Ch-5 and 6

Organizational Structure and Authority

Defining Organizational Structure

• Discuss the traditional and contemporary views of work specialization,
chain of command, and span of control.
• Describe each of the five forms of departmentalization.
• Differentiate, authority, responsibility, and unity of command.
• factors influencing the amount of centralization and decentralization.
• Contrast mechanistic and organic organizations.
• How organizational size affects organizational design?
• Explain how environmental uncertainty affects organizational design.
• Explain team, matrix, and project structures.
• Describe the design of virtual and network organizations.
Defining Organizational Structure

Organizing is the process of:

-identifying the activities to be performed,
-grouping these activities into work units,
-assigning tasks to the various job positions,
-establishing the relationship of authority and responsibility.

The process of arranging people and other resources to work

together to accomplish a goal.
 Exhibit 5–1 Purposes of Organizing

1. Divides work to be done into specific jobs and departments.

2. Assigns tasks and responsibilities associated with individual job
3. Establishes relationships among individuals, groups, and
departments.
4. Establishes formal lines of authority.
5. Allocates and deploys organizational resources.
Types of Organizations
These are 2 types of organizations: Formal and informal
1. Formal organization - is characterized by well-defined authority -
reporting relationships, job titles, policies, procedures, specific job
duties and a host of other factors necessary to accomplish its
respective goals.
• It is represented by a printed chart that appears in organizational
manuals and other formal company documents called organization
chart.
• Organization chart is a diagram of formal relationship which shows
how departments are tied together along the principal lines of
authority.
 2. Informal organization
- is a network of personal and social relationships that arises
spontaneously as people associate with one another in a
work environment.
- It is an unofficial network of personal and social relations
developed as a result of association or working together.
E.g. the Chess group, the Morning Coffee group, the sport
team, etc.
- It operates outside formal authority relationships.
- It doesn’t have legal personality.
Organizational Design
When managers create or change the structure, they’re
engaged in organizational design, a process that involves
decisions about six key elements:

1. Work specialization
2. Departmentalization
3. Chain of command
4. Span of control
5. Centralization and decentralization
6. Formalization
 Organizational Structure
1. Work Specialization
 The degree to which tasks in the organization are divided
into separate jobs with each step completed by a
different person.
 Overspecialization can result in human diseconomies from
boredom, offers no challenge or stimulation, poor quality,
increased absenteeism, and higher turnover.
 Ex. To meet daily output goals, the workers specialize in job tasks
such as molding, stitching and sewing, fastening, and so forth.

 Most managers today continue to see work specialization

as important because it helps employees be more efficient.
 2. Departmentalization
 After deciding what job tasks will be done by whom, common
work activities need to be grouped together so work gets done
in a coordinated and integrated way.
 How jobs are grouped together is called departmentalization.

 For instance, a hotel might have departments such as:

 Front desk operations,
 Sales and catering,
 Housekeeping and laundry, and
 Maintenance.
 Type of Departmentalization
1. Functional-The most common base 4. Process
for departmentalization, especially Grouping jobs on the basis of product
among smaller organizations or customer flow
Grouping jobs by functions performed 5. Customer
2. Product Grouping jobs by type of customer
Grouping jobs by product line and needs
3. Geographical
Grouping jobs on the basis of territory
or geography
Cont’d…
1. Functional- Groups employees based on work performed (e.g.,
engineering, accounting, information systems, human resources)
2. Product Groups employees based on major product areas in the
corporation (e.g., women’s footwear, men’s footwear, and apparel
and accessories)
3. Customer Groups employees based on customers’ problems and
needs (e.g., wholesale, retail, government)
4. Geographic Groups employees based on location served (e.g.,
North, South, Midwest, East)
5. Process Groups employees based on the basis of work or customer
flow (e.g., testing, payment). —like that found in many government
offices or in health care clinics.
 Exhibit 5–2 Functional Departmentalization

• Advantages
• Efficiencies from putting together similar specialties and people with
common skills, knowledge, and orientations
• In-depth specialization
• Disadvantages
• Poor communication across functional areas
• Limited view of organizational goals
 Exhibit 5–2 (cont’d) Geographical Departmentalization

• Advantages
• More effective and efficient handling of specific regional issues
that arise
• Serve needs of unique geographic markets better
• Disadvantages
• Duplication of functions
• Can feel isolated from other organizational areas
Exhibit 5–2 (cont’d) Product Departmentalization

C E O
C o r p o r a tio n

C o rp o ra te
M a n a g e rs

W a s h in g M a c h in e L ig h tin g T e le v is io n
D iv is io n D iv is io n D iv is io n

+ Allows specialization in particular products and services

+ Managers can become experts in their industry
+ Closer to customers

– Duplication of functions
– Limited view of organizational goals
 Exhibit 5–2 (cont’d) Process Departmentalization

+More efficient flow of work activities

–Can only be used with certain types of products
—like that found in many government offices or in
health care clinics
 Exhibit 5–2 (cont’d) Customer Departmentalization

+ Customers’ needs and problems can be met by specialists

 One popular departmentalization trend is the increasing use of customer

departmentalization.
 Because getting and keeping customers is essential for success, this
approach works well because it emphasizes monitoring and responding
to changes in customers’ needs
 3. Chain of Command
• People need to know who their boss is.
 The continuous line of authority that extends from upper levels of
an organization to the lowest levels of the organization and clarifies
who reports to who.

 Managers need to consider Chain of Command when organizing work

because it helps employees with questions such as “Who do I report
to?” or “Who do I go to if I have a problem?”
 Chain of Command (cont’d)
• To understand the chain of command, you have to understand 3 important
concepts: authority, responsibility, and unity of command.
1. Authority
 The rights to tell people what to do.
 is power that has been legitimized by the organization.
For example, when an owner–manager hires a sales representative to market his
products, he needs to give the new employee appropriate authority to make
decisions about delivery dates, discounts, and so forth.

 Two specific issues that managers must address when distributing

authority are delegation and decentralization.

 Delegation is the process by which managers assign a portion of their total

workload to others.
4. Decentralization
 is the process of systematically delegating power and authority
throughout the organization to middle and lower-level managers.

 The early management writers distinguished between two forms of

authority: line authority and staff authority.

 line managers work directly toward organizational goals, whereas

staff managers advise and assist.

 Perhaps the most important form of staff authority is called

functional authority—formal or legitimate authority over activities
related to the staff member’s specialty.
For example, a human resource staff manager may have functional authority when there is a
question of discrimination in hiring.
 Responsibility-
 When managers use their authority to assign work to employees, those
employees take on an obligation to perform those assigned duties and
they are accountable if they failed to discharge thier responsibility

Unity of Command
 The concept that a person should have one boss and should report only
to that person.
TODAY’S VIEW Although early management theorists (Fayol, Weber, Taylor, Barnard)
believed that chain of command, authority (line and staff), responsibility, and unity of
command were essential, times have changed.
• Many employees, especially in organizations where work revolves around projects, find
themselves reporting to more than one boss, thus violating the unity of command principle.
 5. Span of Control
• The number of employees who can be effectively and efficiently supervised by a
manager.
• The traditional view was that managers should not—directly supervise more than
5/6 subordinates.

Most effective and efficient span depends on:

 Employee experience and training (more they have, larger span)
 Similarity of employee tasks (more similarity, larger span)
 Complexity of those tasks (more complex, smaller span)
 Physical proximity of employees (closer proximity, larger span)
 Amount and type of standardized procedures (more standardized, larger span)
 Sophistication of the organization’s management information system (more
sophisticated, larger span)
 Cont’d…
• Managers are beginning to recognize that they can handle a wider span
when employees know their jobs well and when those employees
understand organizational processes.

• Spans also take into account the nature of the work and the needs of
employees.

• For instance, managers with well-trained and experienced employees can

function well with a wider span.

For instance, at one Nissan plant, 300 supervisors are responsible for 4,300 employees
 Organization Structure (cont’d)
• One of the questions that needs to be answered when organizing is “At
what organizational level are decisions made?”
• Centralization
 The degree to which decision-making is concentrated at a single point in
the organizations.
 Organizations in which top managers make all the decisions and lower-
level employees simply carry out those orders.
• Decentralization
 Organizations in which decision-making is pushed down to the managers
who are closest to the action.
• Employee Empowerment
 Increasing the decision-making authority (power) of employees.
 In large companies especially, lower-level managers are “closer to the
action” and typically have more detailed knowledge about problems and
know how to solve them than top managers
 Exhibit 5–4 (cont’d) Factors that Influence the Amount of
Centralization

• More Decentralization
 Lower-level managers are capable and experienced at making
decisions.
 Lower-level managers want a voice in decisions.
 Corporate culture is open to allowing managers to have a say in
what happens.
 Company is geographically dispersed.
 Effective implementation of company strategies depends on
managers having involvement and flexibility to make decisions.
 Exhibit 5–4 Factors that Influence the Amount of Centralization

• More Centralization
 Lower-level managers are not as capable or experienced at making
decisions as upper-level managers.
 Lower-level managers do not want to have a say in decisions.
 Organization is facing a crisis or the risk of company failure.
 Effective implementation of company strategies depends on managers
retaining say over what happens.
 6. Formalization
 The degree to which jobs within the organization are standardized
and
 the extent to which employee behavior is guided by rules and
procedures.
 Highly formalized jobs offer little discretion over what is to be
done.
 Low formalization means fewer constraints on how employees do
their work.
 Although some formalization is necessary for consistency and
control, many organizations today rely less on strict rules and
standardization to guide and regulate employee behavior
 Organizational Design Decisions
• Mechanistic Organization Organic Organization
 A rigid and tightly controlled structure Highly flexible and adaptable structure
 High specialization Non-standardized jobs
 Rigid departmentalization Fluid team-based structure
 Narrow spans of control Little direct supervision
 High formalization Minimal formal rules
 Limited information network (downward) Open communication network
 Low decision participation Empowered employees
 Structural decisions are influenced by:
1. Overall strategy of the organization
 Organizational structure follows strategy.

For instance, the flexibility and free-flowing information of the organic structure
works well when an organization is pursuing innovations.

 The mechanistic organization with its efficiency, stability, and tight controls
works best for companies wanting to tightly control costs

2. Size of the organization

 Firms change from organic to mechanistic organizations as they grow in size.
 Large organizations— with more than 2,000 employees—tend to have more
specialization, departmentalization, centralization, and rules and regulations
than do small organizations
3. Technology use by the organization
 Firms adapt their structure to the technology they use.
 Organizations adapt their structures to their technology(i.e unit/mass
production) depending on how routine their technology is for
transforming inputs into outputs.
 In general, the more routine the technology, the more mechanistic the
structure can be, and organizations with more non routine technology are
more likely to have organic structures.
4. Degree of environmental uncertainty
 Dynamic environments require organic structures; mechanistic structures
need stable environments.
 Worldwide economic downturns, global competition, accelerated product
innovation by competitors, and increased demands from customers for
high quality and faster deliveries are examples of dynamic environmental
forces.
 Mechanistic organizations are not equipped to respond to rapid
environmental change and environmental uncertainty.
 Common Organizational Designs
• Traditional Designs
1. Simple structure Most companies start as entrepreneurial ventures
using a simple structure with
Low departmentalization, wide spans of control, centralized authority,
little formalization

2. Functional structure
Departmentalization by function
Operations, finance, human resources, and product R&D

3. Divisional structure
 Composed of separate business units or divisions with limited autonomy
under the coordination and control the parent corporation.
Exhibit 5–7 Strengths and Weaknesses of Traditional
Organizational Designs
 Contemporary Organizational Designs
 Team structures
 The entire organization is made up of work groups or self-
managed teams of empowered employees.
 Matrix and project structures
 Specialistsfrom different functional departments are assigned to
work on projects led by project managers.
 Matrix and project participants have two managers.
 Inproject structures, employees work continuously on projects;
moving on to another project as each project is completed.
Exhibit 5–9 An Example of a Matrix Organization
Contemporary Organizational Designs (cont’d)
 Boundaryless Organization
A flexible and unstructured organizational design that is intended
to break down external barriers between the organization and its
customers and suppliers.
 Removes internal (horizontal) boundaries:
– Eliminates the chain of command
– Uses empowered teams rather than departments
 Eliminates external boundaries:
 Uses
1. virtual,
2. network, and
3. modular organizational structures to get closer to stakeholders.
 Removing External Boundaries
1. Virtual Organization
 An organization that consists of a small core of full-time employees and
that temporarily hires specialists to work on opportunities that arise.
Ex. an e-mail marketing firm who work from home or offices.
2. Network Organization
 A small core organization that outsources its major business functions
(e.g., manufacturing) in order to concentrate what it does best.
 Ericsson contracts its manufacturing and even some of its research and
development to more cost-effective contractors in New Delhi, Singapore,
3. Modular Organization
 A manufacturing organization that uses outside suppliers to provide
product components for its final assembly operations.
 Coordinating Activities

• The activities of the departments must be linked to attain the

organizational goals.
• This is accomplished by coordination—the process of linking the activities
of the various departments of the organization.
• The greater the interdependence between departments, the more
coordination the organization requires
There are 3 major forms of interdependence: pooled, sequential, and reciprocal.

1.Pooled interdependence represents the lowest level of interdependence.

• Units with pooled interdependence operate with little interaction—the
output of the units is pooled at the organizational level.
• Eg. A clothing stores at different location operate with pooled
interdependence. Each has its own operating budget, staff, etc
Cont’d
2. In sequential interdependence, the output of one unit becomes the
input for another in a sequential fashion
• Ex. At Nissan, one plant assembles engines and then ships them to a
final assembly site at another plant, where the cars are completed.
3. Reciprocal interdependence exists when activities flow both ways
between units.
Ex. Within a Marriott hotel, the reservations department, front-desk check-in, and
housekeeping are all reciprocally interdependent.

• Reservations has to provide front-desk employees with information

about how many guests to expect each day, and housekeeping needs
to know which rooms require priority in cleaning
Structural Coordination Techniques

Techniques for achieving coordination

1. The Managerial Hierarchy Organizations that use the hierarchy to
achieve coordination place one manager in charge of interdependent
departments or units.
In Walmart distribution centers, major activities include receiving and unloading
bulk shipments from railroad cars and loading other shipments onto trucks for
distribution to retail outlets.

2. Rules and Procedures Routine coordination activities can be handled

via rules and standard procedures.
In the Walmart distribution center, an outgoing truck shipment has
priority over an incoming rail shipment
 3.Liaison Roles
As a device for coordination, a manager in a liaison role coordinates
interdependent units by acting as a common point of contact.
This individual may not have any formal authority over the groups but
instead simply facilitates the flow of information between units.
Two engineering groups working on component systems for a large project
might interact through a liaison.
4. Task Forces A task force may be created when the need for
coordination is acute.
When interdependence is complex and several units are involved, a
single liaison person may not be sufficient
5. Integrating departments are occasionally used for coordination.
These are somewhat similar to task forces but are more permanent. A
study found that successful firms in the plastics industry, which is
characterized by complex & dynamic environments, used integrating
departments to maintain internal coordination.
6. Electronic Coordination
• Recent advances in electronic information technology are
also providing useful mechanisms for coordination.
• Ex. E-mail, makes it easier for people to communicate
with one another.
• This communication, in turn, enhances coordination.
Today’s Organizational Design Challenges
Managing Global Structural Issues
• For instance, one study showed that formalization—rules
and bureaucratic mechanisms—may be more important in
less economically developed countries and less important
in more economically developed countries where employees
may have higher levels of professional education and
skills.
• Other structural design elements may be affected by
cultural differences as well.
 The Learning Organization
 An organization that has developed the capacity to continuously learn,
adapt, and change through the practice of knowledge management by
employees.
 Characteristics of a learning organization:
 An open team-based organization design that empowers employees
 Extensive and open information sharing
 Leadership that provides a shared vision of the organization’s future,
support and encouragement
A strong culture of shared values, trust, openness, and a sense of
community.