Organizational design is the process by which managers alter the structure of their organization to meet the implementation demands of its chosen strategy. Division of labor, or work specialization , describes the degree to which organizational tasks are subdivided into separate jobs. An entire job is not done by one person. Instead, it is divided into discrete steps, each one completed by a different person.
How many employees can a manager efficiently and effectively direct? Some advocate small spans of control because they help managers maintain close control; but, there are several drawbacks: they require more managers and are more costly, they retard vertical communication, and they foster tight controls and limited employee autonomy. In contrast, wide spans of control reduce costs, cut overhead, expedite decision making, increase flexibility, empower employees, and promote customer contact. All things being equal, the broader the span of control , the more efficient the organization. Organizational variables that influence how a company will determine an appropriate span of control: similarity and complexity of employee tasks, the proximity of employees, the presence of standardized procedures, the capabilities of the information management system, the strength of the firm’s value system, and the preferred style of management.
Authority refers to the rights inherent in a managerial position, such as giving orders and expecting that the orders will be obeyed. Authority, therefore, is related to one’s position within an organization and ignores the personal characteristics of the individual manager. When managers delegate authority, they must allocate commensurate responsibility to perform. How does the contemporary view of authority and responsibility differ from the historical view? Early management scholars assumed that the authority and rights inherent in one’s formal position were the sole source of influence; so, managers were all powerful.
Early management writers distinguished between two forms of authority: line and staff. Line authority entitles a manager to direct the work of an employee. It is the employer-employee relationship that extends from the top of the organization to the lowest echelon, according to the chain-of-command (see the following chart).
The term centralization refers to the degree to which decision making is concentrated at a single point in the organization. The term decentralization means that significant input is provided by lower-level personnel. Traditional organizations were structured in a pyramid, with power and authority centralized at the top. In order to respond to the dynamics of the contemporary marketplace, organizations today are more decentralized to solve problems more quickly and to obtain increased employee input and commitment to organizational goals. However, while many production decisions are pushed down to lower levels in the organization, or even outside to some suppliers, financial and product distribution decisions still remain in the hands of senior management
The structure that an organization selects to achieve its objectives is based on strategy . After studying nearly 100 large companies, Alfred Chandler concluded that changes in corporate strategy foster changes in an organization’s structure. Specifically, he found that organizations usually begin with a single product or line. The simplicity of the strategy requires only a simple form of structure. As organizations grow, their strategies become more elaborate and ambitious. To exemplify this structure-strategy relationship, consider that organizations pursuing a differentiation strategy must innovate to survive; so, because it is flexible and adaptable, an organic structure complements this strategy. A cost-leadership strategy, on the other hand, seeks stability and efficiency. A mechanistic structure would be best for this type of strategy. While the size of an organization significantly influences its structure, the relationship is non-linear. Large organizations (2,000+ employees) have more specialization, departmentalization, vertical levels, rules, and regulations than do smaller organizations. However, size affects the organization at a decreasing rate and becomes less important as an organization expands.
Organizations use technology to transform inputs into outputs. The British scholar, Joan Woodward, studied small manufacturing firms in England and categorized them based on the sizes of their production runs. She reached two conclusions: (1) distinct relationships exist between a firm’s technology classification and its structure; (2) organizational effectiveness is contingent upon “fit” between technology and structure. Her study, like many others, focused on the processes or methods that companies can use to transform inputs into outputs and how they differ according to degree of routineness. Organic organizations are most effective in dynamic, uncertain environments. Mechanistic organizations are ill-equipped to function in such environments and are most effective in stable environments. To compete in the global village, many managers have redesigned their organizations to make them more organic.
Placing organizations into only two categories — mechanistic and organic — does not capture the nuances and realities of modern organizations. The following slides present a number of practical organization design options. We will start with the simple structure — the form that almost all new organizations begin with and that continues to be used by managers of small businesses. Popular in small businesses owned and managed by same person, the simple structure has several characteristics: a low degree of departmentalization, wide spans of control, centralized authority, little formalization, and a flat structure. This fast, flexible structure is inexpensive to maintain and promotes clear accountability. However, as the organization grows, low formalization and high centralization can cause information over-load at the top. And, this structure is risky because everything depends on one person.
The matrix structure assigns functional specialists to interdisciplinary teams that are supervised by project leaders. This structure combines product departmentalization and functional departmentalization. In smaller companies, the team structure can define the entire organization. More often, especially in larger organizations, the team structure complements what is typically a bureaucracy. Such an arrangement allows the organization to achieve the efficiency of standardization while gaining flexibility. The boundaryless organization is made possible by networked computers that expedite communication across intra-organizational and inter-organizational boundaries. The elimination of boundaries in contemporary organizations is being driven by global markets and competitors, innovative technology, and volatile business environments. This method minimizes the chain of command, limits spans of control, and replaces departments with empowered teams. Cross-hierarchical teams, participative decision making, and 360 degree performance appraisals dismantle vertical boundaries. Cross-functional teams, project-driven activities, lateral transfers, and job rotation minimize horizontal boundaries. Globalization, strategic alliances, customer-organization linkages, and telecommuting overcome external boundaries.
The term organization culture refers to a system of meaning that members share and that distinguishes the organization from others. This system strongly influences how employees will behave while they are at work. The culture of an organization can be analyzed based on how it rates on ten characteristics, which are relatively stable and predictable over time.
Basic Organization Designs
The Elements of Structure <ul><li>Organization Design </li></ul><ul><ul><li>Is a process in which managers develop or change their organization’s structure. </li></ul></ul><ul><li>Work Specialization </li></ul><ul><ul><li>Involves having each discrete step of a job done by a different individual rather than having one individual do the whole job. </li></ul></ul>
Organizational Structure: Control <ul><li>Chain of Command </li></ul><ul><ul><li>The continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who reports to whom. </li></ul></ul><ul><li>Unity of Command </li></ul><ul><ul><li>The management principle that no person should report to more than one boss. </li></ul></ul><ul><li>Span of Control </li></ul><ul><ul><li>The number of subordinates a manager can direct efficiently and effectively. </li></ul></ul>
Organizational Structure: Control (cont’d) <ul><li>Authority </li></ul><ul><ul><li>The rights inherent in a managerial position to give orders and expect them to be obeyed. </li></ul></ul><ul><li>Power </li></ul><ul><ul><li>An individual’s capacity to influence decisions </li></ul></ul><ul><li>Responsibility </li></ul><ul><ul><li>An obligation to perform assigned activities </li></ul></ul>
Types of Organizational Authority <ul><li>Line Authority </li></ul><ul><ul><li>The position authority (given and defined by the organization) that entitles a manager to direct the work of operative employees. </li></ul></ul><ul><li>Staff Authority </li></ul><ul><ul><li>Positions that have some authority (e.g., organization policy enforcement) but that are created to support, assist, and advise the holders of line authority. </li></ul></ul>
Centralization And Decentralization <ul><li>Centralization </li></ul><ul><ul><li>A function of how much decision-making authority is pushed down to lower levels in an organization; the more centralized an organization, the higher the level at which decisions are made. </li></ul></ul><ul><li>Decentralization </li></ul><ul><ul><li>The pushing down of decision-making authority to the lowest levels of an organization. </li></ul></ul>
Contingency Variables Affecting Structure (cont’d) <ul><li>Mechanistic Organization </li></ul><ul><ul><li>The bureaucracy: a structure that is high in specialization, formalization, and centralization </li></ul></ul><ul><li>Organic Organization </li></ul><ul><ul><li>An adhocracy: a structure that is low in specialization, formalization, and centralization </li></ul></ul><ul><li>Structure follows the organization’s chosen strategy —change strategy, change structure. </li></ul>
Technology and Structure <ul><li>Unit Production </li></ul><ul><ul><li>Production in terms of units or small batches </li></ul></ul><ul><li>Mass Production </li></ul><ul><ul><li>Production in terms of large batch manufacturing </li></ul></ul><ul><li>Process Production </li></ul><ul><ul><li>Production in terms of continuous processing </li></ul></ul>
Organization Design Applications <ul><li>Simple Structure </li></ul><ul><ul><li>Is low in specialization and formalization but high in centralization. </li></ul></ul><ul><li>Functional Structure </li></ul><ul><ul><li>Has similar and related occupational specialties that are grouped together. </li></ul></ul><ul><li>Divisional structure </li></ul><ul><ul><li>Is made up of self-contained units. </li></ul></ul>
Other Organizational Structures <ul><li>Matrix Structure </li></ul><ul><ul><li>Is comprised of specialists from functional departments who are assigned to work on one or more projects led by a project manager. </li></ul></ul><ul><li>Team-Based Structure </li></ul><ul><ul><li>Consists entirely of work groups or teams. </li></ul></ul><ul><li>Boundaryless Organization </li></ul><ul><ul><li>Is not defined or limited by boundaries or categories imposed by traditional structures. </li></ul></ul>
The Learning Organization <ul><li>An organization that has developed the capacity to continuously adapt and change because all members take an active role in identifying and resolving work-related issues. </li></ul><ul><li>Characteristics: </li></ul><ul><ul><li>Organization design </li></ul></ul><ul><ul><li>Information sharing </li></ul></ul><ul><ul><li>Leadership </li></ul></ul><ul><ul><li>Organizational culture </li></ul></ul>
Organization Culture <ul><li>Organization Culture </li></ul><ul><ul><li>Is a system of shared meanings within an organization that determine how employees act. </li></ul></ul><ul><ul><li>Has shared values in its cultural elements: </li></ul></ul><ul><ul><ul><li>Stories, rituals, material symbols, and language unique to the organization </li></ul></ul></ul><ul><ul><li>Results from the interaction between: </li></ul></ul><ul><ul><ul><li>The founders’ biases and assumptions </li></ul></ul></ul><ul><ul><ul><li>What the first employees learn subsequently from their own experiences. </li></ul></ul></ul><ul><ul><li>Influences structure: </li></ul></ul><ul><ul><ul><li>Strong culture substitutes for rules and regulations. </li></ul></ul></ul>