Organizational

Structure
McGraw-Hill/Irwin
McShane/Von Glinow OB 5e
Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
13-2
Choosing an Organizational
Structure at BioWare
Ray Muzyka (left) and Greg
Zeschuk (right) designed an
organizational structure for
their electronic games
company, Bioware, that
balances the need for
teamwork and information
sharing.
13-3
Organizational Structure Defined
Division of labor and patterns of
coordination, communication,
workflow, and formal power that
direct organizational activities.
Relates to many OB topics
e.g. job design, teams, power,
org culture, org change
13-4
Division of Labor
Subdividing work into separate
jobs assigned to different
people
Division of labor is limited by
ability to coordinate work
Potentially increases work
efficiency
Necessary as company grows
and work becomes more
complex
13-5
Coordinating Work Activities
1. Informal communication
Sharing information, forming common mental
models
Allows flexibility
Vital in nonroutine and ambiguous situations
Easiest in small firms
Applied in team-based structures
Includes integrator roles
13-6
Coordinating Work Activities
2. Formal hierarchy
Direct supervision
Assigns formal (legitimate) power to manage
others
Coordination strategy for departmentalization
3. Standardization
a) Standardized processes (e.g., job descriptions)
b) Standardized outputs (e.g., sales targets)
c) Standardized skills (e.g., training)
13-7
Elements of
Organizational
Structure
Span of
Control
Centralization
Department-
alization
Formalization
Elements of Organizational Structure
13-8
Span of Control
Number of people directly
reporting to the next level
Assumes coordination through
direct supervision
Wider span of control possible
when:
Other coordinating
mechanisms present
Routine tasks
Low employee
interdependence
13-9
Tall vs Flat Structures
As companies grow, they:
Build taller hierarchy
Widen span, or both
Problems with tall hierarchies
Overhead costs
Worse upward information
Focus power around managers,
so staff less empowered
13-10
Issues with Tall vs Flatter
Structures
Firms moving toward flatter structures
(delayering) because taller hierarchies have:
Higher mgt overhead costs
Less information flow
Less staff empowerment
But also problems with flatter hierarchies
Undermines management functions
Increases workload and stress
Restricts management career development
13-11

Formal decision making authority is held
by a few people, usually at the top
Centralization
Decision making authority is
dispersed throughout the organization

Decentralization
Centralization and Decentralization
13-12
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
Problems with formalization
Reduces organizational flexibility
Discourages organizational learning/creativity
Reduces work efficiency
Increases job dissatisfaction and work stress
13-13
Growing an Organic Taxi
Award-winning TAXI relies on an
organic structure to maintain its
creative advantage. TAXI cofounder
Paul Lavoie (bottom right in this
New York City office photo) says
that most firms are so layered that
a great idea was easily
crushedWe needed a flexible
infrastructure, able to move with the
pace of change. TAXI started lean
and nimble, and remains so today.
13-14
Mechanistic vs. Organic
Structures
Organic Structure
Wide span of control
Little formalization
Decentralized decisions
Mechanistic Structure
Narrow span of control
High formalization
High centralization
13-15
Departmentalization
Specifies how employees and their activities
are grouped together
Three functions of departmentalization
1. Establishes chain of command
2. Creates common mental models, measures of
performance, etc
3. Encourages coordination through informal
communication
13-16
Organizes employees around specific knowledge
or other resources (e.g., marketing, production)
CEO
Finance Production Marketing
Functional Organizational Structure
13-17
Evaluating Functional Structures
Benefits
Economy of scale
Supports professional identity and career paths
Easier supervision
Limitations
More emphasis on subunit than organizational
goals
Higher dysfunctional conflict
Poorer coordination -- requires more controls
13-18
Organizes employees around outputs,
clients, or geographic areas
Divisional Structure
CEO
Healthcare
Lighting
Products
Consumer
Lifestyle
13-19
Divisional Structure
Different forms of divisional structure
Geographic structure
Product structure
Client structure
Best form depends on environmental diversity
or uncertainty
Movement away from geographic form
Less need for local representation
Reduced geographic variation
More global clients
13-20
Evaluating Divisional Structures
Benefits
Building block structure -- accommodates growth
Focuses on markets/products/clients
Limitations
Duplication, inefficient use of resources
Specializations are dispersed--silos of knowledge
Politics/conflict when two forms of equal value
13-21
Team-Based Structure
Self-directed work teams
Teams organized around work processes
Typically organic structure
Wide span of control many employees work
without close supervision
Decentralized with moderate/little formalization
Usually found within divisionalized structure
13-22
Evaluating Team-Based Structures
Benefits
Responsive, flexible
Lower admin costs
Quicker, more informed decisions
Limitations
Interpersonal training costs
Slower during team development
Role ambiguity increases stress
Problems with supervisor role changes
Duplication of resources
13-23
Biowares Matrix Structure
Ray Muzyka (left) and Greg
Zeschuk (right) adopted a
matrix organizational
structure for their electronic
games company, Bioware,
because it balances the need
for teamwork and information
sharing.
13-24
Audio Dept
Leader
Software
Dept Leader
Art Dept
Leader


Game1
Project Leader



Game2
Project Leader

Game3
Project Leader
Matrix Structure (Project-based)
CEO
Employees ( ) are temporarily assigned to a specific
project team and have a permanent functional unit
13-25
Evaluating Matrix Structures
Benefits
Uses resources and expertise effectively
Improves communication, flexibility, innovation
Focuses specialists on clients and products
Supports knowledge sharing within specialty
Solution when two divisions have equal importance
Limitations
Increases goal conflict and ambiguity
Two bosses dilutes accountability
More conflict, organizational politics, and stress
13-26
Core
Firm
Product
development
partner
(U.S.A.)
Callcenter
partner
(Philippines)
Accounting
partner
(U.S.A.)
Package
design
partner
(UK)
Assembly
partner
(Mexico)
Network Organizational Structure
Alliance of firms
creating a product or
service
Supporting firms
beehived around a
hub or core firm
13-27
Evaluating Network Structures
Benefits
Highly flexible
Potentially better use of skills and technology
Not saddled with same resources for all products
Limitations
Exposed to market forces
Less control over subcontractors than in-house
13-28
External Environment & Structure
Dynamic
High rate of change
Use team-based, network, or
other organic structure
Stable
Steady conditions,
predictable change
Use mechanistic structure
Complex
Many elements (such as
stakeholders)
Decentralize
Simple
Few environmental elements
Less need to decentralize
13-29
Diverse
Several products, clients,
regions
Use divisional form aligned
with the diversity
Hostile
Competition and resource
scarcity
Use organic structure for
responsiveness
Integrated
Single product, client, place
Use functional structure, or
geographic division if global
Munificent
Plenty of resources and
product demand
Less need for organic
structure
External Environment & Structure
(cont)
13-30
Effects of Organizational Size
As organizations grow, they have:
More division of labor (job specialization)
Greater use of standardization
More hierarchy and formalization
More decentralization
13-31
Technology and Structure
Technology refers to mechanisms or
processes by which an organization turns out
its product or service
Two contingencies:
Variability -- the number of exceptions to standard
procedure that tend to occur.
Analyzability -- the predictability or difficulty of the
required work
13-32
Organizational Strategy
Structure follows strategy
Strategy points to the environments in which the
organization will operate
Leaders decide which structure to apply
Differentiation strategy
Providing unique products or attracting clients who
want customization
Cost leadership strategy
Maximize productivity in order to offer competitive
pricing
Organizational
Structure
13-33
McGraw-Hill/Irwin
McShane/Von Glinow OB 5e
Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.