Chapter Outline 2 - Organizational Structure and Design PDF

PART FOUR C H A P T E R N I N E Organizational Structure and Design Once managers are done planning, then 9...

PART FOUR C H A P T E R N I N E Organizational Structure and Design Once managers are done planning, then 9 How can we design an organizational structure what? This is when managers need to begin that will help us accomplish our company’s goals? to “work the plan.” And the first step in doing Should our structure be tall or flat? Traditional or that involves designing an appropriate contemporary? Will our chosen design enhance organizational structure. This chapter covers our capacity to continuously learn, adapt, and the decisions involved with designing this change in a dynamic global environment? As structure. Students are asked to focus on the tomorrow’s managers, many of your students will following learning outcomes as they read and soon face these questions. In Chapter 9, students study this chapter. learn about various elements of organizational structure, the contingency factors that influence Learning Outcomes organizational design, and traditional and 9.1 Describe six key elements in contemporary design. In addition, they will study organizational design. design challenges encountered by managers who work in a variety of organizational structures. 9.2 Identify the contingency factors that favor either the mechanistic model or the “A Manager’s Dilemma” tells of Gulf Air (Bahrain) organic model of organizational design. and their ambitious organizational restructuring plan. Students can see the importance of 9.3 Compare and contrast traditional and organizational structure and design, and how contemporary organizational designs. reviewing how jobs are allocated and divided in an organization can have an effect on costs. They are asked how companies like Gulf Air could redesign their organizational structures. How could they ways that ensure that these will work well? 101 ANNOTATED OUTLINE INTRODUCTION Designing organizational structure involves the process of organizing (the second management function) and plays an important role in the success of a company. 1. DESIGNING ORGANIZATIONAL STRUCTURE Managers need to establish structural designs that will best support and allow employees to do their work effectively and efficiently. Several important terms must be defined in order to understand the elements of organizational structure and design: 1. Organizing is arranging and structuring work to accomplish the organization’s goals. This process has several purposes, as shown in Exhibit 9-1. 2. Organizational structure is the formal arrangement of jobs within an organization. 3. Organizational design is developing or changing an organization’s structure. This process involves decisions about six key elements: work specialization, departmentalization, chain of command, span of control, centralization/decentralization, and formalization. Chapter 9 examines each of these structural elements. A. Work Specialization. Work specialization is dividing work activities into separate job tasks. Most of today’s managers regard work specialization as an important organizing mechanism, but not as a source of ever-increasing productivity. B. Departmentalization. When work tasks have been defined, they must be arranged in order to accomplish organizational goals. This process, known as departmentalization, is the basis by which jobs are grouped. There are five major ways to departmentalize (see Exhibit 9-2): 1. Functional departmentalization groups jobs by functions performed. 2. Geographical departmentalization groups jobs on the basis of geographical region. 3. Product departmentalization groups jobs by product line. Process departmentalization groups jobs on the basis of product or customer flow. 4. Process departmentalization groups jobs on the basis of product or customer flow 5. Customer departmentalization groups jobs on the basis of specific and unique customers who have common needs. Popular trends in departmentalization include the following: a. Customer departmentalization continues to be a highly popular approach because it allows better monitoring of customers’ needs and responds to changes in the needs of customers. b. Cross-functional teams, which are work teams composed of individuals from various functional specialties, are being used along with traditional departmental arrangements. C. Chain of Command. The chain of command is the line of authority extending from upper organizational levels to the lowest levels, which clarifies who reports to whom. Three concepts related to chain of command are authority, responsibility, and unity of command. 102  1. Authority is the rights inherent in a managerial position to tell people what to do and to expect them to do it. 2. Responsibility is the obligation to perform any assigned duties. 3. Unity of command is the management principle that each person should report to only one manager. D. Span of Control. Span of control is the number of employees a manager can efficiently and effectively manage. 1. The span of control concept is important because it determines how many levels and managers an organization will have. (See Exhibit 9-3 for an example.) 2. What determines the “ideal” span of control? Contingency factors such as the skills and abilities of the manager and the employees, the characteristics of the work being done, similarity and complexity of employee tasks, the physical proximity of subordinates, the degree to which standardized procedures are in place, the sophistication of the organization’s information system, the strength of the organization’s culture, and the preferred style of the manager influence the ideal number of subordinates. 3. The trend in recent years has been toward wider (larger) spans of control. E. Centralization and Decentralization. The concepts of centralization and decentralization address who, where, and how decisions are made in organizations. 1. Centralization is the degree to which decision making is concentrated at upper levels of the organization. 2. Decentralization is the degree to which lower-level employees provide input or actually make decisions. 3. The current trend is toward decentralizing decision making in order to make organizations more flexible and responsive. 4. Employee empowerment is giving employees more authority (power) to make decisions. 5. A number of factors influence the degree of centralization or decentralization in an organization (see Exhibit 9-4). F. Formalization refers to the degree to which jobs within an organization are standardized and the extent to which employee behavior is guided by rules and procedures. 1. In a highly formalized organization, employees have little discretion, and a high level of consistent and uniform output exists. Formalized organizations have explicit job descriptions, many organizational rules, and clearly defined procedures. 2. In a less-formalized organization, employees have much freedom and can exercise discretion in the way they do their work. 3. Formalization not only fosters relatively unstructured job behaviors, but also eliminates the need for employees to consider alternatives. 4. The degree of formalization can vary widely between organizations and even within organizations. 2. MECHANISTIC AND ORGANIC STRUCTURES Organizations do not have identical structures. Even companies of comparable size do not necessarily have similar structures. A. Two Models of Organizational Design. (See Exhibit 9-5). 103  1. A mechanistic organization is an organizational design that is rigid and tightly controlled. It is characterized by high specialization, rigid departmentalization, narrow spans of control, high formalization, a limited information network, and little participation in decision making by lower-level employees. 2. An organic organization is an organizational design that is highly adaptive and flexible. It is characterized by little work specialization, minimal formalization, and little direct supervision of employees. 3. Under what circumstances is each design favored? It “depends” on contingency variables. B. Contingency Factors Appropriate organizational structure depends upon four contingency variables: 1. Strategy and structure. The organization’s strategy is one of the contingency variables that influences organizational design. a. Alfred Chandler originated the strategy-structure relationship. His finding that structure follows strategy indicates that as organizations change their strategies, they must change their structure to support that strategy. b. Research has shown that certain structural designs work best with different organizational strategies. For instance, the flexibility and free-flowing information of the organic structure works well when an organization is pursuing meaningful and unique innovations. The mechanistic organization, with its efficiency, stability, and tight controls, works best for companies that want to tightly control costs. 2. Size and structure. Considerable historical evidence indicates that an organization’s size significantly affects its structure. Larger organizations tend to have more specialization, departmentalization, centralization, and formalization, although the size-structure relationship is not linear. 3. Technology and Structure. Technology has been shown to affect an organization’s choice of structure. a. Every organization uses some form of technology to transform inputs into outputs. b. Joan Woodward’s study of structure and technology shows that organizations adapt to their technology. She found that three distinct technologies have increasing levels of complexity and sophistication. 1) Unit production is the production of items in units or small batches. 2) Mass production is the production of items in large batches. 3) Process production is the production of items in continuous processes. c. Woodward found in her study of these three groups that distinct relationships exist among these technologies, the subsequent structure of the organization, and the effectiveness of the organization. Exhibit 9-6 provides a summary of these findings. 4. Environmental uncertainty and structure. Environmental uncertainty is the final contingency factor that has been shown to affect organizational structure. Environmental uncertainty may be managed by making adjustments in the organization’s structure. The more uncertain the environment, the more flexible and responsive the organization needs to be. Mechanistic organizations are not equipped to respond to rapid 104  environmental change and environmental uncertainty. As a result, many organizations are becoming more organic. 3. COMMON ORGANIZATIONAL DESIGNS A. Traditional Organizational Designs A number of different organizational designs can be found in today’s organizations. Exhibit 9-7 summarizes the strengths and weaknesses of each of these designs. 1. A simple structure is an organizational design with low departmentaliza- tion, wide spans of control, authority centralized in a single person, and little formalization. a. Strengths of the simple structure are its flexibility, speed, clear accountability and low maintenance costs. b. The major limitation of a simple structure is that it is most effective when used in small organizations. 2. As an organization grows, its structure tends to become more specialized and formalized. When contingency factors favor a bureaucratic or mechanistic design, one of the following two options is likely to be used: a. A functional structure is an organizational design that groups similar or related occupational specialties together. b. A divisional structure is an organizational structure made up of separate, semiautonomous units or divisions. ? Thinking Critically About Ethics Downsizing? This critical thinking exercise asks students to think about the ethics of downsizing using a Saudi company as an example. Students are asked if there be instances when downsizing could be problematic. What if an organization selects some employees and pushes them into early retirement? Is this ethical? B. Contemporary Organizational Designs Many organizations today are finding that traditional hierarchical organizational designs are not appropriate for their increasingly dynamic and complex business environments. 1. Team structures. One of the newer concepts in organizational design is team structure, an organizational structure in which the entire organization is made up of work groups or teams. 2. Matrix and project structures. Other variations in organizational arrangements are based on the fact that many of today’s organizations deal with work activities of different time requirements and magnitude. a. One of these arrangements is the matrix structure, an organizational structure that assigns specialists from different functional departments to work on one or more projects. b. Another of these designs is the project structure, an organizational structure in which employees continuously work on projects. 3. The Boundaryless Organization. Another approach to organizational design is the boundaryless organization, an organization whose design is not 105  defined by, or limited to, the horizontal, vertical, or external boundaries imposed by a predefined structure. a. A virtual organization operates with a small core of full-time employees, while hiring outside specialists to work on projects temporarily as needed. b. A network organization uses its own employees to do some work activities, while using networks of outside suppliers to provide other needed product components or work processes. ? Managers and IT’s Impact on Organizational Technology Design Many of your students will be knowledgeable about some of the fascinating technologies that are currently changing the way work is accomplished in today’s business environment. The following activity should enhance students’ understanding of these technological capabilities and give them an opportunity to enhance their communication and presentation skills. After discussing “Managers and Technology—IT’s Impact on Organizational Design” in class, ask your students to research the latest technologies used in the business world. Each student should locate information (including a photograph when applicable) describing one new technological innovation used by businesspersons to accomplish work more effectively and efficiently. The student should make one PowerPoint slide illustrating the nature and purpose of this new technological innovation. Students can present their slides to the class along with a brief description of the product or technology. A number of Internet sites could serve as a valuable resource when students conduct their research. One such site is [http://www.businessweek.com/technology/reviews/]. C. Today’s Organizational Design Challenges Organizations are constantly coming up with ways to cope with organizational design challenges. These include: 1. Keeping employees connected. Today’s managers face the major challenge of keeping their employees connected to the organization, since these employees are often situated in widely dispersed locations and are constantly moving. 2. Building a learning organization. Many organizations have adopted the organizational philosophy of a learning organization, which is an organization that has developed the capacity to continuously learn, adapt, and change. 3. Managing global structural issues a. Researchers have concluded that although structures of organizations around the globe are similar, cultural uniqueness is maintained because of differences in behavior within companies in different areas of the world. b. These differences imply that managers must be aware and respectful of the values and practices of different cultures in today’s worldwide business environment. 106 Answers to Thinking About Management Issues 1. Can an organization’s structure be changed quickly? Why or why not? Should it be changed quickly? Explain The speed with which structural changes can be implemented depends partly upon an organization’s size. A small organization is usually able to change its structure more rapidly than a larger one because a smaller company has fewer employees who are involved in the restructuring process. However, a large organization can change its structure and often does in response to changing environmental conditions and changing strategies. 2. Would you rather work in a mechanistic or an organic organization? Why? Students’ answers to this question will vary. Many students prefer the structure provided by a mechanistic organization, whereas others would be less productive in an organization with structural rigidity. 3. What types of skills would a manager need to effectively work in a project structure? In a boundaryless organization? In a learning organization? In all of these types of organizations, flexibility and adaptability are critical. In the project structure, conflict management skills are particularly useful. In a boundaryless organization, the ability to interact effectively with people at all levels and in all areas of the organization is crucial to success. In a learning organization, a manager needs the ability to communicate both by listening and by speaking because of the frequency and importance of sharing information in this type of organization. 4. The boundaryless organization has the potential to create a major shift in our living and working patterns. Do you agree or disagree? Explain. Students’ responses to this will vary. This question could serve as an interesting springboard for a class debate. Students could break into teams, with each team taking the opposite position in the debate. Give students an opportunity to discuss their strategy as a team before presenting their viewpoints to the class. 5. With the availability of advanced information technology that allows an organization’s work to be done anywhere at any time, is organizing still an important managerial function? Why or why not? Although an organization’s work may be done anywhere at any time, organizing remains a vital managerial function because the work that must be accomplished still must be divided, grouped, and coordinated. 6. Researchers are now saying that efforts to simplify work tasks actually have negative results for both companies and their employees. Do you agree? Why or why not? Studies as far back as 1924 show that simplified jobs lead to boredom. In 1950 other researchers found that highly segmented and simplified jobs resulted in lower employee morale and output. Other consequences of low employee motivation include absenteeism and high employee turnover, both very costly for businesses. Your Turn to be a Manager Find three different examples of organizational charts. In a report, describe each of them. Try to decipher the organization’s use of organizational design elements, especially departmentalization, chain of command, centralization–decentralization, and formalization. 107  Survey at least 10 different managers about how many employees they supervise. Also ask them whether they feel they could supervise more employees or whether they feel the number they supervise is too many. Graph your survey results and write a report describing what you found. Draw some conclusions about span of control. Draw an organizational chart of an organization with which you are familiar (where you work, a student organization to which you belong, your college or university, etc.). Be very careful in showing the departments (or groups) and especially be careful to get the chain of command correct. Be prepared to share your chart with the class. Using the organizational chart you just created, redesign the organization’s structure. What structural changes might make this organization more efficient and effective? Write a report describing what you would do and why. Be sure to include an example of the original organizational chart as well as a chart of your proposed revision of the organizational structure. Choose one of the three topics discussed in the section on today’s organizational design challenges. Research this topic and write a paper about it. Focus on finding current information and current examples of companies dealing with these issues. In your own words, write down three things you learned in this chapter about being a good manager. Answers to Case Application Questions BinHendi: Managing Organizational Structure 1. Visit BinHendi’s website: www.binhendi.com/v2/organization.htm. Try to draw an organizational chart of the company. The company seems to adopt a divisional or product-line structure. At the time the website was last visited, the structure looked like the ones below. You might want to show both charts to students. Both are the same, but are positioned differently. Explain to students, that usually companies assign a general manager (or CEO or managing director) to each division. 108 2. Describe what type of structure BinHendi Enterprises (functional, product, geographic, or matrix) seems to have? Why? Divisional or product based. This makes sense for companies which deal with different types of products. Putting each product line in a different category helps in making each division more efficient and effective. The company can bring and develop experience particular to the needs of each division. Division heads can focus on doing business with specific types of products or services. 3. Would you suggest a different structure? Why or why not? Student answers may vary. Some students may suggest putting different related divisions together (Fashion, Jewelry, and flowers together; interior design and furniture together etc.) An example: 109 4. The company seems to be in a growth mode. How would the structure change once BinHendi Enterprises establishes a strong presence in many parts of the Middle East, Asia, and Africa? The structure would become based on geographic structure 5. What role do you think organizational structure plays in an organization’s efficiency and effectiveness? Explain. When companies come up with the most suitable organization structure, they can manage more effectively by matching the structure to the organizational strategy. Problems always occur if the company has the right resources but is not able to organize those resources in a way that serves company objectives. Adequate organizational structures minimize duplication of efforts and streamline operations, and make maximum use of existing talents and competencies. The right organization structure is similar to how cars are configured in a way in harmony with the laws of aerodynamics. Engineers structure cars to make them move smoothly as they oppose the direction of air. Coming up with right structure for a car makes 110  sure it moves smoothly with lowest consumption of gas and energy. The same rationale is applied to businesses. ANSWERS TO QUICK LEARNING REVIEW Learning outcome 9.1 a,a Learning outcome 9.2 b,a Learning outcome 9.3 d,b ACTIVITY 1 2 3 4 5 6 7 8 9 10 11 Across 6 The visual representation of an organization’s structure. 7 An organizational design that is rigid and tightly controlled. 9 The rights inherent in a managerial position to tell people what to do and to expect them to do it. 10 An organizational design that groups together similar or related occupational specialties. 11 An organizational structure made up of separate, semiautonomous units or divisions. Down 1 The basis on which jobs are grouped together. 2 Dividing work activities into separate job tasks. 3 The degree to which lower-level employees provide input or actually make decisions. 4 The obligation or expectation to perform any assigned duties. 111 5 How standardized an organization’s jobs 8 An organizational structure that assigns specialists from different functional departments to work on one or more projects. 1D 2S 3D 4R E P 5F E E P E O C S A C R E P R I M N 6O R G A N I Z A T I O N A L C H A R T N M L L R S E I I A I N Z Z L B T A A I I 7M E C H A N I S T I C T Z L 8M L I I A I 9A U T H O R I T Y O O T T T Z N N I Y R A O I 10 F U N C T I O N A L N X I O 11 D I V I S I O N A L ADDITIONAL CHAPTER INFORMATION You may want to visit the following website: http://money.cnn.com/magazines/fortune/fortune_archive/1994/10/17/79843/index.htm Here you will find an article entitled “MR. LEARNING ORGANIZATION Peter Senge's goal is merely to change the world by helping people change deeply. His ideas are paying off at companies like Ford and Federal Express.” Read how leading organizations are using the learning organization perspective to revolutionize their operations. The interviews conducted under "Role Models from the Arab World" do not pertain to a specific chapter. The attached grid gives general guidelines as to the topics are most relevant to particular chapters. All interviews are relevant to Chapter 1 and, because those interviews represent leadership models, they are also relevant to Chapter 16 (Leadership). The interviews also are relevant to many of the other chapters as shown in the grid. The instructor could suggest these interviews as background readings for each section of the textbook. The interviews would also be useful for generating class discussion. The instructor can of course refer to these interviews while covering different chapters. While the interviews do not highlight in detail the daily managerial tasks done by managers, they do serve as excellent examples of how some managers can develop their businesses through attention paid to planning, organizing, leading, and controlling. The interviews also show the 112 importance that contemporary Arab managers place on such things as social responsibility, strategic management, organizational communication, and human resource development. The instructor can also encourage students to research and discover other examples of successful Arab managers that can be used as a class project or for class discussions. 113  Managing Operations P 18 Introduction to Controlling P P P 17 Managers as Leaders P P P P P P P P 16 Motivating Employees 15 Communication Managers and P 14 Behavior Understanding Individual P P 13 and Innovation Managing Change P P P P 12 Managing Teams P P 11 Resources Managing Human P P P 10 and Design P P Organizational Structure 9 112 Strategic Management P P P P 8 Foundations of Planning 7 Makers Managers as Decision P 6 Managerial Ethics P P P P P P P Social Responsibility and 5 Environment Managing in a Global 4 Management Role Models – Interview Key Environment Organizational Culture and P P P P P 3 Management History 2 organizations management and P P P P P P P P 1 Introduction to ABDULSALAM GHANDOUR HASSANEIN KHALAF AL RAYMOND DABDOUB HABTOOR BAROUM IBRAHIM OSSAMA RAJA AL HAYKAL GURG SAMI AUDI FADI