FOUNDATIONS OF ORGANIZATIONAL STRUCTURE Overview

organizational behavior  FOUNDATIONS OF ORGANIZATIONAL STRUCTURE Overview

No other topic in management has undergone as much change in the past few years as that of organizing and organizational structure. Traditional approaches to organizing work are being questioned and reevaluated as managers search out structural designs that will best support and facilitate employees’ doing the organization’s work—ones that can achieve efficiency but also have the flexibility that’s necessary for success in today’s dynamic environment. Recall that organizing is defined as the process of creating an organization’s structure. That process is important and serves many purposes. The challenge for managers is to design an organizational structure that allows employees to effectively and efficiently do their work. Just what is an organization’s structure? An organizational structure is the formal framework by which job tasks are divided, grouped, and coordinated. When managers develop or change an organization’s structure, they are 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 Common

Organizational Structure and Design


organizational behavior  FOUNDATIONS OF ORGANIZATIONAL STRUCTURE Overview


to All Organizations

Organizational Structure

  • The formal pattern of how people and jobs are grouped in an organization.

Organizational Design

  • The decisions and actions that result in organizational structure.

organizational behavior  FOUNDATIONS OF ORGANIZATIONAL STRUCTURE Overview

What Determines Organizational Structure?

  • To what degree are tasks subdivided into separate jobs?
  • On what basis will jobs be grouped together?
  • To whom do individuals and groups report?
  • How many individuals can a manager efficiently and effectively direct?
  • Where does decision-making authority lie?
  • To what degree will there be rules and regulations to direct employees and managers?

The Basics of Organizational Structure

  • Organizational structure defines how job tasks are formally divided, grouped, and coordinated.
  • The organization chart is a visual representation of this division, grouping, and coordination.

Early in the twentieth century, Henry Ford used this concept in an assembly line where every Ford worker was assigned a specific, repetitive task. By breaking jobs into small standardized tasks, which could be performed over and over again, Ford was able to produce cars at the rate of one every 10 seconds, while using relatively low-skilled workers.

Today we use the term work specialization to describe the degree to which tasks in an organization are divided into separate jobs. The essence of work specialization is that an entire job is not done by one individual but instead is broken down into steps, and each step is completed by a different person. Individual employees specialize in doing part of an activity rather than the entire activity.

During the first half of the twentieth century, managers viewed work specialization as an unending source of increased productivity. And for a time it was! Because it wasn’t widely used, when work specialization was implemented, employee productivity rose. By the 1960s, however, it had become evident that a good thing could be carried too far. The point had been reached in some jobs where human diseconomies from work specialization—boredom, fatigue, stress, poor quality, increased absenteeism, and higher turnover—more than offset the economic advantages. In such instances, worker productivity could be increased by enlarging, not narrowing, the scope of job activities. In addition, managers found that employees, who were given a variety of work to do, allow doing the activities necessary to complete a whole job, and put into teams with interchangeable skills often achieved significantly higher output with increased employee satisfaction.

Most managers today see work specialization as an important organizing mechanism but not as a source of ever-increasing productivity. They recognize the economies it provides in certain types of jobs, but they also recognize the problems it creates when it’s carried to extremes.

Mechanistic types of organizational

The Basics of Organizational

structures tend to be efficiency machines, well oiled by rules, Structure regulations, standardized tasks, and

anistic Structures

anistic Structures

similar controls. This organizational design tries to minimize the impact of • Division of Labor

• Horizontal/Vertical

differing personalities, judgments, and

Differentiation

ambiguity because these human traits

• Clear Chain of Command

are seen as inefficient and inconsistent. Although no pure form of a mechanistic • Narrow Spans of Control organization exists in reality, almost all

• Relatively Centralized

large corporations and governmental

• Direct Supervision

agencies have at least some of these mechanistic characteristics.

  • Cross-Functional Teams
  • Personal/Spatial Differentiation
  • Multiple Chain of Command
  • Wide Spans of Control
  • Relatively Decentralized
  • Self-Managed

In direct contrast to the mechanistic form of organization is the organic organization, which is as highly adaptive and flexible a structure as the mechanistic organization is rigid and stable. Rather than having standardized jobs and regulations, the organic organization is flexible, which allows it to change rapidly as needs require. Organic organizations have division of labor, but the jobs people do are not standardized. Employees are highly trained and empowered to handle diverse job activities and problems, and these organizations frequently use employee teams. Employees in organic-type organizations require minimal formal rules and little direct supervision. Their high levels of skills and training and the support provided by other team members make formalization and tight managerial controls unnecessary.

When is a mechanistic structure preferable and when is an organic one more appropriate? Let’s look at the key contingency factors that influence the decision.

Organizational Structure

  • How job tasks are formally divided, grouped and coordinated
  • How parts of organization fit together to coordinate employees to achieve organizational goals.
  • Formal structure shows the intended configuration of positions, job duties and the lines of authority among different parts of the enterprise.

Work Specialization

• The degree to which tasks in the organization are subdivided into separate jobs.

Departmentalization

• The basis by which jobs

are grouped together. Once jobs have been divided up through work specialization, they have to be grouped back together so that common tasks can be coordinated. The basis by which jobs are grouped together is called departmentalization. Every organization will have its own specific way of classifying and grouping work activities.

Functional departmentalization groups jobs by functions performed. This approach can be used in all types of organizations, although the functions change to reflect the organization’s objectives and work activities. Product departmentalization groups jobs by product line. In this approach, each major product area is placed under the authority of a manager who’s a specialist in, and is responsible for, everything having to do with that product line. Geographical departmentalization groups jobs on the basis of territory or geography such as southern, Midwestern, or northwestern regions for an organization operating only in the United States; or for a global company, maybe U.S., European, Canadian, and Asian-Pacific regions. Process departmentalization groups jobs on the basis of product or customer flow. In this approach, work activities follow a natural processing flow of products or even of customers. Finally, customer departmentalization groups jobs on the basis of common customers who have common needs or problems that can best be met by having specialists for each.

Large organizations often combine most or all of these forms of departmentalization. For example, a major Japanese electronics firm organizes each of its divisions along functional lines, its manufacturing units around processes, its sales units around seven geographic regions, and its sales regions into four customer groupings.

Two trends are currently popular regarding departmentalization. First, customer departmentalization is increasingly being used as an approach to better monitor customers’ needs and to be better able to respond to changes in those needs. For example, L. L. Bean organized around a half-dozen customer groups on the basis of what customers generally purchased. This arrangement allowed the company to better understand its customers and to respond faster to their needs. Second, managers are using cross-functional teams, groups of individuals who are experts in various specialties and who work together. For instance, at Thermos Corporation (known worldwide for its beverage containers and lunch boxes) flexible interdisciplinary teams replaced the old tradition-bound functionally departmentalized structure. One of these teams—the Lifestyle Team—developed a new electric grill that has been extremely popular with consumers. This team of individuals from engineering, marketing, and manufacturing was involved in every aspect of bringing this winning product to market—from defining the target market, to defining the product, to working with manufacturing on a feasible design.

organizational behavior  FOUNDATIONS OF ORGANIZATIONAL STRUCTURE Overview

For many years, the chain-of-command concept was a cornerstone of organizational design. As you’ll see, it has far less importance today. But contemporary managers still need to consider its implications when deciding how best to structure their organizations.

The chain of command is the continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who reports to whom. It helps employees answer questions such as “Who do I go to if I have a problem?” or “To whom am I responsible?”

You can’t discuss the chain of command without discussing three other concepts: authority, responsibility, and unity of command. Authority refers to the rights inherent in a managerial position to tell people what to do and to expect them to do it. To facilitate decision making and coordination, an organization’s managers are part of the chain of command and are granted a certain degree of authority to meet their responsibilities. As managers coordinate and integrate the work of employees, those employees assume an obligation to perform any assigned duties. This obligation or expectation to perform is known as responsibility. Finally, the unity of command principle (one of Fayol’s 14 principles of management) helps preserve the concept of a continuous line of authority. It states that a person should report to only one manager. Without unity of command, conflicting demands and priorities from multiple bosses can create problems.

Early management theorists (Fayol, Weber, Taylor, and others) were enamored with the concepts of chain of command, authority, responsibility, and unity of command. However, times change and so do the basic tenets of organizational design. These concepts are considerably less relevant today because of information technology and employee empowerment. Employees throughout the organization can access information that used to be available only to top managers in a matter of a few seconds. Also, using computers, employees communicate with anyone else anywhere in the organization without going through formal channels—that is, the chain of command. Moreover, as employees are empowered to make decisions that previously were reserved for management, as more organizations use self-managed and cross-functional teams, and as new organizational designs with multiple bosses continue to be implemented, the traditional concepts of authority, responsibility, and chain of command are becoming less relevant.

How many employees can a manager efficiently and effectively manage? This question of span of control is important because, to a large degree, it determines the number of levels and managers an organization has. All things being equal, the wider or larger the span, the more efficient the organization. An example can show why.

Assume that we have two organizations, both of which have approximately 4,100 employees. As Exhibit 10.3 shows, if one organization has a uniform span of four and the other a span of eight, the wider span will have two fewer levels and approximately 800 fewer managers. If the average manager made $42,000 a year, the organization with the wider span would save over $33 million a year in management salaries alone! Obviously, wider spans are more efficient in terms of cost. However, at some point, wider spans reduce effectiveness. That is, when the span becomes too large, employee performance suffers because managers no longer have the time to provide the necessary leadership and support.

The contemporary view of span of control recognizes that many factors influence the appropriate number of employees that a manager can efficiently and effectively manage. These factors encompass the skills and abilities of the manager and the employees and characteristics of the work being done. For instance, the more training and experience employees have, the less direct supervision they’ll need. Therefore, managers with well-trained and experienced employees can function quite well with a wider span. Other contingency variables that will determine the appropriate span include similarity of employee tasks, the complexity of those tasks, the physical proximity of subordinates, the degree to which standardized procedures are in place, the sophistication of the organization’s information system, the strength of the organization’s culture, and the preferred style of the manager.

The trend in recent years has been toward larger spans of control. Wide spans of control are consistent with managers’ efforts to reduce costs, speed up decision making, increase flexibility, get closer to customers, and empower employees. However, to ensure that performance doesn’t suffer because of these wider spans, organizations are investing heavily in employee training. Managers recognize that they can handle a wider span when employees know their jobs inside and out or can turn to co-workers if they have questions.

Centralization and Decentralization

• The concentration of authority and responsibility for decision making in the hands of managers at the top of an organization’s hierarchy (the degree to which decision making is concentrated at a single point in the organization)

Decentralization

• Distribution of authority and responsibility for decision making to managers at all levels of an organization’s hierarchy (decision discretion is pushed down to lower -level employees)

Formalization

• The degree to which jobs within the organization are standardized.

The Effect of Technology on Structure

  • The more the technology requires interdependence between individuals and/or groups, the greater the need for coordination
  • “As technology moves from routine to non-routine, subunits adopt less formalized and centralized structures”

organizational behavior  FOUNDATIONS OF ORGANIZATIONAL STRUCTURE Overview

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