Designing

Designing
Organizational
OrganizationalStructures
Structures
Chapter
8

THE
THEFUTURE
FUTUREOF
OFBUSINESS
BUSINESS
Gitman
Gitman&&McDaniel
McDaniel
55ththEdition
Edition

Prepared
Preparedby
by
Chapter 8

Deborah Baker
Deborah Baker
Texas
Texas ChristianUniversity
Christian University
 Learning Goals
1 What are the five structural building blocks that
managers use to design organizations?
2 What are the five types of departmentalization?
3 How can the degree of centralization/decentralization be
altered to make an organization more successful?
4 How do mechanistic and organic organizations differ?
5 What is the difference between line positions and staff
positions?
Chapter 8

Copyright 2005 by South-Western, a division of 2

 Learning Goals

6 What is the goal of reengineering?

7 How does the informal organization affect the
performance of the company?
8 What trends are influencing the way businesses
organize?
Chapter 8

Copyright 2005 by South-Western, a division of 3

 1 Learning Goal 1

What are the five structural

building blocks that managers
use to design organizations?
Chapter 8

Copyright 2005 by South-Western, a division of 4

 1 Structural Building Blocks

Centralization
Centralization
Span
Spanof
ofControl
Control of
of
Decision
DecisionMaking
Making

Division
Division Departmental-
Departmental- Managerial
Managerial
of
ofLabor
Labor ization
ization Hierarchy
Hierarchy
Chapter 8

Copyright 2005 by South-Western, a division of 5

 1 Division of Labor: Specialization
Advantages
Advantages Disadvantages
Disadvantages

Specialized jobs can lead to: Specialized jobs, if not in an

environment of trust and
empowerment, can lead
to:

Greater efficiency Refusal to share tips and

Consistency in techniques with others
production
Knowledge of processes
used against employer
Chapter 8

Copyright 2005 by South-Western, a division of 6

 2 Learning Goal 2

What are the five types of

departmentalization?
Chapter 8

Copyright 2005 by South-Western, a division of 7

 1 The Organizational Chart
President

Vice-Presidents

Finance Operations Marketing

Manager, Production Sales Distribution

accounting manager manager manager

Manager, Manager, Director Director

Chapter 8

allocations & financial of human of customer

inventory control planning resources service

Copyright 2005 by South-Western, a division of 8

 1 Departmentalization
Based
Based onon the
the primary
primary
Functional
Functional functions
functions performed
performed
Based
Based on
on the
the goods/services
goods/services
Product
Product produced
produced oror sold
sold
Based
Based on
on the
the production
production
Process
Process process
process used
used
Based
Based on
on the
the primary
primary type
type of
of
Customer
Customer customer
customer served
served
Based
Based on
on the
the geographic
geographic
Geographic
Geographic segmentation
segmentation of
of organizational
organizational units
units
Chapter 8

Copyright 2005 by South-Western, a division of 9

 1 Managerial Hierarchy

Top
Management Power

Middle
Management

Supervisory Employees
Management
Chapter 8

Copyright 2005 by South-Western, a division of 10

 1 Chain of Command

The
The line
line of
of authority
authoritythat
that
Chain extends
extends fromfrom oneonelevel
level
Chainof
ofCommand
Command
of
of anan organizations
organizations
hierarchy
hierarchyto to the
thenext,
next,
from
from top
top to
to bottom,
bottom,
and
andmakes
makesclear
clearwho
who
reports
reports toto whom.
whom.
Chapter 8

Copyright 2005 by South-Western, a division of 11

 1 Span of Control

Span
Spanof
of Control
Control The
The number
numberof
ofemployees
employees
aamanager
managerdirectly
directly
supervises;
supervises; also
alsocalled
called
span
spanof
ofmanagement.
management.
Chapter 8

Copyright 2005 by South-Western, a division of 12

 1 Span of Control
Chapter 8

Copyright 2005 by South-Western, a division of 13

 1 Optimal Span of Control
Factors
Factors Determining
Determining
Optimal
Optimal Span
Span of
of Control
Control Nature
Nature of
of the
the task
task

Location
Location of
of the
the workers
workers

Ability
Ability of
of the
the manager
manager
to
to delegate
delegate responsibility
responsibility
Amount
Amount of
of interaction
interaction and
and feedback
feedback
between
between workers
workers and
and manager
manager
Level
Level of
of skill
skill and
and motivation
motivation
Chapter 8

of
of the
the workers
workers
Copyright 2005 by South-Western, a division of 14
 3 Learning Goal 3

How can the degree of

centralization / decentralization
be altered to make an organization
more successful?
Chapter 8

Copyright 2005 by South-Western, a division of 15

 3 Centralization of Decision Making

The
The degree
degreetoto which
which
Centralization formal
formalauthority
authorityisis
Centralization
concentrated
concentratedin inone
one
area
areaor
orlevel
level of
of an
an
organization.
organization.

The
Theprocess
processofofpushing
pushing
Decentralization
Decentralization decision-making
decision-making
authority
authoritydown
downthe
the
organizational
organizational hierarchy.
hierarchy.
Chapter 8

Copyright 2005 by South-Western, a division of 16

 3 Decentralization

Decentralization
Decentralization is
is
desirable
desirable when
when Organization
Organization is
is very
very large
large

Firm
Firm is
is in
in aa dynamic
dynamic environment
environment
where
where quick
quick decisions
decisions must
must be
be made
made
Managers
Managers are
are willing
willing to
to share
share
power
power with
with subordinates
subordinates
Employees
Employees areare willing
willing and
and able
able
to
to take
take more
more responsibility
responsibility
Company
Company is
is spread
spread out
Chapter 8

out
geographically
geographically
Copyright 2005 by South-Western, a division of 17
 4 Learning Goal 4

How do mechanistic and

organic organizations
differ?
Chapter 8

Copyright 2005 by South-Western, a division of 18

 4 Mechanistic Organization
Characteristics
Characteristics of
of aa
Mechanistic
Mechanistic Organization
Organization

Relatively high degree of job specialization

Rigid departmentalization
Many layers of management
Narrow spans of control
Centralized decision making
Long chain of command
Tall Organizational Structure
Chapter 8

Copyright 2005 by South-Western, a division of 19

 4 Organic Organization
Characteristics
Characteristics of
of an
an
Organic
Organic Organization
Organization

Relatively low degree of job specialization

Loose departmentalization
Few layers of management
Wide spans of control
Decentralized decision making
Short chain of command
Flat organizational structure
Chapter 8

Copyright 2005 by South-Western, a division of 20

 5 Learning Goal 5

What
What is
is the
the difference
difference between
between
line
line positions
positions and
and
staff
staff positions?
positions?
Chapter 8

Copyright 2005 by South-Western, a division of 21

 5 Common Organizational Structures
An
Anorganizational
organizationalstructure
structurewith
with
direct,
direct,clear
clearlines
linesof
ofauthority
authority
Line
LineOrganization
Organization and
andcommunication
communicationflowing
flowing
from
fromthe
thetop
topmanagers
managersdownward.
downward.

An
Anorganizational
organizationalstructure
structure
Line-and-Staff
Line-and-Staff that
thatincludes
includesboth
bothline
lineand
and
Organization
Organization staff
staffpositions.
positions.
Chapter 8

Copyright 2005 by South-Western, a division of 22

 5 Common Organizational Structures

Committee
Committee An
Anorganizational
organizationalstructure
structurein
in
Structure
Structure which
whichauthority
authorityand
andresponsibility
responsibility
are
areheld
heldby
byaagroup
grouprather
ratherthan
than
an
anindividual.
individual.

An
Anorganizational
organizationalstructure
structurethat
that
Matrix
Matrix combines
combinesfunctional
functionaland
andproduct
product
Organization
Organization departmentalization
departmentalizationbybybringing
bringing
together
togetherpeople
peoplefrom
fromdifferent
different
functional
functionalareas
areastotowork
work
on
onaaspecial
specialproject.
project.
Chapter 8

Copyright 2005 by South-Western, a division of 23

 5 The Matrix Structure
Advantages
Advantages Disadvantages
Disadvantages

Teamwork Power struggles

Efficient use of resources Confusion among team
members
Flexibility
Lack of cohesiveness
Ability to balance
conflicting objectives
Higher performance
Opportunities for
development
Chapter 8

Copyright 2005 by South-Western, a division of 24

 6 Learning Goal 6

What
What is
is the
the goal
goal of
of
reengineering?
reengineering?
Chapter 8

Copyright 2005 by South-Western, a division of 25

 6 Reengineering

The
Thecomplete
completeredesign
redesignofof
business
businessstructures
structuresand
and
Reengineering
Reengineering processes
processesininorder
orderto
to
improve
improveoperations.
operations.
Chapter 8

Copyright 2005 by South-Western, a division of 26

 7 Learning Goal 7

How
How does
does the
the informal
informal
organization
organization affect
affect the
the
performance
performance ofof the
the company?
company?
Chapter 8

Copyright 2005 by South-Western, a division of 27

 7 Functions of the Informal Organization

Provides a source of friendships and social

contact for organization members
Helps employees feel better informed about
and connected with what is going on
Provides status and recognition not available
from the formal organization
Aids the socialization of new employees
Helps employees to be more aware of what is
happening in the workplace
Chapter 8

Copyright 2005 by South-Western, a division of 28

 8 Learning Goal 8

What
What trends
trends are
are influencing
influencing
the
the way
way businesses
businesses organize?
organize?
Chapter 8

Copyright 2005 by South-Western, a division of 29

 8 Trends in Organizational Structures

Virtual
Virtual Corporation
Corporation
Information
Information Technology
Technology
Virtual
Virtual Teams
Teams

Globalization
Globalization
Chapter 8

Copyright 2005 by South-Western, a division of 30

 8 Key Attributes of a Virtual Corporation

Technology
Opportunism
Excellence
Trust
No borders
Chapter 8

Copyright 2005 by South-Western, a division of 31