Essentials of

Contemporary
Management

Chapter
Chapter

77

Organizing:
Organizing:
Designing
Designing Organizational
Organizational
Structure
Structure
PowerPoint Presentation by Charlie Cook
Copyright The McGraw-Hill Companies, Inc., 2004. All rights reserved.

Learning
Learning Objectives
Objectives
After studying the chapter, you should be able to:
Identify the factors that influence managers
choice of an organizational structure.
Explain how managers group tasks into
jobs that are motivating and satisfying for
employees.
Describe the types of organizational
structures managers can design, and explain
why they choose one structure over another.
Explain why there is a need to both centralize
and decentralized authority .

Copyright 2004 McGraw-Hill.

72

Learning
Learning Objectives
Objectives (contd)
(contd)
Explain why managers must coordinate
and integrate between jobs, functions, and
divisions as an organization grows.
Explain why managers who seek new ways to
increase efficiency and effectiveness are
using strategic alliances and network
structures.

Copyright 2004 McGraw-Hill.

73

Organizational
Organizational Structure
Structure
Organizational Architecture
The organizational structure, control
systems, culture, and human resource
management systems that together
determine how efficiently and effectively
organizational resources are used.

Copyright 2004 McGraw-Hill.

74

Designing
Designing Organizational
Organizational Structure
Structure
Organizing
The process by which managers establish
working relationships among employees to
achieve goals.

Organizational Structure
Formal system of task and reporting
relationships showing how workers use
resources.

Organizational design
The process by which managers make specific
choices that result in a particular kind of
organizational structure.

Copyright 2004 McGraw-Hill.

75

Factors
Factors Affecting
Affecting Organizational
Organizational Structure
Structure

Copyright 2004 McGraw-Hill.

Figure 7.1

76

Determinants
Determinants of
of Structure
Structure
The Organizational Environment
The quicker the environment changes, the
more problems face managers.
Structure must be more flexible (i.e.,
decentralized authority) when environmental
change is rapid.

Copyright 2004 McGraw-Hill.

77

Determinants
Determinants of
of Structure
Structure
Strategy
Different strategies require the use of
different structures.
A differentiation strategy needs a flexible structure,
low cost may need a more formal structure.
Increased vertical integration or diversification also
requires a more flexible structure.

Chandler: Structure follows strategy

Corporate/
Business

Entities
Copyright 2004 McGraw-Hill.

78

Determinants
Determinants of
of Structure
Structure
Technology
The combination of skills, knowledge, tools,
equipment, computers and machines used in
the organization.
More complex technology makes it harder for
managers to regulate the organization.
Organizations utilizing complex technology require a
flexible structure to be managed efficiently.
Organizations utilizing routine technology can be
more readily managed using a formal structure.
Organizations with high employee interaction
requirements need a flexible structure.

Copyright 2004 McGraw-Hill.

79

Types
Types of
of Technology
Technology
&
Workshopnteraction
intensive i
Small quantities of one-of-a-kind products are
produced by the skills of the workers who
work together in small groups.

Small Batch Technology

Appropriate structure is decentralized and flexible.

Mass Production Technology

Automated machines that are programmed
to make high volumes of standard products.
Formal structure is the best choice for workers who
must perform repetitive tasks.
ocess

l
Assemb
Copyright 2004 McGraw-Hill.

s pr
u
o
u
n
i
t
n
y and co

710

Determinants
Determinants of
of Structure
Structure
Human Resources

ge
d
e
l
w
o
n
K
:
Drucker evail
r
p
s
r
e
k
r
o
w

Highly skilled workers whose jobs require

working in teams usually need a more
flexible structure.
Higher skilled workers (e.g., CPAs and
doctors) often have internalized professional
norms.

Managers must take into account all four

factors (environment, strategy, technology and
human resources) when designing the
structure of the organization.
Copyright 2004 McGraw-Hill.

711

Organization
Organization Structure
Structure Issues
Issues
How to group tasks into individual jobs.
How to group jobs into functions and divisions.
Coordinating functions and divisions.
Allocating authority.
Types of integrating mechanisms.

Copyright 2004 McGraw-Hill.

712

Grouping
Grouping Tasks
Tasks Into
Into Jobs:
Jobs: Job
Job Design
Design
Job Design
The process by which managers decide how to divide
tasks into specific jobs.

Division of Labor

Enhance specification and

independence

Splitting the work to be performed into particularly

impersonal tasks and assigning tasks to individual
workers.
The appropriate division of labor results in an effective
and efficient workforce.

Job Simplification

Internal cohesion and

external decoupling

Reducing the tasks each worker performs: too much

simplification results in boredom.

Copyright 2004 McGraw-Hill.

713

Job
Job Design
Design
Job Enlargement

Increase the width of task

Increasing the number of tasks for a given job

by changing the division of labor.
The intention is to reduce boredom and fatigue
by increasing variety of tasks performed.

Job Enrichment

Increase the depth of task

Increasing the degree of responsibility a

worker has over a job.

Intended to increase worker involvement and selfdiscretion.

Requires a flexible organizational structure to allow
employees to act flexibly and creatively.

Copyright 2004 McGraw-Hill.

714

The
The Job
Job Characteristics
Characteristics Model
Model

Source: Adapted from J. R. Hackman and G. R. Oldham,

Work Redesign (Reading, MA: Addison-Wesley, 1980).

Copyright 2004 McGraw-Hill.

Figure 7.2

715

Job
Job Characteristics
Characteristics Model
Model

Copyright 2004 McGraw-Hill.

716

Grouping
Grouping Jobs
Jobs into
into Functions
Functions
Functional Structure
An organizational structure composed of all
the departments that an organization
requires to produce its goods or services.
Advantages
Encourages learning from others doing similar jobs.
Easy for managers to monitor and evaluate workers.

Disadvantages
Difficult for departments to communicate with others.
Preoccupation with own department and losing sight
of organizational goals.
Egoism

Copyright 2004 McGraw-Hill.

& Arrog
ance

717

The
The
Functional
Functional
Structure
Structureof
of
Pier
1
Pier 1
Imports
Imports

Figure 7.3

Copyright 2004 McGraw-Hill.

718

Divisional
Divisional Structures
Structures
Divisional Structure
An organizational structure composed of
separate business units within which are the
functions that work together to produce a
specific product for a specific customer.
Divisions create smaller, manageable parts of a firm.
Divisions develop a business-level strategy to
compete.
Divisions have marketing, finance, and other
functions.
Functional managers report to divisional managers
who then report to corporate upper management.

Copyright 2004 McGraw-Hill.

719

Types
Types of
of Divisional
Divisional Structures
Structures
Product Structure
Customers are served by self-contained
divisions that handle a specific type of
product or service.
Allows functional managers to specialize in one
product area.
Division managers become experts in their area.
Removes need for direct supervision of division by
corporate managers.
Divisional management improves the use of
resources.

Copyright 2004 McGraw-Hill.

720

Types
Types of
of Divisional
Divisional Structures
Structures (contd)
(contd)
Geographic Structure
Each regional or a country or area with
customers with differing needs is served by a
local self-contained division producing
products that best meet those needs.
Global geographic structure
Different divisions serve each world region when
managers find different problems or demands across
the globe.
Generally, this structure is adopted when managers
are pursuing a multidomestic strategy.

Copyright 2004 McGraw-Hill.

721

Types
Types of
of Divisional
Divisional Structures
Structures (contd)
(contd)
Market (Customer) Structure
Each kind of customer is served by a selfcontained division
Global market (customer) structure
Customers in different regions buy similar products so
firms can locate manufacturing facilities and product
distribution networks where they decide is best.
Firms pursuing a global strategy will use this type of
structure.

Copyright 2004 McGraw-Hill.

722

Product,
Product,
Market,
Market, and
and
Geographic
Geographic
Structures
Structures

Figure 7.4

Copyright 2004 McGraw-Hill.

723

Viacoms
Viacoms
2001
2001 Product
Product
Structure
Structure

Copyright 2004 McGraw-Hill.

724

Figure 7.5

Global
Global Geographic
Geographic and
and Global
Global Product
Product
Structures
Structures

Copyright 2004 McGraw-Hill.

725

Matrix
Matrix Design
Design Structure
Structure
Matrix Structure
An organizational structure that
simultaneously groups people and resources
by function and product.
Results in a complex network of superior-subordinate
reporting relationships.
The structure is very flexible and can respond rapidly
to the need for change.
Each employee has two bosses (functional manager
and product manager) and possibly cannot satisfy
both.

Copyright 2004 McGraw-Hill.

726

Matrix
Matrix Structure
Structure

Copyright 2004 McGraw-Hill.

Figure 7.6a

727

Product
Product Team
Team Design
Design Structure
Structure
Product Team Structure
The members are permanently assigned to
the team and empowered to bring a product
to market.
Avoids problems of two-way communication and the
conflicting demands of functional and product team
bosses.

Cross-functional team is composed of a

group of managers from different
departments working together to perform
organizational tasks.
Copyright 2004 McGraw-Hill.

728

Product
Product Team
Team Structure
Structure

Copyright 2004 McGraw-Hill.

Figure 7.6b

729

Coordinating
Coordinating Functions
Functions and
and Divisions:
Divisions:
Allocating
Allocating Authority
Authority
Authority
The power to hold people accountable for
their actions and to make decisions
concerning the use of organizational
resources.

Hierarchy of Authority
An organizations chain of command,
specifying the relative authority of each
manager.
Span of Control: refers to the number of workers a

Span of Control: refers to the number of workers a

Authority
vs.
responsibility
vs.
accountability
manager manages.

Copyright 2004 McGraw-Hill.

730

Allocating
Allocating Authority
Authority (contd)
(contd)
Span of Control
The number of subordinates who report directly to
a manager.

Line Manager
Managers in the direct chain of command who
have authority over people and resources lower
down.
Primarily responsible for the production of goods
or services.

Staff Manager
Managers who are functional-area specialists that
give advice to line managers.

Copyright 2004 McGraw-Hill.

731

The
The Hierarchy
Hierarchy of
of
Authority
Authority and
and
Span
Span of
of Control
Control
at
at McDonalds
McDonalds
Corporation
Corporation

Figure 7.7

Copyright 2004 McGraw-Hill.

732

Tall
Tall and
and Flat
Flat Organizations
Organizations
Tall structures have many levels of authority
and narrow spans of control.
As hierarchy levels increase, communication
gets difficult, creating delays in the time
being taken to implement decisions.
Communications can also become garbled
as it is repeated through the firm.

Flat structures have fewer levels and wide

spans of control.
Structure results in quick communications
but can lead to overworked managers.
Copyright 2004 McGraw-Hill.

733

Flat
Flat Organizations
Organizations

Copyright 2004 McGraw-Hill.

Figure 7.8a

734

Tall
Tall Organizations
Organizations

Copyright 2004 McGraw-Hill.

Figure 7.8b

735

The
The Minimum
Minimum Chain
Chain of
of Command
Command
Managers should carefully evaluate:
Do the organization have the right number of
middle managers?
Can the structure be altered to reduce levels?

Centralized and Decentralized of Authority

Decentralization puts more authority at lower
levels and leads to flatter organizations.
Works best in dynamic, highly competitive
environments.

Stable environments favor centralization of

authority.

Copyright 2004 McGraw-Hill.

736

Internal coordination

Integrating
Integrating Mechanisms
Mechanisms

Copyright 2004 McGraw-Hill.

Figure 7.9

737

Externally cooperative linkage

Strategic
Strategic Alliances
Alliances and
and Network
Network
Structures
Structures

Strategic Alliance
An agreement in which managers pool or share
firms resources and know-how with a foreign
company and the two firms share in the rewards
and risks of starting a new venture.

Network Structure:
A series of strategic alliances that an organization
creates with suppliers, manufacturers, and
distributors to produce and market a product.
Network structures allow firms to bring resources
together in a boundary-less organization.

Copyright 2004 McGraw-Hill.

738

Homework
Homework 66
Adam Smith, in his Wealth of Nations (Book 5,
Chapter 1, Part 3, Article 2), argued that
university teachers should not be paid salaries
but rather that they should have to rely on the
fees they can collect from the students they
teach. What would be the advantages of this
systems? What difficulties do you see with this
proposal to pay piece rates to faculty?

Copyright 2004 McGraw-Hill.

739