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15
Foundations of
Organization
Structure
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Learning Objectives
qIdentify seven elements of an organizations structure.
qIdentify the characteristics of the functional structure, the
divisional structure, and the matrix structure.
qIdentify the characteristics of the virtual structure, the team
structure, and the circular structure.
qDescribe the effects of downsizing on organizational
structures and employees.
qContrast the reasons for mechanistic and organic structural
models.
qAnalyze the behavioral implications of different organizational
designs.
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LO 1

Identify Seven Elements

of an Organizations Structure

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LO 1

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Identify Seven Elements

of an Organizations Structure
Work specialization: the division of
labor into separate activities.
Repetition of work.
Training for specialization.
Increasing efficiency through invention.
Henry Ford

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LO 1

Identify Seven Elements

of an Organizations Structure

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LO 1

Identify Seven Elements

of an Organizations Structure
Grouping jobs together so common tasks can
be coordinated is called departmentalization.
By functions performed.
By type of product or service the
organization produces.
By geography or territory.
By process differences.
By type of customer.
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LO 1

Identify Seven Elements

of an Organizations Structure
Chain of command: an unbroken line of
authority that extends from the top of the
organization to the lowest echelon and clarifies
who reports to whom.
Once a basic cornerstone in organization
design.
Two complementary concepts:
Authority
Unity of command
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LO 1

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Identify Seven Elements

of an Organizations Structure
The chain of command is less relevant today
because of technology and the trend of
empowering people.
Operating employees make decisions once
reserved for management.
Increased popularity of self-managed and
cross-functional teams.
Many organizations still find that enforcing the
chain of command is productive.
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LO 1

Identify Seven Elements

of an Organizations Structure

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LO 1

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Identify Seven Elements

of an Organizations Structure
Centralization and Decentralization
Centralization refers to the degree to which
decision making is concentrated at a single
point in the organization.
Advantages of a decentralized organization:
Can act more quickly to solve problems.
More people provide input into decisions.
Employees are less likely to feel alienated
from those who make decisions that affect
their work lives.
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LO 1

1 5 -1 1

Identify Seven Elements

of an Organizations Structure
Formalization: the degree to which jobs within
the organization are standardized.
A highly formalized job means a minimum
amount of discretion.
Low formalization job behaviors are
relatively non-programmed, and employees
have a great deal of freedom to exercise
discretion in their work.

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LO 1

Identify Seven Elements

of an Organizations Structure
Boundary spanning occurs when individuals
form relationships with people outside their
formally assigned groups.
Positive results are especially strong in
organizations that encourage extensive
internal communication; in other words,
external boundary spanning is most effective
when it is followed up with internal boundary
spanning.
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LO 2

Common Organizational
Frameworks and Structures

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LO 1

Common Organizational
Frameworks and Structures
Simple structure: the manager and the owner are
one and the same.
Strengths:
Simple, fast, and flexible.
Inexpensive to maintain.
Accountability is clear.
Weaknesses:
Difficult to maintain in anything other than
small organizations.
Riskyeverything depends on one person.

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LO 2

Common Organizational
Frameworks and Structures
A bureaucracy is characterized by
standardization.
Highly routine operating tasks.
Very formalized rules and regulations.
Tasks grouped into functional departments.
Centralized authority.
Narrow spans of control.
Decision making that follows the chain of
command.
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LO 2

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Common Organizational
Frameworks and Structures
Strengths of bureaucracy:
Ability to perform standardized activities in a
highly efficient manner.
Weaknesses of bureaucracy:
Subunit conflicts.
Unit goals dominate.
Obsessive behavior.
Covering weak management.
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LO 2

Common Organizational
Frameworks and Structures
The matrix structure combines two forms of
departmentalizationfunctional and product:
The strength of functional is putting
specialists together.
Product departmentalization facilitates
coordination.
It provides clear responsibility for all
activities related to a product, but with
duplication of activities and costs.
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LO 2

Common Organizational
Frameworks and Structures

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LO 3

Alternate Design Options

The Virtual Organization
The essence of the virtual organization is
that it is typically a small, core organization
that outsources major business functions.
Also referred to as a modular or network
organization.
It is highly centralized, with little or no
departmentalization.
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LO 3

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Alternate Design Options

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LO 3

Alternate Design Options

The team structure: eliminates the chain of
command and replaces departments with
empowered teams.
Removes vertical and horizontal boundaries.
Breaks down external barriers.
Flattens the hierarchy and minimizes status
and rank.
When fully operational, the team structure may
break down geographic barriers.
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LO 3

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Alternate Design Options

In the circular structure: in the center are the
executives, and radiating outward in rings
grouped by function are the managers, then the
specialists, then the workers.
Has intuitive appeal for creative entrepreneur.
However, employees may be unclear about
whom they report to and who is running the
show.
We are still likely to see the popularity of the
circular structure spread.
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LO 4

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Effects of Downsizing on
Organizations and Employees
The Leaner Organization: Downsizing
The goal of the new organizational forms
weve described is to improve agility by
creating a lean, focused, and flexible
organization.
Downsizing is a systematic effort to make an
organization leaner by selling off business
units, closing locations, or reducing staff.
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LO 4

Effects of Downsizing on
Organizations and Employees
Strategies for downsizing include:
Investment
Communication
Participation
Assistance
Make cuts carefully and help employees
through the process.
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LO 5

Mechanistic vs. Organic

Structural Models

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LO 5

Mechanistic vs. Organic

Structural Models
An organizations structure is a means to help
management achieve its objectives.
Most current strategy frameworks focus on
three strategy dimensions:
Innovation
Cost Minimization
Imitation
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LO 5

Mechanistic vs. Organic

Structural Models

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LO 5

Mechanistic vs. Organic

Structural Models
Organizational Size
Large organizationsemploying 2,000 or
more peopletend to have more
specialization, more departmentalization,
more vertical levels, and more rules and
regulations than do small organizations.
The impact of size becomes less
important as an organization expands.
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LO 5

Mechanistic vs. Organic

Structural Models
Technology: the way an organization transfers
its inputs into outputs.
Numerous studies have examined the
technology-structure relationship.
Organizational structures adapt to their
technology.

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LO 5

Mechanistic vs. Organic

Structural Models
An organizations environment includes
outside institutions or forces that can affect its
performance.
Dynamic environments create significantly
more uncertainty for managers than do
static ones.
To minimize uncertainty:
Broaden structure to sense and respond
to threats.
Form strategic alliances .
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LO 5

Mechanistic vs. Organic

Structural Models

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LO 5

Mechanistic vs. Organic

Structural Models
Another factor that shapes organizational
structure is institutions.
Regulatory pressures.
Simple inertia.
Culture.
Fads or trends.
Institutional pressures are often difficult to see
specifically because we take them for granted,
but that doesnt mean they arent powerful.
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LO 6

Analyze the Behavioral Implications

of Different Organizational Designs
An organizations structure can have significant
effects on its members.
Its impossible to generalize!
Not everyone prefers the freedom and flexibility
of organic structures.
Some people are most productive and satisfied
when work tasks are standardized and ambiguity
minimized.

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LO 6

Analyze the Behavioral Implications

of Different Organizational Designs
Organizational Designs and Employee Behavior
Work specialization contributes to higher employee
productivity.
No evidence supports a relationship between span
of control and employee satisfaction or
performance.
Fairly strong evidence links centralization and job
satisfaction, meaning that less centralization is
associated with higher satisfaction.
National culture influences the preference for
structure.

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Implications for Managers

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Implications for Managers

Specialization can make operations more
efficient, but remember that excessive
specialization can create dissatisfaction and
reduced motivation.
Avoid designing rigid hierarchies that overly
limit employees empowerment and autonomy.
Balance the advantages of virtual and
boundaryless organizations against the
potential pitfalls before adding flexible
workplace options.
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Implications for Managers

Downsize your organization to realize major
cost savings, and focus the company around
core competencies, but only if necessary,
because downsizing can have a significant
negative impact on employee affect.
Consider the scarcity, dynamism, and
complexity of the environment, and balance the
organic and mechanistic elements when
designing an organizational structure.
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