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Chapter 13: Organizational Structure

Organizational structure is the division of labor as well as the pattern of coordination,

communication, workflow,, and formal power than direct organizational activities.

All organization structures divide labor into distinct task and coordinate that labor. The primary
means of coordination are informal communication, formal hierarchy, and standardization.

The four basic elements of organizational structure are span of control, centralization,
formalization, and departmentalization.

Span of control: Number of people directly reporting to the next level. Wider span of control
possible when: Other coordinating mechanisms present, Routine tasks, Low employee
interdependence.

Centralization: the degree to which formal decision authority is held by a small group of people,
typically those that the top of the organizational hierarchy.

Formalization: The degree to which organizations standardize behavior through rules,

procedures, formal training, and related mechanisms (formalization increases as firms get older,
larger, and more regulated)

Departmentalization: Specifies how employees and their activities are grouped together.

Three functions of departmentalization: Establishes chain of command, Creates common mental

models, measures of performance, etc, Encourages coordination through informal
communication.

Organizational Strategy:

1. Structure follows strategy

• Strategy points to the environments in which the organization will operate

• Leaders decide which structure to apply

2. Differentiation strategy
 • Providing unique products or attracting clients who want customization

3. Cost leadership strategy

• Maximize productivity in order to offer competitive pricing

The best organizational structure depends on the firm’s external environment, size, technology,
and strategy.