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Organizational
Structure
Designing Organizational
Structure
• Organizing: the process by which
managers establish working relationships
among employees to achieve goals.
–

–

Organizational Structure: formal system of
task & reporting relationships showing how
workers use resources.
Organizational design: managers make
specific choices resulting in a given
organizational structure.

• Successful organizational design depends
on the organization’s unique situation.
Factors Affecting Organizational
Design
Figure 8.1
Environment

Strategy

Determine design
Determine design
or organizational
or organizational
structure
structure

Human
Resources

Technology
Determinants of Structure
The environment: The quicker the
environment changes, the more problems
face managers.
•

Structure must be more flexible when
environmental change is rapid.
– Usually need to decentralize authority.

Strategy: Different strategies require the use
of different structures.
•

•

A differentiation strategy needs a flexible
structure, low cost may need a more formal
structure.
Increased vertical integration or diversification
Determinants of Structure
–

Technology: The combination of skills,
knowledge, tools, equipment, computers and
machines used in the organization.
•

•

•

More complex technology makes it harder for managers
to regulate the organization. Technology can be
measured by:
– Task Variety: new problems a manager encounters.
– Task Analyzability: programmed solutions available
to a manager to solve problems.
High task variety and low analyzability present many
unique problems to managers.
– Flexible structure works best in these conditions.
Low task variety and high analyzability allow
managers to rely on established procedures.
Technology & People
Small Batch Technology: produces small
quantities of one-of-a-kind products.
•

Based on the skills of the workers who need a
flexible structure.

Mass Production Technology: automated
machines make high volumes of standard
products.
•

Workers perform repetitive tasks so a formal
structure works well.

Continuous Process Technology: totally
mechanized systems of automatic machines.
•

Workers must watch for unexpected problems and
react quickly. A flexible structure is needed here.
Determinants of Structure
Human Resources: the final factor affecting
organizational structure.
•

•

Higher skilled workers who need to work in
teams usually need a more flexible structure.
Higher skilled workers often have professional
norms (CPA’s, physicians).

Managers must take into account all
four factors (environment, strategy,
technology and human resources)
when designing the structure of the
organization.
Job Design
• Job Design: group tasks into specific
jobs.
•

–

Job simplification: reduction of the tasks
each worker performs.
•

–
–

Results in a division of labor between workers
that is effective and efficient.

Too much and boredom results.

Job enlargement: increase tasks for a given
job to reduce boredom.
Job enrichment: increases the degree of
responsibility a worker has over a job.
•

can lead to increased worker involvement.
Job Characteristics Model
Figure 8.2
Skill Variety
Skill Variety
Task Identity
Task Identity
Task Significance
Task Significance

Meaningfulness
Meaningfulness
of work
of work

Autonomy
Autonomy

Responsibility
Responsibility
for Work
for Work
Outcomes
Outcomes

Feedback
Feedback

Knowledge of
Knowledge of
results of
results of
work
work

High:
High:
Motivation
Motivation
Performance
Performance
Satisfaction
Satisfaction
Job Characteristics Model
Jobs have five characteristics describing extent of:
– Skill variety: employee uses a wide range of skills
– Task identity: worker involved in all tasks of job from
beginning to end of the production process
– Task significance: worker feels the task is meaningful
to organization.
– Autonomy: employee has freedom to schedule tasks
and carry them out.
– Feedback: worker gets direct information about how
well the job is done.

These affect the motivation, satisfaction and
performance of employees.
Grouping Jobs into Functions
• Once tasks are grouped into jobs,
managers must decide how to group
jobs together.
–

Function: people working together with
similar skills, tools or techniques to perform
their jobs.
•

Pros
Pros
Cons
Cons

Functional structure consists of departments
such as marketing, production, and finance.
– Workers can learn from others doing similar
tasks.
– Easy for managers to monitor and evaluate
workers.
– Hard for one department to communicate with
A Sample of Pier 1’s Functional
Structure
Figure 8.3
C la r k J o h n s o n
C E O

E x e c . V .P .
F in a n c e & A d m in .

S e n io r V . P .
S to re s

V .P . T a x

V . P . C o n t r o lle r

V .P . M IS

D ir e c t o r
C o r p . P la n n in g

S e n io r V . P .
L o g is t ic s
V .P .
D is t r ib u t io n

D ir e c t o r
T r a n s p o r t a t io n
Divisional Structures
• A division is a collection of functions working
together to produce a product.
•

Divisions create smaller, manageable parts of a firm.
Divisions develop a business-level strategy to compete.
A division has marketing, finance, and other functions.
Functional managers report to divisional managers who then
report to corporate management.

–
–
–

Product structure: divisions created according
to the type of product or service.
Geographic structure: divisions based on the
area of a country or world served.
Market structure: divisions based on the types
of customers served.
Product Structure
Figure 8.4a

CEO
C o r p o r a tio n
C o rp o ra te
M a n a g e rs

W a s h in g M a c h in e
D iv is io n

L ig h tin g
D iv is io n

T e le v is io n
D iv is io n
Figure 8.4 b

Geographic Structure
CEO
C o r p o r a tio n
C o rp o ra te
M a n a g e rs

N o rth e rn
R e g io n

W e s te rn
R e g io n

S o u th e rn
R e g io n

E a s te rn
R e g io n
Market Structure
Figure 8.4c
CEO
C o r p o r a tio n
C o rp o ra te
M a n a g e rs
L a r g e B u s in e s s
C u s to m e rs

S m a ll B u s in e s s
C u s to m e rs

E d u c a tio n a l
In s titu tio n s

In d iv id u a l
C u s to m e rs
Global Structures
• When managers find different problems or
demands across the globe, global solutions
are needed.
–

Global geographic structure: different
divisions serve each world region.
•

–

For customer needs that vary between regions.

Global product structure: Customers in
different regions buy similar products so firms
keep most functional work at home and set up
a division to market product abroad.
Matrix & Product Teams
–

Matrix structure: managers group people by
function and product teams simultaneously.
•

•
•

–

Results in a complex network of reporting
relationships.
Very flexible and can respond rapidly to change.
Each employee has two bosses which can cause
problems.
– Functional manager gives different directions than
product manager and employee cannot satisfy
both.

Product Team Structure: no 2-way reporting
and the members are permanently assigned to
the team and empowered to bring a product to
market.
Matrix Structure
Figure 8.7a
CEO
Func.
Managers

Team Managers

Sales

Design

Production

Product
team A
Product
team B

Product Team

Product
team C

= two boss employee
Product Team Structure
Figure 8.7b

CEO
Func.
Managers
Sales

Manufacturing

Design

Manufacturing

= Product Team Manager

Production

Manufacturing

= Team member
Hybrid Structures
• Many large organizations have divisional
structures where each manager can select
the best structure for that particular
division.
–

One division may use a functional structure,
one geographic, and so on.

• This ability to break a large organization
into many smaller ones makes it much
easier to manage.
Coordinating Functions
•To ensure sufficient coordination between
functions, managers delegate authority.
Authority: the power vested in the manager
to make decisions and use resources.
– Hierarchy of authority: describes the
relative authority each manager has from top to
bottom.
–

Span of Control: refers to the number of workers a
manager manages.
• Line authority: managers in the direct chain of
command for production of goods or services.
Example: Sales
• Staff authority: managers in positions that give
advice to line managers. Example: Legal
•
Tall & Flat Organizations
– Tall structures have many levels of authority
relative to the organization’s size.
•

•

•

As levels in the hierarchy increase, communication
gets difficult.
The extra levels result in more time being taken to
implement decisions.
Communications can also become garbled as it is
repeated through the firm.

– Flat structures have few levels but wide
spans of control.
•

Results in quick communications but can lead to
overworked managers.
Minimum Chain of Command
–

Managers should carefully evaluate:
•

•

Do they have the right number of middle
managers?
Can the structure be altered to reduce levels?

• Centralized v. Decentralized
–

Decentralized operations puts more authority
at lower levels and leads to flat organizations.
•
•

Workers must be able to reach decisions.
Divisions and functions can begin to lose sight of
organizational goals and focus only on their small
area.
Integrating Mechanisms
–

–

–
–

–

Direct contact: get managers from different
divisions or functions together to solve mutual
problems.
Liaison Roles: one manager in each area is
responsible for communication with other
areas.
Task Forces: temporary committees formed
across divisions to solve a specific problem.
Cross-functional teams: works much like a
permanent task force that deals with recurring
problems.
Matrix structure: already contains many
integrating mechanisms.
Strategic Alliances
• Strategic alliance: a formal agreement
committing two or more firms to exchange
resources to produce a good.
• Network Structure: a whole series of
strategic alliances.
–

Created between suppliers, manufacturers, and
distributors.
•

–

Toyota and Honda use many such alliances.

Network structures allow firms to bring
resources together in a boundary-less
organization.

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1331275663.5053 organizational structure

  • 2. Designing Organizational Structure • Organizing: the process by which managers establish working relationships among employees to achieve goals. – – Organizational Structure: formal system of task & reporting relationships showing how workers use resources. Organizational design: managers make specific choices resulting in a given organizational structure. • Successful organizational design depends on the organization’s unique situation.
  • 3. Factors Affecting Organizational Design Figure 8.1 Environment Strategy Determine design Determine design or organizational or organizational structure structure Human Resources Technology
  • 4. Determinants of Structure The environment: The quicker the environment changes, the more problems face managers. • Structure must be more flexible when environmental change is rapid. – Usually need to decentralize authority. Strategy: Different strategies require the use of different structures. • • A differentiation strategy needs a flexible structure, low cost may need a more formal structure. Increased vertical integration or diversification
  • 5. Determinants of Structure – Technology: The combination of skills, knowledge, tools, equipment, computers and machines used in the organization. • • • More complex technology makes it harder for managers to regulate the organization. Technology can be measured by: – Task Variety: new problems a manager encounters. – Task Analyzability: programmed solutions available to a manager to solve problems. High task variety and low analyzability present many unique problems to managers. – Flexible structure works best in these conditions. Low task variety and high analyzability allow managers to rely on established procedures.
  • 6. Technology & People Small Batch Technology: produces small quantities of one-of-a-kind products. • Based on the skills of the workers who need a flexible structure. Mass Production Technology: automated machines make high volumes of standard products. • Workers perform repetitive tasks so a formal structure works well. Continuous Process Technology: totally mechanized systems of automatic machines. • Workers must watch for unexpected problems and react quickly. A flexible structure is needed here.
  • 7. Determinants of Structure Human Resources: the final factor affecting organizational structure. • • Higher skilled workers who need to work in teams usually need a more flexible structure. Higher skilled workers often have professional norms (CPA’s, physicians). Managers must take into account all four factors (environment, strategy, technology and human resources) when designing the structure of the organization.
  • 8. Job Design • Job Design: group tasks into specific jobs. • – Job simplification: reduction of the tasks each worker performs. • – – Results in a division of labor between workers that is effective and efficient. Too much and boredom results. Job enlargement: increase tasks for a given job to reduce boredom. Job enrichment: increases the degree of responsibility a worker has over a job. • can lead to increased worker involvement.
  • 9. Job Characteristics Model Figure 8.2 Skill Variety Skill Variety Task Identity Task Identity Task Significance Task Significance Meaningfulness Meaningfulness of work of work Autonomy Autonomy Responsibility Responsibility for Work for Work Outcomes Outcomes Feedback Feedback Knowledge of Knowledge of results of results of work work High: High: Motivation Motivation Performance Performance Satisfaction Satisfaction
  • 10. Job Characteristics Model Jobs have five characteristics describing extent of: – Skill variety: employee uses a wide range of skills – Task identity: worker involved in all tasks of job from beginning to end of the production process – Task significance: worker feels the task is meaningful to organization. – Autonomy: employee has freedom to schedule tasks and carry them out. – Feedback: worker gets direct information about how well the job is done. These affect the motivation, satisfaction and performance of employees.
  • 11. Grouping Jobs into Functions • Once tasks are grouped into jobs, managers must decide how to group jobs together. – Function: people working together with similar skills, tools or techniques to perform their jobs. • Pros Pros Cons Cons Functional structure consists of departments such as marketing, production, and finance. – Workers can learn from others doing similar tasks. – Easy for managers to monitor and evaluate workers. – Hard for one department to communicate with
  • 12. A Sample of Pier 1’s Functional Structure Figure 8.3 C la r k J o h n s o n C E O E x e c . V .P . F in a n c e & A d m in . S e n io r V . P . S to re s V .P . T a x V . P . C o n t r o lle r V .P . M IS D ir e c t o r C o r p . P la n n in g S e n io r V . P . L o g is t ic s V .P . D is t r ib u t io n D ir e c t o r T r a n s p o r t a t io n
  • 13. Divisional Structures • A division is a collection of functions working together to produce a product. • Divisions create smaller, manageable parts of a firm. Divisions develop a business-level strategy to compete. A division has marketing, finance, and other functions. Functional managers report to divisional managers who then report to corporate management. – – – Product structure: divisions created according to the type of product or service. Geographic structure: divisions based on the area of a country or world served. Market structure: divisions based on the types of customers served.
  • 14. Product Structure Figure 8.4a CEO C o r p o r a tio n C o rp o ra te M a n a g e rs W a s h in g M a c h in e D iv is io n L ig h tin g D iv is io n T e le v is io n D iv is io n
  • 15. Figure 8.4 b Geographic Structure CEO C o r p o r a tio n C o rp o ra te M a n a g e rs N o rth e rn R e g io n W e s te rn R e g io n S o u th e rn R e g io n E a s te rn R e g io n
  • 16. Market Structure Figure 8.4c CEO C o r p o r a tio n C o rp o ra te M a n a g e rs L a r g e B u s in e s s C u s to m e rs S m a ll B u s in e s s C u s to m e rs E d u c a tio n a l In s titu tio n s In d iv id u a l C u s to m e rs
  • 17. Global Structures • When managers find different problems or demands across the globe, global solutions are needed. – Global geographic structure: different divisions serve each world region. • – For customer needs that vary between regions. Global product structure: Customers in different regions buy similar products so firms keep most functional work at home and set up a division to market product abroad.
  • 18. Matrix & Product Teams – Matrix structure: managers group people by function and product teams simultaneously. • • • – Results in a complex network of reporting relationships. Very flexible and can respond rapidly to change. Each employee has two bosses which can cause problems. – Functional manager gives different directions than product manager and employee cannot satisfy both. Product Team Structure: no 2-way reporting and the members are permanently assigned to the team and empowered to bring a product to market.
  • 19. Matrix Structure Figure 8.7a CEO Func. Managers Team Managers Sales Design Production Product team A Product team B Product Team Product team C = two boss employee
  • 20. Product Team Structure Figure 8.7b CEO Func. Managers Sales Manufacturing Design Manufacturing = Product Team Manager Production Manufacturing = Team member
  • 21. Hybrid Structures • Many large organizations have divisional structures where each manager can select the best structure for that particular division. – One division may use a functional structure, one geographic, and so on. • This ability to break a large organization into many smaller ones makes it much easier to manage.
  • 22. Coordinating Functions •To ensure sufficient coordination between functions, managers delegate authority. Authority: the power vested in the manager to make decisions and use resources. – Hierarchy of authority: describes the relative authority each manager has from top to bottom. – Span of Control: refers to the number of workers a manager manages. • Line authority: managers in the direct chain of command for production of goods or services. Example: Sales • Staff authority: managers in positions that give advice to line managers. Example: Legal •
  • 23. Tall & Flat Organizations – Tall structures have many levels of authority relative to the organization’s size. • • • As levels in the hierarchy increase, communication gets difficult. The extra levels result in more time being taken to implement decisions. Communications can also become garbled as it is repeated through the firm. – Flat structures have few levels but wide spans of control. • Results in quick communications but can lead to overworked managers.
  • 24. Minimum Chain of Command – Managers should carefully evaluate: • • Do they have the right number of middle managers? Can the structure be altered to reduce levels? • Centralized v. Decentralized – Decentralized operations puts more authority at lower levels and leads to flat organizations. • • Workers must be able to reach decisions. Divisions and functions can begin to lose sight of organizational goals and focus only on their small area.
  • 25. Integrating Mechanisms – – – – – Direct contact: get managers from different divisions or functions together to solve mutual problems. Liaison Roles: one manager in each area is responsible for communication with other areas. Task Forces: temporary committees formed across divisions to solve a specific problem. Cross-functional teams: works much like a permanent task force that deals with recurring problems. Matrix structure: already contains many integrating mechanisms.
  • 26. Strategic Alliances • Strategic alliance: a formal agreement committing two or more firms to exchange resources to produce a good. • Network Structure: a whole series of strategic alliances. – Created between suppliers, manufacturers, and distributors. • – Toyota and Honda use many such alliances. Network structures allow firms to bring resources together in a boundary-less organization.