Embed Size (px)
Citation preview
Organizational
Structure
Professor Craig W FontaineNortheastern University
College of Business Administration
The 4 Essential Management Functions
Planning Organizing Leading Controlling
Defining goals, estab-lishingstrategy, anddeveloping subplans tocoordinateactivities
Determiningwhat needsto be done, how it willbe done, and who is to do it
Directing and moti-vating allinvolved parties andresolvingconflicts
Monitoringactivitiesto ensurethat they areaccomplishedas planned
Achieving theorganization’s
statedpurpose
Lead to
Designing organizational structures is part of organizing, one of the four basic management functions.
Organizing
• The deployment of resources to achieve strategic goals. It is reflected in:– The organization’s division of labor that forms
jobs and departments (Who does what?)– Formal lines of authority (Who reports to who?)– The mechanisms used for coordinating diverse
jobs and roles in the organization.• Strategy indicates what needs to be done.• Organizing shows how to do it.
Structure Concepts I
Hierarchy of AuthorityHierarchy of Authority: A configuration of the reporting relationships within organizations; that is, who reports to whom.Division of LaborDivision of Labor: The process of dividing the many tasks performed within an organization into specialized jobs.Span of ControlSpan of Control: The number of subordinates in an organization who are supervised by an individual manager.
Basic Concepts
Organizational StructureOrganizational Structure: The formal configuration between individuals and groups with respect to the allocation of tasks, responsibilities, and authorities within organizations.
Organizational ChartOrganizational Chart: A diagram representing the connections between the various departments within an organization: a graphic representation of organizational design.
Sample Organizational Chart
Skills for Designing Organizational Structures
Understanding Understanding the chain of the chain of commandcommand
Understanding Understanding the dimensions the dimensions of organization of organization
structurestructure
Organization Structure
Think of an any Organization’s structure has having two dimensions:– Vertical dimension (Tall or Flat)– Horizontal dimension (Wide or narrow)
The Vertical Dimension of Organization Structure:
• The organization structure element that indicates:– Who has the authority to make decisions.– Who is expected to supervise which
subordinates.
The Vertical Dimension of Organization Structure: (continued)
• 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.
• Authority – The formal right of a manager to make decisions, give orders, and expect the orders to be carried out.– Line Authority– Staff Authority
The Vertical Dimension of Organization Structure: (continued)
• 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.
The Vertical Dimension of Organization Structure: (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.
Span of Control or Tall vs. Flat Organizations
Assuming Span of 4
Vertical complexityContrasting Spans of Control
(Highest) Assuming Span of 8
1
2
3
4
5
6
7
1
4
16
64
256
1,024
4,096
1
8
64
512
4,096
Org
aniz
atio
n L
evel
(Lowest) Span of 4:4,096 Operatives. 1,365 Managers
Span of 8:4,096 Operatives. Only 585 Managers!
Which organization looks more appealing to you?
The Vertical Dimension of Organization Structure: (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.
The Horizontal Dimension of Organization 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:
– Functional
– Divisonal
• Product
• Geograhical
– Matrix
Functional Organization Structure
Advantages and Disadvantages of the Functional Approach:
Advantages• Decision authority is
centralized at the top of the organization hierarchy
• Career paths foster professional identity with the business function
• High degree of efficiency
• Economies of scale help develop specialized expertise in employees
Disadvantages• Communication barriers• Conflict between departments• Coordination of products and
services is difficult• Diminished responsiveness to
customers’ needs• Employees identify with
functional department goals and not organization goals or needs of the customer
Product Based Organizational Structure
Advantages and Disadvantages of the Product Based
Advantages• Coordination among different
business functions
• Improved and speedier service
• Accountability for performance
• Development of general manager and executive skills
Disadvantages• Duplication of resources by two
or more departments
• Reduced specialization in occupational skills
• Competition among divisions
Simplified Geographic-Based Organization Structure
U .S . an dC an ad aD ivis ion
L a tinA m ericaD ivis ion
E u rop eanD ivis ion
A s ianD ivis ion
P res id en t
PERSONNEL
PRESIDENT
RESEARCH FINANCE PLANNINGMANUFAC-
TURINGMARKETING
VICE-PRESIDENTINTERNATIONAL
DIVISION
VICE-PRESIDENTDOMESTICDIVISION C
VICE-PRESIDENTDOMESTICDIVISION A
VICE-PRESIDENTDOMESTICDIVISION D
VICE-PRESIDENTDOMESTICDIVISION B
STAFFLATIN AMERICAEUROPE/MIDDLE
EAST/AFRICAASIA/PACIFIC
COUNTRY SUBSIDIARIES
COUNTRYSUBSIDIARIES
COUNTRY SUBSIDIARIES
LINE MANAGEMENT
PRESIDENT
MARKETING PERSONNELPLANNINGFINANCERESEARCHMANUFAC-
TURING
CORPORATE STAFF
LINE MANAGEMENT
AREA MANAGERNORTH AMERICA
AREA MANAGERLATIN AMERICA
AREA MANAGEREUROPE
AREA MANAGERMIDDLE
EAST/AFRICA
AREA MANAGERFAR EAST
Executives with total corporate and worldwide responsibilities. Corporate staff activities on a worldwide basis generally involve policy matters, strategic planning, basic product planning, functional guidance to line geographic unit, and coordination of activities between geographic units
Executives with line responsibility for all operations in a particular geographic area
PRODUCT STRUCTURE
PRESIDENT
PRESIDENTPRESIDENTPRESIDENTPRESIDENTPRESIDENTPRESIDENTPRESIDENT
CORPORATE STAFF
LINE MANAGEMENT
PRODUCT GROUPEXECUTIVE
PRODUCT GROUPEXECUTIVE
PRODUCT GROUPEXECUTIVE
PRODUCT GROUPEXECUTIVE
Product Group A Product Group B Product Group C Product Group D
Latin America
Europe
Middle East/Africa
Far East
North America
Executives with total corporate and worldwide responsibilities. Corporate staff activities on a worldwide basis involve policy matters, over-all strategic planning, coordination between product groups, and specialized advice to product groups.
Executives with staff responsibilities in a particular geographic area, chiefly identifying potential investment opportunities and providing information to individual affiliates and corporate management
Executives with worldwide responsibility for product groups
Booz Allen Hamilton
US EMEA LA A,Au,J
IT OM SLP S IT OM SLP S IT OM SLP S IT OM SLP S
GEOGRAPHIC SECTORS
GLOBAL FUNCTIONAL PRACTICE
COMMUNICATIONS, MEDIA AND TECHNOLOGY
ENERGY
CONSUMER AND HEALTH
FINANCIAL SERVICES
AUTOMOTIVE, AEROSPACE AND INDUSTRIAL
GLOBAL INDUSTRIAL PRACTICES
Matrix Organization
Advantages and Disadvantages of the Matrix Approach:
Advantages• Efficient utilization of scarce,
expensive specialists
• Flexibility that allows new projects to start quickly
• Development of cross-functional skills by employees
• Increased employee involvement in management decisions affecting project or product assignments
Disadvantages• Employee frustration and confusion
as a result of the dual chain of command
• Conflict between product and functional managers over deadlines and priorities
• Too much time spent in meetings to coordinate decisions
The Contingency Approach
The contemporary approach that recognizes that no one approach to organizational design is best, but that the best design is the one that best fits with the existing environmental conditions.
Mechanistic OrganizationMechanistic Organization: An internal organizational structure in which people perform specialized jobs, many rigid rules are imposed, and authority is vested in a few top-ranking officials.
Organic OrganizationOrganic Organization: An internal organizational structure in which jobs tend to be very general, there are few rules, and decisions can be made by lower-level employees.
Boundaryless OrganizationBoundaryless Organization: : An organization in which chains of command are eliminated, spans of control are unlimited, and rigid departments give way to empowered teams
Mechanistic, Organic, and Boundaryless Designs
Mechanistic Organic Boundaryless
Rigid hierarchical relationships
Collaboration (both vertical and horizontal)
Collaboration (vertical, horizontal, customers, suppliers, competitors)
High formalization Low formalization Low formalization
Top-down communication Informal communication Informal communication
Centralized decision authority
Decentralized decision authority
Decentralized decision authority
Narrowly defined specialized jobs
Broadly defined flexible jobs Broadly defined flexible jobs
Emphasis on individuals working independently
Emphasis on teams Emphasis on teams that also may cross organization boundaries
Mechanistic vs. Organic Designs
Two Extremes for Organizational Types
Rigid hierarchicalrelationships
Fixed duties
High formalization
Formalized communicationchannels
Centralizeddecision authority
Vertical and horizontalcollaboration
Adaptable duties
Low formalization
Informalcommunication
Decentralizeddecision authority
Mechanistic Organic
Woodward’s Findings on Technology, Structure, and Effectiveness
UnitProduction
MassProduction
ProcessProduction
Structuralcharacteristics
Low vertical differentiation
Moderate verticaldifferentiation
High verticaldifferentiation
Low horizontaldifferentiation
High horizontaldifferentiation
Low horizontaldifferentiation
Low formalization
Highformalization
Low formalization
Most effectivestructure
Organic Mechanistic Organic
Design Effectiveness
Boundaryless Organization
Boundaryless Organization
An organization in which chains of command are eliminated, spans of control are unlimited, and rigid departments give way to empowered teams.
Modular OrganizationModular Organization: An organization that surrounds itself by a network of other organizations to which it regularly outsources noncore functions.
Virtual OrganizationVirtual Organization: A highly flexible, temporary organization formed by a group of companies that join forces to exploit a specific opportunity.
Modular Organization
Virtual Organization
Classical vs. Neoclassical Theory
Classical Organizational TheoryClassical Organizational Theory: The approach that assumes that there is a single best way to design organizations.
– This approach assumes that managers need to have close control over their subordinates and calls for designing organizations with tall hierarchies and a narrow span of control.
Neoclassical Organizational TheoryNeoclassical Organizational Theory: An attempt to improve on the classical organizational theory that argues that not only economic effectiveness, but also employee satisfaction, should be goals of an industrial organization.
– This approach assumes that managers do not have to carefully monitor their subordinates and calls for designing organizations with flat hierarchies and a wide span of control.
Classical vs. Neoclassical Theory
Modern Trends: Delayering
As today’s organizations restructure, the middle layers of organizational hierarchies tend to get removed. The result is a flatter organizational structure, which puts managers
closer to the issues about which they have to make decisions.
Interorganizational Designs
Organizational designs in which two or more organizations come together.ConglomeratesConglomerates: A form of organizational diversification in which an organization (usually a very large, multinational one) adds an entirely unrelated business or product to its organizational design.Strategic AllianceStrategic Alliance: A type of interorganizational design in which two or more separate companies combine forces to develop and operate a specific business.
Strategic Alliances
Mutual Service ConsortiaMutual Service Consortia: A type of strategic alliance in which two similar companies from the same or similar industries pool their resources to receive a benefit that would be too difficult or expensive for either to obtain alone.
Value-Chain PartnershipsValue-Chain Partnerships: Strategic alliances between companies in different industries that have complementary capabilities.
Joint VenturesJoint Ventures: Strategic alliances in which several companies work together to fulfill opportunities that require the capabilities of one another.
Continuum of Alliances
