Organizational Structure PDF

INDUSTRIAL/ORGANIZATIONAL PSYCHOLOGY ORGANIZATIONAL STRUCTURE ORGANIZATIONAL BEHAVIOR; EMERGING KNOWLEDGE AND PRACTICE FOR THE REAL WORLD 5th ED. AUTHOR: Steven L. McShane | Mary Ann Von Glinow...

INDUSTRIAL/ORGANIZATIONAL PSYCHOLOGY ORGANIZATIONAL STRUCTURE ORGANIZATIONAL BEHAVIOR; EMERGING KNOWLEDGE AND PRACTICE FOR THE REAL WORLD 5th ED. AUTHOR: Steven L. McShane | Mary Ann Von Glinow TRANSCRIBED BY: MEYNARD P. OSTRIA ORGANIZATIONAL STRUCTURE Coordination through Informal Communication The division of labor as well as the patterns of ✓ Informal communication is a coordinating coordination, communication, workflow, and formal mechanism in all organizations. power that direct organizational activities. ✓ It includes sharing information on mutual tasks as well as forming common mental models so 2 fundamental processes in organizational structure: that employees synchronize work activities using division of labor & coordination (DC) the same mental road map. 4 main elements of organizational structure: ✓ Informal communication is vital in non-routine span of control, centralization, formalization, and and ambiguous situations because employees departmentalization (SCFD) can exchange a large volume of information through face-to-face communication and other Organizational structures are frequently used as tools for media-rich channels. organizational change because they establish new ✓ Coordination through informal communication communication patterns and align employee behavior is easiest in small firms with the corporate vision. ✓ Larger organizations also encourage coordination through informal communication DIVISION OF LABOR AND COORDINATION by assigning liaison roles to employees, who are expected to communicate and share Division of labor refers to the subdivision of work into information with co-workers in other work units. separate jobs assigned to different people. Subdivided ✓ Where coordination is required among several work leads to job specialization ,because each job now work units, companies create integrator roles. includes a narrow subset of the tasks necessary to These people are responsible for coordinating a complete the product or service. work process by encouraging employees in each work unit to share information and informally Coordinating Work Activities coordinate work activities an organization should divide work among many people ✓ Integrators do not have authority over the only to the extent that those people can coordinate with people involved in that process, so they must each other. Otherwise, individual effort is wasted due to rely on persuasion and commitment. Brand misalignment, duplication, and mis-timing of tasks. managers at Procter & Gamble have integrator Coordination also tends to become more expensive and roles because they coordinate work among difficult as the division of labor increases, so companies marketing, production, and design groups. specialize jobs only to the point where it isn’t too costly ✓ Another way that larger organizations or challenging to coordinate the people in those jobs encourage coordination through informal communication is by organizing employees from several departments into temporary teams. This strategy occurs through concurrent engineering in the product or service development process. Traditional product development is a sequential arrangement. Coordination through Formal Hierarchy ✓ Informal communication is the most flexible form of coordination, but it can become chaotic as the number of interdependencies among employees increases.  ✓ Hierarchy assigns legitimate power to Standardized skills. When work activities are too individuals, who then use this power to direct complex to standardize through processes or goals, work processes and allocate resources. In other companies often coordinate work effort by extensively words, work is coordinated through direct training employees or hiring people who have learned supervision—the chain of command. precise role behaviors from educational programs. This ✓ The formal hierarchy has traditionally been form of coordination is used in hospital operating rooms. applauded as the optimal coordinating Surgeons, nurses, and other operating room mechanism for large organizations. professionals coordinate their work more through ✓ The formal hierarchy also coordinates work training than through goals or company rules among executives through the division of organizational activities. If the organization is ELEMENTS OF ORGANIZATIONAL STRUCTURE divided into geographic areas, the structure Every company is configured in terms of four basic gives the regional group leaders legitimate elements of organizational structure. This section power over executives responsible for introduces three of them: span of control, centralization, production, customer service, and other and formalization. The fourth element— activities in those areas. departmentalization ✓ If the organization is divided into product groups, the heads of those groups have the right Span of Control to coordinate work across regions. (also called span of management) The number of ✓ The formal hierarchy can be efficient for simple people directly reporting to the next level in the and routine situations, but it is not as agile for hierarchy. coordination in complex and novel situations. A narrow span of control exists when very few Communicating through the chain of command people report directly to a manager, whereas a is rarely as fast or accurate as direct wide span exists when a manager has many communication between employees. direct reports ✓ Another concern with formal hierarchy is that Factors influencing the best span of control managers are able to closely supervise only a 1. Self-directed teams coordinate mainly through limited number of employees. As the business informal communication and specialized grows, the number of supervisors and layers of knowledge, so formal hierarchy plays a minor management must increase, resulting in a costly role. bureaucracy. 2. whether employees perform routine tasks. A wider span of control is possible when Coordination through Standardization employees perform routine jobs, because there Standardization, the third means of coordination, is less frequent need for direction or advice from involves creating routine patterns of behavior or output. supervisors. A narrow span of control is This coordinating mechanism takes three distinct forms: necessary when employees perform novel or complex tasks, because these employees tend to Standardized processes. Quality and consistency of a require more supervisory decisions and product or service can often be improved by coaching. standardizing work activities through job descriptions 3. degree of interdependence among employees and procedures. This coordinating mechanism is feasible within the department or team. Generally, a when the work is routine (such as mass production) or narrow span of control is necessary where simple (such as making pizzas), but it is less effective in employees perform highly interdependent work nonroutine and complex work such as product design. with others. More supervision is required for highly interdependent jobs because employees Standardized outputs. This form of standardization tend to experience more conflict with each involves ensuring that individuals and work units have other, which requires more of a manager’s time clearly defined goals and output measures (e.g., to resolve. Also, employees are less clear on customer satisfaction, production efficiency). For their personal work performance in highly instance, to coordinate the work of sales people, interdependent tasks, so supervisors spend companies assign sales targets rather than specific more time providing coaching and feedback. behaviors. Tall versus Flat Structures over conflicts. These valuable functions are Span of control is interconnected with organizational size underserved when the span of control becomes (number of employees) and the number of layers in the too wide. organizational hierarchy. Increases workload and stress. Delayering increases the number of direct reports per Consider two companies with the same number of manager and thus significantly increases employees. management workload and corresponding levels If Company A has a wider span of control (more direct of stress. Managers partly reduce the workload reports per manager) than Company B, then Company A by learning to give subordinates more autonomy must have fewer layers of management (i.e., a flatter rather than micromanaging them. However, this structure) than does Company B. The reason for this role adjustment itself is stressful (same relationship is that a company with a wider span of responsibility, but less authority or control), and control necessarily has more employees per supervisor, many companies increase the span of control more supervisors for each middle manager, and so on beyond the point at which many managers are capable of coaching or leading their direct Most companies end up building taller structures reports. because they rely on direct supervision to some extent Restricts managerial career development. as a coordinating mechanism and there are limits to how Delayering results in fewer managerial jobs, so many people each manager can coordinate. companies have less maneuverability to develop Problems in taller hierarchy managerial skills. Promotions are also riskier 1st Tall structures have higher overhead costs because because they involve a larger jump in most layers of hierarchy consist of managers rather than responsibility in flatter, compared to taller, employees who actually make the product or supply the hierarchies. Furthermore, having fewer service promotion opportunities means that managers 2nd Senior managers in tall structures often receive experience more career plateauing, which lower-quality and less timely information from the reduces their motivation and loyalty. Chopping external environment because information from back managerial career structures also sends a frontline employees is transmitted slowly or not at all up signal that managers are no longer valued. the hierarchy. “Delayering has had an adverse effect on 4th More layers of management through which morale, productivity and performance,” argues a information must pass, the higher the probability that senior executive in the Australian federal managers will filter out information that does not put government. “Disenfranchising middle them in a positive light. management creates negative perceptions and 5th Tall hierarchies tend to undermine employee lower commitment to the organization with empowerment and engagement because they focus consequent reluctance to accept responsibility. power around managers rather than employees. Centralization and Decentralization Although many companies enjoy reduced costs and Centralization means that formal decision-making more empowered employees when they delayer the authority is held by a small group of people, typically organizational hierarchy, some organizational experts those at the top of the organizational hierarchy. warn that there are also negative long-term Most organizations begin with centralized consequences of cutting out too much middle structures, as the founder makes most of the management. These include undermining necessary decisions and tries to direct the business toward managerial functions, increasing workload and stress his or her vision. among management, and restricting managerial career As organizations grow, however, they diversify development and their environments become more complex. Undermines managerial functions. Critics of Senior executives aren’t able to process all the delayering point out that all companies need decisions that significantly influence the managers to guide work activities, coach business. subordinates, and manage company growth. Consequently, larger organizations typically Furthermore, managers are needed to make decentralize; that is, they disperse decision quick decisions and represent a source of appeal  authority and power throughout the a product or service and serving its dominant organization. stakeholders. Formalization The challenge that companies face as they get larger and Formalization is the degree to which organizations older is to avoid too much formalization. standardize behavior through rules, procedures, formal training, and related mechanisms. Mechanistic versus Organic Structures In other words, companies become more Span of control, centralization, and formalization formalized as they increasingly rely on various together because they cluster around two broader forms of standardization to coordinate work. organizational forms: mechanistic and organic structures McDonald’s Restaurants and most other efficient fast-food chains typically have a high degree of formalization because they rely on standardization of work processes as a coordinating mechanism. Employees have precisely defined roles, right down to how much mustard should be dispensed, how many pickles should be applied, and how long each hamburger should be cooked. Older companies tend to become more formalized because work activities become routinized, making them easier to document into standardized practices. Larger companies also tend to have more formalization because A mechanistic structure is characterized by a narrow direct supervision and informal communication span of control and high degree of formalization and among employees do not operate as easily when centralization. large numbers of people are involved. Mechanistic structures have many rules and procedures, External influences, such as government safety limited decision making at lower levels, tall hierarchies of legislation and strict accounting rules, also people in specialized roles, and vertical rather than encourage formalization. horizontal communication flows. Tasks are rigidly defined and are altered only when sanctioned by higher Problems in Formalization authorities. Formalization may increase efficiency and compliance, but it can also create problems. organic structure have the opposite characteristics. They operate with a wide span of control, decentralized Rules and procedures reduce organizational flexibility, so decision making, and little formalization. Tasks are fluid, employees follow prescribed behaviors even when the adjusting to new situations and organizational needs. situation clearly calls for a customized response. mechanistic structures operate better in stable High levels of formalization tend to undermine environments because they rely on efficiency and organizational learning and creativity. routine behaviors, whereas organic structures work better in rapidly changing (i.e., dynamic) environments Some work rules become so convoluted that because they are more flexible and responsive to the organizational efficiency would decline if they were changes. actually followed as prescribed. Organic structures are also more compatible with organizational learning, high-performance workplaces, Formalization is also a source of job dissatisfaction and and quality management because they emphasize work stress. Finally, rules and procedures have been information sharing and an empowered workforce known to take on a life of their own in some rather than hierarchy and status. organizations. They become the focus of attention rather than the organization’s ultimate objectives of producing However, the advantages of organic structures, rather ✓ There is minimal hierarchy—usually just than mechanistic structures, in dynamic environments employees reporting to the owners. occur only when employees have developed well- ✓ Employees perform broadly defined roles established roles and expertise. Without these because there are insufficient economies of conditions, employees are unable to coordinate scale to assign them to specialized jobs. effectively with each other, resulting in errors and gross ✓ The simple structure is highly flexible and inefficiencies. minimizes the walls that form between employees in other structures. FORMS OF DEPARTMENTALIZATION ✓ However, the simple structure usually depends The organizational chart represents the fourth element on the owner’s direct supervision to coordinate in the structuring of organizations, called work activities, so it is very difficult to operate as departmentalization. the company grows and becomes more complex. Departmentalization specifies how employees and their activities are grouped together. It is a fundamental strategy for coordinating organizational activities because it influences organizational behavior in the following ways: Departmentalization establishes the chain of command—the system of common supervision among positions and units within the organization. It frames the membership of formal work teams and typically determines Advantages of Simple Structure which positions and units must share resources. Increased owner control – With no departmental Thus, departmentalization establishes managers to delegate work among the employees, the interdependencies among employees and single leader retains complete control of the subunits. organization. That's beneficial for owners who prefer Departmentalization focuses people around directing the company without having to consult other common mental models or ways of thinking, managers, which accelerates business growth. such as serving clients, developing products, or Improved efficiency – With no managers to consult, the supporting a particular skill set. This focus is leader makes decisions quickly. Additionally, they need typically anchored around the common budgets not involve employees in decision-making unless the and measures of performance assigned to decision affects them directly. employees within each departmental unit. Increased responsibility – Employees in a simple Departmentalization encourages coordination structure have more responsibilities than in other through informal communication among people organizational models. Each employee affects the and subunits. With common supervision and business's direction and success because there are no resources, members within each configuration managers responsible for each department's success. typically work near each other, so they can use Thus, employees are left to manage their time, work frequent and informal interaction to get the hours, and duties. work done. Disadvantages of Simple Structure There are almost as many organizational charts as there Increased owner responsibilities – In an organization are businesses, but the six most common pure types of with no mid or lower-level managers, the leader is left to departmentalization are simple, functional, divisional, make all the decisions and instruct the employees. That team-based, matrix, and network. leaves the Founder to shoulder more responsibility than any other company employee. SIMPLE STRUCTURE Reduced employee autonomy – While it might be ✓ Most companies begin with a simple structure. flexible for employees to react quicker, a simple ✓ They employ only a few people and typically structure centralizes power with a single leader. That offer only one distinct product or service. prevents employees from expressing ideas and creativity poorer coordination in serving clients or required in dynamic situations. developing products Potential confusion – In a flat organization, employees - These problems occur because employees need are likely to be confused when managing complex tasks to work with co-workers in other departments to because there's no elaborate management structure to complete organizational tasks yet they have specify each individual's roles and responsibilities. different subgoals and mental models of ideal work. Together, these problems require FUNCTIONAL STRUCTURE substantial formal controls and coordination ✓ A functional structure organizes employees when people are organized around functions. around specific knowledge or other resources Advantages of Functional Structure - Staff and department managers are skilled because they are experienced in the same field of business. - Employees are grouped according to their skills and expertise. This increases the performance of the team brings high operational efficiency. - The roles and responsibilities are well defined. Each employee has a fixed job definition. This Hierarchies organized themselves primarily along helps to prevent duplication of work. functional areas such as Sales, Marketing, or Human - The reporting lines are clearly defined and Resources. employees don’t have to report to multiple managers. Employees just report to their In the beginning, they separated into management, functional managers; therefore, they don’t have clerical, and production groups. to communicate all issues with other managers. - The career paths are clear, the employees may As organizations grew, they split into more specialized be motivated to advance their careers. functions, with all the advantages and disadvantages of - Employees can proceed with confidence and their hierarchy with a minimum amount of mistakes. - Since there is a sense of job security, employees Evaluating the Functional Structure don’t move to another company. - The functional structure creates specialized - Communication and cooperation within the pools of talent that typically serve everyone in workgroup are strong. the organization. This provides more economies of scale than are possible if functional specialists Disadvantages of Functional Structure are spread over different parts of the - Employees may get bored because they have the organization. same daily works. - It increases employee identity with the - Since the employees are grouped according to specialization or profession. Direct supervision is their knowledge and skills, competition may easier in functional structures because arise between them. managers oversee people with common issues - Cooperation and communication between and expertise. departments and units may be poor. Lack of - The functional structure also has limitations. teamwork and reduced flexibility may cause Grouping employees around their skills tends to conflicts between departments and units. focus attention on those skills and related - If an organization gets broader, it could be professional needs rather than on the difficult to manage and control the work with the company’s product, service, or client needs. existing structure. - Unless people are transferred from one function - Departments may concentrate on their own to the next, they might not develop a broader goals rather than concentrating on the understanding of the business. Compared with organizational goals. other structures, the functional structure usually produces higher dysfunctional conflict and  - Because of the strong hierarchy and regions, or if state governments impose different bureaucracy, delays may occur in decision- regulations on the product, then a geographic structure making. would be best to be more vigilant of this diversity. - Inside a department, employees know all the things but outside their department, they have if the company sells several types of products across the limited knowledge which may cause problems. country and customer preferences and government - When the employees become experts in their regulations are similar everywhere, then a product fields and get more skilled in their departments, structure would likely work best. they will cost more. A high skilled employee means a high cost. The Globally Integrated Enterprise - Adaptation to changes is difficult in a functional An organizational structure in which work processes and organizational structure because of its rigidity. executive functions are distributed around the world - If the functional manager takes decisions through global centers, rather than developed in a home without discussing the issues with his team, the country and replicated in satellite countries or regions. team may be demoralized - Many companies are moving away from structures that DIVISIONAL STRUCTURE organize people around geographic clusters. (3 reasons) ✓ The divisional structure (sometimes called the clients can purchase products online and multidivisional or M-form structure) groups communicate with businesses from almost employees around geographic areas, outputs anywhere in the world, so local representation is (products or services), or clients. less critical. The geographic divisional structure organizes Reduced geographic variation is another reason employees around distinct regions of the for the shift away from geographic structures; country or world. freer trade has reduced government The product/service divisional structure intervention, and consumer preferences for organizes employees around distinct outputs. many products and services are becoming more The client divisional structure organizes similar (converging) around the world. employees around specific customer groups. large companies increasingly have global business customers who demand one global point of purchase, not one in every country or region. a globally integrated enterprise connects work processes around the world, rather than replicating them within each country or region. This type of organization typically organizes people around product or client divisions. Even functional units—production, marketing, design, human resources, and so on—serve the company worldwide rather than within specific geographic clusters. These functions are sensitive to cultural and market differences and have local representation to support that sensitivity, but local representatives are associates of a global function rather than a local subsidiary copied Which form of divisional structure should large across several regions. Indeed, a globally integrated organizations adopt? enterprise is marked by a dramatic increase in virtual teamwork, because employees are assigned global ANS. depends mainly on the primary source of projects and ongoing responsibilities for work units that environmental diversity or uncertainty. transcend geographic boundaries. Suppose an organization has one type of product sold to people across the country. If customer needs vary across Evaluating the Divisional Structure ✓ Teams are then encouraged to use available - The divisional form is a building-block structure; resources and their own initiative to achieve it accommodates growth relatively easily and those objectives. focuses employee attention on products or ✓ Team-based structures are usually found within customers rather than tasks. Different products, the manufacturing or service operations of services, or clients can be accommodated by larger divisional structures. sprouting new divisions. - These advantages are offset by a number of Evaluating the Team-based Structure limitations. First, the divisional structure tends - The team-based organization represents an to duplicate resources, such as production increasingly popular structure because it is equipment and engineering or information usually more flexible and responsive to the technology expertise. environment. - Also, unless the division is quite large, resources - It tends to reduce costs because teams have less are not used as efficiently as they are in reliance on formal hierarchy (direct supervision). functional structures where resources are - A cross-functional team structure improves pooled across the entire organization. The communication and cooperation across divisional structure also creates silos of traditional boundaries. With greater autonomy, knowledge. this structure also allows quicker and more - Expertise is spread across several autonomous informed decision making. For this reason, some business units, and this reduces the ability and hospitals have shifted from functional perhaps motivation of the people in one division departments to cross-functional teams. to share their knowledge with counterparts in - Against these benefits, the team-based structure other divisions. In contrast, a functional can be costly to maintain due to the need for structure groups experts together, thereby ongoing interpersonal skill training. supporting knowledge sharing. - Teamwork potentially takes more time to - Finally, the preferred divisional structure coordinate than formal hierarchy during the depends on the company’s primary source of early stages of team development. Employees environmental diversity or uncertainty. may experience more stress due to increased ambiguity in their roles. TEAM BASED STRUCTURE - Team leaders also experience more stress due to ✓ An organizational structure built around self- increased conflict, loss of functional power, and directed teams that complete an entire piece of unclear career progression ladders. work. (such as manufacturing a product or - In addition, team structures suffer from developing an electronic game) duplication of resources and potential ✓ This type of structure is usually organic. There is competition (and lack of resource sharing) a wide span of control because teams operate across teams. with minimal supervision. ✓ In extreme situations, there is no formal leader, MATRIX STRUCTURE just someone selected by other team members ✓ An organizational structure that overlays two to help coordinate the work and liaise with top structures (such as a geographic divisional and a management. functional structure) in order to leverage the ✓ Team structures are highly decentralized benefits of both. because almost all day-to-day decisions are made by team members rather than someone Evaluating the Team-based Structure further up the organizational hierarchy. - The matrix structure usually makes very good ✓ Finally, many team-based structures have low use of resources and expertise, making it ideal formalization because teams are given relatively for project-based organizations with fluctuating few rules about how to organize their work. workloads. Instead, executives assign quality and quantity - When properly managed, it improves output targets and often productivity communication efficiency, project flexibility, and improvement goals to each team. innovation, compared to purely functional or divisional designs. - It focuses employees on serving clients or NETWORK STRUCTURE creating products yet keeps people organized ✓ An alliance of several organizations for the around their specialization, so knowledge purpose of creating a product or serving a client. sharing improves and resources are used more ✓ this collaborative structure typically consists of efficiently. several satellite organizations beehive around a - The matrix structure is also a logical choice hub or core firm. when, as in the case of Procter & Gamble, two ✓ The core firm orchestrates the network process different dimensions (regions and products) are and provides one or two other core equally important. competencies, such as marketing or product - Structures determine executive power and what development. is important; the matrix structure works when two different dimensions deserve equal attention. - One concern is that it increases conflict among managers who equally share power. Employees working at the matrix level have two bosses and, consequently, two sets of priorities that aren’t always aligned with each other. - Project leaders might squabble with functional leaders regarding the assignment of specific employees to projects as well as regarding the employee’s technical competence. - Another challenge is that the existence of two bosses can dilute accountability. In a functional ✓ One of the main forces pushing toward a or divisional structure, one manager is network structure is the recognition that an responsible for everything, even the most organization has only a few core competencies. unexpected issues. But in a matrix structure, the ✓ A core competency is a knowledge base that unusual problems don’t get resolved because resides throughout the organization and neither manager takes ownership of them. provides a strategic advantage. - The combination of dysfunctional conflict and ✓ As companies discover their core competency, ambiguous accountability in matrix structures they “unbundle” noncritical tasks to other also explains why some employees experience organizations that have a core competency at more stress and some managers are less performing those tasks satisfied with their work arrangements. ✓ Companies are also more likely to form network structures when technology is changing quickly and production processes are complex or varied. Evaluating the Network Structure - Network structures come close to the organism metaphor because they offer the flexibility to realign their structure with changing environmental requirements. If customers demand a new product or service, the core firm forms new alliances with other firms offering the appropriate resources. - Network structures also offer efficiencies because the core firm becomes globally competitive as it shops worldwide for subcontractors with the best people and the best technology at the best price. - Indeed, the pressures of global competition have made network structures more vital, and  computer-based information technology has made them possible. - A potential disadvantage of network structures is that they expose the core firm to market forces. Other companies may bid up the price for subcontractors, whereas the short-term cost would be lower if the company hired its own employees to perform the same function. - Another problem is that although information technology makes worldwide communication much easier, it will never replace the degree of control organizations have when manufacturing, marketing, and other functions are in-house. - The core firm can use arm’s-length incentives and contract provisions to maintain the subcontractor’s quality, but these actions are relatively crude compared to maintaining the quality of work performed by in-house employees.