designing organizations

1. OrganizationalOrganizational
Structure and DesignStructure and Design

2. Learning OutcomesLearning Outcomes
1. Defining Organizational Structure1. Defining Organizational Structure
• Discuss the traditional and contemporary views ofDiscuss the traditional and contemporary views of
work specialization, chain of command, and span ofwork specialization, chain of command, and span of
control.control.
• Describe each of the five forms ofDescribe each of the five forms of
departmentalization.departmentalization.
• Differentiate, authority, responsibility, and unity ofDifferentiate, authority, responsibility, and unity of
command.command.
• Explain how centralization – decentralization andExplain how centralization – decentralization and
formalization are used in organizational design.formalization are used in organizational design.

3. Learning OutcomesLearning Outcomes
2. Mechanistic and Organic Structures2. Mechanistic and Organic Structures
• Contrast mechanistic and organic organizations.Contrast mechanistic and organic organizations.
• Explain the contingency factors that affectExplain the contingency factors that affect
organizational design.organizational design.
3. Common Organizational Designs3. Common Organizational Designs
• Contrast the three traditional organizational designs.Contrast the three traditional organizational designs.
• Describe the contemporary organizational designs.Describe the contemporary organizational designs.
• Discuss the organizational design challenges facingDiscuss the organizational design challenges facing
managers today.managers today.

4. OrganizingOrganizing
• Organizing function sets in motion the processOrganizing function sets in motion the process
of seeing that goals & plans are pursuedof seeing that goals & plans are pursued
• While organizing managers define;While organizing managers define;
 what work needs to get done &what work needs to get done &
 create a structure that enable work activities to becreate a structure that enable work activities to be
completed efficiently & effectivelycompleted efficiently & effectively
• After putting organization structure in place, nextAfter putting organization structure in place, next
is to find people to fill the jobs that have beenis to find people to fill the jobs that have been
createdcreated

5.  The organization chart conveys four kinds of
information?
 Organization chart: is a diagram that illustrates the
reporting lines between units and people within the
organization. (Units refer to teams, groups , deptts,
or divisions).
 Organization Chart is the skeleton of an
organization
 Boxes represent different units (Mkt, HR, etc)
 Titles in each box show the work performed by that
person
 Reporting relationships are shown by the lines
connecting superiors and subordinates
 Levels of the organization are indicated by the
number of vertical layers in the chart
 Boxes represent different units (Mkt, HR, etc)
 Titles in each box show the work performed by that
person
 Reporting relationships are shown by the lines
connecting superiors and subordinates
 Levels of the organization are indicated by the
number of vertical layers in the chart

6. Organization Chart for Home DepotOrganization Chart for Home Depot
(adapted from Figure 11.1)(adapted from Figure 11.1)
Executive
Vice President,
Chief Financial
Officer
Executive
Vice President,
Chief Financial
Officer
Executive
Vice President,
Marketing
Executive
Vice President,
Marketing
Executive
Vice President,
Legal
Executive
Vice President,
Legal
Executive
Vice President,
Human
Resources
Executive
Vice President,
Human
Resources
Executive
Vice President,
Merchandising
Executive
Vice President,
Merchandising
Executive
Vice President,
Operations
Executive
Vice President,
Operations
Executive
Vice President,
International
Technology
Executive
Vice President,
International
Technology
Vice President,
Investor
Relations
Vice President,
Investor
Relations
Senior
Vice President,
Customer
Service
Senior
Vice President,
Customer
Service
Senior
Vice President,
Operations
Senior
Vice President,
Operations
President,
Western
President,
Western
President,
Atlantic
President,
Atlantic
President,
Mexico
President,
Mexico
Senior
Vice President,
Real Estate
Senior
Vice President,
Real Estate
Chairman of
Board and CEO
Chairman of
Board and CEO

7. Benefits & Limitations of Organization ChartBenefits & Limitations of Organization Chart
1.1. Gives insight into how entire organization stands together &Gives insight into how entire organization stands together &
how various relations relate to the whole organization.how various relations relate to the whole organization.
2.2. Who reports to whom & where to go with a particularWho reports to whom & where to go with a particular
problemproblem
3.3. May indicate gaps or duplication of activitiesMay indicate gaps or duplication of activities
Limitations:Limitations:
1.1. Its just a picture & does not show how things really getIts just a picture & does not show how things really get
done in organization.done in organization.
2.2. Can not highlight – how information flows betweenCan not highlight – how information flows between
functionsfunctions
3.3. Can not highlight which function has less or more politicalCan not highlight which function has less or more political
clout.clout.

8. • Organizations are organized around two basicOrganizations are organized around two basic
essential concepts;essential concepts;
 ““Differentiation &Differentiation &
 Integration”Integration”
O.C. reveals how an organization addresses theO.C. reveals how an organization addresses the
need for differentiation & integrationneed for differentiation & integration

9.  Organization is composed of units that work
on specialized tasks, using different work
methods and requiring employees with
unique competencies.
 Differentiation created thru division of labour
& job specialization
 Division of labor: work of the organization is
divided into smaller tasks
 Specialization: process of identifying
particular tasks and assigning them to
departments, teams, or divisions
Division of labour & Specialization closely related concepts

10. • IntegrationIntegration means: the various units must be inmeans: the various units must be in
sync with each other so that work is coordinated;sync with each other so that work is coordinated;
 Rules & procedures are one means used byRules & procedures are one means used by
managers to coordinate the activities.managers to coordinate the activities.
 If departments have common goals, organizedIf departments have common goals, organized
similarly & work together to achieve organizationsimilarly & work together to achieve organization
goal , the organization is “Highly Integrated”goal , the organization is “Highly Integrated”

11.  As organizations differentiate their designs, managers must
be concerned with issues of integration. Various units
coordinate their work to achieve common goals.
 An Organization’s vertical structure acts as a “harness” to
guide employees decision making activities & create
Synergy Snapshot
Mike Lazaridis, President, Research in Motion,
Waterloo, Ontario, Canada
“Coordination is like professional sports: It looks easy,
but when you’re on the field, you see how difficult it is.
The more people need to work with each other to
reach the organization’s goal, the more coordination is
needed. However, there is a cost (meeting time,
travel, uniform policies) to achieving integration.”

12. Designing Organizational StructureDesigning Organizational Structure
• OrganizingOrganizing
 Arranging and structuring work to accomplish an organization’sArranging and structuring work to accomplish an organization’s
goals.goals.
• Organizational StructureOrganizational Structure
 The formal arrangement of jobs within an organization – shownThe formal arrangement of jobs within an organization – shown
visually in anvisually in an Organization ChartOrganization Chart which serves many purposeswhich serves many purposes
• Organizational Design (Vertical Design)Organizational Design (Vertical Design)
 A process involving decisions about seven key elements:A process involving decisions about seven key elements:
1.1. Work specializationWork specialization
2.2. DepartmentalizationDepartmentalization
3.3. Chain of commandChain of command
4.4. DelegationDelegation
5.5. Span of controlSpan of control
6.6. Centralization and decentralizationCentralization and decentralization
7.7. FormalizationFormalization

13. Purposes of OrganizingPurposes of Organizing
1. Divides work to be done into specific jobs and
departments.
2. Assigns tasks and responsibilities associated
with individual jobs.
3. Coordinates diverse organizational tasks.
4. Clusters jobs into units.
5. Establishes relationships among individuals,
groups, and departments.
6. Establishes formal lines of authority.
7. Allocates and deploys organizational resources.

14. Organizational StructureOrganizational Structure
1. Work Specialization (Division of Labour)1. Work Specialization (Division of Labour)
 The degree to which tasks in the organization areThe degree to which tasks in the organization are
divided into separate jobs with each step completeddivided into separate jobs with each step completed
by a different person.by a different person.
 Overspecialization can result in human diseconomiesOverspecialization can result in human diseconomies
from boredom, fatigue, stress, poor quality, increasedfrom boredom, fatigue, stress, poor quality, increased
absenteeism, and higher turnover.absenteeism, and higher turnover.

15. 2. Departmentalization by Type2. Departmentalization by Type
• FunctionalFunctional
 Grouping jobs byGrouping jobs by
functions performedfunctions performed
• ProductProduct
 Grouping jobs by productGrouping jobs by product
lineline
• GeographicalGeographical
 Grouping jobs on theGrouping jobs on the
basis of territory orbasis of territory or
geographygeography
• ProcessProcess
 Grouping jobs on theGrouping jobs on the
basis of product orbasis of product or
customer flowcustomer flow
• CustomerCustomer
 Grouping jobs by type ofGrouping jobs by type of
customer and needscustomer and needs
How jobs are grouped together is called departmentalization

16. The Five Common Forms of Departmentalization

17. Geographical DepartmentalizationGeographical Departmentalization

18. Product DepartmentalizationProduct Departmentalization

19. Process DepartmentalizationProcess Departmentalization
+ More efficient flow of work activities
– Can only be used with certain types of products

20. Customer DepartmentalizationCustomer Departmentalization
+ Customers’ needs and problems can be met by specialists
- Duplication of functions
- Limited view of organizational goals

21. Organizational Structure (cont’d)Organizational Structure (cont’d)
3. Chain of Command3. Chain of Command
 The continuous line of authority that extends fromThe continuous line of authority that extends from
upper levels to the lowest levels of the organizationupper levels to the lowest levels of the organization
and clarifies who reports to whom.and clarifies who reports to whom.
 Helps employees know “Who do we report to?” andHelps employees know “Who do we report to?” and
“Who do I go to if I have a problem?”“Who do I go to if I have a problem?”
 To understand chain of command – need toTo understand chain of command – need to
understand 3 terms – Authority, Responsibility,understand 3 terms – Authority, Responsibility,
Accountability & Unity of CommandAccountability & Unity of Command
Managers as enablers rather than
bosses – Current Trend

22. Organizational Structure (cont’d)Organizational Structure (cont’d)
• AuthorityAuthority
 The rights inherent in a managerial position to tell peopleThe rights inherent in a managerial position to tell people
what to do and to expect them to do it.what to do and to expect them to do it.
• ResponsibilityResponsibility
 The obligation or expectation to perform.The obligation or expectation to perform.
• Accountability:Accountability: manager’s expectation that themanager’s expectation that the
employee will accept credit or blame for his or her workemployee will accept credit or blame for his or her work..
Point at which authority & responsibility meet – essential forPoint at which authority & responsibility meet – essential for
High PerformanceHigh Performance
• Unity of CommandUnity of Command
 The concept that a person should have one boss andThe concept that a person should have one boss and
should report only to that person.should report only to that person.

23. Organizational Structure (Contd)
4. Delegation:process of giving authority to a
person (or group or team) to make decisions and act in
certain situations. Should occur in sync with
responsibilities
Barriers to delegation
 Failure to define authority and responsibility clearly
 Managers fear to delegate to others,
 “I can do it better myself or
 thinks subordinates not capable enough
 Takes too much time to explain”.
 Subordinates may do it too well & outshine them
 Cultural values: Managers to accept – several ways to deal with problems
 Failure to define authority and responsibility clearly
 Managers fear to delegate to others,
 “I can do it better myself or
 thinks subordinates not capable enough
 Takes too much time to explain”.
 Subordinates may do it too well & outshine them
 Cultural values: Managers to accept – several ways to deal with problems

24. Building Blocks
for Effective Delegation
Establish goals
and standards
Ensure clarity
Involvement Expect completed
work
Provide training Timely feedback
24

25. Organizational Structure (cont’d)Organizational Structure (cont’d)
5. Span of Control5. Span of Control
 The number of employees who can be effectively and efficientlyThe number of employees who can be effectively and efficiently
supervised by a manager.supervised by a manager.
 Width of span is affected by:Width of span is affected by:
a.a. Skills and abilities of the managerSkills and abilities of the manager
b.b. Employee characteristicsEmployee characteristics
c.c. Characteristics of the work being doneCharacteristics of the work being done
d.d. Similarity of tasksSimilarity of tasks
e.e. Complexity of tasksComplexity of tasks
f.f. Physical proximity of subordinatesPhysical proximity of subordinates
g.g. Standardization of tasksStandardization of tasks
h.h. Sophistication of the organization’s information systemSophistication of the organization’s information system
i.i. Strength of the organization’s cultureStrength of the organization’s culture
j.j. Preferred style of the managerPreferred style of the manager
 SOC determines the number of levels & managers in anSOC determines the number of levels & managers in an
organization.organization.

26. Exhibit 9–3Exhibit 9–3 Contrasting Spans of ControlContrasting Spans of Control
Other things being equal – wider or larger the span,
the more efficient it is

27.  Centralization: concentration of authority
at the top of an organization or department
 Decentralization: delegation of authority to lower
level employees or departments
 Requires managers to decide – what & when to delegate,
to select & train personnel carefully and to formulate
adequate controls
 No absolutes for centralization versus decentralization : No
manager can make all decisions even in a highly centralized
setting
 Total centralization will end the need for middle & first line
managers
(THERE ARE ONLY DEGREES OF CENTRALISATION &
DECENTRALISATION)
5. Centralization & Decentralization
Organization Structure (Contd)

28. Frees top managers to develop organizationalFrees top managers to develop organizational
plans & strategies instead of bogged downplans & strategies instead of bogged down
with routine & day to day decisionswith routine & day to day decisions
1.1.Develops lower level managers’ managerialDevelops lower level managers’ managerial
competenciescompetencies
2.2.Lower level managers often are closer to theLower level managers often are closer to the
action , have better grasp of facts – may makeaction , have better grasp of facts – may make
better & quick decisionsbetter & quick decisions
3.3.Fosters empowered & achievement orientedFosters empowered & achievement oriented
atmosphereatmosphere
Potential benefits of decentralization:

29. 1. Cost of
decisions
2. Desire for uniformity
of policy
5.
Environmental
influences that
require
uniformity
3. Competency
levels of
managers and
employees4. Need for
formal control
mechanisms

30. 1.1. Cost of decisionsCost of decisions: more costly the outcome, more: more costly the outcome, more
likelihood of centralization in decision makinglikelihood of centralization in decision making
2.2. Uniformity of PolicyUniformity of Policy: consistency favor centralization of: consistency favor centralization of
authority (e.g. quality policy, pricing, credit policy)authority (e.g. quality policy, pricing, credit policy)
3.3. Control mechanismsControl mechanisms: need for controls & procedures to: need for controls & procedures to
prevent mistakes & timely actions ( centralization of key dataprevent mistakes & timely actions ( centralization of key data
– attrition, number of beds occupied, etc)– attrition, number of beds occupied, etc)
4.4. Competency levelsCompetency levels: extensive training & experience: extensive training & experience
essential for competencies at lower levelsessential for competencies at lower levels
5.5. Environmental influencesEnvironmental influences: trade unions, govt: trade unions, govt regulatoryregulatory
agencies, & tax policiesagencies, & tax policies

31. Organizational Structure (cont’d)Organizational Structure (cont’d)
7. Formalization7. Formalization
 The degree to which jobs within the organization areThe degree to which jobs within the organization are
standardized and the extent to which employeestandardized and the extent to which employee
behavior is guided by rules and procedures.behavior is guided by rules and procedures.
 Highly formalized jobs offer little discretion over what is to beHighly formalized jobs offer little discretion over what is to be
done.done.
 Low formalization means fewer constraints on howLow formalization means fewer constraints on how
employees do their work.employees do their work.

32. Two Models of Organizational DesignTwo Models of Organizational Design
Mechanistic Versus Organic OrganizationMechanistic Versus Organic Organization
• High specialization
• Rigid departmentalization
• Clear chain of command
• Narrow spans of control
• Centralization
• High formalization
• Cross-functional teams
• Cross-hierarchical teams
• Free flow of information
• Wide spans of control
• Decentralization
• Low formalization

33. Contingency FactorsContingency Factors
• Structural decisions are influenced by:Structural decisions are influenced by:
 Overall strategy of the organizationOverall strategy of the organization
 Organizational structure follows strategy.Organizational structure follows strategy.
 Size of the organizationSize of the organization
 Firms change from organic to mechanistic organizations asFirms change from organic to mechanistic organizations as
they grow in size.they grow in size.
 Technology use by the organizationTechnology use by the organization
 Firms adapt their structure to the technology they use.Firms adapt their structure to the technology they use.
 Degree of environmental uncertaintyDegree of environmental uncertainty
 Dynamic environments require organic structures;Dynamic environments require organic structures;
mechanistic structures need stable environments.mechanistic structures need stable environments.

34. Contingency Factors (cont’d)Contingency Factors (cont’d)
• Strategy Frameworks:Strategy Frameworks:
 InnovationInnovation
 Pursuing competitive advantage through meaningful andPursuing competitive advantage through meaningful and
unique innovations favors an organic structuring.unique innovations favors an organic structuring.
 Cost minimizationCost minimization
 Focusing on tightly controlling costs requires a mechanisticFocusing on tightly controlling costs requires a mechanistic
structure for the organization.structure for the organization.

35. Contingency Factors (cont’d)Contingency Factors (cont’d)
• Strategy and StructureStrategy and Structure
 Achievement of strategic goals is facilitated byAchievement of strategic goals is facilitated by
changes in organizational structure thatchanges in organizational structure that
accommodate and support change.accommodate and support change.
• Size and StructureSize and Structure
 As an organization grows larger, its structure tends toAs an organization grows larger, its structure tends to
change from organic to mechanistic with increasedchange from organic to mechanistic with increased
specialization, departmentalization, centralization,specialization, departmentalization, centralization,
and rules and regulations.and rules and regulations.

36. Contingency Factors (cont’d)Contingency Factors (cont’d)
• Technology and StructureTechnology and Structure
 Organizations adapt their structures to theirOrganizations adapt their structures to their
technology.technology.
 Routine technology = mechanistic organizationsRoutine technology = mechanistic organizations
 Non-routine technology = organic organizationsNon-routine technology = organic organizations

37. Contingency Factors (cont’d)Contingency Factors (cont’d)
• Environmental Uncertainty and StructureEnvironmental Uncertainty and Structure
 Mechanistic organizational structures tend to be mostMechanistic organizational structures tend to be most
effective in stable and simple environments.effective in stable and simple environments.
 The flexibility of organic organizational structures isThe flexibility of organic organizational structures is
better suited for dynamic and complex environments.better suited for dynamic and complex environments.

38. Common Organizational DesignsCommon Organizational Designs
• Traditional Designs (Horizontal)Traditional Designs (Horizontal)
 Simple structureSimple structure
 Low departmentalization, wide spans of control, centralizedLow departmentalization, wide spans of control, centralized
authority, little formalizationauthority, little formalization
 Functional structureFunctional structure
 Departmentalization by functionDepartmentalization by function
– Operations, finance, marketing, human resources, andOperations, finance, marketing, human resources, and
product research and developmentproduct research and development
 Divisional structureDivisional structure
 Composed of separate business units or divisions (SBUs)Composed of separate business units or divisions (SBUs)
with limited autonomy under the coordination and control thewith limited autonomy under the coordination and control the
parent corporation.parent corporation.

39. Major
types
1. Functional
design
2. Product
design
4. Network
design
3. Geographical
design
With growth organizations become too complex to
Manage - they are divided into smaller units

40.  Grouping managers and
employees according to their
areas of expertise and the
resources they use to perform their
jobs

41. CEOCEO
Legal
Services
Legal
Services
Chief
Financial
Officer
Chief
Financial
Officer
Chief
Operating
Officer
Chief
Operating
Officer
TreasurerTreasurer
Financial
Services
Financial
Services
Strategic
Planning
Strategic
Planning
MarketingMarketing
Human
Resources
Human
Resources

42.  All functions that contribute to a
product are organized under
one manager
 Divides the organization into
self-contained units

43. Aviation
Services
Aviation
Services
Information
Systems &
Technology
Information
Systems &
Technology
Marine
Systems
Marine
Systems
AerospaceAerospace
Land
Systems
Land
Systems
Armament
Systems
Armament
Systems
Ordinance
& Tactical
Systems
Ordinance
& Tactical
Systems
Bath
Iron
Works
Bath
Iron
Works
Electric
Boat
Electric
Boat
Chairman & Chief
Executive Officer
Chairman & Chief
Executive Officer
Combat
Systems
Combat
Systems

44. Potential Benefits
 Permits fast changes in a
product line
 Allows greater product line
visibility
 Fosters a concern for
customer demand
 Clearly defines
responsibilities for each
product line
 Develops managers who
can think across
functional lines
Potential Pitfalls
 Inefficient utilization of skills
and resources
 Coordination across product
lines is usually difficult
 Employees focus on goals
of their products rather than
broader company goals.
 Unhealthy competition within
organization for scarce
resources
 Limits career mobility for
personnel outside their own
product lines

45.  Organizes activities around location
 Helps to develop competitive advantage
in each region according to that area’s
customers, competitors, and other
factors

46. Starbucks Organization ChartStarbucks Organization Chart
(adapted from Figure 11.4)(adapted from Figure 11.4)
President,
International
President,
International
PresidentPresident
CEOCEO
AsiaAsia
VP,
Northwest
VP,
Northwest
VP,
South Central
VP,
South Central
VP,
Southwest
VP,
Southwest
President,
North America
President,
North America
President, Europe,
Middle East, Africa
President, Europe,
Middle East, Africa
President,
Japan
President,
Japan
Senior VP,
Coffee
Senior VP,
Coffee
Executive VP,
Chief Financial Officer
Executive VP,
Chief Financial Officer
Executive VP,
Partner Resources
Executive VP,
Partner Resources
Executive VP,
Supply Chain & Coffee
Executive VP,
Supply Chain & Coffee
Executive VP,
Legal
Executive VP,
Legal
AustraliaAustralia
United KingdomUnited Kingdom

47. Potential Benefits
 Having facilities and the
equipment used for
production and/or
distribution all in one place,
saving time and costs
 Able to develop expertise
in solving problems unique
to one location
 Understanding of
customers’ problems and
desires in the location
 Getting production closer
to raw materials and
suppliers
Potential Pitfalls
 Duplication of functions, to
varying degrees, at each
regional or individual unit
location
 Conflict between each
location’s goals and the
organization’s goals
 Adds levels of
management and
extensive use of rules and
regulations to coordinate
and ensure uniformity of
quality among locations

48. Network Design
 For efficiency & fast response, many organizations much
more focused in what to do in-house
 Subcontracts some or many of its operations to other
firms and coordinates them to accomplish specific goals.
 Sometimes called virtual organizations
 Managers coordinate people (from many organizations)
to perform activities in many locations
 Relationships in network facilitated by electronic or face
to face meetings: computer based technologies permits
manager to coordinate with suppliers, etc

49. Potential Benefits
 Ability to gain special
knowledge and skills of
others without having to
hire employees
 Allows managers the
flexibility to work with a
wide variety of different
suppliers, customers, and
other organizations
Potential Pitfalls
 Other organizations may fail
to live up to established
deadlines
 Managers must constantly
monitor the quality of work
provided by other
organizations
 Employees in the
outsourced organization
may not hold the same
values and sense of time
urgency to which employees
in the organization are
committed

50. Computer
Hardware
Software Marketing
Technicians
Talent
Scouts
Agents
Senior Managers of
DreamWorks, SKG
Senior Managers of
DreamWorks, SKGCostume
Designers
Makeup
Artists
Actors
Media
Relations
Legal
Future
Games

51. Today’s Organizational DesignToday’s Organizational Design
ChallengesChallenges
• Keeping Employees ConnectedKeeping Employees Connected
 Widely dispersed and mobile employeesWidely dispersed and mobile employees
• Building a Learning OrganizationBuilding a Learning Organization
• Managing Global Structural IssuesManaging Global Structural Issues
 Cultural implications of design elementsCultural implications of design elements

52. Organizational Designs (cont’d)Organizational Designs (cont’d)
• The Learning OrganizationThe Learning Organization
 An organization that has developed the capacity toAn organization that has developed the capacity to
continuously learn, adapt, and changecontinuously learn, adapt, and change through thethrough the
practice of knowledge management by employees.practice of knowledge management by employees.
 Characteristics of a learning organization:Characteristics of a learning organization:
 An open team-based organization design that empowersAn open team-based organization design that empowers
employeesemployees
 Extensive and open information sharingExtensive and open information sharing
 Leadership that provides a shared vision of the organization’sLeadership that provides a shared vision of the organization’s
future.future.
 A strong culture of shared values, trust, openness, and aA strong culture of shared values, trust, openness, and a
sense of community.sense of community.

53. Thanks…….Thanks…….