Chapter 07 Designing Organizational Structure Mc GrawHillIrwin Copyright

Chapter 07 Designing Organizational Structure Mc. Graw-Hill/Irwin Copyright © 2013 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Designing Organizational Structure • Organizing • The process by which managers establish the structure of working relationships among employees to allow them to achieve organizational goals efficiently and effectively. • An organization chart is used by organizations to reflect the working relationships among employees 7 -3

Designing Organizational Structure • Organizational structure: Formal system of task and reporting relationships that coordinates and motivates organizational members so that they work together to achieve organizational goals • Is concerned with questions such as, ”Who reports to whom? ” and “Who does what? ” and “Where is the work done? ”. • Organizational design: Process by which managers make specific organizing choices that result in a particular kind of organizational structure • According to contingency theory, managers design organizational structures to fit the factors or circumstances that are affecting the company and causing them the most uncertainty. 7 -4

Designing Organizational Structure • Four factors are important determinants of the type of organizational structure or culture managers select: • The Organizational Environment • Strategy • Technology • Human Resources 7 -5

Figure 7. 1 - Factors Affecting Organizational Structure 7 -6

Designing Organizational Structure • The Organizational Environment • The more quickly the external environment is changing and the greater the uncertainty within it, the greater the need to speed decision-making and communication so that resources can be obtained. • In such situations, managers make organizing decisions that result in more flexible structures and entrepreneurial cultures. • If the external environment is relatively stable, uncertainty is low, and resources are readily available, managers make organizing decisions that bring more stability or formality to the organizational structure • Managers in this situation prefer to make decisions with a clearly defined hierarchy of authority, standard operating procedures, and restrictive norms to guide and govern employees’ activities. 7 -7

Designing Organizational Structure • Strategy • Different strategies often call for the use of different organizational structures and cultures. a. A differentiation strategy aimed at increasing quality usually succeeds best in a flexible structure with a culture that values innovation. b. In contrast, a low-cost strategy aimed at driving down costs works best in a more formal structure with more conservative norms, which gives managers greater control. c. At the corporate level, when managers pursue a strategy of vertical integration or diversification, a flexible structure is needed to provide sufficient coordination between different business divisions. d. Managers are also challenged to create organizational structures that allow flexibility on a global level. 7 -8

Designing Organizational Structure • Technology • the combination of skills, knowledge, machines, and computers that are used in the design, production, and distribution of goods and services. a. The more complicated the technology, the greater the need for a more flexible structure that allows managers to respond quickly to unexpected situations. b. If technology is routine, a formal structure is more appropriate because tasks are simple and procedures to produce goods and services have been outlined in advance. 7 -9

Designing Organizational Structure • According to researcher Charles Perrow, two factors determine how complicated or nonroutine technology is. They are task variety and task analyzability. i. Nonroutine technologies are characterized by high task variety and low task analyzability. ii. Routine technologies are characterized by low task variety and high task analyzability. iii. Examples of nonroutine technology are found in the work of scientists in an R&D laboratory who develop new products. iv. Examples of routine technology include typical mass production or assembly operations, where workers perform the same task repeatedly and managers identify programmed solutions necessary to perform a task efficiently. 7 -10

HIGH ANALYZABILITY LOW Department Design 1. 2. 3. 4. 5. Mostly Organic Structure Moderate formalization Moderate centralization Work experience Moderate to wide span Horizontal, verbal communications 1. 2. 3. 4. 5. Mechanistic Structure Mostly Mechanistic Structure High formalization High centralization Little training or experience Wide span Vertical, written communications 1. 2. 3. 4. 5. ROUTINE LOW Low formalization Low centralization Training plus experience Moderate to narrow span Horizontal communications meetings NONROUTINE CRAFT 1. 2. 3. 4. 5. Organic Structure Moderate formalization Moderate centralization Formal training Moderate span Written and verbal communications ENGINEERING VARIETY HIGH 11

Designing Organizational Structure • Human Resources • The more highly skilled a workforce, and the greater the number of employees who work together in groups or teams, the more likely an organization is to use a flexible, decentralized structure and a professional culture based on values and norms that foster employee autonomy and self-control. • Flexible structures, characterized by decentralized authority and empowered employees, are well suited to the needs of highly skilled people. • The way an organization’s structure works depends on the organizing choices managers make about three issues: • i. How to group tasks into individual jobs • ii. How to group jobs into functions and divisions • iii. How to allocate authority and coordinate or integrate functions, and divisions 7 -12

Grouping Tasks into Jobs • The first step in organizational design is job design, the process by which managers decide how to divide into specific jobs the tasks that have to be performed. • The result of the job design process is a division of labor among employees • Establishing an appropriate division of labor among employees is vital to increasing efficiency and effectiveness. • Job simplification is the process of reducing the number of tasks that each worker performs. • Too much job simplification may reduce efficiency rather than increase it, if workers become bored and unhappy. 7 -15

Job Enlargement and Job Enrichment • Job enlargement is increasing the number of different tasks in a given job by changing the division of labor. • By increasing the range of tasks performed by a worker, managers hope to reduce boredom and increase motivation to perform. • Job enrichment is increasing the degree of responsibility a worker has over a job by: • empowering workers to experiment to find new or better ways of doing the job, • encouraging workers to develop new skills, • allowing workers to decide how to do the work • allowing workers to monitor and measure their own performance. 7 -16

Advantages of Enlarging and Enriching Jobs • By enriching an employee’s job, managers are expecting the employee’s level of involvement in their work to increase, thereby increasing productivity. • Managers who make design choices that increase job enrichment and job enlargement are likely to increase the degree to which workers behave flexibly rather than mechanically. • Narrow, specialized jobs lead people to behave in predictable ways. • In contrast, workers who perform a variety of tasks and who are encouraged to discover new and better ways to perform their jobs are likely to act flexibly and creatively. 7 -17

The Job Characteristics Model • Hackman and Oldham’s job characteristics model explains how managers can make jobs more interesting and motivating. According to Hackman and Oldham, every job has five characteristics that determine how motivating the job is: • Skill variety • Task identity • Task Significance • Autonomy • Feedback 7 -18

The Job Characteristics Model • Skill variety is the extent to which a job requires an employee to use a wide range of different skills, abilities, or knowledge. • Task identity is the extent to which a job requires a worker to perform all the tasks necessary to complete the job, from the beginning to the end of the production process. • Task significance is the degree to which a worker feels his or her job is meaningful because of its effect on people outside the organization. • Autonomy is the degree to which a job gives an employee the freedom and discretion needed to schedule different tasks and decide how to carry them out. • Feedback is the extent to which actually doing a job provides a worker with clear and direct information regarding how well he or she has performed the job. 7 -19

Figure 7. 2 - The Job Characteristics Model 7 -20

Grouping Jobs into Functions and Divisions: Designing Organizational Structure • After task allocation, the next organizing decision is how to group jobs together to best match the needs of the organization’s environment, strategy, technology, and human resources. 1. Most top-management teams group jobs into departments and develop a functional structure. 2. As the organization grows, managers design a divisional structure or a matrix or product team structure. 7 -21

Grouping Jobs into Functions • A function is a group of people, working together, who possess similar skills or use the same knowledge, tools, or techniques to perform their jobs. • Functional structure: An organizational structure composed of all the departments that an organization requires to produce its goods or services 7 -22

* 1. 1 23

Grouping Jobs into Functions Advantages Disadvantages • Encourages learning from • Difficult for managers in others doing similar jobs • Easy for managers to monitor and evaluate workers • Allows managers to scan, monitor and obtain information about the changing competitive environment different functions to communicate and coordinate with one another • Functional managers may become preoccupied in achieving their departmental goals that they lose sight of organizational goals 7 -24

Divisional Structures: Product, Market, and Geographic • Organizational structure composed of separate business units within which are the functions that work together to produce a specific product for a specific customer • There are three different forms of divisional structure: • product structure, • geographic structure, • market structure. 7 -25

Figure 7. 4 - Product, Market, and Geographic Structures 7 -26

Product Structure • When using a product structure managers place each distinct product line in its own self-contained division and give divisional managers the responsibility for devising an appropriate business-level strategy. • Advantages • Allows functional managers to specialize in one product area • • Division managers become experts in their area • Divisional management improves the use of resources Removes need for direct supervision of the division by corporate managers 7 -27

Geographic Structure and its Types • When organizations expand rapidly both at home and abroad, functional structures can create problems because managers in one central location may find it increasingly difficult to deal with problems arising in other regions of the country or world. • Geographic structure: Each region of a country or area of the world is served by a self-contained division • Global geographic structure • Managers locate different divisions in each of the world regions where the organization operates • Occurs when managers are pursuing a multi-domestic strategy 7 -28

Coca-Cola Enterprises Territories of Operation * 1. 4 29

Geographic Structure and its Types • Global product structure: Each product division, not the country or regional managers, takes responsibility for deciding where to manufacture its products and how to market them in foreign countries 7 -30

Figure 7. 5 - Global Geographic and Global Product Structures 7 -31

Market(Customer) Structure • Sometimes managers group functions according to the type of customer buying the product, in order to tailor an organization’s products to each customer’s unique demands. • Market structure: Each kind of customer is served by a self-contained division; also called customer structure • It allows managers to be responsive to the needs of customers and allows them to make decisions in response to customers’ changing needs. • Matrix structure: An organizational structure that simultaneously groups people and resources by function and product 7 -32

1. 3 33

Matrix and Product Team Design Structure • In a matrix structure, managers group people and resources in two ways simultaneously: by function and by product. The result is a complex network of reporting relationships that makes the matrix structure very flexible. • Each person in a product team reports to two bosses: • a functional boss • the boss of the product team • To keep the matrix flexible, product teams are empowered and team members are responsible for making important decisions. • Matrix structures have been successfully used for years at high-tech companies, where new product development takes place frequently and the need to innovate quickly is vital to the organization’s survival. 7 -34

Figure 7. 6 - Matrix and Product Team Structures 7 -35

Matrix and Product Team Design Structure • The dual reporting relationships of a matrix structure have always been difficult for managers and employees to deal with. To avoid these problems, managers have devised a product team structure to organize people and resources. • Product team structure: Functional employees are permanently assigned to a cross-functional team and report only to the product team manager or to one of his direct subordinates • Cross-functional team: Group of managers brought together from different departments to perform organizational tasks • They report only to the product team manager or to one of his or her subordinates. • Increasingly, organizations are making empowered crossfunctional teams an essential part of their organization 7 -36

Coordinating Functions and Divisions • Authority: Power to hold people accountable for their actions and to make decisions concerning the use of organizational resources • Hierarchy of authority: Organization’s chain of command, specifying the relative authority of each manager 7 -37

Authority Versus Power Exhibit 5. 4 b 38

Centralization and Decentralization of Authority • Top managers must seek the balance between centralization and decentralization of authority • Decentralizing authority: Giving lower-level managers and nonmanagerial employees the right to make important decisions about how to use organizational resources • Decentralized teams may begin to pursue their own goals at the expense of organizational goals 7 -39

* 1. 2. 3. 4. 5. 6. 7. 8. 9. 2. 3 Trust your staff to be a good job Avoid seeing perfection Give effective job instructions Know your true interests Follow up on progress. Praise the efforts of your staff. Don’t wait to the last minute to delegate. Ask questions, expect answers, assist employees. Provide the resources you would provide if doing the assignment yourself. 10. Delegate to the lowest possible level. 40

Allocating Authority • Span of control: The number of subordinates that report directly to a manager • Line manager: Someone in the direct line or chain of command who has formal authority over people and resources • Staff manager: Someone responsible for managing a specialist function, such as finance or marketing 7 -41

Figure 7. 7 - The Hierarchy of Authority and Span of Control at Mc. Donald’s Corporation 7 -42

Figure 7. 8 - Tall and Flat Organizations 7 -43

Integrating and Coordinating Mechanisms • Integrating mechanisms: Organizing tools that managers can use to increase communication and coordination among functions and divisions 7 -44

Figure 7. 9 - Types and Examples of Integrating Mechanisms 7 -46

Strategic Alliances, B 2 B Network Structures, and IT • Strategic alliance: An agreement in which managers pool or share firm’s resources and knowhow with a foreign company and the two firms share in the rewards and risks of starting a new venture • Network structure: Series of strategic alliances that an organization creates with suppliers, manufacturers, and distributors to produce and market a product • It allows firms to bring resources together in a boundary-less organization 7 -47

Strategic Alliances, B 2 B Network Structures, and IT • Outsource: To use outside suppliers and manufacturers to produce goods and services • Boundaryless organization: Members are linked by computers, faxes, computer-aided design systems, and video-conferencing and who, rarely, if ever, see one another face-to-face • Knowledge management system: Companyspecific virtual information system that allows workers to share their knowledge and expertise and find others to help solve problems 7 -48

Strategic Alliances, B 2 B Network Structures, and IT • Business to Business (B 2 B ) network: Group of organizations that join together and use IT to link themselves to potential global suppliers to increase efficiency and effectiveness 7 -49