Managing the Structure and Design of Organizations

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Organization StructureOrganization StructureFormal system of relationships that determine:Lines of authority – who reports

to whom.Tasks assigned to individuals

and units – who does what tasks and with which department.

Dimensions of organization structure:Vertical dimensionHorizontal dimension

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The Vertical Dimension of The Vertical Dimension of Organization StructureOrganization Structure

Unity of Command – a subordinate should have only one direct supervisor.

A decision can be traced back from the subordinates who carry it out to the manager who made it.

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The Vertical Dimension of The Vertical Dimension of Organization StructureOrganization Structure (continued)(continued)

Authority – The formal right of a manager to make decisions, give orders, and expect the orders to be carried out.◦Line Authority◦Staff Authority

Responsibility – the manager’s duty to perform an assigned task.

Accountability – the manager (or other employee) with authority and responsibility must be able to justify results to a manager at a higher level in the organizational hierarchy.

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The Vertical Dimension of The Vertical Dimension of Organization Structure Organization Structure (continued)(continued)

Line Authority

entitles a manager to directly control the work of subordinates by hiring, discharging, evaluating, and rewarding them

line managers hold positions that contribute directly to the strategic goals of the organization

part of the chain of command

Staff Authority

the right to provide advice, recommend, and counsel line managers and others in the organization

staff managers direct line managers

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Yes or NoCan a manager hold line authority and

staff authority at the same time?

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The Vertical Dimension ofThe Vertical Dimension ofOrganization StructureOrganization Structure (continued) (continued)

Organization Level

Activities Required Skills

• Talk with insiders and outsiders about• Vision• Strategy• Other major issues

• Conceptualizing• Communicating• understanding the

perspectives of others

• Help middle managers• Define and redefine

their roles• Manage conflict

• Listening• conflict management• Negotiating• Motivating

• Create and maintain the organization’s culture

• Interpersonal influence

Senior Managers

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The Vertical Dimension ofThe Vertical Dimension ofOrganization StructureOrganization Structure (continued) (continued)

Organization Level

Activities Required Skills

• Champion’ strategic ideas

• Help firm to remain adaptive

• Networking• Communicating• Influencing

• Process data and information for use by other individuals

• Analysis• Communication

• Deliver strategic initiatives to lower-level managers

• Communicating• Motivating• Understanding values• Managing stress

Middle Managers

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The Vertical Dimension ofThe Vertical Dimension ofOrganization StructureOrganization Structure (continued) (continued)

Organization Level

Activities Required Skills

• Coaching firm’s associates (workers)

• Teaching• Listening• Understanding personalities• Managing stress

• Removing obstacles for associates

• Deal with personal problems of associates

• Negotiating• Influencing others• Counseling• Understanding personalities

• Design jobs, teams structures and reward systems

• Negotiating• Group dynamics

Lower-level Managers

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The Vertical Dimension ofThe Vertical Dimension ofOrganization StructureOrganization Structure (continued)(continued)

Span of control – the feature of vertical structure that outlines:The number of subordinates who report to a

manager.The number of managers.The layers of management within an organization.

Smaller span – fewer employees supervised by a manager – creates a tall vertical organizational structure

Larger span – greater number of employees supervised – creates a flat organizational structure

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The Vertical Dimension ofThe Vertical Dimension ofOrganization StructureOrganization Structure (continued)(continued)

Centralization – the location of decision authority at the top of the organization hierarchy.

Decentralization – the location of decision authority at lower levels in the organization.

Formalization – the degree of written documentation that is used to direct and control employees.

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The The Horizontal DimensionHorizontal Dimension of of Organization StructureOrganization Structure

The organization structure element that is the basis for:Dividing work into specific jobs and tasks.

Assigning jobs into units such as departments or teams.

Departmentalization:FunctionalDivisionalMatrix

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Functional Departmental StructureFunctional Departmental Structure

E n g in e ering P ro du c tion M a rke ting F in an ce

P re sid e n t

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Advantages and Disadvantages of the Advantages and Disadvantages of the Functional ApproachFunctional Approach

AdvantagesDecision authority is

centralized at the top of the organization hierarchy

Career paths foster professional identity with the business function

High degree of efficiencyEconomies of scale help

develop specialized expertise in employees

DisadvantagesCommunication barriersConflict between

departmentsCoordination of products

and services is difficultDiminished responsiveness

to customers’ needsEmployees identify with

functional department goals and not organization goals or needs of the customer

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PresidentPresident

SoftwareDivisionSoftwareDivision

ConsultingSourceDivision

ConsultingSourceDivision

ComputerDivision

ComputerDivision

ProductionProduction

MarketingMarketing

FinanceFinance

ProductionProduction ProductionProduction

MarketingMarketing MarketingMarketing

FinanceFinance FinanceFinance

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Geographic-Based Geographic-Based Organization StructureOrganization Structure

U .S . a ndC a na daD iv is io n

L a tinA m e ricaD iv is io n

E u ro pe anD iv is io n

A s ianD iv is io n

P re sid e n t

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Advantages and Disadvantages of the Advantages and Disadvantages of the Divisional ApproachDivisional Approach

AdvantagesCoordination among

different business functions

Improved and speedier service

Accountability for performance

Development of general manager and executive skills

DisadvantagesDuplication of

resources by two or more departments

Reduced specialization in occupational skills

Competition among divisions

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Meetings Organization-wide Reward Systems

Task Forces and Teams

Liaison Roles

Integrating Managers

Organizational Culture

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After Jim McCann started Flora Plenty, what key strategic events triggered a change in the structure and design of the organization?

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Organization DesignOrganization DesignThe selection of an organization structure that best fits the strategic goals of the business.

Basic organization designs:

MechanisticOrganicBoundaryless

These designs incorporate vertical and horizontal structural elements.

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Organization DesignOrganization Design (continued)(continued)

As business strategy changes, so do the structural elements of organization design.

Strategic factors that affect the choices of organization design:

Organization capabilitiesTechnologyOrganization sizeEnvironmental turbulence 21

Mechanistic, Organic, and Boundaryless Mechanistic, Organic, and Boundaryless DesignsDesigns

Emphasis on teams that also may cross organization boundaries

Emphasis on teamsEmphasis on individuals working independently

Broadly defined flexible jobsBroadly defined flexible jobsNarrowly defined specialized jobs

Decentralized decision authority

Decentralized decision authority

Centralized decision authority

Informal communicationInformal communicationTop-down communication

Low formalizationLow formalizationHigh formalization

Collaboration (vertical, horizontal, customers, suppliers, competitors)

Collaboration (both vertical and horizontal)

Rigid hierarchical relationships

BoundarylessOrganicMechanistic

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Video – One Smooth StoneVideo – One Smooth Stone

Demonstrates:Economic importance of innovation.Why innovation is important for

business successIllustrates choosing an organizational

structure and the reasons behind that choice.

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This demonstrates the that each individual is accountable for

A) CoordinationB) ResponsibilityC) CentralizationD) Formalization

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Redesigning OrganizationsRedesigning Organizations

Merger

Acquisition

Divestiture

Downsizing

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