Organizational Behaviour Dave Ludwick, P.Eng, MBA, PMP Chapter 12 Organizational Structure

Organizational BehaviourDave Ludwick, P.Eng, MBA, PMP

Chapter 12Organizational Structure


Organizational Structure• Organizational Structure – defines how job tasks are

formally divided, grouped and coordinated– The organization structure determines reporting relationships and

helps to clarify individuals’ responsibilities

• When designing an organization structure, managers consider 6 elements– Work specialization

– Departmentalization

– Chain of command

– Span of control

– Centralization/decentralization

– formalization


Work Specialization• Work can be performed more efficiently if employees are allowed to

specialize

• Henry Ford was the first to really explore specialization, allowing him to turn out many new cars a day from it

• Specialization is the degree to which tasks are subdivided into separate jobs (the task of assembling an engine)– Allows employees to improve through repetition

• Pay scales often reflect the degree of skills required for a job. Employees acquire new skills to earn more

• Specialization also encourages the development of specialized tools to further drive efficiency

• Specialization can lead to boredom, fatigue, stress, and lower productivity and quality

• Building teams of interchangeable skills can help to reduce boredom


Departmentalization• Departmentalization – is a basis on which jobs re grouped to

coordinate common or linked tasks• 5 Key Types of Departmentalization

– Functional – orienting groups by similar task (engineering dept)– Product – operating a group oriented around a complete product

(Business Units are similar when the group owns the P&L)– Geographic – Common in Sales organizations, organizing by

territory– Process – Orienting around a portion of a process (most common in

a manufacturing firm, such as finishing dept, procurement dept)– Customer – Orienting around types of customers (Corel organizes

around retail, small business, corporate, government, legal)

• You can have more than one type of departmentalization in a business– Sales by territory, Marketing by product, Manufacturing by process


Chain of Command• Chain of command – the unbroken line of authority from

the top to the bottom of the organization

• Defines who has the right to give out orders and expect them to be obeyed

• Currently, this element of structuring organizations is used less

• Teams have been empowered to carry out specific tasks


Span of Control• Span of Control – refers to the number of levels and

managers an organization has

• All things equal, generally, the wider or larger the span, the more efficient. Wider spans also encourage more employee empowerment

• However, managers cannot manage an infinite number of employees effectively (general rule is 6 to 18 employees)


Centralization/decentralization• Centralization – the degree to which decision making is

concentrated at a single point in the organization

• The more decisions made by top brass without consulting employees, the more centralized

• Decentralization is a growing trend to leverage front line employees’ proximity to the action.– Increases empowerment and job satisfaction

– Improves quality of decision making

– Allows senior management to concentrate on more strategic matters


Formalization• Formalization – the degree to which jobs within the

organization are standardized

• Formalization provides structure and can build quality but takes away control and decision making

• Formalization is used most often in the food, airline, automotive industries

• Read the Ethical Dilemma Exercise (p 489), as a class lets discuss the 3 questions


Common Organization Structures• Now that we know the elements that are considered when

designing an organization, what are the 3 most common structures used

• 3 Most commonly used structures are– The Simple Structure (for small businesses)

– The Bureaucracy (for large or government organizations)

– The Matrix (for agile companies)


The Simple Structure• Most commonly used in small structures, it is almost the

default structure when no specific thought is put into it

• Characterized by– low degree of departmentalization,

– wide spans of control,

– authority centralized to one person (the owner),

– with little formalization

• The outcome is a flat structure, fast, simple, clear, flexible

• This structure gives a small company that “small company feel”. – But it is very difficult to maintain once the company grows and

owners cannot directly impact every decision


The Bureaucracy• Characterized by

– Standardization of tasks and processes (filling out forms, you guessed it, paper forms!!!, aaahhh)

– Highly routine tasks, specialization with formalized rules

– Centralized authority and clear vertical communication lines

• This structure strives for efficiency, economies, minimum duplication of tasks

• It does well when individual employees leave the organization as it is easy to train new staff on established processes


The Matrix• A very popular organization structure in the high-tech

world• Combines the benefits of functional and product

departmentalization forms• Functional specialists are grouped together to forma pool

of resources (developers, testers, documentation specialists)

• Product departments (or Business Units), responsible for the complete product, draft individuals from their pools onto product teams

• Employees end up with 2 bosses• Ads: Promotes product ownership and specialization• Disads: Confusion, power struggles, stress on employees


Questions• Innovation is key to a organization’s future

– What structure works best for an innovation strategy?

• How do you think an organization’s structure might be affected by the adoption of technology?

• Consider one of the big 3 auto-makers. What type of organization structure to we think they have?


Structural Designs of the 21st Century• The Team

– Usually cross-functional teams with a specific set of goals, helps to break down barriers and decentralizes decision making to the team level

• The Modular Organization– A small core organization which outsources major business

functions, relying on a network at the organizational level– Teams are assembled for a finite period, then disband– Ex: an ad agency which outsources its printing, accounting,

purchasing to concentrate on creative design

• The Virtual Organization– Similar to a modular organization, except that in this case,

business partners also seek to share skills, costs and tap into each others markets

– Akin to developing alliances to provide full service solutions


Why do Organization Structures differ?• Strategy – structures are a means through which

organizations try to achieve their goals– It is also a means through which they respond to environmental

change

• Organization Size – As organizations grow, different stresses are placed on the organization, as a result it might respond with a reorganization of resources

• Environment – The organizational environment is made up of institutions or forces outside the organization that affect its ability to perform

• Chapter 13



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Organizational Behaviour Dave Ludwick, P.Eng, MBA, PMP Chapter 12 Organizational Structure