasks.
• Clusters jobs into units.
• Establishes relationships among individuals, groups, and departments.
• Establishes formal lines of authority.
• Allocates and deploys organizational resources.
Organizational Structure
• Work Specialization – Dividing work activities into separate job tasks.
– Early proponents of work specialization believed it could lead to great
increases in productivity.
– Overspecialization can result in human diseconomies such as boredom,
fatigue, stress, poor quality, increased absenteeism, and higher turnover.
Exhibit 10-2 Economies and Diseconomies of Work
Specialization
Departmentalization
• Departmentalization – The basis by which jobs are grouped together. Five
common forms of departmentalization are used, although an organization
may develop its own unique classification
• Functional • Process
– Grouping jobs by functions – Grouping jobs on the basis of
performed product or customer flow
• Product • Customer
– Grouping jobs by product line – Grouping jobs by type of
• Geographical customer and needs
– Grouping jobs on the basis of
territory or geography
Exhibit 10-3 The Five Common Forms of
Departmentalization (1 of 3)
Exhibit 10-3 The Five Common Forms of
Departmentalization (2 of 3)
Exhibit 10-3 The Five Common Forms of
Departmentalization (3 of 3)
Departmentalization Trends
• Increasing use of customer departmentalization
• Cross-functional team – A work team composed of individuals from
various functional specialties.
Chain of Command
• Chain of Command – The continuous line of authority that extends from
upper levels of an organization to the lowest levels of the organization—
clarifies who reports to whom.
Authority (1 of 2)
• Authority – The rights inherent in a managerial position to tell people what
to do and to expect them to do it.
– Acceptance Theory of Authority – The view that authority comes from the
willingness of subordinates to accept it.
Authority (2 of 2)
• Line Authority – Authority that entitles a manager to direct the work of
an employee.
• Staff Authority – Positions with some authority that have been created
to support, assist, and advise those holding line authority.
Exhibit 10-4 Chain of Command and Line Authority
Exhibit 10-5 Line Versus Staff Authority
Responsibility and Unity of Command
• Responsibility – The obligation or expectation to perform.
• Unity of Command – The management principle that each person
should report to only one manager. Without unity of command, conflicting
demands from multiple bosses can occur.
(one of Fayol’s 14 management principles—see page 34 in the Management
History module)
Span of Control
• Span of Control – The number of employees who can be effectively
and efficiently supervised by a manager.
Determining the span of control is important because to a large
degree, it determines the number of levels and managers in an
organization—an important consideration in how efficient an
organization will be. All other things being equal, the wider or larger
the span, the more efficient the organization.
Exhibit 10-6 Contrasting Spans of Control
Centralization and Decentralization
• Centralization – The degree to which decision-making is concentrated at
the upper levels of the organization.
• Decentralization – The degree to which lower-level employees provide
input or actually make decisions.
Keep in mind that centralization-decentralization is not an either-or concept.
The decision is relative, not absolute—that is, an organization is never
completely centralized or decentralized
• As organizations have become more flexible and responsive to
environmental trends, there’s been a distinct shift toward decentralized
decision-making, This trend, also known as Employee empowerment –
Giving employees more authority (power) to make decisions.
 Exhibit 10-7 Centralization or Decentralization
More Centralization More Decentralization
• Environment is stable. • Environment is complex, uncertain.
• Lower-level managers are not as capable or • Lower-level managers are capable and
experienced at making decisions as upper-level experienced at making decisions.
managers.
• Lower-level managers want a voice in
• Lower-level managers do not want a say in decisions.
decisions.
• Decisions are significant.
• Decisions are relatively minor.
• Corporate culture is open to allowing
• Organization is facing a crisis or the risk of managers a say in what happens.
company failure.
• Company is geographically dispersed.
• Company is large.
• Effective implementation of company
• Effective implementation of company strategies strategies depends on managers having
depends on managers retaining say over what involvement and flexibility to make decisions.
happens.
Formalization
• Formalization – The degree to which jobs within the organization are
standardized and the extent to which employee behavior is guided by rules
and procedures.
– Highly formalized jobs offer little discretion over what is to be done.
– Low formalization means fewer constraints on how employees do their work.
 Mechanistic and Organic Structures
Basic organizational design revolves around two organizational
forms:
• Mechanistic Organization –(or bureaucracy) An organizational design
that’s rigid and tightly controlled.
was the natural result of combining the six elements of structure. Adhering to
the chain-of-command principle ensured the existence of a formal hierarchy
of authority, with each person controlled and supervised by one superior.
Keeping the span of control small at increasingly higher levels in the
organization created tall, impersonal structures. As the distance between the
top and the bottom of the organization expanded, top management would
increasingly impose rules and regulations. Because top managers couldn’t
control lower-level activities through direct observation and ensure the use of
standard practices, they substituted rules and regulations.
Mechanistic and Organic Structures
Organic Organization – is a highly adaptive form that is as loose and
flexible as the mechanistic organization is rigid and stable. Rather than
having standardized jobs and regulations, the organic organization’s
loose structure allows it to change rapidly as required. It has division of
labor, but the jobs people do are not standardized. Employees tend to
be professionals who are technically proficient and trained to handle
diverse problems. They need few formal rules and little direct
supervision because their training has instilled in them standards of
professional conduct.
Exhibit 10-8 Mechanistic Versus Organic
Organizations
Mechanistic Organic
• High specialization • Cross-functional teams
• Rigid departmentalization • Cross-hierarchical teams
• Clear chain of command • Free flow of information
• Narrow spans of control • Wide spans of control
• Centralization • Decentralization
• High formalization • Low formalization
Contingency Factors Affecting Structural Choice

• Strategy and Structure

– Changes in corporate strategy should lead to changes in an organization’s
structure that support the strategy.
– Certain structural designs work best with different organizational
strategies.
▪ The organic structure works well for organizations pursuing meaningful and
unique innovations.
▪ The mechanistic organization works best for companies wanting to tightly
control costs.
Contingency Factors (1 of 3)
• Size and Structure – As an organization grows larger, its structure tends to
change from organic to mechanistic with increased specialization,
departmentalization, centralization, and rules/regulations.
Contingency Factors (2 of 3)
• Technology and Structure
– Organizations adapt their structures to their technology.
– Woodward’s classification of firms based on the complexity of the
technology employed:
▪ Unit production of single units or small batches.
▪ Mass production of large batches of output.
▪ Process production in continuous process of outputs.
Exhibit 10-9 Woodward’s Findings on Technology
and Structure

blank Unit Production Mass Production Process Production

Structural Low vertical Moderate vertical High vertical

characteristics: differentiation differentiation differentiation

Low horizontal High horizontal Low horizontal

blank differentiation differentiation differentiation
blank Low formalization High formalization Low formalization

Most effective
structure: Organic Mechanistic Organic
Contingency Factors (3 of 3)
• Environmental Uncertainty and Structure
– Mechanistic organizational structures tend to be most effective in stable and
simple environments.
– The flexibility of organic organizational structures is better suited for dynamic
and complex environments.
Traditional Organizational Designs
• Simple Structure – An organizational design with low
departmentalization, wide spans of control, centralized authority, and little
formalization.
• Functional Structure – An organizational design that groups together
similar or related occupational specialties.
• Divisional Structure – An organizational structure made up of separate,
semiautonomous units or divisions.
Exhibit 10-10 Traditional Organizational Designs
ORGANIZING for flexibility in the twenty-first century
• Team Structures– An organizational structure in which the entire
organization is made up of work Teams. In this structure, employee empowerment
is crucial because no line of managerial authority flows from top to bottom. Rather,
employee teams design and do work in the way they think is best, but the teams are
also held responsible for all work performance results in their respective areas. Google
found that its best teams share five traits: psychological safety, dependability,
structure and clarity, meaningful membership, and purpose.
In large organizations, the team structure complements what is typically a functional or
divisional structure and allows the organization to have the efficiency of a bureaucracy
and the flexibility that teams provide. Companies such as Amazon, Boeing, HP, Louis
Vuitton, Motorola, and Xerox, for instance, extensively use employee teams to improve
productivity
ORGANIZING for flexibility in the twenty-first century
• Matrix and Project Structures
• Matrix Structure An organizational structure that assigns specialists from different
functional departments to work on one or more projests. One unique aspect of this
design is that it creates a dual chain of command because employees in a matrix
organization have two managers, their functional area manager and their product
or project manager, who share authority. The project manager has authority over
the functional members who are part of his or her project team in areas related to
the project’s goals. However, any decisions about promotions, salary
recommendations, and annual reviews typically remain the functional manager’s
responsibility. The matrix design “violates” the unity-of-command principle, which
says that each person should report to only one boss; however, it can—and does—
work effectively if both managers communicate regularly, coordinate work
demands on employees, and resolve conflicts together
ORGANIZING for flexibility in the twenty-first century
• Matrix and Project Structures
• Project Structure An organizational structure in which employees continuously
work on projects. Unlike the matrix structure, a project structure has no
formal departments where employees return at the completion of a
project. Instead, employees take their specific skills, abilities, and
experiences to other projects. Also, all work in project structures is
performed by teams of employees. Project structures tend to be more
flexible organizational designs, without the departmentalization or rigid
organizational hierarchy that can slow down making decisions or taking action.
In this structure, managers serve as facilitators, mentors, and coaches. They
eliminate or minimize organizational obstacles and ensure that teams have the
resources they need to effectively and efficiently complete their work.
ORGANIZING for flexibility in the twenty-first century
• The Boundaryless Organization
an organization whose design is not defined by, or limited to, the horizontal,
vertical, or external boundaries imposed by a predefined structure.
Although the idea of eliminating boundaries may seem odd, many of
today’s most successful organizations find that they can operate most
effectively by remaining flexible and unstructured: that the ideal structure
for them is not having a rigid, bounded, and predefined structure.
1. A virtual organization typically consists of a small core of full-time
employees and outside specialists temporarily hired as needed to work on
projects.
ORGANIZING for flexibility in the twenty-first century
2. Task Forces Another structural option organizations might use is a task
force (also called an ad hoc committee), a temporary committee or team
formed to tackle a specific short-term problem affecting several
departments. The temporary nature of a task force is what differentiates it
from a cross-functional team. Task force members usually perform many of
their normal work tasks while serving on the task force; however, the
members of a task force must collaborate to resolve the issue that’s been
assigned to them. When the issue or problem is solved, the task force is no
longer needed and members return to their regular assignments.
Today, many companies are trying Open Innovation, opening up the
search for new ideas beyond the organization’s boundaries and allowing
innovations to easily transfer inward and outward.
 • Telecommuting
is a work arrangement in which employees work at home and are
linked to the workplace by computer. Needless to say, not every job
is a candidate for telecommuting, but many are.
• Compressed Workweeks, Flextime, and Job Sharing

Compressed Workweek, a workweek where employees work longer hours per day
but fewer days per week. The most common arrangement is four 10-hour days (a 4–
40 program). Another alternative is Flextime (also known as flexible work hours), a
scheduling system in which employees are required to work a specific number of
hours a week but are free to vary those hours within certain limits. A flextime schedule
typically designates certain common core hours when all employees are required to
be on the job, but allows starting, ending, and lunch-hour times to be flexible. Job
Sharing—the practice of having two or more people split a full-time job.
• The Contingent Workforce
Contingent Workers are persons who do not expect their jobs to last or who
reported that their jobs are temporary. Also, they do not have an implicit or explicit
contract for ongoing employment. Alternative employment arrangements include
persons employed as independent contractors, on-call workers, temporary help agency
workers, and workers provided by contract firms