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Introduction to Management
Lecture Notes
Organizational Structure & Design
Contributed By: Muhammad Adnan Khan
E.mail: adnan_comsats@yahoo.com
Contact: 0300-9568964
Lecture out Line.
Introduction
Defining Organizational Structure
Work Specialization
Departmentalization
Chain of Command
Span of Control
Centralization and Decentralization
Formalization
Organizational Design Decisions
Mechanistic and Organic Organizations
Contingency Factors
Strategy and Structure
Size and Structure
Technology and Structure
Environmental Uncertainty and Structure
Common Organizational Designs
Traditional Organizational Designs
Simple Structure
Functional Structure
Divisional Structure
Contemporary Organizational Designs
Team-Based Structures
Project and Matrix Structures
Autonomous Internal Units
The Boundaryless Organization
The Learning Organization
1. INTRODUCTION.
Organizational structure can play an important role in an organizations success. The process of organizingthe second management functionis how an organizations structure is created.
2. DEFINING ORGANIZATIONAL STRUCTURE.
Managers are seeking structural designs that will best support and allow employees to effectively and efficiently do their work.
A. Before we look at the elements of organizational structure and design, we need to define some important terms.
1. Organizing is the process of creating an organizations structure.
2. An organizational structure is the formal framework by which job tasks are divided, grouped, and coordinated.
3. Organizational design is the process of developing or changing an organizations structure. It involves decisions about six key elements: work specialization, departmentalization, chain of command, span of control, centralization/decentralization, and formalization. We need to take a closer look at each of these structural elements.
B. Work specialization is the degree to which tasks in an organization are divided into separate jobs. Another term for this is division of labor.
1. Work specialization can be traced back to the writings of Adam Smith.
2. Work specialization was seen as a way to make the most efficient use of workers skills because workers would be placed in jobs according to their skills and paid accordingly.
3. Other advantages of work specialization included improvement in employees skills at performing a task, more efficient employee training, and encouragement of special inventions and machinery to perform work tasks.
4. Work specialization was viewed as a source of unending productivity improvements. And it wasup to a certain point.
5. The human diseconomies from work specialization included boredom, fatigue, stress, lowered productivity, poor quality of work, increased absenteeism, and higher job turnover.
C. Once work tasks have been defined, they must be grouped together in some way through a process called departmentalizationthe basis on which jobs are grouped in order to accomplish organizational goals. There are five major ways to departmentalize.
1. Functional departmentalization is grouping jobs by functions performed.
2. Product departmentalization is grouping jobs by product line.
3. Geographical departmentalization is grouping jobs on the basis of territory or geography.
4. Process departmentalization is grouping jobs on the basis of product or customer flow.
5. Customer departmentalization is grouping jobs on the basis of common customers.
6. Two current trends in departmentalization include:
a. Customer departmentalization continues to be a highly popular approach because it allows better monitoring of customers needs and responding to those changes in needs.
b. Cross-functional teams, a hybrid grouping of individuals who are experts in various specialties (or functions) and who work together, are being used along with traditional departmental arrangements.
D. The chain of command is the continuous line of authority that extends from the upper organizational levels to the lowest levels and clarifies who reports to whom. Three related concepts include authority, responsibility, and unity of command.
1. Authority is the right inherent in a managerial position to tell people what to do and to expect them to do it.
2. Responsibility is the obligation or expectation to perform.
3. Unity of command is the classical management principle that a subordinate should have one and only one superior to whom he or she is directly responsible; that is, a person should report to only one manager.
4. As organizations empower employees and as technology breaks down the barriers between organizational levels, these concepts (chain of command, authority, responsibility, and unity of command) dont carry as much weight as they used to.
E. The concept of span of control refers to the number of subordinates a manager can supervise effectively and efficiently.
1. The span of control concept is important because it determines how many levels and managers an organization will have.
2. What determines the ideal span of control? Contingency factors such as the skills and abilities of the manager and the employees, the characteristics of the work being done, similarity of employee tasks, the complexity of those tasks, the physical proximity of subordinates, the degree to which standardized procedures are in place, the sophistication of the organizations information system, the strength of the organizations culture, and the preferred style of the manager will influence the ideal number of subordinates.
The trend in recent years has been toward larger spans of control.
F. The concepts of centralization and decentralization address who, where, and how decisions are made in organizations.
1. Centralization is the degree to which decision making is concentrated at a single point in the organization, usually in the upper levels of the organization.
2. Decentralization is the handing down of decision-making authority to lower levels in an organization.
3. The trend is toward decentralizing decision making in order to make organizations more flexible and responsive.
4. A number of factors will influence the amount of centralization or decentralization an organization uses.
G. Formalization refers to the degree to which jobs within an organization are standardized and the extent to which employee behavior is guided by rules and procedures.
1. In a highly formalized organization, employees have little discretion, and theres a high level of consistent and uniform output. Formalized organizations have explicit job descriptions, lots of organizational rules, and clearly defined procedures.
2. In a less-formalized organization, employees have a lot of freedom and can exercise discretion in the way they do their work.
3. Standardization not only eliminates the possibility that employees will engage in alternative behaviors, it even removes the need for employees to consider alternatives.
4. The degree of formalization can vary widely between organizations and even within organizations.
3. ORGANIZATIONAL DESIGN DECISIONS.
Organizations arent structured the same way. Top managers put a lot of thought into how best to design the organizations structure. That best design depends on four contingency variables: the organizations strategy, size, technology, and degree of environmental uncertainty.
A. There are two generic models of organizational design.
1. A mechanistic organization is an organizational structure thats characterized by high specialization, rigid departmentalization, narrow spans of control, high formalization, a limited information network, and little participation in decision making by low-level employees.
2. An organic organization is a structure thats highly adaptive and flexible with little work specialization, minimal formalization, and little direct supervision of employees.
3. When is each design favored? It depends on the contingency variables.
B. Contingency factorsappropriate structure depends on four contingency variables:
1. Strategy and structure.
One of the contingency variables that influences organizational design is the organizations strategy.
a. Alfred Chandler did the original work on the strategy-structure relationship. His finding that structure followed strategy pointed out that as organizations changed their strategies, they had to change their structure to support that strategy.
b. Most current strategy-structure frameworks tend to focus on three strategy dimensions:
1) Innovationneeds the flexibility and free flow of information of the organic organization
2) Cost minimizationneeds the efficiency, stability, and tight controls of the mechanistic organization
3) Imitationwhich uses characteristics of both mechanistic and organic
2. Size and structure.
Theres considerable historical evidence that an organizations size significantly affects its structure. Larger organizations tend to have more specialization, departmentalization, centralization, and formalization although the size-structure relationship is not linear.
3. Technology also has been shown to affect an organizations choice of structure.
a. Every organization uses some form of technology to transform inputs into outputs.
b. Joan Woodwards study of structure and technology found that organizations adapted to their technology. She found that three distinct technologies had increasing levels of complexity and sophistication.
1) Unit production is the production of items in units or small batches.
2) Mass production is large-batch manufacturing.
3) Process production is continuous-process production.
c. Woodward found in her study of these three groups that distinct relationships existed between these technologies, the subsequent structure of the organization, and the effectiveness of the organization.
4. Environmental uncertainty and structure.
The final contingency factor that has been shown to affect organizational structure is environmental uncertainty. One way to manage environmental uncertainty is through adjustments in the organizations structure. The more uncertain the environment, the more flexible and responsive the organization may need to be.
4. COMMON ORGANIZATIONAL DESIGNS.
A. Traditional organizational designs.
We now need to look at various organizational designs that you might see in todays organizations.
1. A simple structure is an organizational design with low departmentaliza tion, wide spans of control, authority centralized in a single person, and little formalization.
a. Its strengths are its flexibility, speed, and low cost to maintain.
b. Its major drawback is that its most effective in small organizations.
As an organization grows, the structure tends to become more specialized and formalized. When contingency factors favor a bureaucratic or mechanistic design, one of two options is likely to be used.
2. One option expands functional departmentalization into the functional structure, which is an organizational design that groups similar or related occupational specialties together.
3. The other option is the divisional structure, which is an organizational structure made up of autonomous, self-contained units.
B. Contemporary organizational designs.
However, many of todays organizations are finding that the traditional hierarchical organizational designs arent appropriate for the increasingly dynamic and complex environments they face.
1. Team-based structures.
One of the newer concepts in organizational design is the team-based structure, which is an organizational structure made up of work groups or teams that perform the organizations work.
2. Project and matrix structures.
Another variation in organizational arrangements is based on the fact that many of todays organizations deal with work activities of different time requirements and magnitude.
a. One of these arrangements is the matrix organization that assigns specialists from different functional departments to work on one or more projects being led by project managers.
b. Another of these designs is the project structure, which is a structure in which employees are permanently assigned to projects.
3. Autonomous Internal Units.
Some large organizations have adopted a structure thats described as autonomous internal units, a design in which there are independent, autonomous decentralized business units, each with its own products, clients, competitors, and profit goals.
4. The Boundaryless Organization.
Another approach to organizational design is the boundaryless organization, which describes an organization whose design is not defined by, or limited to, the horizontal, vertical, or external boundaries imposed by a predefined structure.
5. The Learning Organization.
Finally, some organizations have adopted an organizational philosophy of a learning organizationan organization that has developed the continuous capacity to adapt and change because all members take an active role in identifying and resolving work-related issues. Exhibit 10.9 on p. 272 shows the characteristics of a learning organization.
Some Important Short Questions.
1. Why is organizing important?
Organizing, or the process of creating an organizations structure, is important for managers because an appropriate structure allows employees to effectively and efficiently do their work while accomplishing organizational goals and objectives.
2. What are the advantages and drawbacks of work specialization?
The advantages of work specialization are that employees performance skills improve and increase through repetition, less time is spent in changing tasks, and employee training is more efficient when tasks are specific, repetitive, and limited. The drawbacks are employee boredom, fatigue, stress, low productivity, poor quality of work, increased absenteeism, and higher job turnover.
3. Describe the ways that managers can departmentalize work activities.
Managers can departmentalize work activities by function, product, geographic area, process, or customer.
4. How is the chain-of-command concept used in organizing?
The chain of command is an unbroken line of authority that extends from the upper levels of the organization to the lowest levels and clarifies who reports to whom.
5. Why is span of control important to organizing decisions?
The span of control is important because it determines the number of levels and managers an organization has. The wider or larger the span of control, the more efficient the organization design.
6. Describe the factors that influence more centralization and those factors that influence more decentralization.
Factors that influence more centralization include when the environment is stable, when lower-level managers are not as capable or experienced at making decisions as upper-level managers, when lower-level managers do not want to have a say in decisions, when decisions are significant, when the organization is facing a crisis or the risk of company failure, when the company is large, and when effective implementation of company strategies depends on managers retaining say over what happens. Factors that influence more decentralization include when the environment is complex and uncertain, when lower-level managers are capable and experienced at making decisions and want a voice in decisions, when decisions are relatively minor, when corporate culture is open to allowing managers to have a say in what happens, when the company is geographically dispersed, and when effective implementation of company strategies depends on managers having involvement and flexibility to make decisions.
7. Describe the differences between mechanistic and organic organizations.
The mechanistic organization is a rigid and tightly controlled structure, whereas the organic organization is highly adaptive and flexible.
8. Summarize the strategy-structure relationship.
The relationship between strategy and structure can be summarized by the rule that structure should follow strategy.
9. How does the size of an organization influence its structure?
Organization size influences structure in that large organizations tend to have more specialization, departmentalization, centralization, and rules and regulations than do small organizations.
10. How does technology affect an organizations structure?
In general, the more routine the technology, the more standardized the structure can be. Organizations with more nonroutine technology are more likely to have organic structures.
11. What role does environmental uncertainty play in organizational design?
The more scarce, dynamic, and complex the environmentthat is, the greater the uncertaintythe greater the need for the flexibility offered by an organic design. On the other hand, in abundant, stable, and simple environments, mechanistic designs tend to be most effective.
13. When would the simple structure be the preferred organizational design?
The simple structure is most widely used by small businesses in which the owner and the manager are one and the same.
14. Contrast functional structures and divisional structures.
Under a functional structure, management designs an organization based on grouping together similar or related occupational specialties. The divisional structure is one made up of separate units or divisions.
15. What are the strengths and weaknesses of the traditional organizational designs?
The strengths of the simple structure are its flexibility, speed, and low cost to maintain. Its major drawback is that its most effective in small organizations. The strength of the functional structure lies in the cost-saving advantages that accrue from specialization. The biggest weakness is that the organization can lose sight of its best overall interests in the pursuit of functional goals. Also, functional specialists tend to become insulated and have little understanding of what others in the organization are doing. The strength of the divisional structure is that it focuses on results. The major disadvantage is the duplication of activities and resources. Exhibit 10.7 outlines the strengths and weaknesses of each of these traditional organizational designs.
16. Describe a team-based structure.
In a team-based structure, the entire organization is made up of work groups or teams that perform the organizations work.
17. Compare and contrast a matrix structure and a project structure.
A matrix structure is a design that assigns specialists from different functional departments to work on one or more projects being led by a project manager. A project structure is one in which employees and the work they do are permanently assigned to projects. Unlike the matrix structure, it has no formal departments that employees return to at the completion of a project; instead, they take their specific skills and capabilities to other work projects.
18. When might an organization design its structure around autonomous internal units?
Some large organizations with numerous business units or divisions have adopted autonomous internal units, which are separate decentralized business units each with its own products, clients, competitors, and profit goals.
19. What is a boundaryless organization?
A boundaryless organization is one whose design is not defined by, or limited to, the horizontal, vertical, or external boundaries imposed by a predefined structure.
20. Describe the types of organizational boundaries that are minimized or eliminated in boundaryless organizations.
Horizontal boundaries imposed by work specialization and departmentalization, vertical boundaries that separate employees into organizational levels and hierarchies, and the external boundaries that separate the organization from its customers, suppliers, and other stakeholders are types of organizational boundaries that are minimized or eliminated in boundaryless organizations.
21. Describe the characteristics of a learning organization.
A learning organization is one that has developed the continuous capacity to adapt and change because all its members take an active role in identifying and resolving work-related issues.
Answers to Thinking About Management Issues.
1. Can an organizations structure be changed quickly? Why or why not?
The speed of changing an organizations structure depends on its size. A small organization could change its structure much more rapidly than a large one. But even a large organization can change its structure and often does in response to changing environmental conditions and changing strategies.
2. What types of skills would a manager need to effectively work in a project structure? In a boundaryless organization? In a learning organization?
In all of these types of organizations, flexibility and adaptability would be critical. In the project structure, conflict management skills might be particularly useful. In a boundaryless organization, the ability to deal with people at all levels and in all areas of the organization might be useful. Finally, in a learning organization, a person would need the ability to communicate both by listening and by speaking because sharing information is important.
4. The boundaryless organization has the potential to create a major shift in our living and working patterns. Do you agree or disagree? Explain.
Students responses to this are likely to vary. This might be an interesting question to set up as a debate. Have students break into teams and assign the teams one side or the other. Give them a chance to come up with their arguments, and then let them present their information.
5. With the availability of advanced information technology that allows an organizations work to be done anywhere at any time, is organizing still an important managerial function? Why or why not?
Although an organizations work may be done anywhere at any time, organizing is still an important managerial function because the work still has to be divided, grouped, and coordinated. And thats what organizing involves.
IIUI Lecture Notes
Introduction to Management BS(CS)--IIUI
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