ORGANIZATIONAL BEHAVIOR

CHAPTER 15 – FOUNDATIONS OF ORGANIZATIONAL STRUCTURE

In Chapter 15 we will concentrate on concepts of the hamburgers and fries efficiently and aids medical specialists in
foundations of organizational structure. most health maintenance organizations. Amazon’s Mechanical
Turk program, TopCoder, and others like it have facilitated a
After studying this chapter you should be able to: new trend in microspecialization in which extremely small
1. Identify the six elements of an organization’s structure. pieces of programming, data processing, or evaluation tasks
are delegated to a global network of individuals by a program
2. Identify the characteristics of a bureaucracy.
manager who then assembles the results. For example, a
3. Describe a matrix organization. manager who has a complex but routine computer program to
write might send a request for specific subcomponents of the
4. Identify the characteristics of a virtual organization.
code to be written and tested by dozens of subcontracted
5. Show why managers want to create boundaryless organizations. individuals in the network (which spans the entire globe),
6. Demonstrate how organizational structures differ and contrast
enabling the project to be completed far more quickly than if a
mechanistic and organic structural models. single programmer were writing the parts. This emerging trend
suggests there still may be advantages to be had in
7. Analyze the behavioral implications of different organizational specialization.
designs.
An organizational structure defines how job tasks are formally
divided, grouped, and coordinated. There are six key elements
shown in Exhibit 15-1. They are Work specialization,
Departmentalization, Chain of command, Span of control,
Centralization and decentralization, and Formalization.

The second element is Departmentalization or grouping jobs

together so common tasks can be coordinated. One of the
most popular ways to group activities is by functions
performed. For example, a manufacturing manager might
organize his/her plant by separating engineering, accounting,
manufacturing, personnel, and purchasing specialists into
common departments. The advantage to this type of grouping
is obtaining efficiencies from putting like specialists together.
Let’s focus on the first of the elements, Work Specialization. Tasks can also be departmentalized by the type of product or
Henry Ford became rich and famous by building automobiles service the organization produces. Procter & Gamble recently
on an assembly line, demonstrating that work can be reorganized along these lines. Each major product—such as
performed more efficiently by using a work specialization Tide, Pampers, Charmin, and Pringles—will be placed under
strategy. Every Ford worker was assigned a specific, repetitive the authority of an executive who will have complete global
task. By breaking jobs up into small standardized tasks, Ford responsibility for that product. The major advantage to this type
was able to produce cars at the rate of one every ten seconds, of grouping is increased accountability for product
while using employees who had relatively limited skills. Work performance under a single manager. Another way to
specialization, or division of labor, describes the degree to departmentalize is on the basis of geography or territory. The
which activities in the organization are subdivided into sales function, for instance, may have western, southern, mid-
separate jobs. In essence, an entire job is broken into a western, and eastern regions. Process departmentalization
number of steps, each completed by a separate individual. By can be used for processing customers as well as products. For
the late 1940s, most manufacturing jobs in industrialized example, at the state motor vehicles office you might find:
countries were being done this way. Management saw this as Validation by motor vehicles division, Processing by the
a means to make the most efficient use of its employees’ skills. licensing department, and Payment collection by the treasury
Managers also looked for other efficiencies that could be department.
achieved through work specialization. For example, employee A final category of departmentalization is by type of customer.
skills at performing a task successfully increase through Microsoft, for instance, recently reorganized around four
repetition. Training for specialization is more efficient from the customer markets: consumers, large corporations, software
organization’s perspective. It increases efficiency and developers, and small businesses.
productivity, encouraging the creation of special inventions
and machinery. For much of the first half of this century, The assumption is that customers in each department have a
managers viewed work specialization as an unending source common set of problems and needs that can best be met by
of increased productivity. By the 1960s, there became having specialists for each.
increasing evidence that a good thing can be carried too far.
The third element is the Chain of Command. The chain-of-
The human diseconomies from specialization are boredom, command was once a basic cornerstone in the design of
fatigue, stress, low productivity, poor quality, increased organizations, it is far less important today. The chain of
absenteeism, and high turnover. They more than offset the command is "an unbroken line of authority that extends from
economic advantages. (Exhibit 15-2) In such cases, enlarging the top of the organization to the lowest echelon and clarifies
the scope of job activities could increase productivity. Most who reports to whom.” Two complementary concepts occur,
managers today recognize the economies specialization authority and unity of command. Authority is "the rights
provides in certain jobs and the problems when it’s carried too inherent to management to give orders and expect the orders
far. High work specialization helps McDonald’s make and sell to be obeyed.” The unity-of-command principle helps preserve
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the concept of an unbroken line of authority. It states that a
person should have only one superior to whom he/she is
directly responsible. A decentralized organization can act more quickly to solve
problems, more people provide input into decisions, and
Times change, and so do the basic tenets of organizational employees are less likely to feel alienated from those who
design. The concepts of chain of command have less make decisions that affect their work lives. Management efforts
relevance today because of technology and the trend of to make organizations more flexible and responsive have
empowering employees. A low-level employee today can produced a recent trend toward decentralized decision making
access information in seconds that 30 years ago was available by lower level managers, who are closer to the action and
only to top managers. Operating employees are empowered to typically have more detailed knowledge about problems than
make decisions previously reserved for management. Add the top managers. Sears and JCPenney have given their store
popularity of self-managed and cross-functional teams and the managers considerably more discretion in choosing what
creation of new structural designs that include multiple bosses, merchandise to stock. This allows those stores to compete
and you can see why authority and unity of command hold less more effectively against local merchants. Similarly, when
relevance. Many organizations still find they can be most Procter & Gamble empowered small groups of employees to
productive by enforcing the chain of command. Indeed, one make many decisions about new-product development
survey of more than 1,000 managers found that 59 percent of independent of the usual hierarchy, it was able to rapidly
them agreed with the statement, “There is an imaginary line in increase the proportion of new products ready for
my company’s organizational chart. Strategy is created by market.Research investigating a large number of Finnish
people above this line, while strategy is executed by people organizations demonstrates that companies with decentralized
below the line.” However, this same survey found that buy-in research and development offices in multiple locations were
to the organization’s strategy by lower-level employees was better at producing innovation than companies that centralized
inhibited by too much reliance on hierarchy for decision- all research and development in a single office.
making.
Last element in the model is Formalization. Formalization
The fourth element is Span of Control. How many employees refers to the degree to which jobs within the organization are
a manager can efficiently and effectively direct is an important standardized. A highly formalized job gives the job incumbent
question. All things being equal, the wider or larger the span, a minimum amount of discretion over what is to be done, when
the more efficient the organization. Exhibit 15–3 illustrates that it is to be done, and how he or she should do it. Employees
reducing the number of managers leads to significant savings. can be expected always to handle the same input in exactly
Wider spans are more efficient in terms of cost. However, at the same way. The greater the standardization, the less input
some point, wider spans reduce effectiveness. Narrow or small the employee has into how the job is done. Low formalization—
spans have their advocates. By keeping the span of control to job behaviors are relatively nonprogrammed, and employees
five or six employees, a manager can maintain close control. have a great deal of freedom to exercise discretion in their
Narrow spans have three major drawbacks. First, as already work. The degree of formalization can vary widely between
described, they are expensive because they add levels of organizations and within organizations.
management. Second, they make vertical communication in
the organization more complex. Third, narrow spans of control Standardization is the key concept for all bureaucracies. The
encourage overly tight supervision and discourage employee bureaucracy is characterized by six traits. First is a highly
autonomy. The trend in recent years has been toward wider routine operating tasks achieved through specialization.
spans of control. They are consistent with recent efforts by Second is very formalized rules and regulations. Third
companies to reduce costs, cut overhead, speed up decision- suggests that tasks that are grouped into functional
making, increase flexibility, get closer to customers, and departments. Fourth, there is a strong centralized authority.
empower employees. To ensure that performance does not Fifth is narrow spans of control. And, lastly, decision-making
suffer because of these wider spans, organizations have been follows the chain of command.
investing heavily in employee training. The bureaucracy’s primary strength is in its ability to perform
standardized activities in a highly efficient manner. Putting like
specialties together in functional departments results in
economies of scale, minimum duplication of personnel and
equipment, etc. Bureaucracies get by nicely with less talented
and less costly middle- and lower-level managers.
The bureaucracy’s weaknesses include that specialization
creates subunit conflicts, functional unit goals can override the
organization’s goals. An obsessive concern with following the
rules can develop. And, the bureaucracy is efficient only as
long as employees confront familiar problems with
programmed decision rules.
Next element is Centralization and Decentralization. The Matrix Structure is another option, It is used in advertising
Centralization refers to the degree to which decision-making is agencies, aerospace firms, research and development
concentrated at a single point in the organization. In laboratories, construction companies, hospitals, government
centralized organizations, top managers make all the agencies, universities, management consulting firms, and
decisions, and lower-level managers merely carry out their entertainment companies. It combines two forms of
directives .In organizations at the other extreme, decentralized departmentalization—functional and product. The strength of
decision-making is pushed down to the managers closest to functional departmentalization—putting like specialists
the action. The concept of centralization includes only formal together and the pooling and sharing of specialized resources
authority—that is, the rights inherent in a position. An across products Its major disadvantage is the difficulty of
organization characterized by centralization is inherently coordinating the tasks. Product departmentalization facilitates
different structurally from one that’s decentralized.
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coordination. It provides clear responsibility for all activities public pressure groups. Dynamic environments create
related to a product, but with duplication of activities and costs. significantly more uncertainty for managers than do static
ones. To minimize uncertainty, managers may broaden their
The most obvious structural characteristic of the matrix is that structure to sense and respond to threats. For example, most
it breaks the unity-of-command concept. Exhibit 15–5 shows companies, including Pepsi and Southwest Airlines, have
the matrix form as used in a college of business administration. added social networking departments to counter negative
Its strength is its ability to facilitate coordination when the information posted on blogs. Or companies may form strategic
organization has a multiplicity of complex and interdependent alliances, such as when Microsoft and Yahoo! joined forces to
activities. The dual lines of authority reduce tendencies of better compete with Google. Any organization’s environment
departmental members to protect their worlds. It facilitates the has three dimensions: capacity, volatility, and complexity. First
efficient allocation of specialists. The major disadvantages of is Capacity that is "The degree to which it can support growth.”
the matrix lie in the confusion it creates, its propensity to foster Rich and growing environments generate excess resources,
power struggles, and the stress it places on individuals. which can buffer times of relative scarcity. Second is Volatility,
Violation of unity-of-command concept increases ambiguity which refers to "the degree of instability in an environment
that often leads to conflict. Confusion and ambiguity also characterized by a high degree of unpredictable change.” The
create the seeds of power struggles. Reporting to more than environment is dynamic, making it difficult for management to
one boss introduces role conflict, and unclear expectations predict accurately the probabilities associated with various
introduce role ambiguity. decision alternatives. At the other extreme is a stable
environment. Last is Complexity or "The degree of
heterogeneity and concentration among environmental
elements.” Simple environments are homogeneous and
concentrated. In contrast, environments characterized by
heterogeneity and dispersion are called complex.
Exhibit 15-9 summarizes our definition of the environment
along its three dimensions. The arrows indicate movement
toward higher uncertainty. Thus, organizations that operate in
environments characterized as scarce, dynamic, and complex
Exhibit 15-8 describes the structural option that best matches face the greatest degree of uncertainty because they have high
unpredictability, little room for error, and a diverse set of
each strategy. Innovators need the flexibility of the organic
elements in the environment to monitor constantly. Given this
structure, whereas cost minimizers seek the efficiency and
three-dimensional definition of environment, we can offer
stability of the mechanistic structure. Imitators combine the two
structures. They use a mechanistic structure to maintain tight some general conclusions about environmental uncertainty
and structural arrangements. The more scarce, dynamic, and
controls and low costs in their current activities but create
complex the environment, the more organic a structure should
organic subunits in which to pursue new undertakings.
be. The more abundant, stable, and simple the environment,
the more the mechanistic structure will be preferred.
This chapter opened by
implying that an organization’s
structure can have significant
effects on its members. A
review of the evidence leads to
Technology refers to how an organization transfers its inputs a pretty clear conclusion: you
into outputs. Every organization has at least one technology can’t generalize! Not everyone
for converting financial, human, and physical resources into prefers the freedom and
products or services. Ford Motor Company predominantly flexibility of organic structures.
uses an assembly-line process to make its products. Colleges Different factors stand out in
may use a number of instruction technologies—the ever- different structures as well. In highly formalized, heavily
popular formal lecture method, the case analysis method, the structured, mechanistic organizations, the level of fairness in
experiential exercise method, the programmed learning formal policies and procedures is a very important predictor of
method, etc. to educate its students. satisfaction. In more personal, individually adaptive organic
organizations, employees value interpersonal justice more.
Numerous studies have examined the technology–structure Some people are most productive and satisfied when work
relationship. What differentiates technologies is their degree of tasks are standardized and ambiguity minimized—that is, in
routineness? Routine activities are characterized by mechanistic structures. So, any discussion of the effect of
automated and standardized operations. Examples are organizational design on employee behavior has to address
injection-mold production of plastic knobs, automated individual differences.
transaction processing of sales transactions, and the printing
and binding of this book. Nonroutine activities are customized Exhibit 15-10 summarizes what we’ve discussed. There are a
and require frequent revision and updating. They include few other take-home messages worth considering. Although
furniture restoring, custom shoemaking, genetic research, and specialization can bring efficiency, excessive specialization
the writing and editing of this book. In general, organizations also can breed dissatisfaction and reduced motivation. Formal
engaged in nonroutine activities tend to prefer organic hierarchies offer advantages like unification of mission and
structures, while those performing routine activities prefer goal while employees in excessively rigid hierarchies can feel
mechanistic structures. they have no power or autonomy. As with specialization, the
key is striking the right balance. Virtual and boundaryless
An organization’s environment includes outside institutions or forms are changing the face of many organizations.
forces that can affect its performance, such as suppliers, Contemporary managers should thoroughly understand their
customers, competitors, government regulatory agencies, and
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implications and recognize advantages and potential pitfalls.
Organizational downsizing can lead to major cost savings and
focus organizations around their core competencies, but it can
leave workers dissatisfied and worried about the future of their
jobs. When determining an appropriate organizational form,
managers will need to consider scarcity, dynamism, and
complexity of the environment and balance the organic and
mechanistic elements appropriate to their organization’s
environment.

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