CHAPTER 13 Organizational Structure Copyright 2016 Pearson Canada

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CHAPTER 13 Organizational Structure Copyright © 2016 Pearson Canada Inc.

CHAPTER 13 Organizational Structure Copyright © 2016 Pearson Canada Inc.

What Is Organizational Structure? • Organizational structure defines how job tasks are formally divided,

What Is Organizational Structure? • Organizational structure defines how job tasks are formally divided, grouped, and coordinated. • Six key elements when they design their organization’s structure: – – – work specialization departmentalization chain of command span of control centralization and decentralization formalization Copyright © 2016 Pearson Canada Inc.

Work Specialization • The degree to which tasks in the organization are subdivided into

Work Specialization • The degree to which tasks in the organization are subdivided into separate jobs. – Also known as division of labour. • Benefits: – Efficiency - less time changing tasks, putting equipment away – Easier to train employees • Downsides: – Boredom, stress, low productivity, high turnover, increased absenteeism Copyright © 2016 Pearson Canada Inc.

Departmentalization • The basis on which jobs are grouped together. • Types: – –

Departmentalization • The basis on which jobs are grouped together. • Types: – – – Functional Product Geographic Process Customer Copyright © 2016 Pearson Canada Inc.

Chain of Command • Continuous line of authority that extends from upper organizational levels

Chain of Command • Continuous line of authority that extends from upper organizational levels to the lowest level and clarifies who reports to whom. – Authority • Who has the right to give orders and expect them to be obeyed. – Unity of command • Subordinates should have only one superior. – Delegation • Assignment of authority to another person to carry out specific duties, allowing the employee to make some of the decisions. Copyright © 2016 Pearson Canada Inc.

Span of Control • Number of subordinates that can be efficiently and effectively managed.

Span of Control • Number of subordinates that can be efficiently and effectively managed. • Small span – Expensive, more managers. – Makes vertical communication more complicated. – Encourages tight supervision and discourages autonomy. • Larger span – Empowers workers. – Speeds up decisions. Copyright © 2016 Pearson Canada Inc.

Centralization and Decentralization • Centralization – The degree to which decision making is concentrated

Centralization and Decentralization • Centralization – The degree to which decision making is concentrated at a single point in the organization. • Decentralization – The degree to which decision making is distributed to lower level employees. • Makes it easier to address customer concerns quickly Copyright © 2016 Pearson Canada Inc.

Formalization • Degree to which jobs within the organization are standardized. • How standardized

Formalization • Degree to which jobs within the organization are standardized. • How standardized are the jobs? – High formalization means employees have little discretion. – Low formalization means employees have more freedom. Copyright © 2016 Pearson Canada Inc.

The Simple Structure • Strengths: – Simplicity: fast, flexible, inexpensive. • Weakness: – Works

The Simple Structure • Strengths: – Simplicity: fast, flexible, inexpensive. • Weakness: – Works best in small organizations. – Can slow down decision making in larger organization. – Can be risky as it relies on one person to make all decisions. Copyright © 2016 Pearson Canada Inc.

The Bureaucracy • Strengths: – Standardizes activities in an efficient manner. • Economies of

The Bureaucracy • Strengths: – Standardizes activities in an efficient manner. • Economies of scale, minimum duplication of personnel and equipment. • Lower quality employees are acceptable, which reduces employment costs. • Weaknesses: – Creates subunit conflicts. – There is an obsessive concern with following rules. Copyright © 2016 Pearson Canada Inc.

The Leaner Organization: Organization Downsizing • Downsizing – A systematic effort to make an

The Leaner Organization: Organization Downsizing • Downsizing – A systematic effort to make an organization leaner by selling off business units, closing locations, or reducing staff. – It has been very controversial because of its potential negative impacts on employees. • Advantages: – Huge reduction in wage costs – Can see positive effects on stock prices after the announcement • Disadvantages: – Employee attitudes, sickness absences, lower concentration on the job, and lower creativity – Can lead to more voluntary turnover Copyright © 2016 Pearson Canada Inc.

Effective Strategies for Downsizing • Investment • Communication • Participation • Assistance Copyright ©

Effective Strategies for Downsizing • Investment • Communication • Participation • Assistance Copyright © 2016 Pearson Canada Inc.

Why Do Structures Differ? • Two extreme models of organizational design Mechanistic model and

Why Do Structures Differ? • Two extreme models of organizational design Mechanistic model and Organic Model – Mechanistic model • High specialization • Rigid departmentalization • Clear chain of command • Narrow spans of control • Limited information network • Centralization Copyright © 2016 Pearson Canada Inc.

Why Do Structures Differ? • Two extreme models of organizational design – Organic model

Why Do Structures Differ? • Two extreme models of organizational design – Organic model • Flat • Uses cross-functional and cross-hierarchical teams • Possesses a comprehensive information network • Has wide spans of control • Has low formalization Copyright © 2016 Pearson Canada Inc.

Exhibit 13 -5 Mechanistic vs. Organic Models Copyright © 2016 Pearson Canada Inc.

Exhibit 13 -5 Mechanistic vs. Organic Models Copyright © 2016 Pearson Canada Inc.

Why Do Structures Differ? • Strategy • Organizational Size • Environment • Technology Copyright

Why Do Structures Differ? • Strategy • Organizational Size • Environment • Technology Copyright © 2016 Pearson Canada Inc.

Why Do Structures Differ? • Strategy – Innovation, cost minimization, and imitation. • Three

Why Do Structures Differ? • Strategy – Innovation, cost minimization, and imitation. • Three Strategy Dimensions – Innovation – Cost-Minimization – Imitation Copyright © 2016 Pearson Canada Inc.

Exhibit 13 -6 The Strategy-Structure Relationship Copyright © 2016 Pearson Canada Inc.

Exhibit 13 -6 The Strategy-Structure Relationship Copyright © 2016 Pearson Canada Inc.

Why Do Structures Differ? • Organizational Size – An organization’s size significantly affects its

Why Do Structures Differ? • Organizational Size – An organization’s size significantly affects its structure. – Organizations that employ 2000 or more people tend to have more specialization, more departmentalization, more vertical levels, and more rules and regulations than small organizations. – The relationship isn’t linear; rather, size affects structure at a decreasing rate. Copyright © 2016 Pearson Canada Inc.

Why Do Structures Differ? • Technology – Every organization has at least one technology

Why Do Structures Differ? • Technology – Every organization has at least one technology for converting financial, human, and physical resources into products or services. – The common theme that differentiates technologies is their degree of routineness. • Environment – Composed of forces outside the organization and the uncertainty associated with them. Copyright © 2016 Pearson Canada Inc.

Key Dimensions of an Organization’s Environment • Capacity – Degree to which environment can

Key Dimensions of an Organization’s Environment • Capacity – Degree to which environment can support growth. • Volatility – Degree of instability in an environment. • Complexity – Degree of heterogeneity and concentration in environment. Copyright © 2016 Pearson Canada Inc.

Exhibit 13 -7 Three-Dimensional Model of the Environment Copyright © 2016 Pearson Canada Inc.

Exhibit 13 -7 Three-Dimensional Model of the Environment Copyright © 2016 Pearson Canada Inc.

Organizational Designs and Employee Behaviour • • To maximize employee performance and satisfaction, managers

Organizational Designs and Employee Behaviour • • To maximize employee performance and satisfaction, managers must take into account individual differences, such as experience, personality, and the work task, as well as culture. People are attracted to, are selected by, and stay with organizations that suit their personal characteristics. Those who prefer predictability are likely to seek out and take employment in mechanistic structures Those who want autonomy are more likely to end up in an organic structure. Copyright © 2016 Pearson Canada Inc.

Exhibit 13 -8 Organizational Structure: Its Determinants and Outcomes Copyright © 2016 Pearson Canada

Exhibit 13 -8 Organizational Structure: Its Determinants and Outcomes Copyright © 2016 Pearson Canada Inc.

Summary 1. Organizational structure determines the level of autonomy an individual has. 2. Organizational

Summary 1. Organizational structure determines the level of autonomy an individual has. 2. Organizational strategy, organizational size, technology, and environment determine an organization’s structure. 3. There is no one best structure, and individuals differ in their preference of organizational structure. Copyright © 2016 Pearson Canada Inc.

OB at Work: For Review 1. 2. 3. 4. What are the six key

OB at Work: For Review 1. 2. 3. 4. What are the six key elements that define an organization’s structure? What are the characteristics of a bureaucracy, and how does it differ from a simple structure? Why do organizational structures differ, and what is the difference between a mechanistic structure and an organic structure? What are the behavioural implications of different organizational designs? Copyright © 2016 Pearson Canada Inc.

OB at Work: For Managers ■ Specialization can make operations more efficient, but remember

OB at Work: For Managers ■ Specialization can make operations more efficient, but remember that excessive specialization can create employee dissatisfaction and reduce motivation. ■ Avoid designing rigid hierarchies that overly limit employees’ empowerment and autonomy. ■ Balance the advantages of virtual and boundaryless organizations against the potential pitfalls before adding flexible workplace options. Copyright © 2016 Pearson Canada Inc.

OB at Work: For Managers ■ Downsize your organization to realize major cost savings,

OB at Work: For Managers ■ Downsize your organization to realize major cost savings, and focus the company around core competencies—but only if necessary because downsizing can have a significant negative impact on employee morale. ■ Consider the scarcity, dynamism, and complexity of the environment, and balance the organic and mechanistic elements when designing an organizational structure. Copyright © 2016 Pearson Canada Inc.