The document discusses organizational structure and design. It describes how organizational structure is the pattern of jobs and groups within a company. There are four key design decisions - division of labor, delegation of authority, departmentalization, and span of control. The structure can be mechanistic with strict hierarchy or organic with flexibility. Companies also use matrix structures and consider geographic and cultural factors for multinational organizations. Virtual and boundaryless designs minimize traditional structures.

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Organizational Structure And DesignOrganizational Structure And Design
• Organization structureOrganization structure –– the pattern ofthe pattern of
jobs and groups of jobs in anjobs and groups of jobs in an
organization.organization.
• It is an important cause of individual andIt is an important cause of individual and
group behavior.group behavior.

2. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
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The Concept of Organization Structure
Structure as anStructure as an
influence oninfluence on
behaviorbehavior
Structure asStructure as
recurring activitiesrecurring activities

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Organization designOrganization design –– managementmanagement
decisions and actions that result in adecisions and actions that result in a
specific organization structure.specific organization structure.

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Division of Labor:
Departmentalization:
Span of Control:
HighHigh LowLow
HomogeneousHomogeneous HeterogeneousHeterogeneous
ManyFewFew
Authority:
LowLowHighHigh
SpecializationSpecialization
BasisBasis
NumberNumber
DelegationDelegation
The Four Key Design Decisions

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Division of Labor
• Division of labor – concerns the extent
to which jobs are specialized
• It is the process of dividing work into
relatively specialized jobs to achieve
advantages of specialization

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Division of Labor Occurs in Three
Different Ways:
1. Personal specialties
• e.g., accountants, software engineers, graphic
designers, scientists, etc.
2. Natural sequence of work
• e.g., dividing work in a manufacturing plant into
fabricating and assembly (horizontal specialization)
3. Vertical plane
• e.g., hierarchy of authority from lowest-level manager
to highest-level manager

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Delegation of Authority
• Managers decide how much authority
should be delegated to each job and to
each jobholder
• Delegation of authority – process of
distributing authority downward in an
organization

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Reasons to Decentralize Authority
1. Relatively high delegation of authority
encourages the development of professional
managers
2. High delegation of authority can lead to a
competitive climate within the organization
3. Managers who have relatively high authority
can exercise more autonomy, and thus satisfy
their desires to participate in problem solving

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Reasons to Centralize Authority (1 of 2)
1. Managers must be trained to make the
decisions that go with delegated authority
2. Many managers are accustomed to making
decisions and resist delegating authority to
their subordinates

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Reasons to Centralize Authority (2 of 2)
3. Administrative costs are incurred because new
control systems must be developed to provide
top management with information about the
effects of subordinates’ decisions
4. Decentralization means duplication of
functions

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Delegation Decision Guidelines (1 of 2)
• How routine and straightforward are the job’s or
unit’s required decisions?
• The authority for routine decisions can be
centralized
• Are individuals competent to make the decision?
• Even if the decision is non-routine, if the local
manager is not capable, then the decision should be
centralized
• Delegation of authority can differ among individuals
depending upon each one’s ability to make the
decision

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Delegation Decision Guidelines (2 of 2)
• Are individuals motivated to make the decision?
• Capable individuals are not always motivated
individuals
• Motivation must accompany competency to create
conducive conditions for decentralization
• Do the benefits of decentralization outweigh its
costs?

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DepartmentalizationDepartmentalization –– process inprocess in
which an organization iswhich an organization is
structurally divided by combiningstructurally divided by combining
jobs in departments according tojobs in departments according to
some shared characteristic orsome shared characteristic or
basis.basis.

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Functional Geographic
Product Customer
Departmentalization Bases

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Departmental Bases:
Functional Departmentalization
• Jobs are combined according to the functions
of the organization
• The principal advantage is efficiency
• By having departments of specialists,
management creates efficient units
• A major disadvantage is that organizational
goals may be sacrificed in favor of
departmental goals

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Departmental Bases:
Geographic Departmentalization
• Establish groups according to geographic
area
• The logic is that all activities in a given
region should be assigned to a manager
• Advantageous in large organizations
because physical separation of activities
makes centralized coordination difficult
• Provides a training ground for managerial
personnel

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Northeast Midwest Southeast Pacific
OBM
Company
Southwest
Geographic Departmentalization Structure

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Departmental Bases:
Product Departmentalization
• All jobs associated with producing and selling a
product or product line will be placed under the
direction of one manager
• Product becomes the preferred basis as a firm
grows by increasing the number of products it
markets
• Concentrating authority, responsibility, and
accountability in a specific product department
allows top management to coordinate actions

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OBM CompanyOBM CompanyOBM CompanyOBM Company
SmallSmall
HouseholdHousehold
AppliancesAppliances
SmallSmall
HouseholdHousehold
AppliancesAppliances
LargeLarge
HouseholdHousehold
AppliancesAppliances
LargeLarge
HouseholdHousehold
AppliancesAppliances
CommercialCommercial
AppliancesAppliances
CommercialCommercial
AppliancesAppliances
BuildingBuilding
Materials andMaterials and
ProductsProducts
BuildingBuilding
Materials andMaterials and
ProductsProducts
Lawn andLawn and
GardenGarden
ProductsProducts
Lawn andLawn and
GardenGarden
ProductsProducts
AutomotiveAutomotive
ProductsProducts
AutomotiveAutomotive
ProductsProducts
Product Departmentalization Structure

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Departmental Bases:
Customer Departmentalization
• The importance of customer satisfaction has
stimulated firms to search for creative ways to
serve people better
• Organizations with customer-based departments
are better able to satisfy customer-identified
needs than organizations that base departments
on non-customer factors

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Retail
Stores
Mail Order
On-Line
Sales
Government
Contracts
OBM
Company
Institutional
Sales
Customer Departmentalization Structure

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Span of Control (1 of 2)
• Number of individuals who report to a
specific manager
• Narrow span
• Wide span
• The frequency and intensity of actual
relationships is the critical consideration
in determining the manager’s span of
control

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Dimensions of Structure
• Formalization – the extent to which
expectations regarding the means and ends of
work are specified, written, and enforced
• Centralization – the location of decision-making
authority in the hierarchy
• Complexity – the direct outgrowth of dividing
work and creating departments

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Comparison of Mechanistic and Organic
Structures (1 of 3)
Process Mechanistic Structure Organic Structure
1. Leadership Includes no perceived
confidence and trust between
superiors and subordinates.
Includes perceived confidence
and trust between superiors
and subordinates.
2. Motivation Taps only physical, security,
and economic motives,
through use of fear and
sanctions.
Taps a full range of motives
through participatory methods.
3. Communication Information flows downward
and tends to be distorted,
inaccurate, and viewed with
suspicion by subordinates.
Information flows freely:
upward, downward, and
laterally. The information is
accurate and undistorted.

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Comparison of Mechanistic and Organic
Structures (2 of 3)
Process Mechanistic Structure Organic Structure
4. Interaction Closed and restricted.
Subordinates have little effect
on departmental goals,
methods, and activities.
Open and extensive. Both
superiors and subordinates are
able to affect departmental
goals, methods, and activities.
5. Decision Relatively centralized.
Occurs only at the top of
the organization.
Relatively decentralized.
Occurs at all levels through
group processes.
6. Goal setting Located at the top of the
organization, discouraging
group participation.
Encourages group
participation in setting high,
realistic objectives.

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Comparison of Mechanistic and Organic
Structures (3 of 3)
Process Mechanistic Structure Organic Structure
7. Control Centralized. Emphasizes
fixing blame for mistakes.
Dispersed throughout the
organization. Emphasizes
self-control and problem
solving.
8. Performance
goals
Low and passively sought
by managers, who make no
commitment to developing
the organization’s human
resources.
High and actively sought by
superiors, who recognize the
need for full commitment to
developing, through training,
the organization’s human
resources.

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Organization Design Models:
The Matrix Model
• Matrix organization – attempts to maximize
the strengths and minimize the weaknesses
of both the functional and product bases
• Superimpose a horizontal structure of
authority, influence, and communication on
the vertical structure
• Facilitates the utilization of highly specialized
staff and equipment

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Project or product AProject or product A
Project or product BProject or product B
Project or product CProject or product C
Project or product DProject or product D
Project or product EProject or product E
ManufacturingManufacturing MarketingMarketing EngineeringEngineering FinanceFinance
FunctionsFunctions
Projects, productsProjects, products
Example of the Matrix Organization Model

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Advantages 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

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Task Force
Teams
Product
Managers
Product
Management Depts.
(1)
(2)
(3)
(4)
Evolutionary Steps to the Matrix Model

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Multinational Structure and Design
• Multinational corporation – consists of a
group of geographically dispersed
organizations with different national
subsidiaries
• Multinational corporations frequently exist in
very divergent environments
• The most prevalent departmental basis is
geographic

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Multinational Corporations: Implications
for Organizational Design (1 of 2)
1. National boundaries are an important force in
defining organizational environments
2. Subsidiaries or affiliates of multinational
corporations can act as conduits that introduce
changes into the host country’s environment

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Multinational Corporations: Implications
for Organizational Design (2 of 2)
3. Subsidiaries of multinational corporations can
act as conduits through which features of the
host country culture are introduced throughout
the multinational organization

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Virtual Organizations
• Virtual organization – a collection of
geographically distributed, functionally
and/or culturally diverse aggregations of
individuals that is linked by electronic
forms of communication
• Assembled and disassembled according
to needs

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Virtual 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 reward
systems
• Greater equity of participation

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Boundaryless Organizations
• Organizations in which:
• the hierarchy and chain of command are
minimized
• rigidly structured departments are
eliminated
• Implemented to reduce barriers between
people and constituencies