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Chapter 15 - Foundations of Organization Structure

What is an Organizational Structure?

Organizational structure defines how job tasks are formally divided, grouped, and coordinated.
Six elements of an organizations structure.:
1. Work Specialization
Work specialization = the degree to which tasks in an organization are subdivided into
separate jobs.
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
2. Departmentalization
Departmentalization = the basis by which jobs in organization are grouped together.
Grouping activities by:
- By functions performed. E.g: engineering, accounting, etc
- By the type of product or service the organization produces.
- On the basis of geography or territory, when an organizations customers are
scattered over a large geographic area and have similar needs based on their
locations.
- By the process. Customer or products probably went through several
departments before receiving the service (for customer) or become the final
goods (for products).
- By the type of customers the organization seeks to reach. Customers in each
department have a common set of problems and needs best met by having
specialist for each.
3. Chain of Command
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.
Authority itself is the rights inherent in a managerial position to give orders and to
expect the orders to be obeyed.
The unity of command says a person should have one and only one superior to whom
he or she is directly responsible.

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4. Span of Control
Span of Control = the number of subordinates a manager can be efficiently and
effectively direct >> The wider or larger the span, the more efficient the organization is.
Narrow span have three major drawbacks:
- Its expensive because it adds levels of management.
- It makes vertical communication in the organization more complex >> slow down
decision making and tend to isolate upper management.
- It encourages overly tight supervision and discourage employee autonomy
5. Centralization and Decentralization
Centralization = the degree to which decision making is concentrated at a single point in
an organization.
- Centralized organizations: top managers makes all the decisions, and lowerlevel managers merely carry out their directives.
- Decentralized: the degree to which decision making is spread throughout the
organization.
A decentralized organization can act more quickly to solve problems, more
people provide input into decisions, and employees are less likely to feel
alienated from those who make decisions that affect their work lives.
6. Formalization
Formalization = the degree to which jobs within the organization are standardized.
- High formalization : explicit job descriptions, lots of organizational rules, and
clearly defined procedures covering work processes in organizations
- Low formalization : job behaviors are relatively unprogrammed, and employees
have great deal of freedom to exercise discretion in their work.
Common Organizational Design
There are the Simple Structure, the Bureaucracy, and the Matrix Structure.
I.

The Simple Structure

A structure characterized by a low degree of departmentalization, wide spans of control,
authority centralized in a single person, and little formalization.
Most widely practiced in small businesses in which the manager and the owner are one
and the same.
Advantages:
Its fast, flexible and inexpensive to operate
Accountability is clear
Disadvantages:
Its difficult to maintain in anything other than small organizations
Becomes increasingly inadequate as an organization grows because its low
formalization and high centralization

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Decision making typically becomes slower
Its risky because everything is depend on one person
II.

The Bureaucracy
A structure of highly operating routine tasks achieved through specialization, very
formalized rules and regulations, tasks that are grouped into functional departments,
centralized authority, narrow spans of control, and decision making that follows the
chain of command
Bureaucracy relies on standardized work processes for coordination and control. It
usually implemented by Bank, Department Store and Government Offices.
Advantages:
Has ability to perform standardized activities in a highly efficient manner
Standardized and high formalization allow decision making to be centralized
Disadvantages:
Obsessive concern with the following rules
There is no room for modification
Its only efficient as long as employees confront familiar problems programmed
decision rules

III.

The Matrix Structure

A structure that creates dual lines of authority and combines functional and product
departmentalization
Advantages:
It has ability to facilitate coordination when the organization has a number of
complex and interdependent activities
Direct and frequent contacts between different specialties in the matrix can let
information more quickly reach the people who need it
Achieves economics of scale and facilitates the allocation of specialties by providing
both the best resources and an effective way of ensuring their efficient deployment
Disadvantages:
Without unity of command concept, ambiguity who reports to whom is significantly
increased and often leads to conflict
Reporting to more than one boss introduces role conflict and unclear expectations
introduce role ambiguity.

New Design Options

1. The Virtual Organization
A small, core organization that outsources its major business functions.
Highly centralized with little or no departmentalization

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Minimizes bureucratic overhead because there is no lasting organization to maintain.

And it lessen long-term risks and their costs because there is no long terma team is
assembled for a finite period and then disbanded.
Advantage : Provides maximum flexibility while concentrating on what the
organization does best.
Disadvantages : Less adaptable and innovative than those with well-established
communication and collaboration networks, reduced control over key parts of the
business.

2. The Boundaryless Organization

This is an organization that seeks to eliminate the chain of command, have limitless spans of
control, and replace departments with empowered teams.
This type has T-form Concepts :
Eliminate vertical (hierarchial) and horizontal (departmental) internal boundaries
Break down external barriers to customers and suppliers

>> The Leaner Organization : Organization Downsizing <<

The goal of the new organizational forms is to improve agility by creating a lean, focused, and
flexible organization. Companies may need to cut divisions that arent adding value. Downsizing
is a systematic effort to make an organization learner by selling off business units, closing
locations, or reducing staff.
Impacts:
-

It may cause loss of market share and changes in consumer demand. Some companies
probably needed downsizing just to be suvive, and others do to direct all their efforts
toward their core competencies.
Can reduce bureaucracy and speed decision making.
Reducing the size of the workforce has an immediately positive outcome in the huge
reduction in wage costs
Employee attitudes. They will feel worried about future layoffs and may be less
committed to the organization. It can also lead to more voluntary turnover so vital
human capital is lost.

The following are some effective strategies for downsizing and suggestions for implementing
them.
Investment
Companies that downsize to focus on core competencies are more effective when they
invest in high-involvement work practices afterward

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Communication
Employees are less worried about outcomes and feel the company is taking their
perspective into account while they are involving in discussion.
Participation
Employees worry less if they can participate in the process in some way.
Assistance
Providing severance, extended health care benefits, and job search assistance
demonstrates a company does really care about its employees and honors their
contributions.
Why do Stuctures Differ?
1. Mechanistic model
A structure characterized by extensive departmentalization, high formalization, a limited
information network, and centralization.
2. Organic model
A structure that is flat, uses cross-hierarchical and cross-functional teams, has low formalization,
possesses a comprehensive information network, and relies on participative decision making

The major causes of differentiation an organizations structure:

i.

Strategy
Innovation strategy is a strategy that emphasizes the introduction of major new
products and services. Innovative firms will use competitive pay and benefits to attract
top candidates and motivate employees to take risks.
Cost-minimization strategy is a strategy that emphasizes yight cost controls, avoidance
of unnecessary innovation or marketing expenses, and price cutting.
Imitation strategy is a strategy that seeks to move into new products or new markets
only after their viability has already been proven.

ii.

Organization Size
How the size of an organization affects its structure. As an organization grows larger, it becomes
more mechanistic.
Characteristics of large organizations:
More specialization
More vertical levels
More rules and regulations

iii.

Technology
Technology describes the way an organization transfers inputs into outputs. The common theme
that differentiates technologies is their degree of routines.

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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.
iv.

Environment
Environment includes outside institutions or forces outside an organization that potentially
affect the organizations performance, such as suppliers, customer, government, etc. An
organizations structure can be affected by environmental uncertainty.
Organizations environment has three dimensions:
a. Capacity refers to the degree to which the environment can support growth.
b. Volatility describes the degree of instability in the environment.
c. Complexity is the degree of heterogeneity and concentration among environmental
elements.
Simple environments are homogeneus and concentrated, and heterogeneity one are
complex and diverse, with numerous competitors.
Some general conclusions: The more scarce, dynamic, and complex the environment, the more
organic a structure should be. The more abundant, stable, and simple the environment, the
more the mechanistic structure will be preferred.

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 as employees 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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Summary and Implications for Manager

This diagram summarizes the discussion of this chapter. Strategy, size, technology, and environment
determine the type of structure an organization will have. To simplify, we classify the structural designs
to mechanistic and organic. The specific effect of structural designs on performance and satisfaction is
moderated by employees individual preferences and cultural norms. Finally, technology is reshaping
work such that organizational structures may be increasingly amorphous. This allows a manager the
flexibility of taking into account things like employee preferences, experience, and culture to design
work systems that truly motivate their employees.

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