Organisational structure.pptx

Foundations of Organizational Structure OBEOS2 Learning Objectives After studying this chapter you should be able to: 1. Identify the six elements of an organization’s structure. 2. Identify the characteristics of a bureaucracy. 3. Describe a matrix organization. 4. Identify the cha...

Foundations of Organizational Structure OBEOS2 Learning Objectives After studying this chapter you should be able to: 1. Identify the six elements of an organization’s structure. 2. Identify the characteristics of a bureaucracy. 3. Describe a matrix organization. 4. Identify the characteristics of a virtual organization. 5. Show why managers want to create boundaryless organizations. 6. Demonstrate how organizational structures differ and contrast mechanistic and organic structural models. 7. Analyze the behavioral implications of different organizational designs. Identify the six elements of an organization’s structure An organizational structure defines how job tasks are formally divided, grouped, and coordinated. There are six key elements shown in Exhibit 15-1. They are Work specialization, Departmentalization, Chain of command, Span of control, Centralization and decentralization, and Formalization. Identify the six elements of an organization’s structure cont….. Work Specialization- Henry Ford became rich and famous by building automobiles on an assembly line, demonstrating that work can be performed more efficiently by using a work specialization strategy. Every Ford worker was assigned a specific, repetitive task. By breaking jobs up into small standardized tasks, Ford was able to produce cars at the rate of one every ten seconds, while using employees who had relatively limited skills. Work specialization, or division of labor, describes the degree to which activities in the organization are subdivided into separate jobs. In essence, an entire job is broken into a number of steps, each completed by a separate individual. By the late 1940s, most manufacturing jobs in industrialized countries were being done this way. Management saw this as a means to make the most efficient use of its employees’ skills. Managers also looked for other efficiencies that could be achieved through work specialization. For example, employee skills at performing a task successfully increase through repetition. Training for specialization is more efficient from the organization’s perspective. It increases efficiency and productivity, encouraging the creation of special inventions and machinery. The human diseconomies from specialization are boredom, fatigue, stress, low productivity, poor quality, increased absenteeism, and high turnover. They more than offset the economic advantages Identify the six elements of an organization’s structure cont….. The second element is Departmentalization or grouping jobs together so common tasks can be coordinated. One of the most popular ways to group activities is by functions performed. For example, a manufacturing manager might organize his/her plant by separating engineering, accounting, manufacturing, personnel, and purchasing specialists into common departments. The advantage to this type of grouping is obtaining efficiencies from putting like specialists together. Tasks can also be departmentalized by the type of product or service the organization produces. Procter & Gamble recently reorganized along these lines. Each major product—such as Tide, Pampers, Charmin, and Pringles—will be placed under the authority of an executive who will have complete global responsibility for that product. The major advantage to this type of grouping is increased accountability for product performance under a single manager. Another way to departmentalize is on the basis of geography or territory. The sales function, for instance, may have western, southern, mid-western, and eastern regions. Process departmentalization can be used for processing customers as well as products. For example, at the state motor vehicles office you might find: Validation by motor vehicles division, Processing by the licensing department, and Payment collection by the treasury department. A final category of departmentalization is by type of customer. Microsoft, for instance, recently reorganized around four customer markets: consumers, large corporations, software developers, and small businesses. The assumption is that customers in each department have a common set of problems and needs that can best be met by having specialists for each. Identify the six elements of an organization’s structure cont….. The concepts of chain of command have less relevance today because of technology and the trend of empowering employees. A low-level employee today can access information in seconds that 30 years ago was available only to top managers. Operating employees are empowered to make decisions previously reserved for management. Add the popularity of self- managed and cross-functional teams and the creation of new structural designs that include multiple bosses, and you can see why authority and unity of command hold less relevance. Many organizations still find they can be most productive by enforcing the chain of command. “There is an imaginary line in my company’s organizational chart. Strategy is created by people above this line, while strategy is executed by people below the line.” However, this same survey found that buy-in to the organization’s strategy by lower-level employees was inhibited by too much reliance on hierarchy for decision-making. Identify the six elements of an organization’s structure cont….. The fourth element is Span of Control. How many employees a manager can efficiently and effectively direct is an important question. All things being equal, the wider or larger the span, the more efficient the organization.Wider spans are more efficient in terms of cost. However, at some point, wider spans reduce effectiveness. Narrow or small spans have their advocates. By keeping the span of control to five or six employees, a manager can maintain close control. Narrow spans have three major drawbacks. First, as already described, they are expensive because they add levels of management. Second, they make vertical communication in the organization more complex. Third, narrow spans of control encourage overly tight supervision and discourage employee autonomy. The trend in recent years has been toward wider spans of control. They are consistent with recent efforts by companies to reduce costs, cut overhead, speed up decision-making, increase flexibility, get closer to customers, and empower employees. To ensure that performance does not suffer because of these wider spans, organizations have been investing heavily in employee training. Identify the six elements of an organization’s structure cont….. Next element is Centralization and Decentralization. Centralization refers to the degree to which decision-making is concentrated at a single point in the organization. In centralized organizations, top managers make all the decisions, and lower-level managers merely carry out their directives.In organizations at the other extreme, decentralized decision-making is pushed down to the managers closest to the action. The concept of centralization includes only formal authority—that is, the rights inherent in a position. An organization characterized by centralization is inherently different structurally from one that’s decentralized. A decentralized organization can act more quickly to solve problems, more people provide input into decisions, and employees are less likely to feel alienated from those who make decisions that affect their work lives. Management efforts to make organizations more flexible and responsive have produced a recent trend toward decentralized decision making by lower level managers, who are closer to the action and typically have more detailed knowledge about problems than top managers.. Research investigating a large number of Finnish organizations demonstrates that companies with decentralized research and development offices in multiple locations were better at producing innovation than companies that centralized all research and development in a single office. Identify the six elements of an organization’s structure cont….. Last element in the model is Formalization. Formalization refers to the degree to which jobs within the organization are standardized. A highly formalized job gives the job incumbent a minimum amount of discretion over what is to be done, when it is to be done, and how he or she should do it. Employees can be expected always to handle the same input in exactly the same way. The greater the standardization, the less input the employee has into how the job is done. Low formalization—job behaviors are relatively non-programmed, and employees Identify the characteristics of a bureaucracy Standardization is the key concept for all bureaucracies. The bureaucracy is characterized by six traits. First is a highly routine operating tasks achieved through specialization. Second is very formalized rules and regulations. Third suggests that tasks that are grouped into functional departments. Fourth, there is a strong centralized authority. Fifth is narrow spans of control. And, lastly, decision-making follows the chain of command. The bureaucracy’s primary strength is in its ability to perform standardized activities in a highly efficient manner. Putting like specialties together in functional departments results in economies of scale, minimum duplication of personnel and equipment, etc. Bureaucracies get by nicely with less talented and less costly middle- and lower-level managers. The bureaucracy’s weaknesses include that specialization creates subunit conflicts, functional unit goals can override the organization’s goals. An obsessive concern with following the rules can develop. And, the bureaucracy is efficient only as long as employees confront familiar problems with programmed decision rules. Describe a matrix organization The Matrix Structure is another option, It is used in advertising agencies, aerospace firms, research and development laboratories, construction companies, hospitals, government agencies, universities, management consulting firms, and entertainment companies. It combines two forms of departmentalization— functional and product. The strength of functional departmentalization—putting like specialists together and the pooling and sharing of specialized resources across products. Its major disadvantage is the difficulty of Describe a matrix organization Describe a matrix organization The most obvious structural characteristic of the matrix is that it breaks the unity-of-command concept. Exhibit 15–5 shows the matrix form as used in a college of business administration. Its strength is its ability to facilitate coordination when the organization has a multiplicity of complex and interdependent activities. The dual lines of authority reduce tendencies of departmental members to protect their worlds. It facilitates the efficient allocation of specialists. The major disadvantages of the matrix lie in the confusion it creates, its propensity to foster power struggles, and the stress it places on individuals. Violation of unity-of-command concept increases ambiguity that often leads to conflict. Confusion and ambiguity also create the seeds of power struggles. Reporting to more than one boss introduces role conflict, and unclear expectations introduce role ambiguity. Identify the characteristics of a virtual organization In essence, managers in virtual structures spend most of their time coordinating and controlling external relations, typically by way of computer-network links. The major advantage to the virtual organization is its flexibility. The primary drawback is that it reduces management’s control over key parts of its business. Virtual organizations’ drawbacks have become increasingly clear as their popularity has grown. They are in a state of perpetual flux and reorganization, which means roles, goals, and responsibilities are unclear, setting the stage for political behavior. Cultural alignment and shared goals can be lost because of the low degree of interaction among members. Team members who are geographically dispersed and communicate infrequently find it difficult to share information and knowledge, which can limit innovation and slow response time. Show why managers want to create boundary less organizations The boundaryless organization seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams. By removing vertical boundaries, management flattens the hierarchy and minimizes status and rank. It uses cross-hierarchical teams, participative decision-making practices, and 360-degree performance appraisals. Functional departments create horizontal boundaries. The way to reduce these barriers is to replace functional departments with cross-functional teams and organize around processes. Then use lateral transfers and rotate people into and out of different functional areas. When fully operational, the boundaryless organization also breaks down geographic barriers. The boundaryless organization provides one solution because it considers geography more of a tactical, logistical issue than a structural one. In short, the goal is to break down cultural barriers. One way to do so is through strategic alliances. Firms such as NEC Corporation, Boeing, and Apple each have strategic alliances or joint partnerships with dozens of companies. These alliances blur the distinction between one organization and another as employees work on joint projects. And some companies allow customers to perform functions previously done by management. Some AT&T units receive bonuses based on customer evaluations of the teams that serve them. Finally, telecommuting is blurring organizational boundaries. The security analyst with Merrill Lynch who does her job from her ranch in Montana or the software designer in Boulder, Colorado, who works for a San Francisco firm are just two of the millions of workers operating outside the physical boundaries of their employers’ premises. Show why managers want to create boundary less organizations The Learner Organization leads to Organizational Downsizing. The goal of the new organizational forms we’ve described is to improve agility by creating a lean, focused, and flexible organization. Downsizing is a systematic effort to make an organization leaner by selling off business units, closing locations, or reducing staff. It has been very controversial because of its potential negative impacts on employees. The radical shrinking of Chrysler and General Motors in recent years was a case of downsizing due to loss of market share and changes in Demonstrate how organizational structures differ and contrast mechanistic and organic structural models The mechanistic model suggest it is synonymous with the bureaucracy and has extensive departmentalization, high formalization, a limited information network (mostly downward), and little participation in decision-making. The organic model looks a lot like the boundaryless organization. It uses cross-hierarchical and cross-functional teams, low formalization, a comprehensive information network, and high participation in decision-making. Why are some organizations structured along mechanistic lines while others are organic? An organization’s structure is a means to help management achieve its objectives. Objectives derive from the organization’s overall strategy. Structure should follow strategy. Most current strategy frameworks focus on three strategy dimensions— innovation, cost minimization, and imitation—and the structural design that works best with each. An innovation strategy means a strategy for meaningful and unique innovations. This strategy may appropriately characterize 3M Company. A cost-minimization strategy tightly controls costs, refrains from incurring unnecessary innovation or marketing expenses, and cuts prices in selling a basic product. This describes Wal-Mart’s strategy. An imitation strategy tries to capitalize on the best of both minimize risk and maximize opportunity for profit: It moves into new products or new markets only after viability has been proven by innovators. It copies successful ideas of innovators. Manufactures mass-marketed fashion goods that are rip-offs of designer styles. Demonstrate how organizational structures differ and contrast mechanistic and organic structural models cont… An organization’s environment includes outside institutions or forces that can affect its performance, such as suppliers, customers, competitors, government regulatory agencies, and public pressure groups. Dynamic environments create significantly more uncertainty for managers than do static ones. To minimize uncertainty, managers may broaden their structure to sense and respond to threats. For example, most companies, including Pepsi and Southwest Airlines, have added social networking departments to counter negative information posted on blogs. Or companies may form strategic alliances, such as when Microsoft and Yahoo! joined forces to better compete with Google. Any organization’s environment has three dimensions: capacity, volatility, and complexity. First is Capacity that is "The degree to which it can support growth.” Rich and growing environments generate excess resources, which can buffer times of relative scarcity. Second is Volatility, which refers to "the degree of instability in an environment characterized by a high degree of unpredictable change.” The environment is dynamic, making it difficult for management to predict accurately the probabilities associated with various decision alternatives. At the other extreme is a stable environment. Last is Complexity or "The degree of heterogeneity and concentration among environmental elements.” Simple environments are homogeneous and concentrated. In contrast, environments characterized by heterogeneity and dispersion are called complex. Analyse the behavioral implications of different organisational designs. This chapter opened by implying that an organization’s structure can have significant effects on its members. A review of the evidence leads to a pretty clear conclusion: you can’t generalize! Not everyone prefers the freedom and flexibility of organic structures. Different factors stand out in different structures as well. In highly formalized, heavily structured, mechanistic organizations, the level of fairness in formal policies and procedures is a very important predictor of satisfaction. In more personal, individually adaptive organic organizations, employees value interpersonal justice more. Some people are most productive and satisfied when work tasks are standardized and ambiguity minimized—that is, in mechanistic structures. So, any discussion of the effect of organizational design on employee behavior has to address individual differences Analyse the behavioral implications of different organisational designs. Let’s consider employee preferences for work specialization, span of control, and centralization. The evidence generally indicates that work specialization contributes to higher employee productivity—but at the price of reduced job satisfaction. However, work specialization is not an unending source of higher productivity. Problems start to surface, and productivity begins to suffer, when the human diseconomies of doing repetitive and narrow tasks overtake the economies of specialization. As the workforce has become more highly educated and desirous of jobs that are intrinsically rewarding, we seem to reach the point at which productivity begins to decline more quickly than in the past. There is still a segment of the workforce that prefers the routine and repetitiveness of highly specialized jobs. Some individuals want work that makes minimal intellectual demands and provides the security of routine; for them, high work specialization is a source of job satisfaction. The question, of course, is whether they represent 2 percent of the workforce or 52 percent. Given that some self-selection operates in the choice of careers, we might conclude that negative behavioral outcomes from high specialization are most likely to surface in professional jobs occupied by individuals with high needs for personal growth and diversity.It is probably safe to say no evidence supports a relationship between span of control and employee satisfaction or performance. Although it is intuitively attractive to argue that large spans might lead to higher employee performance because they provide more distant supervision and more opportunity for personal initiative, the research fails to support this notion. Some people like to be left alone; others prefer the security of a boss who is quickly available at all times. Analyse the behavioral implications of different organisational designs. Consistent with several of the contingency theories of leadership discussed in Chapter 12, we would expect factors such as employees’ experiences and abilities and the degree of structure in their tasks to explain when wide or narrow spans of control are likely to contribute to their performance and job satisfaction. However, some evidence indicates that a manager’s job satisfaction increases as the number of employees supervised increases. We find fairly strong evidence linking centralization and job satisfaction. In general, less centralized organizations have a greater amount of autonomy. And autonomy appears positively related to job satisfaction. But, again, while one employee may value freedom, another may find autonomous environments frustratingly ambiguous. Although research is slim, it does suggest national culture influences the preference for structure. Organizations that operate with people from high power-distance cultures, such as Greece, France, and most of Latin America, find their employees are much more accepting of mechanistic structures than are employees from low power-distance countries. So consider cultural differences along with individual differences when predicting how structure will affect employee performance and satisfaction.