McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Organization Structure
Organizations: Behavior, Structure, Processes
Chapter 14
Learning Objectives
Define the terms organization structure
and organizational design
 Describe the relationships among the
four managerial decisions of organization
structure
 Discuss the relative advantages and
disadvantages of centralization and
decentralization of authority
 Compare mechanistic and organic designs
of organizations
 Understand why virtual organizations are
becoming more popular

14-3
Organization Structure
Organization structure – the
pattern of jobs and groups of
jobs in an organization.
It is an important cause of
individual and group behavior.
14-4
Concept of Organization Structure

Structure as an influence on behavior
Those features of the organization that
control or distinguish its parts
 All organizations have a structure of jobs


Structure as recurring activities
Without predictable activities, the work
of the organization could not be done
 Emphasizes persistence and regularity
of activities

14-5
Designing an Organization

Organizational design


Management decisions and actions that result
in a specific organization structure
Managers decide




How to divide the overall task into successively
smaller jobs
The bases by which to group individual jobs
The appropriate size of the group reporting to
each supervisor
How authority will be distributed among the jobs
14-6
Four Key Design Decisions
Specialization
Division of Labor
Low
High
Basis
Departmentalization
Homogeneous
Heterogeneous
Number
Span of Control
Wide
Narrow
Delegation
Authority
Centralized
Decentralized
14-7
Division of Labor

The process of dividing work into
relatively specialized jobs to achieve
the advantages of specialization

Division of labor can occur by dividing
work…
Into different personal specialties
 Into different activities necessitated by the
natural sequence in which the work is
performed
 Along the vertical plane of the organization

14-8
Departmental Bases
Departmentalization – the
process in which an organization
is structurally divided by
combining jobs in departments
according to some shared
characteristic or basis.
14-9
Departmental Bases
Functional
 Geographic
 Product
 Customer
 Combined bases (Matrix)

14-10
Functional Bases

Jobs are combined according to the
functions of the organization
The principal advantage is efficiency
 By having departments of specialists
management creates efficient units


A major disadvantage

Organizational goals may be sacrificed
in favor of departmental goals
14-11
Functional Bases: Banking
Chief Executive Officer
Loans
Investments
Trusts
Marketing
Operations
14-12
Geographic Bases

Groups are established according to
geographic area


Logic is that all activities in a given region
should be assigned to one manager
Advantageous in large organizations
Physical separation of activities makes
centralized coordination difficult
 Provides a training ground for managerial
personnel

14-13
Geographic Bases
Chairman
CEO
Northeast
Regional Mgr.
Midwest
Regional Mgr.
Southeast
Regional Mgr.
Southwest
Regional Mgr.
Pacific
Regional Mgr.
General Mgrs for
New York
Philadephia
Boston
General Mgrs for
Cleveland
Chicago
St. Louis
General Mgrs for
Raleigh
Atlanta
Orlando
General Mgrs for
Dallas
Houston
Albuquerque
General Mgrs for
Seattle
San Franciso
Los Angeles
14-14
Departmental Bases: Product

All jobs associated with producing and
selling a product or product line are
under the direction of one manager


Concentrating authority, responsibility,
and accountability allows top
management to coordinate actions
Product becomes the preferred basis
as a firm increases the number of
products it markets
14-15
Departmental Bases: Product
Vice President
& General Manager
Consumer Products Division
Director of
Personnel
Division Vice
President
& General
Sales Mgr
Director of
Marketing
Staff
Services
Director of
Marketing
Research
Division Vice
President &
General Mgr
Feminine Hygiene
Products
Director of
Distribution
& Planning
Division Vice
President &
General Mgr
Household
Products
Director of
Quality
Comptroller
Assurance
Division Vice
President &
General Mgr
Commercial
Products
Vice President
Manufacturing
14-16
Departmental Bases: Customer

Customers and clients can be a basis
for grouping jobs
Educational institutions
 The loan department in a
commercial bank
 Telephone companies
 Department stores

14-17
The Matrix Organization

Attempts to maximize the strengths and
minimize the weaknesses of both the
functional and product bases




Typically seen as a balanced compromise
between functional and product organization
Uses a dual authority system, which can cause
conflicts
Facilitates the utilization of highly specialized
staff and equipment
The flexibility of this system allows speedy
response to challenges
14-18
The Matrix Organization
Functions
Projects, products
Project or product A
Manufacturing Marketing
Engineering
X
X
X
Project or product B
Project or product C
X
Project or product D
X
Finance
X
X
X
X
X
14-19
Span of Control

The number of individuals who report
to a specific manager


The frequency and intensity of actual
relationships is the critical consideration
Deciding on a wide or narrow span of
control is influenced by three aspects
of relationships
Required contact
 Degree of specialization
 Ability to communicate

14-20
Wide Span of Control
President
Supervisor
Supervisor
14-21
Narrow Span of Control
President
Department
Head
Supervisor
Supervisor
Department
Head
Supervisor
Supervisor
14-22
Delegation of Authority

Distributing authority downward in an
organization


Managers decide how much authority to
delegate to each job and to each jobholder
Benefits of decentralizing authority
Encourages development of managers
 Can lead to a competitive climate within
the organization
 Managers exercise more autonomy, which
satisfies need to participate in problem
solving

14-23
Delegation of Authority

Decisions to decentralize often follow
experiences with centralization
14-24
Reasons to Centralize Authority

Managers



Control systems must be developed


Must be trained to make the decisions that go
with delegated authority, which is expensive
Accustomed to making decisions may resist
delegating authority, which reduces
effectiveness
Top management must have information
about the effects of subordinates’ decisions
Decentralization means duplication of
functions and bureaucracy
14-25
Decision Guidelines

Questions that help decide if routine
decisions should be centralized
How routine and straightforward are the
decisions for the job or the unit?
 How competent are the individuals who
will be making the decisions?
 How motivated are individuals to make
the decisions?
 Do the benefits of decentralization
outweigh the costs?

14-26
The Mechanist Model

Some of Fayol’s principles dealt with the
management function of organizing

Specialization: emphasizing the technical,
not behavior dimensions of work

Unity of direction: grouping jobs by specialty

Authority and responsibility: assigning
individuals sufficient authority to carry out
designated tasks

The scalar chain principle: the route for all
vertical communications in an organization
14-27
Bureaucracy


Max Weber coined the term bureaucracy
 It applies to a particular way to organize
collective activities
He believed that organizations must have
these characteristics
 Tasks are divided into specialized jobs
 Each task is performed according to a
system of rules to ensure task uniformity
and coordination
 Each member or office is accountable for
job performance to one, and only one,
manager
14-28
Bureaucracy

Weber’s organizational characteristics
(continued):
Employees relate to each other and to
clients in an impersonal, formal manner,
maintaining a social distance
 Employment is based on technical
qualifications
 Employees are protected against arbitrary
dismissal

14-29
The Mechanistic Model

The mechanistic model achieves high
levels of production and efficiency due
to its structural characteristics
Highly complex due to emphasis on
specialization of labor
 Highly centralized due to emphasis on
authority and accountability
 Highly formalized due to emphasis on
function as the basis for departments

14-30
The Organic Model

Seeks to maximize satisfaction,
flexibility, and development

Flexible to changing environmental
demands because its design encourages
greater utilization of the human potential

Decision making, control, and goal-setting
are decentralized and shared at all levels

Communication flows throughout the
organization, not just down the chain of
command
14-31
The Organic Model

The organic model is relatively…
Simple due a de-emphasis of job
specialization and emphasis on increased
job range
 Decentralized due to emphasis on
delegation of authority and increased
job depth
 Informal due to emphasis on product
and customer as bases for departments

14-32
Organic vs. Mechanistic Structures
Process
Mechanistic Structure
Organic Structure
1. Leadership
No perceived confidence or
trust between superiors and
subordinates.
Perceived confidence and trust
between superiors and
subordinates.
2. Motivation
Taps only physical, security,
and economic motives,
through use of fear and
sanctions.
Taps a full range of motives
through participatory methods.
3.
Communication
Information flows downward,
tends to be distorted and
inaccurate, is viewed with
suspicion by subordinates.
Information flows freely in all
directions and is accurate and
undistorted.
4. Interaction
Closed and restricted.
Subordinates have little effect
on departmental goals,
methods, and activities.
Open and extensive. Both
superiors and subordinates can
affect departmental goals,
methods, and activities.
14-33
Organic vs. Mechanistic Structures
Process
Mechanistic Structure
Organic Structure
5. Decision
Relatively centralized. Occurs Relatively decentralized. Occurs
only at the top of the
at all levels through group
organization.
processes.
6. Goal setting
Located at the top of the
organization, discouraging
group participation.
Encourages group participation
in setting high, realistic
objectives.
7. Control
Centralized. Emphasizes
fixing blame for mistakes.
Dispersed throughout the
organization. Emphasizes selfcontrol and problem solving.
8. Performance
goals
Low and passively sought by
managers, who make no
commitment to developing
the organization’s human
resources.
High and actively sought by
superiors, who recognize the
need for full commitment to
developing human resources
through training.
14-34
Contingency Design Theories

Emphasizes the importance of fitting a
design to the demands of a situation
Technology
 Environmental uncertainty
 Management choice


The essence of this approach

Under what circumstances, and in what
situations, is either the mechanistic or
organic design relatively more effective?
14-35
Technology

The actions that an individual performs upon
an object, with or without the aid of tools or
mechanical devices, in order to make some
change in that object
14-36
Technology & Organization Design

Organization structures reflect
technology in the way that jobs are…
Designed (division of labor)
 Grouped (departmentalization)


The state of knowledge regarding the
appropriate actions to change an object
acts as a constraint on management

The use of computers and robots has
increased the state of knowledge
exponentially
14-37
Joan Woodward’s Classic Study of
Technology and Organizational Design

Goal


Determine if there were structural
differences between more- and lesseffective firms
Result
No significant structural differences or
patterns were found
 Technology, on the other hand, had
significant impact

14-38
Joan Woodward’s Classic Study of
Technology and Organizational Design

Technology variables that were
measured
Stages in the development of production
processes
 Interrelationships between the equipment
used for these processes
 The extent to which the operations were
repetitive or comparable from one
production cycle/sequence to the next

14-39
Joan Woodward’s Classic Study of
Technology and Organizational Design
Custom
(Job Order)
Mass Production
Continuous
Process
Increasing use of Technology
•More Flexible
•Less Flexible
•More Flexible
•Organic
•Mechanistic
•Organic
•Verbal
communication
•Formal, written
communication
•Verbal
communication
•Managers have
greater technical
expertise
•Managers highly
specialized
•Managers have
greater scientific
expertise
•Integrated
control and
supervision of
production
•Control of
production
separate from
supervision of
production
•Integrated
control and
supervision of
production
14-40
Joan Woodward’s Classic Study of
Technology and Organizational Design

Conclusion
Different technologies impose different
demands on organizations
 These demands have to be met using the
appropriate structure and process choices

14-41
Environment & Organization Design

Lawrence and Lorsch
Studied plastics, food, container industries
 Reviewed the environmental demands
that they faced
 Tried to determine which environmental
elements affect centralized authority and
degree of specialization
 Questioned whether differences in
organizations affected coordination of
the organization’s parts

14-42
Differentiation

The degree of difference among
organizational units due to
individual and structural differences
Employees of some departments are more
or less task- or person-oriented
 Employees of some departments have
longer or shorter time horizons
 Some employees are more concerned
with department goals than organizational
goals

14-43
Integration and Environment

Achieving unity of effort among the
various subsystems during the
accomplishment of organizational tasks

Stability of environment determines
method of integration used

The key reason for differentiating into
subsystems is to deal more effectively
with sub-environments
14-44
Environment and Structure

Three main sub-environments
Market
 Technical-economic
 Scientific


Sub-environments variables
Rate of change of conditions over time
 The certainty of information about
conditions at any particular time
 The span of feedback on the results of
employee decisions

14-45
Lawrence & Lorsch Model
Integrative Subsystem
Marketing
Market
Sub-environment
Production
Research
Technical-economic
Sub-environment
Science
Sub-environment
14-46
Environmental Uncertainty and
Organizational Design: Service Sector
The growing service sector of the
economy requires optimal performance
 Improved performance is based on

Environmental uncertainly
 Customer attributes


Customer attributes
Diversity of demand for services
 Willingness to participate in delivery
of the service

14-47
Environmental Uncertainty and
Organizational Design: Service Sector

The best organizational design for a
service organization
Mechanistic or organic
 Depends on the degree of uncertainty in
the environmental and customer attributes
 Use the design that provides the most
flexibility

14-48
Adaptive Design Strategies

Organizations must receive, process, and act
on information to achieve performance




Information enables the organization to respond
to market, technological, and resource changes
The more rapid the changes, the greater the
necessity for, and availability of, information
In firms with a mechanistic design, information
processing requirements are modest
Firms with an organic design exist in dynamic and
complex environments

They cannot rely on traditional information and
control techniques
14-49
Sociotechnical System Theory

Production processes consist of social
and technical dimensions, which have a
reciprocal influence on one another
Joint-optimization of the technical
production system and social behaviors
has great benefits
 Precursor to the TQM movement
 The “control of variance” tenet suggests
unavoidable variances in production
processes be controlled as near to the
point of the problem as possible

14-50
Creating Virtual Organizations

Involves establishing a network of
cooperative relationships with a variety
of groups


How these relationships should be
organized and managed is being studied
The form of virtual organizations varies,
but resembles an organic design
Some are known as “boundaryless”
 New designs and strategies will emerge

14-51