Chapter 13 Organizational Structure Mc GrawHillIrwin Mc ShaneVon

Chapter 13 Organizational Structure Mc. Graw-Hill/Irwin Mc. Shane/Von Glinow OB 5 e Copyright © 2010 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Choosing an Organizational Structure at Bio. Ware Ray Muzyka (left) and Greg Zeschuk (right) designed an organizational structure for their electronic games company, Bioware, that balances the need for teamwork and information sharing. 13 -2

Organizational Structure Defined Division of labor and patterns of coordination, communication, workflow, and formal power that direct organizational activities. Relates to many OB topics • e. g. job design, teams, power, org culture, org change 13 -3

Division of Labor § Subdividing work into separate jobs assigned to different people § Division of labor is limited by ability to coordinate work § Potentially increases work efficiency § Necessary as company grows and work becomes more complex 13 -4

Coordinating Work Activities 1. Informal communication • Sharing information, forming common mental models • Allows flexibility • Vital in nonroutine and ambiguous situations • Easiest in small firms • Applied in team-based structures • Includes integrator roles 13 -5

Coordinating Work Activities 2. Formal hierarchy • Direct supervision • Assigns formal (legitimate) power to manage others • Coordination strategy for departmentalization 3. Standardization a) Standardized processes (e. g. , job descriptions) b) Standardized outputs (e. g. , sales targets) c) Standardized skills (e. g. , training) 13 -6

Elements of Organizational Structure Span of Control Departmentalization Elements of Organizational Structure Formalization Centralization 13 -7

Span of Control Number of people directly reporting to the next level • Assumes coordination through direct supervision Wider span of control possible when: • Other coordinating mechanisms present • Routine tasks • Low employee interdependence 13 -8

Tall vs Flat Structures As companies grow, they: • Build taller hierarchy • Widen span, or both Problems with tall hierarchies • Overhead costs • Worse upward information • Focus power around managers, so staff less empowered 13 -9

Issues with Tall vs Flatter Structures § Firms moving toward flatter structures (delayering) because taller hierarchies have: • Higher mgt overhead costs • Less information flow • Less staff empowerment § But also problems with flatter hierarchies • Undermines management functions • Increases workload and stress • Restricts management career development 13 -10

Centralization and Decentralization Centralization Formal decision making authority is held by a few people, usually at the top Decision making authority is dispersed throughout the organization Decentralization 13 -11

Formalization § The degree to which organizations standardize behavior through rules, procedures, formal training, and related mechanisms. § Formalization increases as firms get older, larger, and more regulated § Problems with formalization • • Reduces organizational flexibility Discourages organizational learning/creativity Reduces work efficiency Increases job dissatisfaction and work stress 13 -12

Growing an Organic Taxi Award-winning TAXI relies on an organic structure to maintain its creative advantage. TAXI cofounder Paul Lavoie (bottom right in this New York City office photo) says that most firms are “so layered that a great idea was easily crushed…We needed a flexible infrastructure, able to move with the pace of change. TAXI started lean and nimble, and remains so today. ” 13 -13

Mechanistic vs. Organic Structures § Organic Structure • Wide span of control • Little formalization • Decentralized decisions § Mechanistic Structure • Narrow span of control • High formalization • High centralization 13 -14

Departmentalization Specifies how employees and their activities are grouped together Three functions of departmentalization 1. Establishes chain of command 2. Creates common mental models, measures of performance, etc 3. Encourages coordination through informal communication 13 -15

Functional Organizational Structure Organizes employees around specific knowledge or other resources (e. g. , marketing, production) CEO Finance Production Marketing 13 -16

Evaluating Functional Structures § Benefits • Economy of scale • Supports professional identity and career paths • Easier supervision § Limitations • More emphasis on subunit than organizational goals • Higher dysfunctional conflict • Poorer coordination -- requires more controls 13 -17

Divisional Structure Organizes employees around outputs, clients, or geographic areas CEO Healthcare Lighting Products Consumer Lifestyle 13 -18

Divisional Structure § Different forms of divisional structure • Geographic structure • Product structure • Client structure § Best form depends on environmental diversity or uncertainty § Movement away from geographic form • Less need for local representation • Reduced geographic variation • More global clients 13 -19

Evaluating Divisional Structures § Benefits • Building block structure -- accommodates growth • Focuses on markets/products/clients § Limitations • Duplication, inefficient use of resources • Specializations are dispersed--silos of knowledge • Politics/conflict when two forms of equal value 13 -20

Team-Based Structure § Self-directed work teams § Teams organized around work processes § Typically organic structure • Wide span of control – many employees work without close supervision • Decentralized with moderate/little formalization § Usually found within divisionalized structure 13 -21

Evaluating Team-Based Structures § Benefits • Responsive, flexible • Lower admin costs • Quicker, more informed decisions § Limitations • • • Interpersonal training costs Slower during team development Role ambiguity increases stress Problems with supervisor role changes Duplication of resources 13 -22

Bioware’s Matrix Structure Ray Muzyka (left) and Greg Zeschuk (right) adopted a matrix organizational structure for their electronic games company, Bioware, because it balances the need for teamwork and information sharing. 13 -23

Matrix Structure (Project-based) Employees ( ) are temporarily assigned to a specific project team and have a permanent functional unit CEO Game 1 Project Leader Game 2 Project Leader Game 3 Project Leader Art Dept Leader Software Dept Leader Audio Dept Leader 13 -24

Evaluating Matrix Structures § Benefits • • • § Uses resources and expertise effectively Improves communication, flexibility, innovation Focuses specialists on clients and products Supports knowledge sharing within specialty Solution when two divisions have equal importance Limitations • Increases goal conflict and ambiguity • Two bosses dilutes accountability • More conflict, organizational politics, and stress 13 -25

Network Organizational Structure Alliance of firms creating a product or service Supporting firms beehived around a “hub” or “core” firm Product development partner (U. S. A. ) Callcenter partner (Philippines) Core Firm Package design partner (UK) Accounting partner (U. S. A. ) Assembly partner (Mexico) 13 -26

Evaluating Network Structures § Benefits • Highly flexible • Potentially better use of skills and technology • Not saddled with same resources for all products § Limitations • Exposed to market forces • Less control over subcontractors than in-house 13 -27

External Environment & Structure Dynamic • High rate of change • Use team-based, network, or other organic structure Complex • Many elements (such as stakeholders) • Decentralize Stable • Steady conditions, predictable change • Use mechanistic structure Simple • Few environmental elements • Less need to decentralize 13 -28

External Environment & Structure (con’t) Diverse • Several products, clients, regions • Use divisional form aligned with the diversity Hostile • Competition and resource scarcity • Use organic structure for responsiveness Integrated • Single product, client, place • Use functional structure, or geographic division if global Munificent • Plenty of resources and product demand • Less need for organic structure 13 -29

Effects of Organizational Size As organizations grow, they have: More division of labor (job specialization) § Greater use of standardization § More hierarchy and formalization § More decentralization § 13 -30

Technology and Structure § Technology refers to mechanisms or processes by which an organization turns out its product or service § Two contingencies: • Variability -- the number of exceptions to standard procedure that tend to occur. • Analyzability -- the predictability or difficulty of the required work 13 -31

Organizational Strategy § Structure follows strategy • Strategy points to the environments in which the organization will operate • Leaders decide which structure to apply § Differentiation strategy • Providing unique products or attracting clients who want customization § Cost leadership strategy • Maximize productivity in order to offer competitive pricing 13 -32

Chapter 13 Organizational Structure Mc. Graw-Hill/Irwin Mc. Shane/Von Glinow OB 5 e Copyright © 2010 by The Mc. Graw-Hill Companies, Inc. All rights reserved. 13 -33