Principles of Management

Dr. Karim KobeissiIslamic University of Lebanon - 2013

5Chapter

Organization Design andStructure

Organization Design- Definition

Organizing is the management function that creates the organization’s structure. When managers develop or change the organization’s structure, they’re engaging in organizational design, which is the process of making decisions about how specialized jobs should be, the rules to guide employees’ behaviors, and the level at which decisions will be made.

Elements in Organizational Design

The Six basic elements of organizational structure are:

1. Work specialization

2. Departmentalization

3. Chain of command

4. Span of control

5. Centralization and decentralization

6. Formalization

1. Work Specialization• Work specialization is defined as the degree to which tasks

in the organization are subdivided into separate jobs. At the Wilson Sporting Goods factory, workers making footballs specialize in job tasks—such as shaping, stitching and lacing to increase work output.

• When first introduced, work specialization almost always generated higher productivity. But at some point, the human diseconomies— fatigue, stress, low productivity, poor quality, increased absenteeism, and high turnover—exceed the economic advantages.

Work Specialization

2. Departmentalization

Early management writers argued that common work activities needed to be grouped together to get them done in a coordinated and integrated way. How jobs are grouped together is called departmentalization. There are five common forms of departmentalization, although an organization may use its own unique method.

3. Chain of Command

• Chain of Command– When organizing work, managers need to clarify who reports to whom,

which is know as the chain of command—that is, the line of authority extending from upper to lower organizational levels.

• Authority– Authority refers to the rights inherent in a managerial position to give

orders and expect the orders to be obeyed. Each management position has specific inherent rights associated with the position’s rank or title. When employees are given rights they also assume a corresponding obligation to perform and be held responsible for their performance.

• Unity of Command– A subordinate should have only one superior to whom he or she is

directly responsible

Authority and Power

• Authority – A right; legitimacy is based on authority figure’s position in the organization.

• Power – An individual’s capacity to influence decisions. Power is made up of BOTH one’s vertical managerial position and one’s distance from the organization’s power core or center.

Authority and Power: Differences

Authority and Power: Differences (con)

The cone analogy acknowledges two facts:

1. The higher one moves in an organization (an increase in authority), the closer one moves to the power core.

2. It’s not necessary to have authority to wield power because one can move horizontally (---) inward toward the power core without moving up. For instance, as gatekeepers for their bosses, assistants often are powerful in a company even though they have little authority.

Sources of Power

4. Span of Control

The number of subordinates a manager can efficiently and effectively direct

– Wider spans of control increase organizational efficiency

– Narrow span of control drawbacks:• Expense of additional layers of management• Increased complexity of vertical communication• Encouragement of overly tight supervision and

discouragement of employee autonomy

Contrasting Spans of Control

5. Centralization and Decentralization

• Centralization– The degree to which decision making is

concentrated at a single point in the organization.

• Decentralization– The degree to which decision making is spread

throughout the organization.

6. Formalization• The degree to which jobs within the organization are

standardized.

– High formalization• Employees have minimum freedom of choice in how to get the job

done• Employees are required to follow many rules and procedures

– Low formalization• Employees have maximum freedom of choice in how to get the job

done• Job behaviors are nonprogrammed

Common Organization Designs: Simple Structure

• Simple Structure– A structure characterized by a low degree of

departmentalization, wide spans of control, authority centralized in a single person, and little formalization

Common Organizational Designs: Bureaucracy/Functional

• Bureaucracy /Functional

– A structure of highly operating routine tasks achieved through specialization, very formalized rules and regulations, tasks are grouped into functional departments, centralized authority, narrow spans of control, and decision making that follows the chain of command.

Functional Structure

Common Organizational Designs: Divisional

• With a divisional structure, functional

activities are performed both centrally and in

each separate division.

• The divisional structure can be organized in

one of four ways: by geographic area, by

product , by customer, or by process.

Divisional Structure By Geographic Area

Divisional Structure By Product

New Design Options: Virtual Organization– A small, core organization that

outsources its major business functions

– Highly centralized with little or no departmentalization

• Provides maximum flexibility while concentrating on what the organization does best

• Reduced control over key parts of the business

New Design Options: Boundaryless Organization

– An organization that seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams

– T-form Concepts• Eliminate vertical (hierarchical) and horizontal

(departmental) internal boundaries• Breakdown external barriers to customers and suppliers

Two Extreme Models of Organizational Design1- The mechanistic organization naturally results from

combining the six elements of structure. The chain-of-command principle ensures 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 creates tall, impersonal structures. Because top managers can’t control lower-level activities, they substitute rules and regulations. A high degree of work specialization creates jobs that are simple, routine, and standardized. Further specialization through departmentalization increases the need for multiple layers of management to coordinate the specialized departments.

Two Extreme Models of Organizational Design

2- The organic organization is highly adaptive, loose, and flexible, which allows it to change rapidly as required. Although it has division of labor, the jobs are not standardized because the employees tend to be technically proficient professionals who are trained to handle diverse problems and whose behavior is guided by professional standards. The organic organization is low in centralization so that the professional can respond quickly to problems.

Why Structure Differ?

How an organization is structured depends on

variables such as strategy, size, technology,

and environment.

Strategy and Structure

An organization’s structure should facilitate goal achievement.

Research shows 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. In contrast, the mechanistic organization, with its

efficiency, stability, and tight controls, works best for

companies that want to tightly control costs.

Size and Structure

There’s considerable evidence that an organization’s size affects its structure. Large organizations tend to have more specialization, departmentalization, centralization, and regulations than smaller organizations do.

Technology and Structure

The Environment and Structure

• The organization’s environment has a major effect on its structure: Mechanistic organizations are most effective in stable environments and organic organizations are best matched with dynamic and uncertain environments.

• That’s why so many managers have restructured their organizations to be lean, fast, and flexible in response to such dynamic environmental forces as global competition, accelerated product innovation by competitors, knowledge management, and increased demands from customers for higher quality and faster deliveries.

• In contrast, mechanistic organizations tend to be ill-equipped to respond to rapid environmental change.

Organizational Designs and Employee Behavior• Impossible to generalize due to individual differences in the

employees

• Research findings– Work specialization contributes to higher employee productivity, but it

reduces job satisfaction.

– The benefits of specialization have decreased rapidly as employees seek

more intrinsically rewarding jobs.

– The effect of span of control on employee performance is contingent

upon individual differences and abilities, task structures, and other

organizational factors.

– Participative decision making in decentralized organizations is positively

related to job satisfaction.

• People seek and stay at organizations that match their needs.

Summary and Managerial Implications

• Structure impacts both the attitudes and behaviors of the people within it

• Impact of Technology– Makes it easier to change structure to fit employee

and organizational needs

Associated with