HND 12 Organization Structure Lim Sei Kee c

HND – 12. Organization Structure Lim Sei Kee @ c. K

Introduction � All businesses have to organize what they do � A clear structure makes it easier to see which part of the business does what � Organization Structure - How job tasks are formally divided, grouped and coordinated

Key design questions and answers for designing the proper organizational structure The key question The answer is provided by 1. To what degree are activities subdivided into separate jobs? Work Specialization 2. On what basis will jobs be grouped together? Departmentalization 3. To whom do individuals and groups report? Chain of Command 4. How many individuals can a manager efficiently and effectively direct? Span of Control 5. Where does decision-making authority lie? Centralization and decentralization 6. To what degree will there be rules and regulations to direct employees and managers? Formalization

Work specialization �The degree to which activities in the organization are subdivided into separate jobs. Ø Efficient use of employees skills Ø Efficient use of organizational resources

Departmentalization � The basis by which jobs are grouped together. � Functional The grouping of activities by functions performed � Product The grouping of activities by product produced � Customer The grouping of activities by common customers � Geographic The grouping of activities by territory � Process The grouping of activities by work or customer flow

Functional Departmentalization Structure OBM Company Engineering Reliability Manufacturing Finance Distribution Public Relations Human Resources Purchasing

Product Departmentalization Structure OBM Company Small Large Building Lawn and Commercial Automotive Household Materials and Garden Appliances Products

Chain of command �The unbroken line of authority that extends from the top of the organization to the lowest level and clarifies who reports to whom. Ø Authority – the rights inherent in a managerial position to give orders and to expect the orders to be obeyed Ø Unity of command – a subordinate should have only one superior to whom he or she is directly responsible

Chain of Command

Span of control � The number of subordinates a manager can efficiently and effectively direct. Ø Narrow - can maintain close supervision q. Expensive, as they add levels to management q. Vertical communication more complex q. Encourage tight supervision and discourage employee autonomy Ø Wider – reduce costs, cut overhead, speed up decision making, increase flexibility q. Investing heavily on training

Contrasting Spans of Control

Centralization and decentralization � The degree to which decision making is concentrated at a single point in the organization. � The degree to which decision making requires multiple parties to make their own independent decisions.

Formalization � The degree to which jobs within the organization are standardized. Ø High – minimum amount of discretion over what is to be done, when it is to be done, and how he/she should do it Ø Low – non-programmed job, employees have a great deal of freedom to exercise discretion in their work.

Organizational designs �Simple structure �Bureaucracy �Matrix structure

Simple structure �A structure characterized by a low degree of departmentalization, wide spans of control, authority centralized in a single person, and a little formalization. Owner Manager Salesperson Cashier

Simple structure �Strength Ø Fast, flexible and accountability is clear �Weakness Ø As organization grows, it become inadequate

Bureaucracy A structure of highly operating routine tasks achieved through specialization, very formalized rules and regulations, tasks that are grouped into functional departments, centralized authority, narrow spans of control, and decision making that follows the chain of command

Bureaucracy � Strength Ø Ability to perform standardized activity in a highly efficient manner Ø Economies of scale, minimum duplication of personnel and equipment � Weakness Ø Specialization creates subunit conflicts Ø Obsessive concern with following the rules

Matrix Structure � Matrix Structure A structure that creates dual lines of authority and combines functional and product departmentalization �Key Elements Gains the advantages of functional and product departmentalization while avoiding their weaknesses Facilitates coordination of complex and interdependent activities Breaks down unity-of-command concept

Matrix Structure (College of Business Administration) (Director) (Dean) Employee

The matrix structure �Strength Ø Facilitate the efficient allocation of specialists and sharing of specialized resources across products. Ø Facilitate coordination when the organization has a multiplicity of complex activities �Weakness Ø Creates confusion

New structural options �Team structure �Virtual organization �Boundaryless organization

Team Structure The use of teams as the central device to coordinate work activities. Characteristics: • Breaks down departmental barriers. • Decentralizes decision making to the team level. • Requires employees to be generalists as well as specialists. • Creates a “flexible bureaucracy. ”

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

Virtual Organization A small, core organization that outsources its major business functions. Highly centralized with little or no departmentalization. Concepts: Advantage: Provides maximum flexibility while concentrating on what the organization does best. Disadvantage: Reduced control over key parts of the business.

Virtual Organization

Boundaryless Organization An organization that seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams. T-form Concepts: Eliminate vertical (hierarchical) and horizontal (departmental) internal boundaries. Breakdown external barriers to customers and suppliers.

Mechanistic and Organic Organizations �Mechanistic organization The bureaucracy; a structure that is high in specialization, formalization, and centralization �Organic organization An adhocracy; a structure that is low in specialization, formalization, and centralization

Mechanistic Versus Organic Models

Why do structures differ? �Strategy �Size �Technology �Environment

Four Reasons Structures Differ 1. Strategy Innovation Strategy ▪ A strategy that emphasizes the introduction of major new products and services Organic structure best Cost-minimization Strategy ▪ A strategy that emphasizes tight cost controls, avoidance of unnecessary innovation or marketing expenses, and price cutting Mechanistic model best Imitation Strategy ▪ A strategy that seeks to move into new products or new markets only after their viability has already been proven ▪ Mixture of the two types of structure

Why Structures Differ 2. Organizational Size 3. As organizations grow, they become more mechanistic, more specialized, with more rules and regulations Technology How an organization transfers its inputs into outputs ▪ ▪ 4. The more routine the activities, the more mechanistic the structure with greater formalization Custom activities need an organic structure Environment Institutions or forces outside the organization that potentially affect the organization’s performance Three key dimensions: capacity, volatility, and complexity