Management

Chapter 7 : Designing Organization

Structure
Topic: Present the factors shaping the structure of an orga-
nization and provide an illustrative example
I. Introduction :

- Organization structure is one vital factor that helps man-

agers execute their strategies and achieve their goals.
Example :
The streaming service Spotify added a new position
to its management structure, hiring a chief content officer to
help the company move beyond music
Google restructured → Alphabet Inc separated exper-
imental projects from Google and created parent company Al-
phabet. Each unit has its own CEO and operates
independently , increase transparency, foster innovation, and
reduce risk for Google.
- Organizing is important because it follows strategy .
Strategy defines what to do; organizing defines how to do
it. Structure is a powerful tool for reaching strategic
goals, and a strategy’s success often is determined by its
fit with organizational structure.
- Organization structure is defined :
[Link] set of formal tasks assigned to individuals and de-
partments
[Link] reporting relationships, including lines of author-
ity, decision responsibility, number of hierarchical levels,
and span of managers’ control
[Link] design of systems to ensure effective coordination of
employees across departments
II. How does organization works?
An organizational structure is essential because it provides
a framework for how tasks are divided, coordinated, and
supervised. Without structure, chaos reigns:
- Everyone knows their responsibilities and who they re-
port to.
- Tasks are streamlined, reducing duplication and confu-
sion
- Departments and teams can work together effectively.
- A clear hierarchy speeds up decision-making and ac-
countability.

- As the organization grows, structure helps manage

complexity.
- Ensures that day-to-day operations support long-term
goals.
The factors shaping the structure of organization : orga-
nization size , environment, strategy, technology, cul-
ture,…
III. Factors Shaping Structure :
An organization that is designed to fit the company’s
situation, considering factors such as organization size,
strategy, and production technology, will achieve better
performance.
Two highly important factors managers consider are
the organization’s strategic goals and the nature of its
workflow technology.
1. STRUCTURE FOLLOWS STRATEGY
Strategic goals of cost efficiency occur in more sta-
ble environments, while goals of innovation and flex-
ibility occur in more uncertain environments.
a/ Organizational structure affects perfor-
mance :
· Mechanistic Structure is associated with goals
of efficiency and a stable environment. This type
of organization typically has a rigid, vertical
structure, centralized power, with most decisions
made at the highest level. The organization is
highly specialized and characterized by rules,
procedures, and a clear hierarchy of authority.
· Organic Structure are used to align with inno-
vation goals and rapidly changing environments;
however, organizations tend to be looser, more
flexible, and adaptive. The structure is more hori-
zontal, and decision-making authority is decen-
tralized. People at lower levels have more respon-
sibility and authority for solving problems 
which enables the organization to be more fluid
and adaptable to changes

Example :
· Walmart follows a cost-leadership strategy →
uses a mechanistic structure to tightly control its
supply chain from suppliers to stores.
· Google follows an innovation strategy → uses an
organic structure with flexible teams that encour-
age experimentation.
b/ Vertical and Horizontal Structure :
- The vertical functional structure uses task special-
ization and a strict chain of command to realize effi-
cient use of scarce resources, but it does not enable
the organization to be flexible or innovative.
- Horizontal teams are best suited for innovation and
provide the flexibility needed in uncertain environ-
ments.
➔ In a horizontal team structure, teams are small and
flexible, equipped with the people and resources
needed to complete their tasks. This structure al-
lows organizations to adapt quickly and stand out
in dynamic environments, though it may lead to
less efficient use of resources.
Example :
· A car manufacturing company might use a vertical
structure to control quality from design to assem-
bly.
· A tech startup might use a horizontal structure
where engineers, designers, and marketers work to-
gether to launch products quickly.
c/ Divisional Structure :
- The functional structure with cross functional teams
and project managers provides greater coordina-
tion and flexibility than the pure functional struc-
ture.
- The divisional structure promotes differentiation
because each division can focus on specific prod-
ucts and customers, although divisions tend to be
larger and less flexible than small teams.
Example :
PepsiCo has divisions like beverages, snacks, and
bottled water to serve different markets more effec-
tively.
NỘI DUNG QUẢN TRỊ HỌC

3. Factors Shaping Organizational Structure

(Source: Daft, 2022, Management, Ch. 10,
pp.355-359)
According to the contingency view, there is no single "best" structure. An effective
structure must fit the organization's strategy, environment, technology, size, and
culture to ensure high performance.

Strategy
Strategy defines the direction and resource allocation of the organization. Therefore,
structure must be designed to execute the chosen strategy effectively.
◦ Efficiency-focused strategies (cost leadership):
- A cost leadership strategy focuses on maximizing internal efficiency
and reducing production and operating costs, allowing a company to
offer products or services at lower prices while still maintaining
profitability
- Ex: Walmart is one of the most iconic examples of a company that
has mastered the cost leadership strategy. By leveraging its massive
scale, efficient supply chain, and strong relationships with suppliers,
Walmart is able to offer a wide range of products at consistently low
prices
=> require a mechanistic structure with control and standardization.

◦ Innovation-focused strategies (differentiation):

- a business approach to stand out from competitors by offering a
unique product, service, or brand experience that provides value to
customers and creates a competitive advantage
=> need an organic structure with flexibility and decentralized decisions.

Environment
The external environment determines the level of uncertainty the organization faces.
◦ A stable environment
- one with little or no unexpected or sudden change
=> supports a mechanistic structure for control and consistency.
◦ A dynamic or uncertain environment
- An unstable or uncertain environment is one with rapid, complex,
and unpredictable changes
=> demands an organic structure to respond quickly and adapt to change.

Technology
Workflow technology comprises the knowledge, tools, techniques, and activities used to
transform organizational inputs into outputs.
- It includes machinery, employee skills, and work procedures.
- A useful way to think about workflow technology is as “production
activities.”
- The production activities may be to produce Web site content, digital
games, steel castings, television programs, or computer software.
There are three basic types of production technology:
1. Small-batch and unit production:
· Small-batch production firms produce goods in batches of one or a few products
designed to customer specification.
· This technology also is used to make large, one-of-a-kind products, such as
computer-controlled machines.
· => Examples: custom clothing, special-order machine tools, and satellites.
2. • Large-batch and mass production:
· Mass production technology is characterized by long production runs to manufacture
a large volume of products with the same specifications.
· A large volume of products is produced, and all customers receive the same product.
· This technology makes greater use of machines than does small-batch production.
=> Examples: automobile assembly lines, tobacco products anđ textiles.
3. • Continuous process production:
· In continuous process production, the entire workflow is mechanized in a
sophisticated and complex form of production technology.
· Human operators simply read dials, fix machines that break down, and manage the
production process.
=> Examples: Chemical plants, petroleum, and nuclear power plants.
Overall: small-batch and continuous process firms have somewhat loose,
flexible structures (organic), whereas mass production firms have tight
vertical structures (mechanistic).

Organization Size
Larger size increases complexity and specialization, requiring more formalization
and coordination.
◦ Big organizations need to streamline hierarchy and strengthen horizontal
coordination to stay efficient and responsive.
◦ Example: McDonald's reduced management layers to improve speed and
cut costs.

4. Illustrative Example: Comparing Strategy

and Structure (Walmart vs. Huawei)
This comparison demonstrates the alignment between Strategy and Structure
(Mechanistic vs. Organic) and the impact of Culture.

⁃ Walmart (Cost Leadership Strategy):

⁃ Strategy: Achieve maximum cost efficiency to compete in retail markets
[245n28, 367n86].
⁃ Structure: Mechanistic, emphasizing vertical control to maintain low costs.
 ⁃ Structural Actions: Walmart is thinning management ranks and increasing
horizontal coordination between online and in-store departments to
improve speed - a move to combine efficiency with flexibility [364n30,
367n86].
⁃ Huawei (Differentiation/Achievement Strategy):
⁃ Strategy: Pursues rapid growth and differentiation, requiring adaptability
and innovation [43, 108n63].
⁃ Structure: Organic, supporting fast expansion and flexible decision-
making.
⁃ Culture: Strengthened by the "wolf spirit" encouraging high-intensity work
and ambition to achieve aggressive business goals |43, 108n63].
⁃ Challenge: Overemphasis on results led to serious issues such as bribery
and code-copying allegations, prompting the CEO to strengthen ethical
rules and internal controls

5. Conclusion: Why Structural Alignment

Matters
⁃ Each contingency factor-strategy, environment, technology, size, and
culture - shapes structure because it defines what kind of coordination,
control, and flexibility the organization needs to perform effectively.
⁃ Strategy sets the direction → structure provides the means.
⁃ Environment creates external uncertainty → structure provides
adaptability.
⁃ Technology defines workflow complexity → structure provides
coordination.
⁃ Size increases administrative needs → structure provides control.
⁃ Culture shapes behaviors → structure reinforces shared values.
⁃ Therefore, aligning structure with these factors is essential for effective
strategy execution, organizational adaptability, and long-term success