Organizational Structure and Design

Organizational Structure and Design

• Organizing involves arranging and structuring work to achieve organizational goals.
• Organizational structure is the formal arrangement of jobs within an organization.
• Organizational structures have two main components: grouping and linking activities.
• Grouping differentiates and aggregates individuals, jobs, functions, or activities.
• Linking uses mechanisms to coordinate and share information across groups.
• An optimal structure balances differentiation (grouping) with integration (linking).

Organizational Design Decisions

• Managers divide overall tasks into smaller jobs.
• Managers decide how to group jobs.
• Managers determine the appropriate size of reporting groups.
• Managers distribute authority among jobs.
• Centralization and decentralization are key decisions.
• Formalization is another relevant aspect of organizational design.

Design Decisions

• Work specialization refers to dividing work tasks. Early proponents believed it would increase productivity. Overspecialization, however, can lead to human diseconomies (boredom, fatigue, stress, poor quality, absenteeism, and high turnover).
• Departmentalization: Grouping jobs into departments is structured by combining jobs based on shared characteristics.
• Bases of Departmentalization:
  • Functional (jobs grouped by functions performed).
  • Geographic (jobs grouped by territory or geography).
  • Product (jobs grouped by product line).
  • Customer (jobs grouped by type of customer and needs).
  • Process (jobs grouped by product or customer flow).
• Functional Departmentalization: Combining jobs based on functions; efficient but can lead to sacrificing organizational goals.
• Geographic Departmentalization: All activities in a specific region are assigned to one manager; advantageous in large organizations but centralized coordination might be more difficult.
• Product Departmentalization: All tasks related to a product or product line are managed under one manager, helpful in a company with lots of products.
• Process Departmentalization: Grouping jobs based on the flow of product or customer; efficient but limited on application type.
• Customer Departmentalization: Creating departments based on customer types; helps satisfy customer-identified needs better than departments for which customer factors play a lesser role.

Chain of Command, Authority, Responsibility, and Unity of Command

• Chain of Command: The unbroken line of authority that extends from the top to the lowest level of the organization and clarifies who reports to whom.
• Authority: The rights inherent in a management position to tell people what to do and to expect them to do it.
• Responsibility: The obligation or expectation to perform.
• Unity of Command: The concept that a person should have only one boss and should report to only that person.

Delegation of Authority

• Delegation of Authority: The assignment of direct authority and responsibility to a subordinate

Span of Control

• Span of Control: The number of subordinates who can be effectively supervised by a manager
• Factors impacting span of control: Skills of manager, employee characteristics, tasks and their complexity, physical proximity of subordinates, standardization of tasks, sophistication of information system, preferred management style.

Centralization and Decentralization

• Centralization: The degree to which decision making is concentrated at upper levels in the organization.
• Decentralization: Decision making pushed down to managers closest to the action.
• Factors influencing centralization and decentralization: Environment, manager experience and capability, decision importance, organization size.

Formalization

• Formalization: The degree to which jobs are standardized and employee behavior is guided by rules.

Mechanistic Versus Organic Organization

• Mechanistic organizations: High specialization, rigid departmentalization, clear chain of command, narrow spans of control, centralization, and high formalization.
• Organic organizations: Cross-functional teams, cross-hierarchical teams, free flow of information, wide spans of control, decentralization, and low formalization.

Contingency Factors

• Overall strategy of the organization
• Firm size: Organic structures more fitted to smaller organization; mechanistic to larger ones.
• Technology: Routine technology = more of mechanistic structure; non-routine technology = more organic.
• Environment: Simple and stable environment = mechanistic; complex and dynamic = organic.

Common Organizational Designs

• Simple structure: Low departmentalization, wide spans of control, centralized authority, little formalization; fast, flexible, inexpensive.
• Functional structure: Departmentalization by function (operations, finance, marketing, etc.).
• Divisional structure: Composed of separate business units; flexible but risks higher costs.

Contemporary Organizational Designs

• Team structure: Entire organization made up of work groups; highly involved and empowered.
• Matrix-project structure: Specialists from different functional areas work on projects but return to their normal job when the project is completed.
• Boundaryless organization: Breaks down internal and external barriers; eliminates chain of command and highly independent; flexible and adaptive.
• Network structure: Outsourcing business functions; flexible but can result in overly specialized divisions.

Structure at Corporate Level-Diversification

• Multidivisional structure: Different divisions have their own autonomy, but coordinated across the firm. This can be accomplished in different ways; corporate, SBU, and competitive structures.
• Cooperative form of multidivisional structure: Emphasizes centralized strategic planning, human resources, and marketing to promote cooperation between divisions.
• SBU Form: Structure consisting of three levels (corporate headquarters, strategic business units, and SBU divisions.)
• Divisions within SBUs share products, markets, or both.
• Competitive form of multidivisional structure: Independent divisions, emphasize divisional competition.

Structure at Global Level-MNC

• International Divisional Structure: Divisions are organized by region (United States, United Kingdom, Japan, France, etc), but there is centralized headquarters oversight.
• Multidomestic MNC structure: Each region has independent management.
• Global Product Structure: Headquarters maintains more emphasis on individual products instead of geography.
• Global Matrix Structure: Product groups are supported by different operating companies across the region (e.g., North America, South America, Europe.

This quiz explores the key concepts of organizational structure and design, including the components of grouping and linking activities. It delves into managerial decisions regarding task division, authority distribution, and the balance between centralization and decentralization. Prepare to test your knowledge on how effective organizational design can achieve strategic goals.