CHAPTER 8
ORGANIZATIONAL
STRUCTURE
AND
DESIGN
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8.0 INTRODUCTION
● Quality and competitiveness keys to success in global
environment.
● Organizations must be designed so employees are committed
to quality and customer satisfaction
● Outline:
• Concept of organizing and organizational structure
• Four decisions made in determining organizational structure
• Dimensions of organization structure:
― Formulation, centralization, complexity
• Organization design – mechanistic, organic, matrix, other
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8.1 ORGANIZING AND
ORGANIZATIONAL STUCTURE
● DEFINITIONS:
− ORGANIZING: A process of structuring both human and physical
resources to accomplish organizational objectives.
− ORGANIZATIONAL STRUCTURE: The framework of jobs and
departments that directs the behavior of individuals and groups towards
achieving the organization’s objectives.
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8.2 DETERMINING
ORGANIZATIONAL STUCTURE
● Responsibility of management to develop an organizational
structure that enhances overall strategy considering competition
and environment.
● Organizational structure enables people to do their best work
● No single best organizational structure
● Strategy dictates structure-not reverse
● 4 DESIGN CRITERIA FOR ORGANIZATIONAL
STRUCTURE:
1. Specialization of jobs,
2. Delegation of authority,
3. Departmentalization, and
4. Span of control
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8.2 DETERMINING
ORGANIZATIONAL STUCTURE
8.2.1 SPECIALIZATION OF JOBS:
− Division of labor is required to reap the benefits that include: minimum
training required for jobs consisting of only a few tasks, and economic
gains obtained when employees become efficient.
− TAYLOR (Scientific mgt.):
− Time and motion studies (to minimize efforts and maximize the
output)
− Job specialization
− CRAFTMANSHIP: high quality, expensive, low output
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8.2 DETERMINING
ORGANIZATIONAL STUCTURE
8.2.1 SPECIALIZATION OF JOBS contd.
● TEAMS AND QUALITY CIRCLES:
− Problems with specialization led to QUALITY EMPHASIS.
− QUALITY produces PROFIT
− COMMITMENT produces QUALITY
− JOY IN THE WORK and ADEQUATE COMPENSATION produce
COMMITMENT.
− WORK TEAM:
− A group of employees working closely towards common objectives.
− In a team set-up, managers become team leaders.
− QUALITY CIRCLES:
− DEFINITION: A small group of people, usually fewer than 10, who
do similar work and meet about once a week to discuss their work,
identify problems, and present possible solutions.
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8.2 DETERMINING
ORGANIZATIONAL STUCTURE
8.2.2 DELEGATION OF AUTHORITY:
− DECENTRALIZATION:
− DEFINITION: The process of distributing authority throughout the
organization i.e. delegating an organization member (typically a
manager) the right to make decision independently.
− ADVANTAGES: development of decision-making skills,
motivation to perform because advancement is linked to
performance, more autonomy leading to an increased job
satisfaction, increase in profits.
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8.2 DETERMINING
ORGANIZATIONAL STUCTURE
8.2.2 DELEGATION OF AUTHORITY contd.
− DECENTRALIZATION contd.
− DISADVANTAGES: costly management training, need to employ
highly paid managers, extensive planning and reporting procedures,
time-consuming and fear-inducing methods to measure accountability
of managers.
− CENTRALIZATION:
− DEFINITION: The process of retaining authority in the hands of high-
level managers.
− Balance between what to centralize and what to decentralize is the key.
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8.2 DETERMINING
ORGANIZATIONAL STUCTURE
8.2.2 DELEGATION OF AUTHORITY contd.
− EMPOWERMENT:
− DEFINITION: Giving employees who are responsible for hands-on
production/service activities the authority to make decisions or take
actions without prior approval.
− The goal is to build a work environment that motivates the employees
from within through pride in workmanship.
− Essential to make a total commitment to continuous quality
improvement.
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8.2 DETERMINING
ORGANIZATIONAL STUCTURE
8.2.2 DELEGATION OF AUTHORITY contd.
− CHAIN OF COMMAND: (created due to delegation of authority)
− DEFINITION: The formal command defining the lines of authority
from top to bottom.
− LINE AND STAFF POSITIONS:
− LINE POSITIONS are in the direct chain of command and
STAFF POSITIONS facilitate/provide advice to line positions.
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8.2 DETERMINING
ORGANIZATIONAL STUCTURE
8.2.3 DEPARTMENTALIZATION:
− DEFINITION: The process of grouping jobs according to some logical
arrangement.
− BASES: function, product, customer, and geographic
− FUNCTIONAL: grouping jobs according to the org. functions
− PRODUCT: grouping jobs associated with a product/product line
− CUSTOMER: grouping jobs in order to serve customers’ needs
− GEOGRAPHIC: grouping jobs based on defined territories
− MIXED: grouping jobs using more than one basis
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8.2 DETERMINING
ORGANIZATIONAL STUCTURE
● PROCESS ORGANIZATION: (Example: Hallmark)
− DEFINITION: basing performance objectives on meeting customer
needs and identifying the processes that meet those needs.
8.2.4 SPAN OF CONTROL:
− DEFINITION: The number of people who report to one
manager/supervisor.
− The objective is to determine the optimal span of control, wide/narrow.
− Wide span (Flat organization), Narrow span (Tall organization)
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8.2 DETERMINING
ORGANIZATIONAL STUCTURE
8.2.4 SPAN OF CONTROL contd.
− Factors that help determine the span of control:
− The competence of both the manager and the subordinates
− The degree of interaction required among the units to be supervised
− The extent to which the manager must do the nonmanagerial jobs
− The relative similarity/dissimilarity of the jobs being supervised
− The extent of stadardized procedures
− The degree of physical dispersion
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8.3 DIMENSIONS OF
ORGANIZATIONAL STUCTURE
● DIMENSIONS of organizational structure enable
managers to describe and understand the organizations’
structure and measure differences between different
organizations.
● 3 dimensions are:
1. Formalization
2. Centralization
3. Complexity
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8.3 DIMENSIONS OF
ORGANIZATIONAL STUCTURE
8.3.1 FORMALIZATION:
− DEFINITION: The extent to which an organization’s
communications and procedures are written down and filed.
8.3.2 CENTRALIZATION: discussed earlier
8.3.3 COMPLEXITY:
− DEFINITION: The number of different job titles and departments
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8.4 ORGANIZATIONAL DESIGN
● 2 EXTREME MODELS OF ORG. DESIGN:
1. The mechanistic model
2. The organic model
● Mechanistic model can be viewed as one end of a
continuum, and the organic model as the other.
● Between the mechanistic model and the organic model,
there are many org. designs. These include: the matrix
organization, and other forms of org. design such as
multidivisional, network, and complete.
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8.4 ORGANIZATIONAL DESIGN
8.4.1 THE MECHANISTIC MODEL:
− DEFINITION: A rigid org. model that attempts to achieve production
and efficiency through rules, specialized jobs, and centralized authority
8.4.2 THE ORGANIC MODEL:
− DEFINITION: An org. model that seeks to maximize flexibility and
adaptability, while emphasizing greater utilization of human potential
and deemphasizing specialization of jobs, status, and rank
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8.4 ORGANIZATIONAL DESIGN
8.4.3 THE MATRIX ORGANIZATION:
− DEFINITION: A cross-functional org. design that creates multiple lines of
authority and places people in teams to work on tasks for a finite period of
time.
− ADVANTAGES: maintains coordination in complex and uncertain
environments, efficient use of a specialized staff, facilitates interaction
between technical specialists, shifts top-level management’s focus to
planning, and encourages individual growth/development
− DISADVANTAGES: highly bureaucratic, creates confusion due to multiple
lines of authority, conflicting demands on subordinates, power struggle
among managers, costly because of the need for additional managers/staff
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8.4 ORGANIZATIONAL DESIGN
8.4.4 OTHER FORMS OF ORG. DESIGN:
● THE MULTIDIVISIONAL ORG.:
− DEFINITION: A high-performance org. with partially
interdependent operating units/divisions
● THE NETWORK ORG.:
− DEFINITION: A flexible, sometimes temporary, relationship
between manufacturers, buyers, suppliers, even customers.
− VIRTUAL CORPORATION: A temporary network of independent
organizations linked by information technology to exploit fast-
changing opportunities
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8.4 ORGANIZATIONAL DESIGN
8.4.4 OTHER FORMS OF ORG. DESIGN contd.
● THE COMPLETE ORG.:
− COMPLETENESS:
• Policy made by leadership with the consent of the governed
• Requirements provided in a way everyone understands
• Everyone keeps learning due to the availability of info and freedom of
choice
• Performance measurement based on a culture of consideration
Organization’s purpose is to help individuals be successful in their
lives
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8.4 ORGANIZATIONAL DESIGN
8.4.5 FUTURE ORGANIZATIONS
• Lean
• Flexible
• Responsive
• Competitive
• Flatter
• Decentralized
• Customer Oriented