Organizational Behavior:
An Introduction to
Your Life in Organizations
Chapter 16
Organizational Structure as a
Design Tool
©2007 Prentice Hall
Preview
• After managers divide up the organization’s work,
how do they coordinate their employees to get it
done?
• How can you expect an organizational structure to
evolve?
• What are some recent trends in organizational
structure?
• How do managers use organizational structure to
advance their company’s strategy?
• How do international organizational structures
usually evolve?
• What are international strategic alliances?
©2007 Prentice Hall
Differentiation
• Horizontal differentiation is the degree to which
labor is divided
• Horizontal firms are companies that emphasize
decision making through teams rather than
through the organizational hierarchy
• Vertical differentiation is the distribution of
authority from lower to higher level managers
• Vertical firms are companies in which decision
making depends on hierarchical process like
centralization and employee-manager
communication, rather than on teams
©2007 Prentice Hall
Span of control
• The number of subordinates a manager
supervises
• The number of individuals a manager can
supervise effectively depends on:
 the nature of the employees’ tasks
 the nature of a company’s available strategies
for integration
 the business the company is in and the
company’s size
©2007 Prentice Hall
Integration Options
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2.
3.
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6.
7.
Hierarchy: a system in which some individuals are
ranked higher than others
Departmentalization: process of dividing up the
company’s work into integrating subunits
Set targets and goals to be achieved and allow groups
and individuals decide how to meet them
Rules, procedures and policies standardize behaviors
across subunits
Communication: a set of processes whose purposes
are instruction, information, persuasion, integration
and innovation
The use of information technology (IT) to affect the
centralization and decentralization of decision making
Create a formal integrator role
©2007 Prentice Hall
Why do organizational structures
evolve?
• Because it is growing
• To align it with a new company strategy
• Because it is facing a business crisis
©2007 Prentice Hall
How do organizational structures
evolve?
• The simple structure evolves in a simple, dynamic
environment in which an entrepreneur finds a strategic niche
that can be filled by one person with a few supporting staff
• In a functional structure, employees are expected to
specialize in their particular function, and they report to a
manager who heads up and also specializes in that function
• In the divisional structure (also called a “unit structure”), a
layer is added below top management, delegating at least
some responsibility for profit-making and customer
responsiveness to vice presidents in charge of products or
regions
• A matrix structure is a multiple command system, including a
related structure and the necessary support mechanisms,
culture and behaviors
©2007 Prentice Hall
Structured networks
• Spin off each profit center units into separate but
still interacting companies
• Advantages: it is easy for a network to be
flexible and adaptable, each company can focus
on its core competency
• Disadvantages: the potential loss of control over
parts of the business, risk losing proprietary
knowledge to any one of their members that
chooses to steal it, complicated adjustments and
coordination required for outsourcing
©2007 Prentice Hall
The front-back structure
• Divides an organization into two components:
 those that are oriented to the customer and/or the
geographical region in which the company is doing
business, called the front end
 a back end that is organized by product and technology
• Advantages: focus on more than one dimension at a
time, manage cross-product strategies and
coordination
• Disadvantages: lack of clarity about how the front
end is supposed to work with the back end, high
need for collaboration along with the high possibility
for conflict
©2007 Prentice Hall
The boundaryless organization
• Is one in which people rarely or never see each
other face to face, but rather are linked by
computers, video teleconferencing, computeraided design systems and so on
• Some individuals are not formal parts of an
organization at all, but rather form an alliance
with an organization through their contractual
obligations, and when the particular project they
are working on is finished, they move on
©2007 Prentice Hall
Different business strategies
suggest different organizational
structures
• A company following a differentiation
strategy should have an
organic/enterprising design, and its
structure should be organized around
products, with many cross-functional
teams
• A company following the low-cost strategy
should use the simplest possible structure,
probably a functional one
©2007 Prentice Hall
Structure affects how strategic
decisions are made
• As the structure becomes more centralized there is a
stronger probability that the strategic decision making
process will be initiated by only those few dominant
individuals who run the company, and that it will be the
result of their proactive seeking for business
opportunities
• As the structure becomes more formalized the strategic
decision making process is likely to become reactive
rather than proactive
• As the level of complexity of the structure grows, so does
the probability that members will either not recognize the
strategic impacts of a policy or will ignore these impacts
in favor of the interests of the immediate unit in which
they work
©2007 Prentice Hall
What are international strategic
alliances?
• Organizations network to achieve a particular
competitive advantage
• Examples:
 “licensing agreements,” by which international firms
can quickly and inexpensively develop manufacturing
capability in other countries
 a “joint venture” occurs when existing companies that
are already networked together develop new
organizations
 “consortia” are groups of firms that take on new
products and technologies together
©2007 Prentice Hall
Apply what you have learned
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•
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World Class Company: Dell, Inc.
Advice from the Pro’s
Gain Experience
Can you solve this manager’s problem?
©2007 Prentice Hall
Summary – After managers divide up the
organization’s work, how do they
coordinate their employees to get it done?
• Organizational design is dividing up the work of
a company into jobs (the process called
differentiation) and then finding ways to
coordinate the people in these different jobs (the
process called integration)
• The greater a company’s differentiation, the
greater the challenge of integration
• Integration can be achieved through such means
as hierarchy, departmentalization, goals,
integrating departments, and integrator roles
©2007 Prentice Hall
Summary – How can you expect an
organizational structure to evolve?
• Company structures change because
companies grow, change their strategies,
or face crises
• As a company grows, a typical structural
evolution is from a simple structure to a
functional structure to a divisional structure
©2007 Prentice Hall
Summary – What are some recent
trends in organizational structure?
• Network: spin off strategic business units into
separate but still interacting companies
• The front-back structure, in which one part of the
company, the front, is oriented to the customer,
and another, the back, is oriented toward
manufacturing and new product development
• A concept popularized in recent years is the
boundaryless organization, in which boundaries
between levels and units and also between the
company and its customers are reduced
©2007 Prentice Hall
Summary – How do managers use
organizational structure to advance
their company’s strategy?
• Companies change their designs because
they believe that doing so will give them a
competitive advantage
• For example, a company following a
differentiation strategy, in which it plans to
develop a variety of innovative products,
should be an enterprise, while a company
following a low-cost strategy should be a
bureaucracy
©2007 Prentice Hall
Summary – How do international
organizational structures usually
evolve?
• A company that is going international
typically follows these steps:
 start out using a direct reporting structure
 later moves to an international division
 finally, it may adopt a global structure based
on product, region, or function, although they
may also be matrixes
©2007 Prentice Hall
Summary – What are international
strategic alliances and why are they
important?
• Companies are likely to pursue
relationships with companies in other
countries through:
 licensing agreements
 joint ventures
 consortia
©2007 Prentice Hall