Organization structure refers to the pattern of jobs and groups in an organization. It is an important influence on individual and group behavior. Organization design involves management decisions that determine the structure. Key design decisions include how work is divided and specialized, how jobs are grouped, the span of control of managers, and how authority is distributed. Common structures are functional, geographic, product, and customer-based departmentalization. Mechanistic and organic models differ in their degree of centralization, formalization, and specialization. The matrix and virtual organization are alternatives that combine structural elements.

1. 16-1
Organizational Structure and
Design
McGraw-Hill/Irwin
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2. 16-2
Organization structure – the pattern
of jobs and groups of jobs in an
organization.
It is an important cause of individual
and group behavior.
McGraw-Hill/Irwin
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3. The Concept of Organization Structure
Structure as an
influence on
behavior
McGraw-Hill/Irwin
16-3
Structure as
recurring activities
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4. 16-4
Organization design – management
decisions and actions that result in a
specific organization structure.
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5. Organizational Design Decisions
16-5
1. Managers decide how to divide the overall
task into successively smaller jobs
2. Managers decide the bases by which to group
the jobs
3. Managers decide the appropriate size of the
group reporting to each superior
4. Managers distribute authority among the jobs
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6. The Four Key Design Decisions
Specialization
Division of Labor:
Low
High
Departmentalization:
Basis
Homogeneous
Heterogeneous
Number
Span of Control:
Many
Few
Delegation
Authority:
High
McGraw-Hill/Irwin
16-6
Low
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7. Division of Labor
16-7
• 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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8. Division of Labor Occurs in Three
Different Ways:
16-8
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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9. Delegation of Authority
16-9
• 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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10. Reasons to Decentralize Authority
16-10
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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11. 16-11
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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12. 16-12
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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13. 16-13
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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14. 16-14
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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15. 16-15
Departmentalization – process in
which an organization is
structurally divided by combining
jobs in departments according to
some shared characteristic or
basis.
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16. Departmentalization Bases
Functional
McGraw-Hill/Irwin
Geographic
Product
16-16
Customer
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17. Departmental Bases:
Functional Departmentalization
16-17
• 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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18. 16-18
Functional Departmentalization Structure
OBM Company
OBM
Engineering
Engineering
Reliability
Manufacturing
McGraw-Hill/Irwin
Distribution
Distribution
Finance
Finance
Public
Public
Relations
Relations
Human
Human
Resources
Resources
Purchasing
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19. Departmental Bases:
Geographic Departmentalization
16-19
• 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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20. 16-20
Geographic Departmentalization Structure
OBM
Company
Northeast
McGraw-Hill/Irwin
Midwest
Southeast
Southwest
Pacific
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21. Departmental Bases:
Product Departmentalization
16-21
• 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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22. Product Departmentalization Structure
16-22
OBM Company
OBM Company
Small
Small
Household
Household
Appliances
Appliances
McGraw-Hill/Irwin
Large
Large
Household
Household
Appliances
Appliances
Commercial
Commercial
Appliances
Appliances
Building
Building
Materials and
Materials and
Products
Products
Lawn and
Lawn and
Garden
Garden
Products
Products
Automotive
Automotive
Products
Products
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23. Departmental Bases:
Customer Departmentalization
16-23
• 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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24. 16-24
Customer Departmentalization Structure
OBM
Company
Retail
Stores
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Mail Order
On-Line
Sales
Institutional
Sales
Government
Contracts
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25. Span of Control (1 of 2)
16-25
• 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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26. Span of Control (2 of 2)
• If we shift our attention
from potential to actual
relationships as the bases
for determining optimum
span of control, three
factors appear to be
important:
McGraw-Hill/Irwin
16-26
Key Factors
Required Contact
Degree of
Specialization
Ability to
Communicate
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27. Dimensions of Structure
16-27
• 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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28. Organization Design Models
16-28
The Mechanistic Model
The Organic Model
• Emphasizes importance
• Emphasizes importance
of achieving high levels of
of achieving high levels of
production and efficiency
production and efficiency
through:
through:
• Extensive use of rules and
procedures
• Centralized authority
• High specialization of
labor
McGraw-Hill/Irwin
• Limited use of rules and
procedures
• Decentralized authority
• Relatively low degrees of
specialization
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29. Comparison of Mechanistic and Organic
Structures (1 of 3)
16-29
Process
Mechanistic Structure
1. Leadership
Includes no perceived
Includes perceived confidence
confidence and trust between and trust between superiors
superiors and subordinates. 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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Organic Structure
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30. Comparison of Mechanistic and Organic
Structures (2 of 3)
16-30
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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31. Comparison of Mechanistic and Organic
Structures (3 of 3)
16-31
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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32. Organization Design Models:
The Matrix Model
16-32
• 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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33. 16-33
Example of the Matrix Organization Model
Functions
Projects, products
Manufacturing
Marketing
Engineering
Finance
Project or product A
Project or product B
Project or product C
Project or product D
Project or product E
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34. Advantages of Matrix Organization
16-34
• 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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35. Evolutionary Steps to the Matrix Model
Task Force
16-35
(1)
Teams
(2)
Product
Managers
(3)
Product
(4)
Management Depts.
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36. Multinational Structure and Design
16-36
• 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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37. Multinational Corporations: Implications
for Organizational Design (1 of 2)
16-37
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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38. Multinational Corporations: Implications
for Organizational Design (2 of 2)
16-38
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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39. Virtual Organizations
16-39
• 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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40. Virtual Organizations:
Factors in Design Considerations
16-40
•• Personnel distributed geographically
Personnel distributed geographically
•• Electronically connected
Electronically connected
•• Differences in expertise and function
Differences in expertise and function
•• Culturally diverse
Culturally diverse
•• Work schedule differences
Work schedule differences
•• Horizontally arranged with little emphasis on
Horizontally arranged with little emphasis on
command and control authority
command and control authority
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41. Virtual Organizations:
Design Implications
16-41
•• Contractual relationships
Contractual relationships
•• Constant change and reconfiguration
Constant change and reconfiguration
•• No rigid boundaries
No rigid boundaries
•• Flexible
Flexible
•• Little or personal and social contact
Little or personal and social contact
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42. Virtual Organizations:
Consequences
16-42
•
•
•
•
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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43. Boundaryless Organizations
16-43
• Organizations in which:
• the hierarchy and chain of command are
minimized
• rigidly structured departments are
eliminated
• Implemented to reduce barriers between
people and constituencies
McGraw-Hill/Irwin
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