Basic Challenges of Organizational Design
• four basic organizational design challenges confronting managers and consultants
• How these challenges must be addressed simultaneously if a high-performing organizational structure is
to be created
• Distinguish among the design choices that underlie the creation of either a mechanistic or an organic
structure
• Recognize how to use contingency theory to design a structure that fits an organization’s environment
Differentiation
• organization allocates people and resources to organizational tasks
• Establishes the task and authority relationships
• Division of labor: The process of establishing and controlling the degree
of specialization in the organization
• In a simple organization, differentiation is low because the division of
labor is low
• One person or a few people perform all organizational tasks
• In a complex organization, differentiation is high because the division of
labor is high
DESIGN CHALLENGE 1: People in this organization take on new tasks as the
need arises, and it’s very unclear who is responsible for what, and who is
supposed to report to whom. This makes it difficult to know who to call on
when the need arises and difficult to coordinate people’s activities so they
work together as a team.
Organizational Roles
What is a Role?
A role is the set of tasks and behaviors expected from a person in their job.
Specialization:
- As work grows, managers and employees focus on specific areas.
- Specialization helps people use their strengths and skills better.
Interconnected Roles:
- Every job is linked to others.
- The way people’s roles connect creates the organization’s structure.
Authority:
- The right to make decisions and hold others responsible for results.
- Example: A head nurse can hold junior nurses accountable for patient care.
Control:
- The ability to guide, coordinate, and motivate people to work toward common goals.
Building blocks of
differentiation
People with similar Role: What one person Function: A group of
work or skills are does — their specific people with similar
grouped together into job or set of tasks. skills working together.
smaller units. Example: A mechanic Example: All assembly
assembles parts on the line workers form the
car production line. 'Manufacturing
Function'.
Organizational
Complexity: The
Division: A larger unit number of different
made up of several functions and divisions
functions that share a in a company.
common goal. Example: A large
Example: The 'SUV automaker like Toyota
Division' includes has divisions for SUVs,
design, production, Sedans, and Electric
sales, and customer Vehicles — each with
service teams. specialized functions.
Different Types of Functions
As organizations grow in size, they differentiate into five different kinds of functions.
1. Support Functions: Help the company manage its relationships with the outside world.
Example: Marketing promotes products, and HR hires people.
2. Production Functions: Make the actual product or service the company sells.
Example: In a bakery, bakers and packers prepare and pack bread.
3. Maintenance Functions: Keep the workplace running smoothly and safely.
Example: Maintenance workers fix machines; HR ensures employee well-being.
4. Adaptive Functions: Help the company change or improve with time.
Example: The R&D team creates new recipes or products based on customer trends.
5. Managerial Functions: Oversee and coordinate everything across departments.
Example: Managers plan, guide, and monitor teams to meet goals.
In the B.A.R. and Grille, differentiation at first was minimal. But
with unexpected success came the need to differentiate
activities into separate organizational roles and functions, with
Growth →Differentiation
Bob managing the kitchen and Amanda the dining room
For the support role, they hired a restaurant
services manager to take charge of purchasing
supplies and local advertising.
the production role, they increased the division
of labor in the kitchen and dining room
the need to develop skills and capabilities in the five functional areas
cleaning staff, cashiers, and an external
accountant for maintenance tasks.
They themselves handled the adaptive role of
ensuring that the organization served customer
needs.
Finally, Bob and Amanda took on the
managerial role of establishing the pattern of
Collectively, the five functions constituted the task and functional relationships that most
B.A.R. and Grille and gave it the ability to create effectively accomplished the restaurant’s
value. overall task of serving customers good food.
Vertical and Horizontal Differentiation
• Hierarchy: A classification of
people according to their relative
authority and rank
• Vertical differentiation: The way an
organization designs its hierarchy
of authority and creates reporting
relationships to link organizational
roles and subunits
• Horizontal differentiation: The way
an organization groups
organizational tasks into roles and
roles into subunits (functions and
divisions)
functional skills and abilities are the source of an organization’s core competencies, the set of unique
skills and capabilities that give it a competitive advantage. An organization’s competitive advantage
may lie in any or all of an organization’s
functions
• A core competence of the B.A.R. and
Grille
• the way Bob and Amanda took control
of the differentiation of their
restaurant and increased its ability to
attract customers who appreciated the
good food and good service they
received.
• they created a core competence that
gave their restaurant a competitive
advantage over other restaurants.
• In turn, this competitive advantage
gave them access to resources that
allowed them to expand by opening
new restaurants
Aspect Vertical Horizontal
Differentiation Differentiation
Definition Refers to the number Refers to specialization
of layers in hierarchy across departments
Focus Focuses on chain of Focuses on division of
command and tasks and expertise
authority
Example Military rank structure Different departments
in a hospital
Organizational Design Challenges
The process of coordinating various tasks,
functions, and divisions
• Horizontal differentiation is supposed to
enable people to specialize and become
more productive Specialization limits
communication between subunits and
prevents them from learning from one
another
• People develop subunit
orientation(tendency to view one’s role in
the organization strictly from the
perspective of the time frame, goals, and
interpersonal orientations of one’s subunit)
DESIGN CHALLENGE 2: We can’t get people to communicate and coordinate in this organization.
Specifying tasks and roles is supposed to help coordinate the work process, but here it builds
barriers between people and functions
Types of integrate mechanism
Direct contact - Managers Task force: A temporary
meet face to face to committee set up to
coordinate activities Liaison roles: A specific handle a specific problem
Hierarchy of authority - • Problematic that a manager is given responsibility • Task force members
Dictates “who reports to manager in one function for coordinating with responsible for taking
whom” has no authority over a managers from other subunits coordinating solutions
manager in another on behalf of their subunits back to their respective
functions for further
input and approval
Integrating role: A full-time
position established Integrating department - A
Teams - A permanent task specifically to improve new department intended to
force used to deal with communication between coordinate the activities of
ongoing strategic or divisions functions or divisions
administrative issues • Focused on company- •Created when many employees
enact integrating roles
wide integration
Differentiation versus
Integration
• The design issue facing managers is to establish a level of
integration that matches the organization's level of
differentiation.
• Managers must achieve an appropriate balance between
differentiation and integration.
• A complex organization that is highly differentiated needs a
high level of integration to coordinate its activities effectively.
Balancing Centralization and Decentralization
In discussing vertical Many companies, When some new or As responsibility and decision making
differentiation, we note however, complain unusual issue arises, risk taking decline so becomes slow and the
that establishing a that when a hierarchy they prefer not to deal does organizational organization becomes
hierarchy of authority is exists, employees are with it, or they pass it performance, because inflexible—that is,
supposed to improve constantly looking to on to their superior, its members do not unable to change and
the way an organization
their superiors for rather than assume take advantage of new adapt to new
functions because
direction. opportunities for using developments.
people can be held
its core competences.
accountable for their
actions
At Levi Strauss, for example, employees often told former CEO Roger Sant that they felt they couldn’t do something
because “They wouldn’t like it.” Sant started a “Theybusters” campaign to renegotiate authority and responsibility
relationships
Design Challenge 3 People in the organization don’t take responsibility or risks. They are always looking to the boss for
direction and supervision. As a result, decision making is slow and cumbersome, and we miss out on a lot of opportunities
to create value
The Perfect Balance
• The design challenge for managers is to decide on the correct
balance between centralization and decentralization of
decision making
• If authority is too decentralized, managers have so much
freedom that they can pursue their own functional goals and
Centralized Decentralized objectives at the expense of organizational goals.
organization: organization: An • In contrast, if authority is too centralized and top management
Organizational setup organizational setup
in which the in which the makes all important decisions, managers lower down in the
authority to make authority to make hierarchy become afraid to make new moves and lack the
important decisions important decisions freedom to respond to problems as they arise in their own
is retained by about organizational groups and departments.
managers at the top resources and to
of the hierarchy initiate new projects Ideal balance entails:
is delegated to ❖ Enabling middle and lower managers who are at the scene of the action to
managers at all make important decisions
levels in the ❖ Allowing top managers to focus on long-term strategy-making
hierarchy
READ FROM TEXT BOOK: To Decentralize or Centralize Are Important Choices at Union Pacific and Yahoo
Standardization OR Mutual Adjustment???
Challenge facing managers is:
• To find a way of using rules and
norms to standardize behavior
Dell was well known as But as Dell grew in the Standardizing
a company that strived 2000s it developed a operations to reduce • To allow for mutual adjustment to
to be close to its
customers and
standardized response
to customers’ requests;
costs had become more
important than giving
give managers opportunity to
responsive to their it only offered customers what they discover new and better ways to
needs. customers a limited wanted, for example,
range of PCs and a more powerful laptops achieve goals
limited number of that came in a range of
options to keep its costs colors—something that
low was driving increasing
sales at Apple and HP
Design Challenge 4: People in this organization pay too much attention to the rules. Whenever I need somebody to
satisfy an unusual customer request or need real quick service from another function, I can’t get it because no one is
willing to bend or break the rules
• Standardization: Conformity to specific models or examples
that are considered proper in a given situation
• Defined by rules and norms
Balancing • Mutual adjustment: The compromise that emerges when
Standardization and decision-making and coordination are evolutionary processes
and people use their judgment rather than standardized rules
Mutual Adjustment to address a problem
• Every organization needs rules — they bring order.
• But no rulebook can predict everything.
• In hospitals, manufacturing units, or tech firms,
employees must often go beyond written rules and
rely on judgment and collaboration.
• That’s where mutual adjustment keeps the system
human and adaptive.”
Formalization: The use of written Rules: Formal, written statement
rules and procedures to that specify the appropriate
standardize operations means for reaching desired goals
Norms: Standards or styles of Socialization: Organizational
behavior that are considered members learn the norms of an
acceptable or typical for a group organization and internalize
of people these unwritten rules of conduct
• Formalization and rules tell us what to do;
• norms and socialization teach us how to act when the rules
don’t fully apply.
• Together, they help organizations balance reliability with
flexibility
How it relates to Mutual
Subconcept How it relates to Standardization Example (Healthcare)
Adjustment
High formalization = high A hospital policy manual defines every step
Low formalization gives employees
standardization. Everything is in patient discharge — high formalization.
Formalization more freedom to make their own
written down — procedures, But during emergencies, nurses may skip
decisions and adjust.
checklists, reporting formats. steps for speed — mutual adjustment.
When rules don’t fit real-life The rule says all surgical instruments must
Rules define what “standard”
conditions, employees rely on be counted before closing a patient — but if
Rules behavior looks like — ensuring
judgment and informal bleeding starts, the team adjusts
uniformity and predictability.
communication to adapt. immediately to save the patient first.
Norms are informal standards — Norms can evolve through group
Nurses in ICU know it’s expected (norm) to
they act as “soft” standardization interactions — employees learn
Norms alert doctors immediately when vitals
by guiding behavior even when what’s acceptable through
fluctuate — even if not in the manual.
not written. teamwork and experience.
Through training and orientation, Through shared experiences, they
New interns shadow senior doctors to learn
employees learn the organization's also learn when and how to flexibly
Socialization not just the rules (protocols) but also when
standardized procedures and adapt — i.e., mutual adjustment
to bend them (like comforting families).
expectations. becomes part of culture.
How the Design Challenges Result in Mechanistic and Organic Structures
Each design challenge has implications for how an organization as a whole and the people in
the organization behave and perform
Two useful concepts for understanding how managers manipulate all these challenges collectively to influence
the way an organizational structure works are the concepts of mechanistic structure and organic structure
Task and Role Relationships
Doctors, nurses, and paramedics work together on the same
patient case. Roles may overlap — a nurse may assist in triage,
monitor vitals, and prepare medication, while doctors handle
Toyota’s assembly line,Worker A installs diagnosis and critical interventions.
doors,Worker B fits the dashboard,Worker C
checks electrical [Link] person is
highly skilled in their own repetitive task
Contingency Approach to Organizational Design
• A management approach in which the design of an organization’s structure is tailored to the sources of uncertainty
facing an organization
• The organization should design its structure to fit its environment
• Support for contingency theory comes from two studies of the relationship between structure and the environment.
• by Paul Lawrence and Jay Lorsch, and
• by Tom Burns and G. M. Stalker
Lawrence & Lorsch on Differentiation, Integration, and the Environment
• Investigated how companies in different industries differentiate and integrate their
structures to fit the environment
• The strength and complexity of the forces in the general and specific environments have
a direct effect on the extent of differentiation inside an organization
• Three industries that experienced different levels of uncertainty:
• The plastics industry (experienced the greatest level of uncertainty
• The food-processing industry
• The container or can-manufacturing industry (least uncertainty where organizations produce a
standard array of products that change little from year to year)
Findings: Lawrence and Lorsch
• When environment is perceived as very complex and unstable:
• The attitudes and orientation of each department diverged significantly
• When environment is perceived as unstable and uncertain:
• Organizations are more effective if they are less formalized, more decentralized, and
more reliant on mutual adjustment
Burns and Stalker on Organic versus Mechanistic Structures and the Environment
• Organizations need different kinds of structures to control their activities based on the environment
• Organic structures are more effective when the environment is unstable and changing
• Mechanistic structures are more effective in stable environments