ORGANIZATION STRUCTURE, CULTURE, AND CHANGE

Work can be divided into jobs for individuals and groups. Work is also subdivided through an
organization structure
the arrangement of people and tasks to accomplish organizational
goals.
I. BUREAUCRAC AS A !OR" O! ORGANIZATION
A #ureaucrac$ is a rational, systematic, and precise form of organization in which rules,
regulations, and techniques of control are precisely defined. Most other forms of
organization derive from bureaucracy.
A. %rinci&'es o( Organization in a Bureaucrac$
he essence of bureaucracy can be understood by identifying its major characteristics
and principles.
!. Hierarchy of authority. he dominant characteristic of a bureaucracy is that each
o rganizational unit is controlled and supervised by a higher one.
". Unity of command. A classic management principle, unit$ o( co))an* , states that
each subordinate receives assigned duties from one superior only and is accountable
to that superior.
#$%rganization &tructure, 'ulture, and 'hange
(. Task specialization. )ach unit of the organization and each employee concentrates
on one function.
*. Responsibilities and job descriptions. +n a highly bureaucratic organization, each
employee has a precise job description, and policy and procedure manuals are kept
current and accessible.
,. Line and staff functions. -ureaucracies differentiate line from( staff functions. .ine
functions are involved with the primar y outputs of the firm, and staff functions
advise line functions.
B. A*+antages an* Disa*+antages o( Bureaucrac$
he primary advantage of bureaucracy is that it allows for high levels of accomplishment.
Many large bureaucratic organizations, such as Wal/Mart and 0eneral )lectric, are
successful and continue to grow at an impressive pace. An argument in favor of
bureaucracies is that when too many policies, rules, and regulations ar e eliminated
workers lack direction.
%n the negative side, bureaucracies can be rigid in handling people and problems. 1ules
and regulations can lead to inefficiency, such as getting approvals. 2igh frustration
caused by red tape and slow decision making are other key problems in a bureaucracy.
II. DE%ART"ENTALIZATION
Work is divided into departments to minimize confusion and to increase efficiency.
De&art)enta'ization is the process of subdividing work into departments.
A. !unctiona' De&art)enta'ization
!unctiona' *e&art)enta'ization is an arrangement in which departments are defined
by the function each one performs, such as accounting or purchasing. he advantages
and disadvantages of the functional organization follow those of bureaucracy.
3epartmentalization by function is well suited for large batch processing and for
specialization. he disadvantages of functional organization ar e partially due to its size
and comple4ity. As with any form of departmentalization, a major problem is that the
people within a unit may not communicate sufficiently with workers in other units.
B. Geogra&,ic De&art)enta'ization
Geogra&,ic *e&art)enta'ization is an arrangement of departments according to the
geographic area or territory served. All the firm5s activities in one geographic region
report to one manager. A key advantage of geographic departmentalization is that it
allows for decision making at the local level. 3isadvantages include high costs,
because of the duplication of effort and the fact that management may have difficulty
controlling the performance of field units.
C. %ro*uct-Ser+ice De&art)enta'ization
%ro*uct-ser+ice *e&art)enta'ization is the arrangement of departments according to
the products or services they provide. his arrangement makes the most sense when the
product or service has its own unique demands. %rganizing by product or service gives
major attention to the product or service, allowing it the ma4imum opportunity to grow
and prosper. 6et this structure can be e4pensive because of duplication of effort, and
control of the separate units may be difficult.

#$%rganization &tructure, 'ulture, and 'hange
III. "ODI!ICATIONS O! THE BUREAUCRATIC ORGANIZATION
o overcome some of the problems encountered in the bureaucratic form of organization,
several other organization structures have been developed. ypically, these
nonbureaucratic structures are used to supplement or modify the bureaucratic structure.
A. T,e "atri. Organization
3epartments are not well suited to performing special tasks involving multiple
specialties. A solution to this problem is the &ro/ect organization , in which a
temporary group of specialists work under one manager to accomplish a fi4ed
objective. he best/known application of project management is the )atri.
organization , a project structure superimposed on top of a functional structure. he
matri4 can therefore capitalize upon the advantages of both the project and functional
groupings. +n a large matri4 structure, big projects function as mini/companies. A
distinguishing feature of the matri4 is that the project managers borrow resources from
the functional departments.
B. !'at Structures, Do0nsizing, an* Outsourcing
A major approach to making an organization less bureaucratic is to reduce its number
of layers. 3ownsizing and outsourcing lead to a flat structure.
!. Flat Structures When an organization accumulates too many layers, top
management may decide to create a ( 'at organization structure , a form of
organization with relatively few layers. A flat structure is less bureaucratic because
fewer managers review the work of others, and the structure is less authority/laden.
A flat structure leads to a wider s&an o( contro', the number of workers reporting
directly to a manager. 7lat structures widen the span because the remaining
managers usually have more direct reports.
". Donsizin! 3ownsizing can lead to a simplified, less bureaucratic structure. 8nder
ideal circumstances, downsizing leads to better profits and higher stock prices.
3ownsizing can also backfire in terms of lowered morale and lower return on
assets. he positive impact of downsizing on profits can be quite low. &uggestions
for more effective downsizing include9
a. Make it part of the business strategy, not just a money saver.
b. )liminate low/value and no/value activities.
c. :eep future work requirements in mind.
d. 8se sensible criteria to decide which workers should be laid off.
e. %ffer assistance to laid/off workers with respect to finding new employment or
reorienting their careers.
f. +nvolve employees in the resizing process.
(. "utsourcin!. %utsourcing is part of globalization but is also having work
performed by other organizations. As a result, the company can operate with fewer
employees and physical assets. A major justification for outsourcing is that a
company is likely to profit when it focuses its effort on activities it performs best.
-oth basic and more advanced business functions are now being outsourced. 8;&,
with all the services it provides other companies, illustrates how far outsourcing
has advanced. A rapidly/growing development in outsourcing is ,o)es,oring, or
moving customer service into workers5 homes as a form of telecommuting. At
<et-lue, all !,*== reservation agents work from home as company employees.

#$%rganization &tructure, 'ulture, and 'hange
%utsourcing may save money, yet what about building a loyal workforce that has
company pride>
C. T,e Horizonta' Structure 1Organization #$ Tea) an* %rocess2
+nstead of assigning people to specific tasks, a group of people can be concerned
with a process such as filling an order or developing a new product. +nstead of
focusing on a specialized task, all team members focus on the purpose of the
activity. A ,orizonta' structure is the arrangement of work by teams that are
responsible for accomplishing a process. he employees take collective
responsibility for customers.
&witching the emphasis from task to process can be done through reengineering,
the radical redesign of work to achieve substantial improvements in performance.
1eengineering searches for the most efficient way to perform a large task. As a
result of reengineering, work is organized horizontally rather than vertically. A
major challenge in creating a horizontal structure is changing from a functional to a
process mindset.
D. In(or)a' Structures an* Co))unication Net0or3s
An organization chart does not tell the whole story. he in(or)a' organization
structure is a set of unofficial relationships that emerge to take car e of events and
transactions not covered by the formal structure. he informal structure
supplements the formal structure by adding a degree of fle4ibility and speed.
+nformal structures are also referred to as informal networks because of the focus
on how people use personal contacts to obtain information in a hurry and get work
done. A network map is useful in spotting talented people whom others consult.
Also as part of informal networks, information technology influences all the
organization structures described in this chapter because people can solve problems
by working together without worrying about who reports to whom.
E. 4e$ !actors t,at In('uence t,e Se'ection o( an Organization Structure
'hoosing the best structure is contingent upon certain factors including9
!. &trategy and goals structure follows strategy.
". echnology high technology firms rely more on fle4ible structures.
(. &ize large size leads to centralized controls and some formalization.
*. 7inancial condition of the firm flat structures cost less than tall ones.
,. )nvironment stability a fle4ible structure is better for an unstable
environment.
I5. DELEGATION, E"%O6ER"ENT, AND DECENTRALIZATION
Work is subdivided through the chain of command via delegation, empower ment, and
decentralization.
A. De'egation o( Res&onsi#i'it$ an* E)&o0er)ent
De'egationrefers to assigning another person the formal authority and responsibility
for accomplishing a specific task. 3elegation is closely tied in with e)&o0er)ent ,
the process by which managers share power with group members, thereby enhancing
the employee5s feeling of personal effectiveness. 3elegation and empower ment lie at
the heart of effective management. o delegate and empower effectively, the manager

#$%rganization &tructure, 'ulture, and 'hange
should9 ?a@ assign duties to the right people, ?b@ delegate the whole task and step back
from the details, ?c@ give as much instruction as needed, ?d@ retain some important
tasks, and ?e@ obtain feedback on the delegated task.
B. Decentra'ization
Decentra'ization is the e4tent to which authority is passed down to lower levels in an
organization. Centra'ization is the e4tent to which authority is retained at the top.
'ertain conditions usually foster decentralization, such as when important decisions
are made low in the management hierarchy. A centralized firm e4ercises more control
over organizational units than does a decentralized firm. &ome firms can be
centralized and decentralized simultaneously, such as fast/foot franchise operations.
An advanced technique of juggling the forces of centralization and decentralization
simultaneously is for decentralized units to remain somewhat autonomous, yet
cooperate with each other for the common good. <ohnson and <ohnson is a first/rate
e4ample.
5. ORGANIZATIONAL CULTURE
Organizationa' ?or cor&orate @ cu'tureis the system of shared values and beliefs that
actively influence the behavior of members of the organization.
A. Deter)inants o( Organizationa' Cu'ture
Many forces shape a firms culture. %ften its origin likes in the values, administrative
practices, and personality of the founder. 'ulture responds to and mirrors the
conscious and unconscious choices, behavioral patterns, and prejudices of top/level
managers. he society helps form the organizational culture, as does the industry in
which the firm operates.
B. Di)ensions o( Organizationa' Cu'ture
%rganizational culture is comple4, yet si4 dimensions capture its essence. :ey
dimensions include ?a@ values, ?b@ relative diversity, ?c@ resource allocation and
rewards, ?d@ degree of change, ?e@ a sense of ownership, and ?f@ strength of the
culture.
C. Ho0 6or3ers Learn t,e Cu'ture
)mployees learn the culture primarily through socia'ization, the process of coming
to understand the values, norms, and customs essential for adapting to the
organization. he teachings of leaders are also important.
D. Conse7uences an* I)&'ications o( Organizationa' Cu'ture
'ulture has a pervasive impact on organizational effectiveness. he consequences
and implications of organizational culture include ?a@ competitive advantage and
financial success, ?b@ productivity, quality, and morale, ?c@ innovation, ?d@
compatibility of mergers and acquisitions, ?e@ person/organization fit, and ?f@
direction of leadership activity.

#$%rganization &tructure, 'ulture, and 'hange
E. "anaging an* Sustaining t,e Cu'ture
A major responsibility of top management is to shape, manage, and control the
organizational culture. )ffective leadership helps change the culture. Managers can
bring about culture change by ?a@ being a role model for change, ?b@ impose a new
approach through e4ecutive edict, ?c@ rewarding behavior that supports the culture,
?d@ selecting people with values matching the culture, and ?e@ sponsoring training that
supports the culture, and ?f@ conduct conference calls to discuss progress toward
building the new culture.
5I. "ANAGING CHANGE
o meet their objectives, managers must manage change effectively almost daily.
'hange in the workplace can relate to any factor with an impact on people, including
changes in technology, organization structure, competition, human resources, and
budgets.
A. Creating C,ange at t,e In*i+i*ua' +ersus t,e Organizationa' Le+e'
Many useful changes take place at the individual and small group level, rather than
the organizational level. A study of Amovers and shakersA suggested that these people
are more concerned about achieving results than avoiding offending anyone or
blending into the group. 'hange at the organizational level can be regarded as change
in the fundamental way in which the company operates. 7or total organizational
change to take place, every employee must be eager to rise to the challenge of
change.
B. T,e Un(reezing-C,anging-Re(reezing "o*e' o( C,ange
Unfreezin!involves reducing or eliminating r esistance to change. #han!in! or
mo$in! to a ne le$el usually involves considerable two/way communication,
including group discussion. Refreezin! includes rewarding people for implementing
the change.
C. Resistance to C,ange
;eople resist change for many reasons, including the following9 ?a@ fear of an
unfavorable outcome, ?b@ not wanting to break old habits, ?c@ concern about upsetting
the balance of an activity such as in/person contact, ?d@ personality factors that resist
change, such as rigidity, ?e@ a desire to cling to the old, however flawed, and ?f@
awareness of the weaknesses of a proposed change.
D. Gaining Su&&ort (or C,ange
&even techniques for gaining support for change are as follows9
!. %llo for discussion and ne!otiation .
". %llo for participation.
(. &oint out the financial benefits.
*. %$oid chan!e o$erload.
,. %llo for first'hand obser$ation of successful chan!e.
B. (et the best people behind the pro!ram.

#$%rganization &tructure, 'ulture, and 'hange
he techniques for overcoming resistance to change work better when the manager
has a good working relationship with group members, including being trusted.
E. Si. Sig)a an* %'anne* C,ange
he shift to a quality/conscious firm can be classified as a total systems approach to
organization change. %ne quality standard is si) si!ma, or (.* errors in one million
opportunities. his quality standard has taken the form of company/wide programs
for attaining high quality. Si. Sig)a refers to a philosophy of driving out waste,
improving quality, and the cost and time performance of a company.
&i4 &igma is a data/driven method for achieving near/perfect quality, with an
emphasis on preventing problems. &i4 &igma also contains a strong behavioral aspect,
with a focus on motivating people to work together to achieve higher levels of
productivity. op management commitment is vital. 7or &i4 &igma to work well, it
must fit into the company culture.
!. T,e DICE !ra)e0or3 (or Success(u' C,ange "anage)ent
An e4ample of a new approach to change management is the 3+') framework.
'hange initiatives are likely to be more successful when four factors are in place.
3. Durationshould be relatively short, or frequent reviews take place for projects of
long duration.
+. *nte!rity of performance ?capable project teams help@.
'. #ommitment of senior e)ecuti$es and staff is essential.
). +ffortis required by employees directly involved in the change.
he 3+') &core C 3 D ?" 4 +@ D ?" 4 ' @ D ' D ). ?'ommitment is divided into
! "
top/management commitment ?' @ and local/level commitment ?' @. 7actors are
! "
scored from ! to *, with total scores from E to "#. A possible discussion here is
whether the 3+') &core is valuable or nonsense.
Co))ents on En*-o(-C,a&ter 8uestions
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!. "$er the years, lar!e business or!anizations ha$e steadily reduced the number of
layers in the or!anization structure. -hat purposes has this profound chan!e in
structure ser$ed.
.arge organizations that have de/layered have often developed a less bureaucratic
culture in such ways as being more democratic and decisions being made more quickly.
Many of these firms would most likely be less competitive today if they had not
reduced their management structures. 6et despite their slimmed/down management
structure, large American firms are not so successful that increases have taken place in
employment, job security, pensions, and health benefits. An e4treme e4ample is that
)astman :odak 'ompany has shrunk from !*=,=== employees in the !F,=s to about
"=,=== in "==#.
". Small and medium'size companies are often ea!er to hire people ith about fi$e years
e)perience orkin! in a lar!e, bureaucratic firm like */0 or Ford 0otor #ompany.

#$%rganization &tructure, 'ulture, and 'hange
-hat mi!ht be the reason for the demand for these orkers ith e)perience in a
bureaucracy.
Managers at smaller firms recognize that workers with big company e4perience are
likely to have knowledge of systems and procedures that can be valuable to the smaller
firm. +n general, the larger firms are more disciplined in hundreds of ways.
(. -hat is the basis for departmentalization in the last hospital you $isited, read about, or
sa on tele$ision.
Almost all hospitals use functional departmentalization for the major reason that
specialization is needed. he obstetrics department, for e4ample, requires different
e4pertise than does the neurosurgery department. eam structures may e4ist within the
functional departments, but dominant form of departmentalization is still functional.
*. Describe the culture of hi!hly $isible or!anization such as -al'0art or Starbucks.
&erhaps make first'hand obser$ations should you be $isitin! either one of these
establishments. Use the dimensions of or!anizational culture to help you build your
description.
he key here is for the student to make use of cultural dimensions, rather than
making evaluative statements such as the culture is Gbad,H Ggood,H or Gwonderful.H
7or the e4ample &tarbucks might welcome diversity, be relatively stable, have a
sense of ownership and a strong culture.
,. -hat can first' and second'le$el mana!ers, as ell as team leaders, do about shapin!
the culture of a firm.
he managers just mentioned can make a large contribution to culture by serving as
role models of the desired values, and rewarding people for e4pressing certain values.
7or e4ample, a team leader might heavily praise work that supported the corporate
value of quality.
B. 0any career counselors belie$e that you are more likely to succeed in an or!anization
in hich you fit the culture. Ho could you determine before joinin! an or!anization
hether you fit its culture.
8nderstanding the culture of a prospective employer is part of sizing up the company.
he job candidate should make careful observations during the interview visits, such as
observing how well rank is respected in the firm, which organizational functions are
mentioned the most, and how much the firm dominates an employee5s life. )qually
important, the job candidate should speak to a pr esent employee, past employee, and
customers about the firm. Ask questions such as, GWhat is it like working here>H G2ow
does the company treat people>H )valuate whether all the information you receive
would fit your personality and style.
E. Ho can a mana!er tell if an employee is resistin! chan!e.

#$%rganization &tructure, 'ulture, and 'hange
An employee who is resisting change will give such telltale signs as procrastinating
about implementing the needed change and perhaps conveniently forgetting to do tasks
related to the change. )4cuse making is another potential indicator of resistance.
Co))ent on Se'(-Assess)ent an* S3i''-Bui'*ing E.ercises
Understanding Your Bureaucratic OrientationIn Chapter
he -ureaucratic %rientation &cale gives the student something valuable to think about in terms
of his or her potential comfort working in a bureaucracy. Many people want more freedom than a
bureaucracy offers, yet many people prefer more structure in their work lives.
Comparing Organization StructuresEnd of Chapter
)4amining organization structures, and then diagnosing the type of structure, allows for some
critical thinking. he students are likely to find that most structures are hybrid, such as
containing both a functional and a geographic structure.
The Art of DelegationEnd of Chapter
he serious students who practice delegation might find the e4perience illuminating. 3elegation
can be a joy or a nightmare, somewhat depending on to whom the task is delegated.
Analzing an Organizational CultureInternet
&ometimes an organization will mention aspects of its culture in its Web site, such as being a
company with a strong innovative spirit. Articles about the company may be more indicative of
the culture, but such a search might take some digging. A Web search phrase that will most
likely work would be, for e4ample, Ghe organization culture at +-M.H
Ans0ers to Case 8uestions
9999999999999999999999999999999999999999999999999999999999999999
!eshaping "icrosoft
A potential contribution of this case is that it illustrates the importance of organization structure
in the welfare and destiny of a firm.
!. -hat do you see as the ad$anta!es and disad$anta!es of breakin! up 0icrosoft.
he advantages of breaking up Microsoft follow most of the comments made by the
authors of the article. &pinning off parts of the company could lead to more attention being
paid to the components, and also smaller, more nimble companies. 6et a true break up of
the company would mean that the units no longer benefit from the e4pertise of workers in
the other units, such as research and development findings being shared across units. Also
GMicrosoftH remains a great brand name with enormous equity. +f Microsoft were separate
companies and no longer carried the name Microsoft a lot of this equity would be lost.

#$%rganization &tructure, 'ulture, and 'hange
". Dra an or!anization chart to reflect the ne proposed 0icrosoft. Dra only the major
or!anizational units. #ompare your structure to those de$eloped by other indi$idual class
members or teams of class members.
We have added some names that the ambitious student might track down.
C,air)an an* C,ie(
E.ecuti+e O((icer
Ste+e Ba'')er
%resi*ent %resi*ent %resi*ent
%'at(or) Business Di+ision Entertain)ent
%ro*ucts : : De+ices
Ser+ices Di+ision
;e(( Rai3es
;i) A''c,iin Ro##ie Bac,
an* 4e+in
;o,nson
?Windows 'lient, ?+nformation Worker, ?2ome and entertainment
&erver and ools, 0roup and Microsoft and Mobile and )mbedded
and M&I@ -usiness 0roup@ 3evices@
'hart derived from information presented in 1obert A. 0uth, GMicrosoft to 1estructure
Source<
-usinesses,H The -all Street 1ournal , &eptember "!, "==,, pp. A(, A,J www.microsoft.com . As

#$%rganization &tructure, 'ulture, and 'hange
with any organization chart, the arrangement of people and the names of units are subject to
frequent change.
Spar#ing Change at Co#e
A key point about this case is that even one of the world5s best/known companies can face the
need for substantial change. At the same time the case illustrates that achieving substantial
change is an agonizing process.
!. -hy does this story belon! in a chapter that deals ith or!anization chan!e. Shouldn2t the
#oke story be placed in a chapter e)clusi$ely about marketin!.
his case belongs in a chapter about organization change because it is people and their
attitudes that bring about organization change. Also, 'oca/'ola has faced the problem of
overcoming resistance to change. he culture has to change to bring about marketing
changes.
". *n hat ays does the #oca'#ola #o. transformation re3uire chan!es in the attitudes of
employees and in the or!anizational culture.
As just implied, based on past successes long/time 'oca 'ola employees might be too
smug and complacent. hey know that the company keeps generating billions of dollars in
sales every year, along with good profits, so why be so concerned about change> he
culture has to be moved toward a greater sense of urgency for change.
(. -hat ad$ice can you offer *sdell and the successor to 0innick to make #oca #ola e$en
more successful.
'oca 'ola should certainly continue their present course of acquiring niche beverages
including energy drinks and tea drinks, such as the acquisition of 7uze -everage ..' in
"==E. 6et the company might have to think as broadly as ;epsi'o has done by entering the
snack business. %r perhaps 'oca 'ola might acquire a major food company. Iaysayers
will point out that some of these diversions do not work, like 'oca 'ola5s foray into a line
of children5s clothing many years ago. he data are clear that the consumption of
carbonated beverages is on the decline worldwide, so growth in new product categories is
essential.