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  • 1. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-1Organizational Structure And DesignOrganizational Structure And Design• Organization structureOrganization structure –– the pattern ofthe pattern ofjobs and groups of jobs in anjobs and groups of jobs in anorganization.organization.• It is an important cause of individual andIt is an important cause of individual andgroup behavior.group behavior.
  • 2. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-2The Concept of Organization StructureStructure as anStructure as aninfluence oninfluence onbehaviorbehaviorStructure asStructure asrecurring activitiesrecurring activities
  • 3. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-3Organization designOrganization design –– managementmanagementdecisions and actions that result in adecisions and actions that result in aspecific organization structure.specific organization structure.
  • 4. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-4Division of Labor:Departmentalization:Span of Control:HighHigh LowLowHomogeneousHomogeneous HeterogeneousHeterogeneousManyFewFewAuthority:LowLowHighHighSpecializationSpecializationBasisBasisNumberNumberDelegationDelegationThe Four Key Design Decisions
  • 5. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-5Division of Labor• Division of labor – concerns the extentto which jobs are specialized• It is the process of dividing work intorelatively specialized jobs to achieveadvantages of specialization
  • 6. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-6Division of Labor Occurs in ThreeDifferent Ways:1. Personal specialties• e.g., accountants, software engineers, graphicdesigners, scientists, etc.2. Natural sequence of work• e.g., dividing work in a manufacturing plant intofabricating and assembly (horizontal specialization)3. Vertical plane• e.g., hierarchy of authority from lowest-level managerto highest-level manager
  • 7. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-7Delegation of Authority• Managers decide how much authorityshould be delegated to each job and toeach jobholder• Delegation of authority – process ofdistributing authority downward in anorganization
  • 8. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-8Reasons to Decentralize Authority1. Relatively high delegation of authorityencourages the development of professionalmanagers2. High delegation of authority can lead to acompetitive climate within the organization3. Managers who have relatively high authoritycan exercise more autonomy, and thus satisfytheir desires to participate in problem solving
  • 9. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-9Reasons to Centralize Authority (1 of 2)1. Managers must be trained to make thedecisions that go with delegated authority2. Many managers are accustomed to makingdecisions and resist delegating authority totheir subordinates
  • 10. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-10Reasons to Centralize Authority (2 of 2)3. Administrative costs are incurred because newcontrol systems must be developed to providetop management with information about theeffects of subordinates’ decisions4. Decentralization means duplication offunctions
  • 11. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-11Delegation Decision Guidelines (1 of 2)• How routine and straightforward are the job’s orunit’s required decisions?• The authority for routine decisions can becentralized• Are individuals competent to make the decision?• Even if the decision is non-routine, if the localmanager is not capable, then the decision should becentralized• Delegation of authority can differ among individualsdepending upon each one’s ability to make thedecision
  • 12. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-12Delegation Decision Guidelines (2 of 2)• Are individuals motivated to make the decision?• Capable individuals are not always motivatedindividuals• Motivation must accompany competency to createconducive conditions for decentralization• Do the benefits of decentralization outweigh itscosts?
  • 13. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-13DepartmentalizationDepartmentalization –– process inprocess inwhich an organization iswhich an organization isstructurally divided by combiningstructurally divided by combiningjobs in departments according tojobs in departments according tosome shared characteristic orsome shared characteristic orbasis.basis.
  • 14. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-14Functional GeographicProduct CustomerDepartmentalization Bases
  • 15. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-15Departmental Bases:Functional Departmentalization• Jobs are combined according to the functionsof the organization• The principal advantage is efficiency• By having departments of specialists,management creates efficient units• A major disadvantage is that organizationalgoals may be sacrificed in favor ofdepartmental goals
  • 16. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-16Departmental Bases:Geographic Departmentalization• Establish groups according to geographicarea• The logic is that all activities in a givenregion should be assigned to a manager• Advantageous in large organizationsbecause physical separation of activitiesmakes centralized coordination difficult• Provides a training ground for managerialpersonnel
  • 17. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-17Northeast Midwest Southeast PacificOBMCompanySouthwestGeographic Departmentalization Structure
  • 18. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-18Departmental Bases:Product Departmentalization• All jobs associated with producing and selling aproduct or product line will be placed under thedirection of one manager• Product becomes the preferred basis as a firmgrows by increasing the number of products itmarkets• Concentrating authority, responsibility, andaccountability in a specific product departmentallows top management to coordinate actions
  • 19. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-19OBM CompanyOBM CompanyOBM CompanyOBM CompanySmallSmallHouseholdHouseholdAppliancesAppliancesSmallSmallHouseholdHouseholdAppliancesAppliancesLargeLargeHouseholdHouseholdAppliancesAppliancesLargeLargeHouseholdHouseholdAppliancesAppliancesCommercialCommercialAppliancesAppliancesCommercialCommercialAppliancesAppliancesBuildingBuildingMaterials andMaterials andProductsProductsBuildingBuildingMaterials andMaterials andProductsProductsLawn andLawn andGardenGardenProductsProductsLawn andLawn andGardenGardenProductsProductsAutomotiveAutomotiveProductsProductsAutomotiveAutomotiveProductsProductsProduct Departmentalization Structure
  • 20. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-20Departmental Bases:Customer Departmentalization• The importance of customer satisfaction hasstimulated firms to search for creative ways toserve people better• Organizations with customer-based departmentsare better able to satisfy customer-identifiedneeds than organizations that base departmentson non-customer factors
  • 21. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-21RetailStoresMail OrderOn-LineSalesGovernmentContractsOBMCompanyInstitutionalSalesCustomer Departmentalization Structure
  • 22. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-22Span of Control (1 of 2)• Number of individuals who report to aspecific manager• Narrow span• Wide span• The frequency and intensity of actualrelationships is the critical considerationin determining the manager’s span ofcontrol
  • 23. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-23Dimensions of Structure• Formalization – the extent to whichexpectations regarding the means and ends ofwork are specified, written, and enforced• Centralization – the location of decision-makingauthority in the hierarchy• Complexity – the direct outgrowth of dividingwork and creating departments
  • 24. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-24Comparison of Mechanistic and OrganicStructures (1 of 3)Process Mechanistic Structure Organic Structure1. Leadership Includes no perceivedconfidence and trust betweensuperiors and subordinates.Includes perceived confidenceand trust between superiorsand subordinates.2. Motivation Taps only physical, security,and economic motives,through use of fear andsanctions.Taps a full range of motivesthrough participatory methods.3. Communication Information flows downwardand tends to be distorted,inaccurate, and viewed withsuspicion by subordinates.Information flows freely:upward, downward, andlaterally. The information isaccurate and undistorted.
  • 25. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-25Comparison of Mechanistic and OrganicStructures (2 of 3)Process Mechanistic Structure Organic Structure4. Interaction Closed and restricted.Subordinates have little effecton departmental goals,methods, and activities.Open and extensive. Bothsuperiors and subordinates areable to affect departmentalgoals, methods, and activities.5. Decision Relatively centralized.Occurs only at the top ofthe organization.Relatively decentralized.Occurs at all levels throughgroup processes.6. Goal setting Located at the top of theorganization, discouraginggroup participation.Encourages groupparticipation in setting high,realistic objectives.
  • 26. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-26Comparison of Mechanistic and OrganicStructures (3 of 3)Process Mechanistic Structure Organic Structure7. Control Centralized. Emphasizesfixing blame for mistakes.Dispersed throughout theorganization. Emphasizesself-control and problemsolving.8. PerformancegoalsLow and passively soughtby managers, who make nocommitment to developingthe organization’s humanresources.High and actively sought bysuperiors, who recognize theneed for full commitment todeveloping, through training,the organization’s humanresources.
  • 27. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-27Organization Design Models:The Matrix Model• Matrix organization – attempts to maximizethe strengths and minimize the weaknessesof both the functional and product bases• Superimpose a horizontal structure ofauthority, influence, and communication onthe vertical structure• Facilitates the utilization of highly specializedstaff and equipment
  • 28. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-28Project or product AProject or product AProject or product BProject or product BProject or product CProject or product CProject or product DProject or product DProject or product EProject or product EManufacturingManufacturing MarketingMarketing EngineeringEngineering FinanceFinanceFunctionsFunctionsProjects, productsProjects, productsExample of the Matrix Organization Model
  • 29. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-29Advantages of Matrix Organization• Efficient use of resources• Flexibility in conditions of change and uncertainty• Technical excellence• Freeing top management for long-range planning• Improving motivation and commitment• Providing opportunities for personal development
  • 30. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-30Task ForceTeamsProductManagersProductManagement Depts.(1)(2)(3)(4)Evolutionary Steps to the Matrix Model
  • 31. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-31Multinational Structure and Design• Multinational corporation – consists of agroup of geographically dispersedorganizations with different nationalsubsidiaries• Multinational corporations frequently exist invery divergent environments• The most prevalent departmental basis isgeographic
  • 32. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-32Multinational Corporations: Implicationsfor Organizational Design (1 of 2)1. National boundaries are an important force indefining organizational environments2. Subsidiaries or affiliates of multinationalcorporations can act as conduits that introducechanges into the host country’s environment
  • 33. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-33Multinational Corporations: Implicationsfor Organizational Design (2 of 2)3. Subsidiaries of multinational corporations canact as conduits through which features of thehost country culture are introduced throughoutthe multinational organization
  • 34. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-34Virtual Organizations• Virtual organization – a collection ofgeographically distributed, functionallyand/or culturally diverse aggregations ofindividuals that is linked by electronicforms of communication• Assembled and disassembled accordingto needs
  • 35. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-35Virtual Organizations:Consequences• Increase in overall communication and messages• Relationships are tenuous• Continual surety of roles, tasks, and assignments• Caution needed in managing feedback,discussion, performance review, and rewardsystems• Greater equity of participation
  • 36. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.16-36Boundaryless Organizations• Organizations in which:• the hierarchy and chain of command areminimized• rigidly structured departments areeliminated• Implemented to reduce barriers betweenpeople and constituencies