Unit 3 Organizational Structure & Design PDF

Organizational Structure & Design Unit Three  OBJECTIVES Upon successful completion of this unit, learners will be able to: explain the following terms: organization, organizing, organizational structure, chart and design explain the characteristics of an orga...

Organizational Structure & Design Unit Three  OBJECTIVES Upon successful completion of this unit, learners will be able to: explain the following terms: organization, organizing, organizational structure, chart and design explain the characteristics of an organization differentiate between the traditional and contemporary views of the six key elements in organizational design describe the five common forms of departmentalization compare mechanistic and organic structures  Objectives Cont’d contrast the contingency variables that favour either the mechanistic model or the organic model of organizational design describe the traditional and contemporary organizational designs explain the strengths and weaknesses of the traditional and contemporary organizational designs  Definition of Organization An organization is a deliberate arrangement of people brought together to accomplish a specific purpose. An organized group of people with a particular purpose, such as a business or government department.  Key Terms Organizing - arranging and structuring work to accomplish organizational goals. It’s an important process during which managers design an organization’s structure. Organizational structure is the formal arrangement of jobs within an organization. This structure, which can be shown visually in an organizational chart, also serves many purposes.  Key Terms When managers create or change the structure, they’re engaged in organizational design, a process that involves decisions about six key elements: work specialization, departmentalization, chain of command, span of control, centralization and decentralization, and formalization.  Characteristics of an Organization There are three common characteristics that organizations share: 1. Goals, which express the distinct purpose of a particular organization. 2. People, who make decisions and reach the organization’s goals. 3. A deliberate structure, which systematically defines, limits, and guides its members’ behavior.  Characteristics of an Organization There are three common characteristics that organizations share: 1. Goals, which express the distinct purpose of a particular organization. 2. People, who make decisions and reach the organization’s goals. 3. A deliberate structure, which systematically defines, limits, and guides its members’ behavior.  hat structure may be open and flexible, with no specific job duties or strict adherence to explicit job arrangements. F  Characteristics of an Organization There are three common characteristics that organizations share: 1. Distinct purpose 2. Deliberate structure 3. People  Characteristics of an organization Goal directed The organization is designed to achieve some outcome, such as make a profit e.g. (Grace Kennedy etc ), win pay increase for its members (unions), meet spiritual needs such as a church or provide social satisfaction.  Characteristics of an organization Deliberately structured Tasks are divided and responsibility for their performance is assigned to the organization members. Social entity is an entity which is made up of two or more peopleIt  Purposes of Organizing Divides work to be done into specific jobs and departments. Assigns tasks and responsibilities associated with individual jobs. 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.  Six Key Elements in Organizational Design 1.Work specialization Work specialization is dividing work activities into separate job tasks. Individual employees “specialize” in doing part of an activity rather than the entire activity in order to increase work output. It is also known as division of labor. Work specialization makes efficient use of the diversity of skills that workers have. In most organizations, some tasks require highly developed skills; others can be performed by employees with lower skill levels. If all workers were engaged in all the steps of, say, a manufacturing process, all would need the skills necessary to perform both the most demanding and the least demanding jobs.  Departmentalization 2.Departmentalization Departmentalization is an aspect of organizational design that includes the subdivision of a business into units based on their function Five Types of Departmentalization : – Functional- grouping jobs by functions performed – Product- grouping jobs by product line – Geographical- grouping jobs on the basis of territory or geography – Process- grouping jobs on the basis of product or customer flow – Customer - grouping jobs by type of customer and needs  Six Key Elements in Organizational Design 2.Departmentalization How jobs are grouped together is called departmentalization However, an organization may develop its own unique classification.(For instance, a hotel might have departments such as front desk operations, sales and catering, housekeeping and laundry, and maintenance.  Six Key Elements in Organizational Design 3. Chain of Command Chain of Command is the continuous line of authority that extends from upper levels of an organization to the lowest levels of the organization and clarifies who reports to whom. Six Key Elements in Organizational Design Chain of Command Suppose you were at work and had a problem with some issue that came up. What would you do? Who would you go to help you resolve that issue? People need to know who their boss is. That’s what the chain of command is all about. Six Key Elements in Organizational Design Chain of Command Managers need to consider it when organizing work because it helps employees with questions such as “Who do I report to?” or “Who do I go to if I have a problem?” To understand the chain of command, you have to understand three other important concepts: A. Authority B. Responsibility C. Unity of command. Six Key Elements in Organizational Design Chain of Command A.Authority refers to the rights inherent in a managerial position to tell people what to do and to expect them to do it. Managers in the chain of command had authority to do their job of coordinating and overseeing the work of others. Authority could be delegated downward to lower-level managers, giving them certain rights while also prescribing certain limits within which to operate.  Six Key Elements in Organizational Design - Chain of Chain of Command There are two forms of authority: line authority and staff authority. Line authority entitles a manager to direct the work of an employee. It is the employer–employee authority relationship that extends from the top of the organization to the lowest echelon. As a link in the chain of command, a manager with line authority has the right to direct the work of employees and to make certain decisions without consulting anyone. Of course, in the chain of command, every manager is also subject to the authority or direction of his or her superior.  Six Key Elements in Organizational Design Chain of Command Staff authority As organizations get larger and more complex, line managers find that they do not have the time, expertise, or resources to get their jobs done effectively. In response, they create staff authority functions to support, assist, advise, and generally reduce some of their informational burdens. For instance, a hospital administrator who cannot effectively handle the purchasing of all the supplies the hospital needs creates a purchasing department, which is a staff function. Six Key Elements in Organizational Design Chain of Command B. Responsibility When managers use their authority to assign work to employees, those employees take on an obligation to perform those assigned duties. This obligation or expectation to perform is known as responsibility. And employees should be held accountable for their performance! Assigning work authority without responsibility and accountability can create opportunities for abuse. Likewise, no one should be held responsible or accountable for work tasks over which he or she has no authority to complete those tasks.  Six Key Elements in Organizational Design Chain of Command C.Unity of command principle (one of Fayol’s 14 management principles) states that a person should report to only one manager. Without unity of command, conflicting demands from multiple bosses may create problems as it did for Damian Birkel, a merchandising manager in the Fuller Brands division of CPAC, Inc. He found himself reporting to two bosses—one in charge of the department-store business and the other in charge of discount chains. Birkel tried to minimize the conflict by making a combined to-do list that he would update and change as work tasks changed.  Six Key Elements in Organizational Design 4.Span of Control How many employees can a manager efficiently and effectively manage. That’s what span of control is all about. The traditional view was that managers could not—and should not— directly supervise more than five or six subordinates. Determining the span of control is important because to a large degree, it determines the number of levels and managers in an organization—an important consideration in how efficient an organization will be. All other things being equal, the wider or larger the span, the more efficient an organization is. Span of Control Six Key Elements in Organizational Design 5. Centralization & Decentralization Centralization One of the questions that needs to be answered when organizing is “At what organizational level are decisions made?” Centralization is the degree to which decision making takes place at upper levels of the organization. If top managers make key decisions with little input from below, then the organization is more centralized.  Six Key Elements in Organizational Design Centralization & Decentralization Decentralization The degree to which lower-level employees provide input or actually make decisions Centralization or Decentralization  Six Key Elements in Organizational Design 6.Formalization The degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures. In highly formalized organizations, there are explicit job descriptions, numerous organizational rules, and clearly defined procedures covering work processes. Highly formalized jobs offer little discretion over what is to be done. Low formalization means fewer constraints on how employees do their work.  Six Key Elements in Organizational Design 6.Formalization In highly formalized organizations, there are explicit job descriptions, numerous organizational rules, and clearly defined pro cedures covering work processes.  Departmentalization Departmentalization is an aspect of organizational design that includes the subdivision of a business into units based on their function Five Types of Departmentalization : – Functional- grouping jobs by functions performed – Product- grouping jobs by product line – Geographical- grouping jobs on the basis of territory or geography – Process- grouping jobs on the basis of product or customer flow – Customer - grouping jobs by type of customer and needs https://youtu.be/1le3YDJkoLU?si=QYTMB3ohgXEnhH5E  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  Geographical Departmentalization Advantages More effective and efficient handling of specific regional issues that arise Serve needs of unique geographic markets better Disadvantages Duplication of functions Can feel isolated from other organizational areas  Product Departmentalization + Allows specialization in particular products and services + Managers can become experts in their industry + Closer to customers – Duplication of functions – Limited view of organizational goals  Process Departmentalization + More efficient flow of work activities – Can only be used with certain types of products  Customer Departmentalization + Customers’ needs and problems can be met by specialists - Duplication of functions - Limited view of organizational goals  Six Key Elements in Organizational Design Departmentalization One popular departmentalization trend is the increasing use of customer departmentalization. Because getting and keeping customers is essential for success, this approach works well because it emphasizes monitoring and responding to changes in customers’ needs.  Mechanistic & Organic Structures The mechanistic organization (or bureaucracy) was the natural result of combining the six elements of structure. Adhering to the chain-of-command principle ensured the existence of a formal hierarchy of authority, with each person controlled and supervised by one superior. Keeping the span of control small at increasingly higher levels in the organization created tall, impersonal structures. As the distance between the top and the bottom of the organization expanded, top management would increasingly impose rules and regulations.  Mechanistic & Organic Structures Because top managers couldn’t control lower-level activities through direct observation and ensure the use of standard practices, they substituted rules and regulations. The early management writers’ belief in a high degree of work specialization created jobs that were simple, routine, and standardized. Further specialization through the use of departmentalization increased impersonality and the need for multiple layers of management to coordinate the specialized departments.  Mechanistic & Organic Structures The organic organization is a highly adaptive form that is as loose and flexible as the mechanistic organization is rigid and stable. Rather than having standardized jobs and regulations, the organic organization’s loose structure allows it to change rapidly as required. It has division of labor, but the jobs people do are not standardized. Employees tend to be professionals who are technically proficient and trained to handle diverse problems. They need few formal rules and little direct supervision because their training has instilled in them standards of professional conduct.  Mechanistic & Organic Structures For instance, a petroleum engineer doesn’t need to follow specific procedures on how to locate oil sources miles offshore. The engineer can solve most problems alone or after conferring with colleagues. Professional standards guide his or her behavior. The organic organization is low in centralization so that the professional can respond quickly to problems and because top-level managers cannot be expected to possess the expertise to make necessary decisions.  Mechanistic versus Organic Organization Cross-functional teams High specialization Cross-hierarchical teams Rigid departmentalization Free flow of information Clear chain of command Wide spans of control Narrow spans of control Decentralization Centralization Low formalization High formalization  Contingency Factors Affecting Structural Choice An organization’s structure should facilitate goal achievement. Because goals are an important part of the organization’s strategies, it’s only logical that strategy and structure are closely linked. Alfred Chandler initially researched this relationship. He studied several large U.S. companies and concluded that changes in corporate strategy led to changes in an organization’s structure that support the strategy.  Contingency Factors Affecting Structural Choice Top managers typically put a lot of thought into designing an appropriate organizational structure. What that appropriate structure is depends on four contingency variables: 1. The organization’s strategy 2. Size 3. Technology 4. Degree of environmental uncertainty.  Contingency Variables/ Factors Structural decisions are influenced by: – Overall strategy of the organization Organizational structure follows strategy. – Size of the organization Firms change from organic to mechanistic organizations as they grow in size. – Technology used by the organization Firms adapt their structure to the technology they use. – Degree of environmental uncertainty Dynamic environments require organic structures; mechanistic structures need stable environment  Contingency Factors Affecting Structural Choice 1.Strategy and Structure 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 wanting to tightly control costs.  Contingency Factors Affecting Structural Choice 2. Size and Structure Large organizations— typically considered to be those with more than 2,000 employees—tend to have more specialization, departmentalization, centralization, and rules and regulations than do small organizations. However, once an organization grows past a certain size, size has less influence on structure. Why? Essentially, once there are around 2,000 employees, it’s already fairly mechanistic. Adding another 500 employees won’t impact the structure much. On the other hand, adding 500 employees to an organization that has only 300 employees is likely to make it more mechanistic.  Contingency Factors Affecting Structural Choice 3. Technology Every organization uses some form of technology to convert its inputs into outputs. For instance, workers at Whirlpool’s Manaus, Brazil, facility build microwave ovens and air conditioners on a standardized assembly line. Employees at FedEx Kinko’s Office and Print Services produce custom design and print jobs for individual customers.  Contingency factors Affecting Structural Choice 3.Technology Employees at Bayer’s facility in Karachi, Pakistan, are involved in producing pharmaceuticals on a continuous flow production line. The initial research on technology’s effect on structure can be traced to Joan Woodward, who studied small manufacturing firms in southern England to determine the extent to which structural design elements were related to organizational success.  Contingency factors Affecting Structural Choice She couldn’t find any consistent pattern until she divided the firms into three distinct technologies that had increasing levels of complexity and sophistication..  Contingency Factors Affecting Structural Choice 3.Technology The first category, unit production, described the production of items in units or small batches. The second category, mass production, described large-batch manufacturing. Finally, the third and most technically complex group, process production, included continuous process production.  Contingency factors Affecting Structural Choice Other studies also have shown that organizations adapt their structures to their technology depending on how routine their technology is for transforming inputs into outputs. In general, the more routine the technology, the more mechanistic the structure can be, and organizations with more non-routine technology are more likely to have organic structures.  Contingency factors Affecting Structural Choice Environmental Uncertainty and Structure For example, the uncertain nature of the oil industry means that oil companies need to be flexible. Soon after being named CEO of Royal Dutch Shell PLC, Jeroen van der Veer streamlined the corporate structure to counteract some of the industry volatility. One thing he did was eliminate the company’s cumbersome, overly analytical process of making deals with OPEC countries and other major oil producers.  Contingency Factors Affecting Structural Choice 4.Degree of environmental uncertainity Some organizations face stable and simple environments with little uncertainty; others face dynamic and complex environments with a lot of uncertainty. Managers try to minimize environmental uncertainty by adjusting the organization’s structure. In stable and simple environments, mechanistic designs can be more effective. On the other hand, the greater the uncertainty, the more an organization needs the flexibility of an organic design.  Contingency factors Affecting Structural Choice Environmental Uncertainty and Structure For example, the uncertain nature of the oil industry means that oil companies need to be flexible. Soon after being named CEO of Royal Dutch Shell PLC, Jeroen van der Veer streamlined the corporate structure to counteract some of the industry volatility. One thing he did was eliminate the company’s cumbersome, overly analytical process of making deals with OPEC countries and other major oil producers.  Organizational Designs - Traditional Simple Structure Most companies start as entrepreneurial ventures using a simple structure, which is an organizational design with low departmentalization, wide spans of control, authority centralized in a single person, and little formalization. As employees are added, however, most don’t remain as simple structures. The structure tends to become more specialized and formalized. Rules and regulations are introduced, work becomes specialized, departments are created, levels of management are added, and the organization becomes increasingly bureaucratic. At this point, managers might choose a functional structure or a divisional structure.  Organizational Designs - Traditional Functional Structure A functional structure is an organizational design that groups similar or related occupational specialties together. You can think of this structure as functional departmentalization applied to the entire organization  Organizational Designs-Traditional Divisional Structure The divisional structure is an organizational structure made up of separate business units or divisions. In this structure, each division has limited autonomy, with a division manager who has authority over his or her unit and is responsible for performance. In divisional structures, however, the parent corporation typically acts as an external overseer to coordinate and control the various divisions, and often provides support services such as financial and legal. Strengths and Weaknesses of Traditional Organizational Designs  Contemporary Organizational Designs Team Structure What it is: A structure in which the entire organization is made up of work groups or teams. Advantages: Employees are more involved and empowered. Reduced barriers among functional areas. Disadvantages: No clear chain of command. Pressure on teams to perform. Matrix-Project Structure What it is: A structure that assigns specialists from different functional areas to work on projects but who return to their areas when the project is completed. Project is a structure in which employees continuously work on projects. As one project is completed, employees move on to the next project. Advantages: Fluid and flexible design that can respond to environmental changes. Faster decision making. Disadvantages: Complexity of assigning people to projects. Task and personality conflicts.  Contemporary Organizational Designs cont’d Boundaryless Structure What it is: A structure that is not defined by or limited to artificial horizontal, vertical, or external boundaries; includes virtual and network types of organizations. Advantages: Highly flexible and responsive. Draws on talent wherever it’s found. Disadvantages: Lack of control. Communication difficulties.  Organizational Designs (cont’d) Contemporary Organizational Designs – Team structures The entire organization is made up of work groups or self-managed teams of empowered employees. – Matrix and project structures Specialists from different functional departments are assigned to work on projects led by project managers. Matrix and project participants have two managers. In project structures, employees work continuously on projects; moving on to another project as each project is completed. An Example of a Matrix Organization  Organizational Designs (cont’d) Contemporary Organizational Designs (cont’d) – Boundaryless Organization A flexible and unstructured organizational design that is intended to break down external barriers between the organization and its customers and suppliers. Removes internal (horizontal) boundaries: – Eliminates the chain of command – Has limitless spans of control – Uses empowered teams rather than departments  Organizational Designs (cont’d) Contemporary Organizational Designs (cont’d) Eliminates external boundaries: – Uses virtual, network , and modular organizational structures to get closer to stakeholders.  Removing External Boundaries Virtual Organization – An organization that consists of a small core of full-time employees and that temporarily hires specialists to work on opportunities that arise. Network Organization – A small core organization that outsources its major business functions (e.g., manufacturing) in order to concentrate what it does best. Modular Organization – A manufacturing organization that uses outside suppliers to provide product components for its final assembly operations. Strengths & Weaknesses of Contemporary Organizational Designs Strengths & Weaknesses of Contemporary Organizational Designs