Organizational Structure and Design

• Organizational structure is the formal arrangement of jobs within an organization, often visualized in an organizational chart.
• Organizational design involves decisions about six key elements.

Work Specialization

• Work specialization is dividing work activities into separate job tasks, also known as division of labor.
• While it can lead to increased efficiency and output, it may also cause boredom, fatigue, stress, and poor work quality.

Departmentalization

• Departmentalization is how jobs are grouped together.
• Five common forms of departmentalization exist.
  • Functional: groups similar skills and knowledge together for efficiency and coordination but may cause poor communication and a limited view of organizational goals.
  • Geographical: serves the needs of specific markets effectively but can duplicate functions and create isolation.
  • Product: allows specialization and expertise, bringing managers closer to customers, but may duplicate functions and limit the view of organizational goals.
  • Process: facilitates efficient activity flow but is suitable only for certain product types.
  • Customer: meets customer needs with specialists but may duplicate functions and limit the view of organizational goals.
• Cross-functional teams are composed of individuals from various functional specialties.

Chain of Command

• Chain of command is a line of authority from upper to lower levels, clarifying reporting structures.
  • Authority: the rights inherent in a managerial position to instruct and expect compliance.
  • Responsibility: the obligation to perform assigned duties.
  • Unity of Command: the principle that each person should report to only one manager.

Span of Control

• Span of control is the number of employees a manager can efficiently and effectively manage, influencing the number of organizational levels.
• Contemporary companies aim for a wider span of control, contrasting with the traditional view of a narrow span.

Centralization

• Centralization is the degree to which decision-making is concentrated at upper organizational levels.
  • Centralized companies have top managers making key decisions with minimal input from below.
• Decentralized companies empower lower-level employees to provide input or make decisions, fostering employee empowerment.

Formalization

• Formalization is the extent to which an organization's jobs are standardized and employee behavior is guided by rules and procedures.
  • Highly formalized organizations feature explicit job descriptions, numerous rules, and defined procedures, limiting employee input.
  • Low formalization allows employees more freedom in their work.

Two Models of Organizational Design

• Mechanistic
  • High specialization.
  • Rigid departmentalization.
  • Clear chain of command.
  • Narrow spans of control.
  • Centralization.
  • High formalization.
  • Focus on efficiency, rules, regulations, and standardized tasks, minimizing the impact of individual differences.
• Organic
  • Cross-functional and cross-hierarchical teams.
  • Free flow of information.
  • Wide spans of control.
  • Decentralization.
  • Low formalization.
  • Jobs are specialized but not standardized, adapting as needed.
  • Employee teams are highly trained and empowered, requiring minimal formal rules and supervision.

Four Contingency Factors

• Strategy and Structure:
  • Organizational structure should facilitate the achievement of organizational goals, aligning with the organization’s strategy.
  • Organic structures support innovation with flexibility and free-flowing information.
  • Mechanistic organizations are suited for cost minimization with efficiency, stability, and tight control.
• Size and Structure:
  • As an organization grows, its structure tends to shift from organic to mechanistic, with increased specialization, departmentalization, centralization, and formal rules.
• Technology & Structure:
  • Organizations adapt their structures to their technology.
    • Unit production: single units or small batches.
    • Mass production: large batches of output.
    • Process production: continuous processing of outputs.
  • Routine technology aligns with mechanistic structures.
  • Non-routine technology aligns with organic structures.
• Environmental Uncertainty & Structure:
  • Managers minimize environmental uncertainty by adjusting the organization’s structure.
    • Mechanistic structures are effective in stable and simple environments.
    • Organic structures are better suited for dynamic and complex environments due to their flexibility.

Common Organizational Designs

• Traditional Organizational Designs:

  • Typically mechanistic.
    • Simple Structure: low departmentalization, wide spans of control, centralized authority, little formalization.
    • Functional Structure: groups similar occupational specialties together, applying functional departmentalization organization-wide.
    • Divisional Structure: comprises separate business units or divisions, each with limited autonomy.

• Contemporary Organizational Designs:

  • Designed to be lean, flexible, and innovative, often organic.
    • Team Structure: the entire organization is made up of work groups or self-managed teams of empowered employees, complementing functional or divisional structures in larger organizations.
    • Matrix & Project Structures: specialists from different functional departments work on projects led by project managers (dual chain of command).
    • Project Structures: employees continuously work on projects, moving to the next upon completion.
    • The Boundaryless Organization: not defined or limited by horizontal, vertical, or external boundaries.
      • Internal boundaries: horizontal (work specialization and departmentalization) and vertical (organizational levels and hierarchies).
      • External boundaries: separate the organization from customers, suppliers, and stakeholders.
      • Virtual Organization: consists of a small core of full-time employees and outside specialists hired temporarily for projects.
      • Network Organization: uses its own employees for some activities and networks of outside suppliers for others (modular organization).

Today’s Organizational Design Challenges

• Keeping Employees Connected.
• Building a Learning Organization.
• Managing Global Structural Issues.