Chapter 11 - Foundations of Organizational Design-1-1

FOUNDATIONS OF
ORGANIZATIONAL
DESIGN
Chapter 11
1
DESIGNING ORGANIZATIONAL
STRUCTURE
 Organizational Structure
The formal arrangement of jobs within an organization
 Organizational design
 A process that involves decisions about six key
elements:
 Work specialization
 Departmentalization
 Chain of command
 Span of control
 Centralization and decentralization
 Formalization
2
EXHIBIT 11-1 PURPOSES OF ORGANIZING
• Divides work to be done into specific jobs and

departments
• Assigns tasks and responsibilities associated with
individual jobs
• Coordinates diverse organizational tasks
• Clusters jobs into units
• Establishes relationships among individuals,
groups, and departments
• Establishes formal lines of authority
• Allocates and deploys organizational resources
3
ORGANIZATIONAL STRUCTURE
 Work Specialization
 The degree to which tasks in the organization are
divided into separate jobs with each step
completed by a different person.
 Overspecialization can result in human

diseconomies from boredom, fatigue, stress,
poor quality, increased absenteeism, and higher
turnover.
Most managers today see work specialization as an
important organizing mechanism as it helps
employees to be more efficient.
10–4
DEPARTMENTALIZATION BY TYPE
 Product departmentalization: organized based on the goods
and services a company offers.
 Geographical departmentalization: organized by geographical

regions within a country or, for a multinational firm, by region
throughout the world.
 Customer departmentalization: organized by the different

types of customers the organization serves.
 Functional departmentalization: organized by business

functions such as finance, marketing, human resources, and
production.
 Process departmentalization: organized by work processes

necessary to complete production of goods or services.
10–5
6
7
(CONT’D)
 Chain of Command
 The continuous line of authority that extends from
upper levels of an organization to the lowest levels
of the organization and clarifies who reports to
whom
8
(CONT’D)
 Authority
 The rights inherent in a managerial position to tell
people what to do and to expect them to do it
 Responsibility
 The obligation or expectation to perform. Responsibility
brings with it accountability (the need to report and
justify work to manager’s superiors)
 Unity of Command
 The concept that a person should have one boss and
should report only to that person
9
ORGANIZATION STRUCTURE (CONT’D)
 Span of Control
 The number of employees who can be effectively and
efficiently supervised by a manager.
Determining the span of control is important because

to a large degree, it determines the number of levels
and managers in an organization.
All other things being equal, the wider or larger the

span, the more efficient (in terms of cost) the
organization is.
But wider spans may reduce effectiveness.
10–10
EXHIBIT 11-6 CONTRASTING
SPANS OF CONTROL
10–11
(CONT’D)
 Centralization
 Thedegree to which decision making is
concentrated at a single point in the organization
 Organizations in which top managers make all the
decisions and lower-level employees simply carry out
those orders
 Decentralization
 The degree to which lower-level employees
provide input or actually make decisions
 Employee Empowerment
 Increasing the decision-making discretion of
employees
12
EXHIBIT 11-7 CENTRALIZATION
OR DECENTRALIZATION
13
ORGANIZATION STRUCTURE
(CONT’D)
 Formalization
 The degree to which jobs within the organization
are standardized and the extent to which
employee behavior is guided by rules and
procedures.
 Highly formalized jobs offer little discretion over what
is to be done.
 Low formalization means fewer constraints on how
employees do their work.
10–14
EXHIBIT 11-8 MECHANISTIC
VERSUS ORGANIC ORGANIZATIONS
15
STRUCTURAL CONTINGENCY
FACTORS
 Structural decisions are influenced by:
 Overall strategy of the organization
 Organizational structure follows strategy.
 Size of the organization

 Firms change from organic to mechanistic organizations as
they grow in size.
 Technology used by the organization

 Firms adapt their structure to the technology they use.
 Routine technology = mechanistic organizations
 Non-routine technology = organic organizations
 Degree of environmental uncertainty

 Dynamic environments require organic structures;
mechanistic structures need stable environments.
10–16
FACTORS (CONT’D)
 Strategy and Structure
 Achievement of strategic goals is facilitated by
changes in organizational structure that
accommodate and support change
 Size and Structure
 Asan organization grows larger, its structure
tends to change from organic to mechanistic with
increased specialization, departmentalization,
centralization, and rules and regulations
17
FACTORS (CONT’D)
 Technology and Structure
 Organizations adapt their structures to their
technology
 Woodward’s classification of firms based on the
complexity of the technology employed:
 Unit production of single units or small batches
 Mass production of large batches of output
 Process production in continuous process of outputs
 Routinetechnology = mechanistic organizations
 Non–routine technology = organic organizations
18
FACTORS (CONT’D)
 Environmental Uncertainty and Structure
 Mechanisticorganizational structures tend to be
most effective in stable and simple environments
 Theflexibility of organic organizational
structures is better suited for dynamic and
complex environments
19
COMMON ORGANIZATIONAL
DESIGNS
 Traditional Designs
 Simple Structure
 Low departmentalization, wide spans of control,
centralized authority, little formalization
 Functional Structure
 Departmentalization by function
 Operations, finance, human resources, and product
research and development
 Divisional Structure
 Composed of separate business units or divisions with
limited autonomy under the coordination and control
of the parent corporation
20
EXHIBIT 11-10 TRADITIONAL
ORGANIZATIONAL DESIGNS
21

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FOUNDATIONS OF

• Divides work to be done into specific jobs and

 Overspecialization can result in human

 Geographical departmentalization: organized by geographical

 Customer departmentalization: organized by the different

 Functional departmentalization: organized by business

 Process departmentalization: organized by work processes

Determining the span of control is important because

All other things being equal, the wider or larger the

But wider spans may reduce effectiveness.

 Size of the organization

they grow in size.

 Technology used by the organization

 Routine technology = mechanistic organizations

 Non-routine technology = organic organizations

 Degree of environmental uncertainty

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