Chapter 10 Lecture Notes

Organizational Structure-Framework that defines the boundaries of the formal

organization and within which the organization operates.
This structure reflects how groups compete for resources, where responsibilities for
profits and other performance measures lie, how information is transmitted, and how
decisions are made. Some employees can work in any system; others need the rigid
discipline of a structured system to function properly. The larger the organization,
usually more structure is needed.

Three growth stages of an organization

1) Craft or family-start up stage, very few policies in place. Usually one person
handles one area.
2) Entrepreneurial-growth stage, increasing a lot at first then leveling off. The
beginning of a formal structure usually occurs during this stage. If an effective
organizational structure is not developed, control of the organization may be lost.
3) Professional management-as-entrepreneurial stage is leveling off; the company is
then taken over by a professional manager who performs the functions of
planning, staffing, organizing, leading, and controlling.

Organizational charts-series of boxes connected with one or more lines to graphically

represent the organization’s structure. The box represents the position within the
organization while the line represents the nature of the relationships among different
positions. many entrepreneurs fail during the professional management stage due
to the lack of organizational skills necessary to perform in a highly organized
structure.

Line Structure—organization structure with direct vertical lines between the different
levels of the organization. Most important aspect of the line structure is that the work of
all organizational units is directly involved in producing and marketing the organization’s
goods and services. There are clear lines of authority which allows for rapid decision
making and prevents passing the buck. Disadvantages are it may force managers to
perform too broad a range of duties and may cause the organization to become too
dependent on one or two key employees. Because of the simplicity, it is often found in
many small companies.

Line and Staff Structure—Staff specialists are added to a line organization

The Staff functions are advisory and supportive in nature
The Line functions are directly involved in the production and marketing of the
organization’s goods. Line functions contribute directly while staff functions contribute
indirectly.
What is the difference between line and staff functions?

Conflict often occurs between line and staff. Some staff personnel may resent the fact
that they have no formal authority and some line managers, knowing that the final
responsibility rests upon themselves, are reluctant to listen to staff personnel.
Matrix Structure—Hybrid organization structure in which individuals from different
functional areas are assigned to work on a specific project or task.

Project—combination of human and non-human resources pulled together in a

temporary organization to achieve a specified purpose. (usually is something new and has
a temporary life). A manager from one area will be assigned to head the project.
Advantages include expertise from many different functional areas and flexibility to
make changes as necessary. Problems include violation of the unity of command. There
must be clear instructions and communication between the project and line manager. A
second problem occurs when project personnel are still evaluated by their functional
manager. They are also very costly to implement.

Flat vs. tall structures

Flat structure—relatively few levels and relatively large spans of management at each
level
Tall structure—many levels and relatively small spans of management

Study by James Worthy noted that flat structure offered the potential for greater job
satisfaction. This forced the manager to delegate authority and develop more direct links
of communication.
Study by Carzo and Yanouzas found that groups operating in a tall structure had better
performance
There have been studies that produced different results so no concrete conclusions can be
reached.

Factors affecting structure

1) Strategy--organizations must decide which structure will best facilitate their
objectives
It can be made up of equal departments or more vertical depending on the strategy
Does structure follow strategy or does strategy follow structure? Research indicates
that structure should follow strategy.
2) Size--number of employees or sales volume can dictate structure The smaller the
organization, the less specialized they usually tend to be. As an organization grows it is
usually necessary to make structural changes.
3) Environment--Broken down into two distinct organizational systems
a) Mechanistic system--characterized by a rigid delineation of functional duties,
precise job descriptions, fixed authority and responsibility, and a well developed
organizational hierarchy through which information filters up and instructions flow
down.
b) Organic systems--less formal job descriptions, greater emphasis on
adaptability, more participation, and less fixed authority.

Research found that successful firms in stable industries tended to be mechanistic in

structure while successful firms in dynamic industries tended to be organic in structure.
Figure 8.9 in book page 173
4) Organization and technology--research in England grouped firms by mode of
production which related to technical complexity. a) Small batch production b) Large
batch or mass production c) Continuous flow or process production The small batch
represents the lower end of the technological advancement and the continuous flow
represents the more advanced end of technological advancement
The studies found:
1) The number of levels in an organization increased as technical complexity increased
2) Ratio of managers and supervisors to total personnel increased as technical
complexity increased
3) Organic and mechanistic management systems tended to predominate in frims at both
ends of the scale of technical complexity, while mechanistic systems predominated in
firms falling in the middle ranges.
4) No significant relationship existed between technical complexity and organizational
size.

Simple form, lean staff

Peters and Waterman, in their studies of efficient companies noted that the successful
companies fought the urge to increase staff positions as an organization grew. The
efficient companies were simply structured with a small staff.
Why this is effective
1) allows quick adjustment in a dynamic environment
2) conductive to innovation

Four characteristics outlined by Peters and Waterman that enable an organization to

maintain a simple form and lean staff.
1) extraordinary divisional integrity, each division has its own functional areas,
including product development, finance, and personnel
2) continual formation of new divisions and rewards for this practice
3) guidelines that determine when a new product or product line will become an
independent division
4) moving people and even products among divisions on a regular basis without causing
disruption.
Contingency approach—states that the most appropriate structure depends on the
technology used, the rate of environmental change, and other dynamic forces.

Departmentation—Grouping jobs into related work units. These units may be related
on the basis or work functions, products, customer, geography, technique, or time.
Function departmentation—defines organizational units in terms of the nature of work.
Most companies use the 4 basic groups of production, marketing, finance, and human
resources. These basic groups may be further split. Production may include
maintenance, quality control, engineering, manufacturing, etc. Advantages of functional
divisions are the ability to specialize, efficient use of resources, economies of scale.
There can also be some disadvantages. If the separate functional departments are not
working together to meet the overall company goal there can be problems. (eg sales and
marketing selling more than the production team can produce).
Product departmentation—grouping all activities necessary to produce and market a
product or service, usually under a single manager. Allows company to manage each
product as a separate profit center. It is a good cross training tool as managers get some
experience in all of the functional areas. One concern with this method is that if
departments get overly competitive it can be detrimental to the entire operation. Another
major issue is the duplication of facilities, equipment, and manpower. (sales rep can sale
separate products in the same call). Best in large multi-product organizations.

Geographic—Defining organizational units by territory. Used by companies with

physically dispersed and autonomous operations or offices. Takes advantage of local
employees and salespeople and leads to a high level of service. The negative side of this
is the cost of maintaining many facilities.

Customer—Defines organizational units in terms of customers served. Advantage is your

sales people can specialize and maintain a close relationship with a group of customers
and have the best possible chance to meet the customers needs.

Outsourcing (subcontracting)
Any of the major functional areas can be outsourced (accounting, human resources,
information technology, and contract manufacturing)
Can you think of an example where this might be feasible?
(Small amounts of I/T, new product to sell that is not like anything else you produce)

Benefits of outsourcing
1) Allows the organization to emphasize its core competencies by eliminating some
areas
2) Reduces operating costs by utilizing others who can do the job more effectively and
more efficiently
3) Accessing top talent in a field without having to own it
4) Fewer personnel problems
5) Improved resource allocation by allowing growth to take place more quickly

Disadvantages of outsourcing
1) Loss of control and being at the mercy of the vendor
2) Loss of in-house skills
3) Threat to the morale of the workforce if too many areas are dominated by outside
vendors
4) Loss of loyalty by having employee do job

Committees—organization structure in which a group of people are formally appointed,

organized, and superimposed on the line or line and staff structure to consider or decide
certain matters.
Board of Directors—Committee selected by an organization to oversee the major
policies and strategies of a company. Figurehead, lawsuits, liability insurance