Organizational

Structure

Chapter Twelve

Ed Kaiser/Edmonton Journal

McGraw-Hill/Irwin

Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Organizational Structure
Division of labor and patterns of
coordination, communication,
workflow, and formal power that
direct organizational activities.
Division of labor

Subdivision of work into separate

jobs assigned to different people
Potentially increases work
efficiency
Necessary as company grows and
work becomes more complex

Ed Kaiser/Edmonton Journal

12-2

Forms of Work Coordination

Informal communication

Sharing information
High media-richness
Important in teams

Formal hierarchy

Direct supervision
Assigns formal (legitimate) power to manage others
Coordination strategy for departmentalization

Standardization

Processes -- formal instructions

Outputs -- clear goals/output measures
Skills -- training, learn precise role behaviors
12-3

Elements of Organizational Structure

Departmentalization

Span of
Control

Organizational
Structure
Elements
Formalization

Centralization

12-4

Span of Control,
Centralization, and
Formalization
Organizational Structure

McGraw-Hill/Irwin

Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Span of Control
Number of people directly
reporting to the next level

Assumes coordination through

direct supervision

Wider span of control

possible with other
coordinating mechanisms
present

12-6

Tall vs Flat Structures

As companies grow, they:

Build taller hierarchy

Widen span, or both

Problems with tall hierarchies

Overhead costs
Poorer upward information
Focus power around managers,
so staff less empowered

12-7

Trend Toward Flatter Structures

Firms moving toward flatter
structures (delayering)

Cuts costs
Puts decision makers closer to
front-line information
Supports empowerment

Problem: risk of cutting too

much middle management

12-8

Centralization and Decentralization

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

Decision making authority is

dispersed throughout the organization

Decentralization
12-9

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

Reduces organizational flexibility

May undermine work efficiency
Job dissatisfaction and work stress

12-10

Mechanistic vs. Organic Structures

Mechanistic

Organic

Narrow span of control

Wide span of control

High formalization

Little formalization

High centralization

Decentralized decisions

12-11

Organizational
Departmentalization

Organizational Structure

McGraw-Hill/Irwin

Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Effects of Departmentalization
1.

Establishes chain of command (supervision

structure)

2.

Creates common mental models, measures of

performance, etc

3.

Encourages staff to coordinate through

informal communication

12-13

Functional Organizational Structure

Organizes employees around specific
knowledge or other resources
(marketing, production)
CEO

Finance

Production

Marketing

12-14

Evaluating Functional Structures

Benefits

Supports professional identity and career paths

Permits greater specialization
Easier supervision --similar issues
Creates an economy of scale --common pool of talent

Limitations

More emphasis on subunit than organizational goals

Higher dysfunctional conflict
Poorer coordination -- requires more controls

12-15

Divisional Structure
Organizes employees around outputs,
clients, or geographic areas
CEO

Consumer
Products

Lighting
Products

Medical
Systems

12-16

Divisional Structures Dynamics

Different forms of divisional structure

Geographic structure
Product structure
Client structure

Best form depends on environment

Movement away from geographic form

Less need for local representation

Reduced geographic variation
More global clients

12-17

Evaluating Divisional Structures

Benefits

Building block structure -- accommodates growth

Better coordination in diverse markets

Limitations

Duplication, inefficient use of resources

Specializations are dispersed, creating silos of
knowledge

12-18

W. L. Gores Team-Based Structure

W. L. Gore & Associates Inc. has
an extreme team-based
organizational structure that
eliminates the traditional
hierarchy. Associates are
organized around self-directed
teams at dozens of manufacturing
and sales offices around the
world.
Bill Kramer/ Bill Kramer Photography Inc.

12-19

Team-Based Structure Features

Self-directed work teams

Teams organized around work

processes
Very flat hierarchy, few
management levels
Very little formalization
Usually found within
divisionalized structure
Bill Kramer/ Bill Kramer Photography Inc.

12-20

Evaluating Team-Based Structures

Benefits

Responsive, flexible
Lower admin costs
More informed decisions

Limitations

Interpersonal training costs

Slower during team development
Stress due to ambiguous roles
Problems with supervisor role
changes
Duplication of resources

Bill Kramer/ Bill Kramer Photography Inc.

12-21

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.

Ed Kaiser/Edmonton Journal

12-22

Matrix Structure (Project-based)

Employees ( ) are temporarily assigned to a specific
project team and have a permanent functional unit
CEO
Engineering

Marketing

Design

Project A
Manager
Project B
Manager
Project C
Manager
12-23

Evaluating Matrix Structures

Benefits

Uses resources and expertise effectively

Improves communication,flexibility, innovation
Focuses specialists on clients and products
Supports knowledge sharing within specialty across groups
Solution when two divisions have equal importance

Limitations

Increases goal conflict and ambiguity

Two bosses dilutes accountability
More conflict, organizational politics, and stress

12-24

Contingencies of
Organizational
Structure
Organizational Structure

McGraw-Hill/Irwin

Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

External Environment & Structure

Dynamic
High rate of change
Use team-based, network, or
other organic structure

Complex
Many elements (such as
stakeholders)
Decentralize

Stable
Steady conditions,
predictable change
Use mechanistic structure

Simple
Few environmental elements
Less need to decentralize

12-26

External Environment & Structure

Diverse
Several products, clients,
regions
Use divisional form aligned
with the diversity

Hostile
Competition and resource
scarcity
Use organic structure for
responsiveness

(cont)

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

12-27

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

12-28

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

12-29

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
12-30

Organizational
Structure

Chapter Twelve

Ed Kaiser/Edmonton Journal

McGraw-Hill/Irwin

Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.