Foundations of Organizational Structure

Foundations of Organizational Structure
A. Organization Structure
Organizational structure depicts how job tasks are formally divided, grouped and coordinated.
 Key elements to be addressed:
 Work specialization
 Departmentalization
 Chain of command
 Span of control
 Centralization
 Decentralization
 Formalization
1) Work Specialization
A key part of organizational structure is understanding the degree to which tasks are divided
into separate jobs or work specialization.
Division of Labor
 Makes efficient use of employee skills
 Increases employee skills through repetition
 Less between-job downtime increases productivity
 Specialized training is more efficient
 Allows use of specialized equipment
Work specialization can cause greater economies, but in some cases it can cause diminishing
returns due to repetition which can lead to boredom. Job enlargement can be effective in creating
greater efficiencies than specialization.
2) Departmentalization
Basis by which jobs are grouped together so that common tasks can be coordinated.
Grouping Activities by:
 Function
 Product
 Geography
 Process
 Customer
a. Functional Departmentalization
A form of organization that groups a company’s activities around essential functions such as
manufacturing, sales, or finance.
b. Product Departmentalization
Grouping departments around a firm’s products or services, or each family of products or
services; also referred to as a “divisional” organization.
c. Geographic (Territorial) Departmentalization
Separate departments are established for each of the territories in which the enterprise does
business.
d. Process Departmentalization
Departmentalization by process groups jobs on the basis of product or customer flow. Each
process requires particular skills and offers a basis for homogeneous categorizing of work
activities.
e. Customer Departmentalization
Self-contained departments are organized to serve the needs of specific groups of customers.
3) Chain of Command
 Authority
The rights inherent in a managerial position to give orders and to expect the orders to be
obeyed
 Chain of Command
The unbroken line of authority that extends from the top of the organization to the lowest
echelon and clarifies who reports to whom
 Unity of Command
A subordinate should have only one superior to whom he or she is directly responsible
4) Span of Control
The number of employees a manager is expected to effectively and efficiently direct.
 Concept
Wider spans of management increase organizational efficiency
 Narrow span drawbacks:
 Expense of additional layers of management
 Increased complexity of vertical communication
 Encouragement of overly tight supervision and discouragement of employee autonomy
Contrasting Spans of Control
5) Centralization and Decentralization

 Centralization is the degree to which decision making is concentrated at a single point in the
organization, typically at the top.
 Decentralization represents an organization that spreads decision making throughout the
organization.
6) Formalization
The degree to which jobs within the organization are standardized.
 High formalization
 Minimum worker discretion in how to get the job done
 Many rules and procedures to follow
 Low formalization
 Job behaviors are nonprogrammed
 Employees have maximum discretion
B. Common Organizational Designs
1. Simple Structure
A structure characterized by a low degree of departmentalization, wide spans of control,
authority centralized in a single person, and little formalization.
2. Bureaucracy
In a bureaucratic organization, there will be a great deal of structure. The tasks will be
completed through specialization, and they tend to be formalized through rules and
regulations. Departments will be highly defined by function and authority is centralized.
Decision making will follow a strict chain of command and there will be narrow spans of
control. The bureaucratic organization will be one that is highly defined and very controlled.
Strengths Weaknesses
 Subunit conflicts with organizational

 Functional economies of scale goals
 Minimum duplication of personnel and  Obsessive concern with rules and
equipment regulations
 Enhanced communication  Lack of employee discretion to deal
 Centralized decision making with problem.
3. Matrix Structure
 The matrix structure is another common organizational design. This structure creates
dual lines of authority and combines functional and product departments in a way to
effectively meet organizational goals.
 The key elements of the matrix structure is that it gains the interactions between the
functional and product departments by coordinating complex and interdependent
activities to help reach the goals set forth in an efficient manner opening up avenues for
new ideas to achieve the company’s mission. The matrix structure also breaks down the
unity-of-command concept as the lines of authority are blurred.
4. New Design Options – Virtual
Virtual organizations are developing as acceptable organizational structures. This structure
offers a small core organization that outsources many of its major functions to competent
suppliers. Virtual organizations are highly centralized with virtually no departmentalization
to provide maximum flexibility, focusing on what the organization does best. This type of
organization reduces control over some of the key parts of the business.
5. The Boundryless Organization

An organization that seeks to remove vertical, horizontal and external barriers so that
employees, managers, customers and suppliers can work together, share ideas and identify
the best course for the organization.
 By eliminating vertical barriers, management reduces hierarchy. and the
organization looks like a cylinder rather than a pyramid.
 The way to reduce horizontal barriers is to replace functional departments with
cross-functional teams and organize processing activities. another way is to move
and rotate employees inside and outside different functional areas.
 When fully operational, borderless organizations also eliminate external barriers.
C. The Four Forces that Influence Structure

1) Strategy
 Innovation strategy
A strategy thatemphasizes the introduction of majornew products and services.
Structural Option, Organic: A loose structure; low specialization, low
formalization,decentralized.
 Cost-minimization strategy
A strategythat emphasizes tight cost controls,avoidance of unnecessary
innovationor marketing expenses, and pricecutting. Cost-minimizing organizations
pursuefewer policies meant to develop commitment among their workforce
Structural Option,Mechanistic:Tight control; extensive work specialization,
highformalization, high centralization.
 Imitation strategy
A strategy thatseeks to move into new products ornew markets only after their
viabilityhas already been proven.Structural Option ,Mechanistic and organic: Mix of
loose with tight properties; tightcontrols over current activities and looser controls
for newundertakings.
2) Organization Size
As organizations grow, they become more mechanistic, more specialized, with more
rules and regulations.
3) Technology
The way in which anorganization transfers its inputs into outputs.
Technology Characteristics of routineness (standardized or customized) in activities:
 Routine technologies are associated with tall, departmentalized structures and
formalization in organizations.
 Routine technologies lead to centralization when formalization is low.
 Nonroutine technologies are associated with delegated decision authority.
4) Environment
Institutions or forcesoutside an organization that potentiallyaffect the organization’s
performance.
Key Dimensions :
a. Capacity : The degree to which the environment can support growth. Rich and growing
environments generate excess resources, which can buffer the organization in times of
relative scarcity.
b. Volatility : The degree of instability in the environment. A dynamic environment with a
high degree of unpredictable change makes it difficult for management to make
accurate predictions.
c. Complexity : The degree of heterogeneity and concentration among environmental
elements.
D. Organizational Designs and Employee Behavior
Research findings
 Work specialization contributes to higher employee productivity, but it reduces job satisfaction.
 The benefits of specialization have decreased rapidly asemployees seek more intrinsically
rewarding jobs.
 The effect of span of control on employee performance is contingent upon individual differences
and abilities, task structures, and other organizational factors.
 Participative decision making in decentralized organizations is positively related to job
satisfaction.

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Foundations of Organizational Structure

Contrasting Spans of Control

5) Centralization and Decentralization

 Subunit conflicts with organizational

5. The Boundryless Organization

C. The Four Forces that Influence Structure

D. Organizational Designs and Employee Behavior

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