Hrm/531 Week 9

Chapter 9: Organizational Structure and Design
9.1 Designing Organizational Structure
Discuss the traditional and contemporary views of work specialization, chain of command, and span of control. Describe each of the five forms of departmentalization. Differentiate authority, responsibility and unity of command. Explain how centralization/decentralization and formalization are used in organizational design.
Work specialization: dividing work activities into separate job task whereby individual employees specialize in doing part of an activity rather than the entire activity to increase work output. (helps employees be more efficient. Problems: fatigue, boredom…).
Chain command: is the line of authority extending from upper organizational
levels to lower levels that identifies who reports to whom (team work is more effective…) To understand the chain of command, consider the following three concepts:
1. Authority: the manager’s influence over employees granted by his formal position.
2. Responsibility: the employees’ obligation to perform duties assigned by the manager.
3.
Unity of command: every employee should report to only one manager. Otherwise, conflicting demands from different managers creates problems.
Span of control: How many employees can a manager efficiently and effectively manage? The span of control determines the number of levels and managers in an organization. Usually, the wider or larger the span, the more efficient the organizational structure is: more cost effective vs. managers no longer keeping track of things leading to declining performance (no magic number. Factors include: proximity of employees to manager, size of organization, skills and abilities of manger and employees, complexity of employee tasks, culture of organization, style of management… Trend towards wider span of control).
Five forms of departmentalization:
1. Functional departmentalization: grouping jobs according to function (engineering manager, accounting manager, manufacturing manager, HR manager, purchasing manager…)
+: efficiency from grouping people with similar specialties, coordination with functional area, in-depth specialization.
-: poor communication across functional areas, limited view of organizational goals
2. Geographic departmentalization: grouping jobs according to geographic
region
+: more effective and efficient handling of specific regional issues, serve needs of unique markets better
-: duplicated functions, isolation from organizational areas
3. Product departmentalization: grouping jobs by product lines.
+: specialize in production of a particular product or service, managers become experts in industry, department can develop stronger relationships with customers.
-: overlapping functions, limited view of organizational goals.
4. Process departmentalization: on the basis of product or customer flow (sawing, milling, assembling, lacquering… departments).
+: more efficient flow of work activities
-: can only be used with certain types of products.
5. Customer departmentalization: group jobs on basis of specific and unique customers with common needs.
+: specialists can serve customer needs better
-: duplication of functions, limited view of organizational goals.
Centralization is the degree to which decision making takes place at upper levels of the organization: no input from low-level employees, low participation vs. decentralization. (shift toward decentralized decision making: employee empowerment gives employees more authority to make decisions).
Centralization in stable environment, minor decisions, organization in crisis, large company vs. decentralization.
Formalization refers to how standardized an organization’s jobs are:
Explicit job descriptions
Numerous organizational rules
Clearly defined procedures
Low employee participation
9.2 Mechanistic and Organic Structures
Contrast mechanistic and organic organizations. Explain the contingency factors that affect organizational design.
Organizations have differing structures. Two generic models of organizational design are mechanistic organizational design and organic organizational design.
Mechanistic organization: is an organization with a rigid and tightly controlled structure characterized by: high specialization rigid departmentalization clear chain of command narrow spans of control high formalization limited information network (downward communication) centralization: little participation in decision making by lower-level employees
Mechanistic organizational structure strive for efficiency and try to minimize the impact of differing personalities or judgments.
Organic organization: highly adaptive and flexible structure:
Specialized jobs are not standardized jobs and can change according to requirements
Work is organized around employee teams
Employees are highly trained and empowered to handle diverse problems
Decentralization
Low formalization: minimal formal rules and little direct supervision required.
Determining the appropriate organizational structure depends on four contingency variables:
1. Size of organization: large organizations tend to have more specialization, departmentalization, centralization, and rules than do small organizations. However, once an organization grows past a certain size, size has less influence on structure.
2. Strategy of organization: an organization’s structure should make it easier for the organization to achieve its goals.
Innovative companies  flexibility and free-flowing information of the organic structure
Companies that want to tightly control costs  mechanistic structure with efficiency, stability, and tight controls is efficient.
3. Technology used in the organization: Joan Woodward:
Unit production: low vertical and horizontal differentiation and formalization. Organic.
Mass production: moderate vertical integration, high horizontal differentiation, high formalization. Mechanistic.
Process production: High vertical integration, low horizontal differentiation, low formalization. Organic.

Organizations adapt their structures to their technology depending on how routine their technology is for transforming inputs into outputs.
In general, the more routine the technology, the more mechanistic the structure can be, and organizations with non-routine technologies are likely to have organic structures.

4. Environmental uncertainty that the organization is exposed to:
a. Stable and simple environments: mechanistic designs are more effective.
b. Dynamic and complex environments: the greater the uncertainty, the more an organization needs the flexibility of an organic design.
Innovation: Pursuing competitive advantage through meaningful and unique innovations favors an organic structuring.
Cost minimization: Focusing on tightly controlling costs requires a mechanistic structure for the organization.
Mechanistic organizations are not equipped to respond to rapid environmental change and environmental uncertainty.
9.3 Common Organizational Designs
Contrast the three traditional organizational designs. Describe the contemporary organizational designs. Discuss the organizational design challenges that managers face today.
Traditional Organizational Designs: traditional organizational design structures are usually mechanistic:
1. Simple Structure:
a. Design with:
i. Low departmentalization ii. Wide spans of control iii. Centralized authority iv. Little formalization
b. Pros:
i. Fast ii. Flexible iii. Inexpensive to maintain iv. Clear accountability
c. Cons:
i. Not appropriate as organization grows: jobs tend to become more specialized and formalized and the organization becomes more bureaucratic. ii. Reliance on one person is risky
2. Functional Structure: organizational structure that groups similar or related occupational specialties together.
a. Pros: cost saving specialization (economies of scale, minimal duplication of people and equipment)
3. Divisional Structure: structure made up of separate business units or divisions. Each division has limited autonomy. A division manager has authority over his unit and is responsible for performance.
a. Pros: results oriented: managers are responsible for their divisions
b. Cons: duplication of activities increases cost and inefficiency.
Contemporary organizational designs:
1. Team Structure: organization is made up of work groups or teams. (employees are more empowered and involves, but no chain of command and a lot of pressure).
2. Matrix Structure: assigns specialists from different functional areas to work on projects led by project manager and then return to their areas after completing the project (dual chain of command).
3. Project Structure: As one project is completed, teams of employees move on to the next project: no formal departments to return to. Once a project is completed, move on to the next one. (flexible: speed up decision making and respond to changes and needs faster).
4. Boundaryless Structure: organization whose design is not defined by horizontal, vertical, or external boundaries imposed by a predefined structure (very flexible and responsive. Utilizes talent – resourceful, but lack of control and communication difficulties).
Boundaries:
Internal: horizontal boundaries imposed by work specialization and departmentalization and the vertical ones that separate employees into organizational levels and hierarchies.
External: boundaries that separate the organization from its customers, suppliers, and other stakeholders.
To overcome these boundaries, managers use:
Virtual organization design: small core of full-time employees and temporary external specialists hired for certain projects.
Network organization: use some employees to do some work activities + use networks of external suppliers to provide other needed product components or work processes (modular organization).
Learning organization: employees continually acquire and share new knowledge and apply that knowledge in making decisions or doing their work.