Organizational

Structure and Design

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• Defining Organizational Structure
– Work specialization
– Departmentalization
– Chain of Command
– Span of Control
– Centralize vs. Decentralize
– Formalization
• Org. Design Decisions
– Mechanistic and Organic
– Contingency Factors
– Common Designs

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 Defining Organizational Structure
• Organizational Structure
– The formal arrangement of jobs within an organization
• Organizational Design
– A process involving decisions about six key elements:
1. Work specialization
2. Departmentalization
3. Chain of command
4. Span of control
5. Centralization and decentralization
6. Formalization

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 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

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 Organizational Structure

• Work Specialization
– The degree to which tasks in the organization are
divided into separate jobs with each step
completed by a different person
• Overspecialization can result in human diseconomies
from boredom, fatigue, stress, poor quality, increased
absenteeism, and higher turnover

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 Departmentalization by Type

• Functional • Process
– Grouping jobs by – Grouping jobs on the
functions performed basis of product or
• Product customer flow
– Grouping jobs by • Customer
product line – Grouping jobs by type
• Geographical of customer and needs
– Grouping jobs on the
basis of territory or
geography

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 Functional Departmentalization

Plant Manager

Manager, Manager, Manager, Manager, Manager,

Engineering Accounting Manufacturing Human Resources Purchasing

+ 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

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 Geographical Departmentalization

Vice President
for Sales

Sales Director, Sales Director, Sales Director, Sales Director,

Western Region northern Region Central Region Eastern 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

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 Product Departmentalization
Bombardier, Ltd.

Recreational and

Mass Transit Sector Utility Vehicles

Sector Rail Products
Sector

Mass Transit Bombardier–Rotax Rail and Diesel

Division (Vienna) Products Division

Recreational Logistic Industrial Bombardier–Rotax

Products Division Equipment Division Equipment Division (Gunskirchen)

+ 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

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 Process Departmentalization

Plant
Superintendent

Sawing Assembling Lacquering Finishing Inspection and

Planing and
Department Department and Sanding Department Shipping
Milling
Manager Manager Department Manager Department
Department
Manager Manager
Manager

+ More efficient flow of work activities

– Can only be used with certain types of products

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Customer Departmentalization

Director
of Sales

Manager, Manager, Manager,

Retail Accounts Wholesale Accounts Government Accounts

+ Customers’ needs and problems can be met by specialists

– Duplication of functions
– Limited view of organizational goals

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12
 MATRIX STRUCTURE

This is a structure, which has a combination of function

and product structures. This combines both the best of
both worlds to make an efficient organizational
structure. This structure is the most complex
organizational structure.

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14
 A Matrix Organization in an Aerospace
Firm

Design Manufacturing Contract Purchasing Accounting Human

Engineering Administration Resources (HR)

Alpha Design Manufacturing Contract Purchasing Accounting HR

Project Group Group Group Group Group Group

Beta Design Manufacturing Contract Purchasing Accounting HR

Project Group Group Group Group Group Group

Gamma Design Manufacturing Contract Purchasing Accounting HR

Project Group Group Group Group Group Group

Omega Design Manufacturing Contract Purchasing Accounting HR

Project Group Group Group Group Group Group

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 Organizational Structure
• Chain of Command
– The continuous line of authority that extends from upper
levels of an organization to the lowest levels of the
organization and clarifies who reports to whom

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 Organizational Structure
• 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. Responsibility
brings with it accountability (the need to report and justify
work to manager’s superiors)
• Unity of Command
– The concept that a person should have one boss and should
report only to that person
• Delegation
– The assignment of authority to another person to carry out
specific duties
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Organizational Structure (cont’d)

• Line and Staff Authority

– Line managers are responsible for the essential
activities of the organization, including
production and sales. Line managers have the
authority to issue orders to those in the chain of
command
• The president, the production manager, and the sales
manager are examples of line managers
– Staff managers have advisory authority, and
cannot issue orders to those in the chain of
command (except those in their own department)
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Organizational Structure (cont’d)
• Span of Control
– The number of employees who can be effectively and
efficiently supervised by a manager
– Width of span is affected by:
• Skills and abilities of the manager and the employees
• Characteristics of the work being done
• Similarity of tasks
• Complexity of tasks
• Physical proximity of subordinates
• Standardization of tasks
• Sophistication of the organization’s information system
• Strength of the organization’s culture
• Preferred style of the manager

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 Contrasting Spans of Control

Members at Each Level

(Highest) Assuming Span of 4 Assuming Span of 8

1 1 1
Organizational Level

2 4 8
3 16 64
4 64 512
5 256 4096
6 1024
7 4096

(Lowest)
Span of 4: Span of 8:
Employees: = 4096 Employees: = 4096
Managers (level 1–6) = 1365 Managers (level 1–4) = 585

Chapter 9, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 20
 Organizational Structure

• Centralization
– The degree to which decision making is concentrated at a
single point 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
– Employee Empowerment
• Increasing the decision-making discretion of employees

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 Factors that Influence the Amount
of Centralization
• More Centralization
– Environment is stable
– Lower-level managers are not as capable or experienced
at making decisions as upper-level managers
– Lower-level managers do not want to have a say in
decisions
– Decisions are significant
– Organization is facing a crisis or the risk of company
failure
– Company is large
– Effective implementation of company strategies depends
on managers retaining say over what happens

Chapter 9, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 22
 Factors that Influence the Amount of
Decentralization
• More Decentralization
– Environment is complex, uncertain
– Lower-level managers are capable and experienced at
making decisions
– Lower-level managers want a voice in decisions
– Decisions are relatively minor
– Corporate culture is open to allowing managers to have a
say in what happens
– Company is geographically dispersed
– Effective implementation of company strategies depends
on managers having involvement and flexibility to make
decisions

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Organizational Structure (cont’d)

• Formalization
– The degree to which jobs within the organization
are standardized and the extent to which
employee behaviour is guided by rules and
procedures.

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 Organizational Design Decisions
• Mechanistic Organization
• Organic Organization
– A rigid and tightly
controlled structure – Highly flexible and
adaptable structure

Mechanistic Organic

• 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

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 Structural Contingency Factors
• Structural decisions are influenced by:
– Overall strategy of the organization
• Organizational structure follows strategy
– Size of the organization
• Firms change from organic to mechanistic organizations as
they grow in size
– Technology use by the organization
• Firms adapt their structure to the technology they use
– Degree of environmental uncertainty
• Dynamic environments require organic structures; mechanistic
structures need stable environments

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Common Organizational Designs
• Traditional Designs
– Simple Structure
• Low departmentalization, wide spans of control, centralized
authority, little formalization
– Functional Structure
• Departmentalization by function
– Operations, finance, human resources, and product research and
development
– Divisional Structure
• Composed of separate business units or divisions with limited
autonomy under the coordination and control of the parent
corporation

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 Strengths and
Weaknesses of Common Traditional
Organizational Designs

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 Organizational Designs

• Contemporary Organizational Designs

– Team Structures
• The entire organization is made up of work groups or
self-managed teams of empowered employees
– Matrix Structures
• Specialists for different functional departments are
assigned to work on projects led by project managers
• Matrix participants have two managers
– Project Structures
• Employees work continuously on projects, moving on to
another project as each project is completed

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Contemporary Organizational Designs

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 Organizational Designs (cont’d)

• Contemporary Organizational Designs (cont’d)

– Boundaryless Organization
• A flexible and an unstructured organizational design that
is intended to break down external barriers between the
organization and its customers and suppliers
• Removes internal (horizontal) boundaries:
– Eliminates the chain of command
– Has limitless spans of control
– Uses empowered teams rather than departments
• Eliminates external boundaries:
– Uses virtual, network, and modular organizational
structures to get closer to stakeholders

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 Removing Boundaries
• Virtual Organization
– An organization that consists of a small core of full-time
employees and that temporarily hires specialists to work
on opportunities that arise
• Network Organization
– A small core organization that outsources its major
business functions (e.g., manufacturing) in order to
concentrate on what it does best
• Modular Organization
– A manufacturing organization that uses outside suppliers
to provide product components for its final assembly
operations

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 Organizational Designs (cont’d)
• Learning Organization
– An organization that has developed the capacity to
continuously learn, adapt, and change through the practice
of knowledge management by employees
Organizational Design
• Boundaryless
• Teams
• Empowerment

Organizational Culture Information Sharing

• Strong Mutual Relationships THE LEARNING • Open
• Sense of Community ORGANIZATION • Timely
• Caring • Accurate
• Trust

Leadership
• Shared Vision
• Collaboration
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