Designing Organizational Structure Chapter Seven Mc GrawHillIrwin Copyright

Designing Organizational Structure Chapter Seven Mc. Graw-Hill/Irwin Copyright © 2011 by the Mc. Graw-Hill Companies, Inc. All rights reserved.

Learning Objectives LO 1 Identify the factors that influence managers’ choice of an organizational structure LO 2 Explain how managers group tasks into jobs that are motivating and satisfying for employees LO 3 Describe the types of organizational structures managers can design, and explain why they choose one structure over another LO 4 Explain why managers must coordinate jobs, functions, and divisions using the hierarchy of authority and integrating mechanisms. 7 -2

Designing Organizational Structure • Organizing – The process by which managers establish the structure of working relationships among employees to achieve goals 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 7 -4

Designing Organizational Structure • Organizational Design – The process by which managers make specific choices that result in a particular type of organizational structure. 7 -5

Factors Affecting Organizational Structure Figure 7. 1 7 -6

Factors Affecting Organizational Structure • Environment (1) – When the external environment is changing and uncertainty exists, managers face greater problems. In this situation, managers tend to use flexible structures and entrepreneurial cultures, to speed up decision making and communication. – When the external environment is stable, managers can establish more clearly defined hierarchies and detailed rules. 7 -7

Factors Affecting Organizational Structure • Strategy (2) – Different strategies require the use of different organizational structures and cultures. Examples– A “differentiation” strategy used to increase customer value might succeed best in a flexible structure, or one that values innovation. – A “low cost” strategy might be best in a structured environment where managers maintain control. 7 -8

Factors Affecting Organizational Structure • Technology (3) – Combination of skills, knowledge and machines used to design and produce goods AND services. – The more complicated the technology, the need for a flexible structure and progressive culture. – The more routine the technology (mass production) the more a structured environment is needed so that tasks are done efficiently. 7 -9

Factors Affecting Organizational Structure • Human Resources (4) – The final factor affecting an organizations choice of structure and culture. – The more highly skilled the workforce, and the great number of those who work in teams, the more likely the organization will use a flexible structure. Highly skilled employees desire greater freedom and dislike close supervision. 7 -10

Job Design • Job Design – The process managers use to divide tasks into specific jobs (job descriptions) • Job Simplification – Reducing the number of tasks a worker performs • When is it necessary to do this? – Production Lines (Subway, Mc. Donalds, autos) • What is an undesired result of this process? – Boredom 7 -11

Job Design • Job Enlargement – The process of increasing the number of different tasks in a job by changing the division of labor • Job Enrichment – The process of increasing the degree of responsibility a worker has over a job 7 -12

Question? What term below refers to increasing the degree of responsibility a worker has over his or her job? A. B. C. D. Job Design Job Simplification Job Enlargement Job Enrichment 7 -13

The Job Characteristics Model Figure 7. 2 7 -14

Job Characteristics Model 7 -15

1 -Functional Structure • Functional Structure – An organizational structure composed of all the departments that an organization requires to produce its goods or services 7 -16

Grouping Jobs into Functions • Advantages • Disadvantages – Encourages learning – Difficult for from others doing departments to similar jobs communicate with others – Easy for managers to monitor and evaluate – Preoccupation with workers own department and losing sight of – More control organizational goals – Hard to grow 7 -17

2 -Divisional Structures • Divisional Structure – An organizational structure composed of separate business units within which are the functions that work together to produce a specific product for a specific customer – 3 Types: Product, Geographic and Market 7 -18

a-Product Structure • Product Structure – Each product line or business is handled by a self-contained division • For Example – Pharmaceuticals 7 -19

a-Product Structure-con’t Advantages • • Functional managers specialize in 1 product area Division managers become experts in their area No need for direct supervision by corporate mgrs By using Divisional Managers, the use of resources improves 7 -20

b-Geographic Structure • Geographic Structure – Each region of a country or area of the world is served by a self-contained division (Fed. Ex) • Global Geographic Structure – Managers locate different divisions in each of the world regions where the organization operates – Generally, occurs when managers are pursuing a multi-domestic strategy (Nokia) 7 -21

c-Market Structure • Market Structure – Each kind of customer is served by a selfcontained division – Also called “customer structure” – Dell serves: Corporations, small businesses, home computer users and government/state agencies 7 -22

3 -Matrix Design Structure • Matrix Structure – An organizational structure that simultaneously groups people and resources by function and product Works well when employees are grouped in teams to develop new products (R and D) 7 -23

4 -Product Team Design Structure • Product Team Structure – Members are permanently assigned to a crossfunctional team and report only to the product team manager or to one of his subordinates • Cross-functional team – Group of managers brought together from different departments to perform organizational tasks (automotive industry) 7 -24

5 -Hybrid Structures • Hybrid Structure – The structure of a large organization that has many divisions and simultaneously uses many different organizational structures 7 -25

Macy’s Hybrid Structure Figure 7. 7 7 -26

Coordinating Functions and Divisions • Authority – The power to hold people accountable for their actions and to make decisions concerning the use of organizational resources • Hierarchy of Authority – An organization’s chain of command, specifying the relative authority of each manager 7 -27

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 -28

Tall and Flat Organizations Figure 7. 9 7 -29

Tall and Flat Organizations • Decentralizing authority – Giving lower-level managers and non-managerial employees the right to make important decisions about how to use organizational resources. – When organizations are too “tall” • The numbers of managers increase • Managers are costly for the organization • In an economic downturn, middle managers are laid off 7 -30

Types of Integrating Mechanisms • Integrating Mechanisms – Organizing tools that managers can use to increase communication and coordination among functions and divisions. Managers can use: • Direct Contact • Task Forces • Cross-functional Teams 7 -31

Strategic Alliances • Strategic Alliance – An agreement in which managers pool or share firm’s resources and know-how with a foreign company. The two firms share in the rewards and risks of starting a new venture. • Outsource – To use outside suppliers and manufacturers to produce goods and services 7 -32

Strategic Alliances • Network Structure – A series of strategic alliances that an organization creates with suppliers, manufacturers, and distributors to produce and market a product – Network structures allow firms to bring resources together in a boundary-less organization 7 -33

Strategic Alliances • Boundary-less Organization – An organization whose members are linked by computers, faxes, computer-aided design systems, and video-conferencing and who, rarely, if ever, see one another face-to-face 7 -34