Organizational Structure: Key Concepts

Organizational Structure

• Organizational structure refers to the formal arrangement of jobs within an organization.

Organizing

• Organizing is the process of clarifying jobs, working relationships, and resource allocation to achieve specified objectives.
• It involves dividing work into specific jobs and departments, assigning tasks and responsibilities, coordinating tasks, clustering jobs into units, establishing relationships, and allocating resources.

Purposes of Organizing

• Divides work into specific jobs and departments
• Assigns tasks and responsibilities
• Coordinates diverse organizational tasks
• Clusters jobs into units
• Establishes relationships among individuals, groups, and departments
• Establishes formal lines of authority
• Allocates and deploys organizational resources

Organizational Design

• Involves decisions about six key elements:
  • Work specialization
  • Departmentalization
  • Chain of command
  • Span of control
  • Centralization and decentralization
  • Formalization

Work Specialization

• The degree to which tasks are divided into separate jobs
• Overspecialization can result in human diseconomies (boredom, fatigue, stress, poor quality, increased absenteeism, and higher turnover)

Departmentalization

• Types:
  • Functional
  • Product
  • Geographic
  • Process
  • Customer
  • Matrix

Functional Departmentalization

• Advantages:
  • Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations
  • Coordination within functional area
  • In-depth specialization
• Disadvantages:
  • Poor communication across functional areas
  • Limited view of organizational goals

Geographic Departmentalization

• Advantages:
  • More effective and efficient handling of specific regional issues
  • Serve needs of unique geographic markets better
• Disadvantages:
  • Duplication of functions
  • Can feel isolated from other organizational areas

Product Departmentalization

• Advantages:
  • Specialization in particular products and services
  • Managers can become experts in their industry
  • Closer to customers
• Disadvantages:
  • Duplication of functions
  • Limited view of organizational goals

Process Departmentalization

• Advantages:
  • More efficient flow of work activities
• Disadvantages:
  • Can only be used with certain types of products

Customer Departmentalization

• Advantages:
  • Customers' needs and problems can be met by specialists
• Disadvantages:
  • Duplication of functions
  • Limited view of organizational goals

Matrix Departmentalization

• Teams formed with individuals reporting to two or more managers (functional and project managers)
• Advantages:
  • Oriented toward end results
  • Professional identification is maintained
  • Pinpoints product-profit responsibility
• Disadvantages:
  • Conflict in organization authority
  • Uncertainty in reporting relationships
  • Requires the manager to be the most effective and efficient

Chain of Command

• The continuous line of authority that extends from upper levels to the lowest levels of the organization
• Clarifies who reports to whom
• Components:
  • Authority
  • Responsibility
  • Unity of command

Span of Control

• The number of employees a manager can efficiently and effectively manage
• Affects:
  • Managerial skills and abilities
  • Employee characteristics
  • Work characteristics
  • Task similarity
  • Task complexity
  • Physical proximity
  • Task standardization

Centralization and Decentralization

• Centralization:
  • Decision-making concentrated at a single point
  • Organizations where top managers make all decisions
• Decentralization:
  • Decision-making pushed down to lower-level managers
  • Employees provide input or make decisions
• Factors that influence centralization:
  • Stable environment
  • Inexperienced lower-level managers
  • Decisions are significant
  • Organization is facing a crisis
  • Company is large
• Factors that influence decentralization:
  • Complex and uncertain environment
  • Capable and experienced lower-level managers
  • Decisions are relatively minor
  • Open corporate culture
  • Geographically dispersed company

Formalization

• The degree to which jobs are standardized and employee behavior is guided by rules and procedures
• Formalized structures have many written rules and regulations

Organizational Design Decisions

• Organization structure is an important factor in operational effectiveness
• Mechanistic organization:
  • Rigid and tightly controlled structure
  • High specialization
  • Rigid departmentalization
  • Clear chain of command
  • Narrow spans of control
  • Centralization
  • High formalization
• Organic organization:
  • Highly adaptive and flexible structure
  • Cross-functional teams
  • Cross-hierarchical teams
  • Free flow of information
  • Wide spans of control
  • Decentralization
  • Low formalization

Understand the basics of organizational structure, including organizing, clarifying jobs, and resource allocation to achieve objectives.