Designing

Organizational
Structure

9–1
Designing Organizational Structure

• Organizing
 Arranging and structuring work to accomplish an organization’s
goals.
• Organizational Structure
 The formal arrangement of jobs within an organization.
• Organizational Chart
 The visual representation of an organization’s structure

9–2
Designing Organizational Structure

• Organizational Design
 Creating or changing an organization’s structure
 A process involving decisions about six key elements:
 Work specialization
 Departmentalization
 Chain of command
 Span of control
 Centralization and decentralization
 Formalization

9–3
Organizational Structure
• Work Specialization

 Dividing work activities into separate jobs

 Individual employees specialize in doing part of an
activity rather than the entire activity in order to
increase output
 Increases efficiency
 May lead to boredom, fatigue, stress, poor quality etc

9–4
Organizational Structure
• Departmentalization
 The basis on which jobs are grouped together so the
work gets done in a coordinated and integrated way
 Five forms of departmentalization:

 Functional departmentalization
 Defines department by the functions each one
performs.
 Department has people with same skills and
knowledge

9–5
Organizational Structure
• Departmentalization
 Geographical Departmentalization
 Is an arrangement of departments according to
geographical
 Product Departmentalization
 All activities required to produce and market a product are
grouped together
 Process Departmentalization
 Departmentalization is done on the basis of processing,
activities are grouped into separate sections.
 Customer Departmentalization
 Departmentalization is done on the basis of specific and
unique customers who have common needs.
9–6
Organizational Structure (cont’d)
• Chain of Command
 The line of authority that extends from upper levels of
an organization to the lowest levels of the
organization and clarifies who reports to whom.

9–7
Organizational Structure (cont’d)
• Authority
 The rights inherent in a managerial position to tell
people what to do and to expect them to do it.
• Responsibility
 The obligation or expectation to perform any assigned
duties.
• Unity of Command
 The management principle that each person should
report to only one manager.

9–8
Organizational Structure (cont’d)
• Span of Control
 The number of employees a manager can efficiently and
effectively manage.
 Traditional view: Managers could not and should not directly
supervise more than 5 or 6 subordinates
 All other things being equal, the wider or larger the span; the
more efficient it is
 But at some point, wider span may reduce effectiveness

9–9
Exhibit 9–3 Contrasting Spans of Control

9–10
Organizational Structure (cont’d)
• Centralization
 The degree to which decision making is concentrated at
upper levels in the organization.
 Organizations in which top managers make all the decisions and
lower-level employees simply carry out those orders.
• Decentralization
 The degree to which lower-level employees provide input or
actually make decisions
• Centralization-decentralization is relative, not absolute
• Employee Empowerment
 Increasing the decision-making authority (power) of
employees.

9–11
Organizational Structure (cont’d)
• Formalization
 The degree to which jobs within the organization are
standardized and the extent to which employee
behavior is guided by rules and procedures.
 Highly formalized jobs offer little discretion over what is to be
done.
 Low formalization means fewer constraints on how
employees do their work.

9–12
Exhibit 9–5 Mechanistic Versus Organic Organization

• High specialization • Cross-functional teams

• Rigid departmentalization • Cross-hierarchical teams
• Clear chain of command • Free flow of information
• Narrow spans of control • Wide spans of control
• Centralization • Decentralization
• High formalization • Low formalization

9–13
Common Organizational Designs
• Traditional Designs
 Simple structure
 Low departmentalization, wide spans of control, centralized
authority, little formalization
 Functional structure
 Organizational design that groups similar or related
occupational specialists together
 Departmentalization by function

– Operations, finance, marketing, human resources, and

product research and development
 Divisional structure
 Organizations made up of separate business units or
divisions with limited autonomy under the coordination and
control the parent organization e.g. product base divisions
9–14
Organizational Designs (cont’d)
• Contemporary Organizational Designs
 Team structures
 The entire organization is made up of work teams that do the
organization’s work.
 No line of managerial authority
 Employee empowerment
 Held responsible for the work performance results

9–15
Organizational Designs (cont’d)
• Contemporary Organizational Designs
 Matrix structures
 An organizational structure that assigns specialists from
different functional departments to work on one or more
projects.
 Unique aspect: creates a dual chain of command.
 Functional manager as well as project manager has authority
over employee
 Project structures
 In project structures, employees work continuously on
projects; moving on to another project as each project is
completed.
 Flexible organizational structure
9–16
Organizational Designs (cont’d)
• Contemporary Organizational Designs
 Boundary less Organization
 An organization whose design is not defined by, or limited to,
the horizontal, vertical, or external boundaries imposed by a
predefined structure
 Virtual Organization
 An organization that consists of a small core of full-time
employees and outside specialists temporarily hired as
needed to work on projects

9–17