I.

Designing Organizational Structure:

1. What Is Organizational Structure:
- Organizing is arranging and structuring work to accomplish organizational goals. It’s an important process, during which
managers design an organization’s structure.
- Organizational structure is the formal arrangement of jobs within an organization. This structure can be shown visually in
an organizational chart.
- When managers create or change the structure, they’re engaged in organizational design.

2. Purposes of Organizing:
- Divides work to be done into specific jobs and departments.
- Assigns tasks and responsibilities associated with individual jobs.
- Coordinates diverse organizational tasks.
- Clusters jobs into units.
- Establishes relationships among individuals, groups, and departments.
- Establishes formal lines of authority.
- Allocates and deploys organizational resources.

3. Organizational Design:
a) Work specialization: is dividing work activities into separate job tasks.
- Individual employees specialize in doing part of an activity rather
than the entire activity in order to increase work output and
quality. It’s also known as division of labor.
- Work specialization makes efficient use of the diversity of skills
that workers have.
- Early proponents of work specialization believed it could lead to
great increases in productivity.
- Overspecialization can result in human diseconomies such as
boredom, fatigue, stress, low productivity, poor quality,
increased absenteeism, and higher turnover - exceed the
economic advantages.
b) Departmentalization: is the basis by which jobs are grouped together. Five common forms of departmentalization are
used:
- Functional departmentalization - Groups Jobs According to Function:
+ Efficiencies from putting together similar specialties and people with common skills, knowledge, and
orientations.
+ Coordination within functional area.
+ In-depth specialization.
+ Poor communication across functional areas.
+ Limited view of organizational goals.

- Geographical departmentalization - Groups Jobs According to Geographic Region:

+ More effective and efficient handling of specific regional issues that arise.
+ Serve needs of unique geographic markets better.
+ Duplication of functions.
+ Can feel isolated from other organizational areas.

- Product Departmentalization - Group Jobs by Product Line:

+ Allows specialization in particular products and services.
+ Managers can become experts in their industry.
+ Closer to customers.
+ Duplication of functions.
+ Limited view of organizational goals.
- Process Departmentalization - Group Jobs on the Basis of Product or Customer Flow:
+ More efficient flow of work activities.
+ Can only be used with certain types of products.

- Customer Departmentalization - Group Jobs on the Basis of Specific and Unique Customers Who Have Common
Needs:
+ Customers’ needs and problems can be met by specialists.
+ Duplication of functions.

- One popular departmentalization trend is the increasing use of customer departmentalization. Because getting
and keeping customers is essential for success, this approach works well because it emphasizes monitoring and
responding to changes in customer’s needs.
- Another popular trend is the use of teams, especially a cross-functional team - a work team composed of individuals
from various functional specialties.
c) Chain of Command: is the line of authority extending from upper organizational levels to lower levels, which clarifies
who reports to whom.
- Authority refers to the rights inherent in a managerial position to tell people what to do and to expect them to do it.
+ Line authority entitles a manager to direct the work of an employee and make certain decisions without
consulting anyone. It is the employer-employee authority relationship that extends from the top of the
organization to the lowest echelon.
+ Staff authority: positions with some authority that have been created to support, assist, advise, and generally
reduce some of their informational burdens.
- When managers use their authority to assign work to employees, those employees take on an obligation to perform
those assigned duties. This obligation or expectation to perform is known as responsibility. Assigning work
authority without responsibility and accountability can create opportunities for abuse.
- The unity of command principle states that a person should report to only one manager. Without unity of
command, conflicting demands from multiple bosses can occur.
d) Span of Control: is the number of employees who can be effectively and efficiently supervised by a manager. All other
things being equal, the wider or larger the span, the more efficient the organization.
- Wider spans are more efficient in terms of cost.
- Wider spans may reduce effectiveness if employee performance worsens because managers no longer have the time
to lead effectively.

- Some factors affecting the decision to choose the span of control:

 + Nature of the work: Managers who supervise individuals performing highly structured, invariable work
activities may choose a narrow span of control. Managers supervising those who perform roles in which
there is more room for individual judgment and special situations arise may choose a wider span of control.
+ Time management constraints: Some managers spend the majority of their time managing others, whereas
others are “producing managers” who must split their time between actively managing the work of others
and doing their own. In such cases, managers must often look for opportunities to delegate certain
responsibilities.
+ Experience level of employees: Teams with less experienced employees may require a narrower span of
control, giving them more access to a manager who can provide regular coaching and guidance as they build
experience.
+ Company and Team Culture: Company cultures that are informal and flexible may encourage a wider span
of control that gives employees more autonomy to act. Conversely, in company cultures that are more
authoritative and formal, a narrower span of control may be more common.
+ Skills Level of managers: A narrow span of control may make sense for new managers. Highly skilled
managers will be more likely to successfully manage others and can handle a wider span of control.
e) Centralization and Decentralization:
- Centralization is the degree to which decision making takes place at upper levels of the organization. If top
managers make key decisions with little input from below, then the organization is more centralized.
- Decentralization is that lower-level employees provide input or actually make decisions.
- Centralization-decentralization is not an either-or concept. The decision is relative, not absolute - that is, an
organization is never completely decentralized or centralized.
→ Some factors that affect an organization’s use of centralization or decentralization:
 - As organizations have become more flexible and responsive to environmental changes, there’s been a distinct shift
toward decentralized decision making. This trend is also known as employee empowerment, gives employees more
authority (power) to make decisions.
- In large companies especially, lower-level managers are “closer to the action” and typically have more detailed
knowledge about problems and how best to solve them than top managers.
f) Formalization: refers to how standardized an organization’s jobs are and the extent to which employee behavior is guided
by rules and procedures.
- In highly formalized organizations, there are explicit job descriptions, numerous organizational rules, and clearly
defined procedures covering work processes. Employees have little discretion over what’s done, when it’s done,
and how it’s done.
- When there is less formalization, employees have more discretion in how they do their work.
- Considering there are numerous situations where rules may be too restrictive, many organizations have allowed
employees some latitude, giving them sufficient autonomy to make those decisions that they feel are best under the
circumstances.

II. Mechanistic and Organic Structures:

- The mechanistic organization (or bureaucracy) was the natural result of combining the six elements of structure:
 + Adhering to the chain-of-command principle ensured that the existence of a formal hierarchy of authority, with each
person controlled and supervised by one superior.
+ Keeping the span of control small at increasingly higher levels in the organization created tall, impersonal structures. As
the distance between the top and the bottom of the organization expanded, top management would increasingly impose
rules and regulations.
+ A high degree of work specialization created jobs that were simple, routine, and standardized.
+ Further specialization through the use of departmentalization increased impersonality and the need for multiple layers of
management to coordinate the specialized departments.
- The organic organization is a highly adaptive form that is as loose and flexible as the mechanistic organization is rigid and
stable.
+ It has division of labor, but the jobs people do are not standardized. Employees tend to be professionals who are
technically proficient and trained to handle diverse problems.
+ They need few formal rules and little direct supervision because their training has instilled in them standards of
professional conduct.
+ It is low in centralization so that the professional can respond quickly to problems and because top-level managers cannot
be expected to possess the expertise to make necessary decisions.

III. Contingency Factors Affecting Structural Choice:

1. Strategy and Structure:
- An organization’s structure should facilitate goal achievement. Because goals are an important part of the organization’s
strategies, it’s only logical that strategy and structure are closely linked. Changes in corporate strategy led to changes in
an organization’s structure that support the strategy.
- Certain structural designs work best with different organizational strategies:
 + The flexibility and free-flowing information of the organic structure works well when an organization is pursuing
meaningful and unique innovations.
+ The mechanistic organization with its efficiency, stability, and tight controls works best for companies wanting to
tightly control costs.

2. Size and Structure:

● As an organization grows larger, its structure tends to change from organic to mechanistic with increased specialization,
departmentalization, centralization, and rules/regulations.

3. Technology and Structure:

- Organizations adapt their structures to their technology depending on how routine their technology is for transforming
inputs into outputs.
→ The more routine the technology, the more mechanistic the structure can be, and organizations with more nonroutine
technology are more likely to have organic structures.
- Woodward’s classification of firms based on the complexity of the technology employed:
+ Unit production: the production of items in units or small batches.
+ Mass production: large-batch manufacturing.
+ Process production - the most technically complex: continuous-process production.

4. Environmental Uncertainty and Structure:

- In stable and simple environments, mechanistic designs can be more effective.
- The greater the uncertainty, the more an organization needs the flexibility of an organic design.
- The evidence on the environment-structure relationship helps explain why so many managers today are restructuring
their organizations to be lean, fast, and flexible. Worldwide economic downturns, global competition, accelerated
 product innovation by competitors, and increased demands from customers for high quality and faster deliveries are
examples of dynamic environmental forces.

IV. Traditional Organizational Design Options:

1. Simple Structure:
- Most companies start as entrepreneurial ventures using a simple structure, an organizational design with little
departmentalization, wide spans of control, authority centralized in one person, and little formalization.
- As employees are added, the structure tends to become more specialized and formalized. Rules and regulations are
introduced, work becomes specialized, departments are created, levels of management are added, and the organization
becomes increasingly bureaucratic → Managers might choose a functional structure or a divisional structure.

2. Functional Structure:
● It is an organizational design that groups similar or related occupational specialties together.

3. Divisional Structure:
- It is an organizational structure made up of separate business units or divisions. Each division has limited autonomy,
with a division manager who has authority over his or her unit and is responsible for performance.
- The parent corporation acts as an external overseer to coordinate and control the various divisions, and often provides
support services such as financial or legal.
V. Contemporary Organizational Designs for Flexibility:
1. Team Structures:
- A team structure is an organizational structure in which the entire organization is made up of teams that do the
organization’s work.
- In this structure, employee empowerment is crucial because no line of managerial authority flows from top to bottom.
Rather, employee teams design and do work in the way they think is best, but the teams are also held responsible for all
work performance results in their respective areas.
- In large organizations, the team structure complements what is typically a functional or divisional structure and allows
the organization to have the efficiency of a bureaucracy and the flexibility that teams provide.
2. Matrix and Project Structures:
a) Matrix Structures:
- The matrix structure assigns specialists from different functional departments to work on projects led by a project
manager.
- One unique aspect of this design is that it creates a dual chain of command because employees in a matrix
organization have two managers, their functional area manager and their product or project manager, who share
authority.
+ The project manager has authority over the functional members who are part of his or her project in areas
related to the project’s goals.
+ Any decisions about promotions, salary recommendations, and annual reviews typically remain the
functional manager’s responsibility.
+ The matrix design “violates” the unity-of-command principle, which says that each person should report to
only one boss; however, it can work effectively if both managers communicate regularly, coordinate work
demands on employees, and resolve conflicts together.

b) Project Structures:
 - Many organizations use a project structure, in which employees continuously work on projects.
- Unlike the matrix structure, a project structure has no formal departments where employees return at the
completion of a project. Instead, employees take their specific skills, abilities, and experiences to other projects.
- All work in project structures is performed by teams of employees.
- Project structures tend to be more flexible organizational designs, without the departmentalization or rigid
organizational hierarchy that can slow down making decisions or taking actions.
- In this structure, managers serve as facilitators, mentors, and coaches. They eliminate or minimize organizational
obstacles and ensure that teams have the resources they need to effectively and efficiently complete their work.

3. The Boundaryless Structure:

- An organization whose design is not defined by, or limited to, the horizontal, vertical, or external boundaries imposed by
a predefined structure.
- Although the idea of eliminating boundaries may seem odd, many of today’s most successful organizations find that they
can operate most effectively and unstructured: that the ideal structure for them is not having a rigid, bounded, and
predefined structure.