Dimensions of Organization Structure

1. Complexity2. Formalization3. Centralization

ComplexityThe degree of differentiation that exists

within an organizationHorizontal Differentiation:

Considers the degree of horizontal separation between units

Vertical Differentiation:Refers to the degree of depth

Spatial Differentiation:The degree to which the location of an organization’s facilities and personnel are dispersed geographically

Horizontal DifferentiationRefers to the degree of differentiation

between units based on the orientation of members, the nature of task they perform, their education and training

The larger number of different occupations with an organization that require specialized knowledge and skills, the more complex the organization

Why?

Horizontal DifferentiationDiverse orientations make it more difficult

for organizational members to communicate and more difficult for management to coordinate their activities

Diversity increases the likelihood that they will have different goal emphasis, time orientations, different work vocabulary

The most visible evidence in organizations of horizontal differentiation is specialization and departmentation

Potential conflicting objectives and priorities

President

Marketing Finance and accounting Manufacturing

Responsibilities

Distribution ChannelsCustomer ServiceInventory obsolescence

Communications and data processingCarrying inventory

Production and supply alternativesWare housing

Objectives More inventory Less inventory

Frequent short runs Lower production runs

Fast order processing

Cheap order processing

Fast Delivery Lowest cost routing

Field warehousing

Less warehousing

Plant warehousing

Horizontal Differentiation

Specialization:Particular grouping of activities performed by an individualIt can be achieved through:

1. Functional Specialization or division of laborJob is broken down into simple repetitive task

2. Social specialization:Individual is specialized rather than their work (professionals)

Horizontal Differentiation Reasons for division of labor:1. Physical limitations

In highly sophisticated and complex jobs, no one can perform all the task

2. Knowledge and skill limitations3. Represent proper usage resources and

skills level4. Efficiencya. Time savingb. Training

Horizontal Differentiation Departmentation:

The way the specialists are grouped togetherDepartmentation is the way in which organizations typically coordinate activities that have been horizontally differentiatedDepartments could be created on the basis of:

a. Simple numbersb. Functionsc. Product or serviced. Cliente. Geographyf. processes

Functional Departmentalization

Manager,

Engineering

Manager,

Manufacturing

Manager,

Human Resources

Manager,

Purchasing

Plant Manager

Manager,Accounting

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Product Departmentalization

Mass TransitDivision

Bombardier-Rotax(Vienna)

Manager,Retail Accounts

Recreational ProductsDivision

Logistic EquipmentDivision

Industrial EquipmentDivision

Bombadier-Rotax(Gunskirchen)

Recreational and UtilityVehicles Sector

Rail ProductsSector

Bombardier, Ltd.

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Geographical Departmentalization

Sales Director,Western Region

Sales Director,Southern Region

Sales Director,Eastern Region

Vice Presidentfor Sales

Sales Director,Midwestern Region

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Process Departmentalization

SawingDepartment

Manager

Planing andMilling

DepartmentManager

AssemblingDepartment

Manager

Lacquering andSanding

DepartmentManager

FinishingDepartment

Manager

Plant Superintendent

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Inspection and

Shipping Department

Manager

Customer Departmentalization

Manager,Retail Accounts

Directorof Sales

Manager,Government Accounts

Manager,Wholesale Accounts

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Discussion QuestionIs it possible for an organization to use all

the six methods of departmentation.

Vertical DifferentiationRefers to the depth in structureHow does vertical differentiation increases

complexity?The more levels that exist between top management and operatives, the greater the potential of communication distortion, the more difficult it is to coordinate the decisions of managerial personnel, the more difficult for top management to oversee the actions of operatives

Vertical DifferentiationCan horizontal differentiation and vertical

differentiation be construed as independent of each other?

Vertical differentiation should be understood as a response to horizontal differentiation

Reason:As specialization expands, it becomes increasingly necessary to coordinate tasks. Since, high differentiation that members will have a diverse training and background, it may be difficult for individual units to see how their task fits into greater whole. The result is a need for increased coordination, which shows itself in development of vertical integration

Vertical differentiation Do organizations with same number of employees need

to have same degree of vertical differentiation? The determining factor is span of control Span of control:

Defines the number of subordinates that a manager can direct effectively

a. Wide span:managers would have large number of subordinates reporting to them

b. Narrow span:managers would have less number of subordinates reporting to themWider span of control leads to flat organization structure whereas narrow span would lead to taller organization

Contrasting Spans Of Control

1

2

3

4

5

6

7

Org

aniz

ati

onal Le

vel

Members at Each Level

Span of 4Operatives = 4,096Managers (levels 1-6) = 1,365

Span of 8Operatives = 4,096Managers (levels 1-4) = 585

1

4

16

64

256

1,024

4,096

1

8

64

512

4,096

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Vertical Differentiation

Advantages of tall organizations:1. Tighter controls2. Better psychological career paths, better

promotion opportunities Disadvantages:1. Coordination and communications become

complicated Advantages of Flat Organizations1. Shorter and simpler communication chain Disadvantages1. Loose controls2. Reduced promotion chances

Spatial DifferentiationThe degree to which the location of an

organization’s offices, plants, and personnel are dispersed geographically

Spatial differentiation can be thought as as extended dimensions to horizontal and vertical differentiation

Spatial differentiation tells that even if horizontal and vertical differentiation were to remain the across spatially separated units, the physical separation itself would increase complexity

Discussion QuestionAre three complexity measures inter-

correlated?

Why is complexity ImportantThe more complex an organization, the greater the

need for effective communication, coordination and control devices

The higher the complexity, the greater amount of attention they must pay to dealing with problems of communication, coordination, and control

Paradox In the analysis of Organization analysisManagement’s decision to increase differentiation is made in the interest of economy and efficiency. These decisions create cross pressure to add managerial personnel to facilitate control, coordination, and conflict reduction. So the economies that complexity creates may be counterbalanced by the increased burden of keeping the organization together

Discussion QuestionHow might a manager’s job differ in an

organization in low complexity compared with his or her counterpart managing a highly complex organization?

Formalization The degree to which jobs within the organization are standardized In highly formalized jobs, the job incumbent has minimum amount

of discretion over what is to be done, and how he should do it. Employees can be expected always handle the same input in exactly the same way, resulting in consistent and uniform output

In jobs with low formalization, employees behavior would be relatively non-programmed by the organization. Such jobs would offer employees a great deal of freedom to exercise discretion in their work

Since employees behavior is inversely related to the behavior that is preprogrammed by the organization, the greater the standardization, the less input the employee has into how his/ her work is to done.

Standardization not only eliminates employees engaging in alternative behaviors but also removes the need for employees to consider alternatives

Range of Formalization

Unskilled jobs versus professional jobsKind of work being performed ( production

versus sales)Level in the hierarchy of organization

Why is formalization ImportantStandardized behavior reduces variabilityStandardization promotes coordination Standardization offer economies/ cost

effective

The “Make or Buy” Decision Formalization can take place on the job or off the job

1. On the job , the term externalized behavior is used. It means that formalization is external to the employee; that is, the rules, procedures, and regulations governing the individual’s work activity are specifically defined, codified and enforced through direct management supervision. This characterized unskilled workers. It is also what is typically meant by formalization

2. Off the job, creation of internalized behavior through social specialization. Individual learn the values, norms, and expected behavior patterns for the job and the organization of which they will be a part. This true in hiring professions

Management has two decisions to make

a. What degree of standardization of behavior is desire

b. Will the standardization be made “ in house” or “bought” out side

The “ Make or Buy” DecisionIn house variety is emphasized with unskilled

workersFor professionals fine tuning will be requiredDirect on the job formalization and

professionalization are basically substitutes for each other

The organization can either control employee behavior either directly or it can achieve indirect control by hiring duly trained professionals

As the level of professionalization increases in an organization, the level of formalization decreases

Formalization TechniquesSelectionRole RequirementsRules, procedures and policiesTrainingRituals

The Relationship Between Formalization and Complexity

High horizontal differentiation when achieved through division of labor, typically means hiring unskilled personnel to perform routine and repetitive task tends to be associated with high degree of formalization to facilitate coordination and control. Where high horizontal differentiation is achieved by hiring professionals, formalization tends to be low

The key to understanding the complexity – formalization relationship is to focus on the degree of horizontal differentiation and the way it is achieved

Discussion Question1. Employee would prefer high formalization

do you agree or disagree2. An organization that is high in complexity

will be high in formalization. Do you agree or disagree

CentralizationThe degree to which decision making is

concentrated at a single point in the organization

A high concentration implies high centralization where as a low concentration indicates low centralization or decentralization

Centralization is concerned with dispersion of authority to make decisions within the organization, not geographic dispersion

Centralization

Issues in Centralization:1. Do we look only at formal authority2. Can policies override decentralization3. What does “ concentration at a single

point mean?4. Does information processing system that

closely monitors decentralized decisions maintain centralized control

5. Does the control of information by lower level members result in decentralization of what appears to be centralized

Centralization Centralization can be described as the degree

to which the formal authority to make discretionary choices is concentrated in an individual, unit, or level (usually high in organization), thus permitting employees ( usually) low in the organization minimum input into their work

1. Centralization is concerned only with formal structure, not the informal structure

2. Looks at decision discretion. Where decisions are delegated downward but extensive policies exist to constrain the discretion of lower members, there is increased centralization

Centralization3. Concentration at a single point can refer to

an individual, unit, or level, but the single point implies at high level

4. An information processing system that closely monitors decentralized decisions does not maintain centralized decisions

5. The control of information input is a form of de facto decentralization

Situation

Information input

What can be done

Interpretation and advice

What should be done

choice

What is intended to be done

Authorization

What is authorized to be done

Action

Execution

What is actually done

Organizational Decision Making Process

Why is centralization ImportantReasons for DecentralizationAvoidance of information overloadFast response to changing conditionsDetailed input into decision making processEmployee motivationTraining opportunity Reasons for CentralizationChoosing action consistent with the best interest

of the organizationSome activities are done more effectively

Relationship of centralization, complexity and formalization

Centralization and complexity: Inverse relationship with centralization and

complexity Increase in number of occupational specialties

means an increase in the expertise and ability to make decisions. The more employees have undergone professional training the more likely they would participate in decision making

The greater the centralization of decision making, the less professional training is likely to be exhibited by employees

Centralization and Formalization

Relationship is ambiguousHigh formalization can be found coupled with

either centralized or decentralized structure If employees are predominantly unskilled one

can expect high formalization and centralized authority

With professional employees one might predict low formalization and decentralization

Discussion QuestionYou are evaluating an organization’s

structure. You find production activities are highly formalized, whereas level of formalization of research-design is low. Similarly, legal decisions are highly centralized, but marketing decisions are decentralized. How do you arrive at organization wide measures of organization structure if units within the organization are not homogenous?