Essentials of Contemporary Management

Chapter

7

PowerPoint Presentation by Charlie Cook

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-
Hill Companies, Inc., 2004. All rights reserved.

Organizing:

Designing Organizational Structure

Essentials
of
Contemporary
Management
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-
Hill. All rights reserved.

7
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Learning Objectives

•
After studying the chapter, you should be able to:


Identify the
factors that influence

managers’
choice of an
organizational structure
.


Explain
how managers group tasks into jobs

that are motivating and satisfying for employees.


Describe the
types of organizational structures

managers can design, and explain why they choose
one structure over another.


Explain why there is a need to both
centralize
and decentralized authority
.

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Learning Objectives (cont’d)


Explain
why managers must coordinate and
integrate

between jobs, functions, and divisions
as an organization grows.


Explain why managers who seek new ways to
increase efficiency and effectiveness are using
strategic alliances and network structures
.

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Organizational Structure

•
Organizational Architecture


The organizational
structure
,
control

systems,
culture
, and
human

resource management systems
that together determine how efficiently and
effectively organizational resources are used.

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Designing Organizational Structure

•
Organizing


The process by which managers establish
working
relationships

among employees to achieve goals.

•
Organizational Structure


Formal system of
task

and
reporting

relationships
showing how workers use resources.

•
Organizational design


The process by which managers make specific
choices that result in a particular kind of
organizational structure.

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Factors Affecting Organizational Structure

Figure 7.1

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Determinants of Structure

•
The Organizational
Environment


The quicker the environment changes, the more
problems face managers.


Structure must be more flexible (i.e., decentralized
authority) when environmental change is rapid.

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Determinants of Structure

•
Strategy


Different strategies require the use of different
structures.

•
A differentiation strategy needs a flexible structure,
low cost may need a more formal structure.

•
Increased vertical integration or diversification also
requires a more flexible structure.

Chandler: Structure follows strategy

工欲善其事必先利其器

Corporate/

Business

Entities

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Determinants of Structure

•
Technology


The combination of skills, knowledge, tools,
equipment, computers and machines used in the
organization.


More complex technology makes it harder for
managers to regulate the organization.

•
Organizations utilizing
complex

technology require a
flexible structure to be managed efficiently.

•
Organizations utilizing
routine

technology can be
more readily managed using a formal structure.

•
Organizations with high employee
interaction

requirements need a flexible structure.

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Types of Technology

•
Small Batch Technology


Small quantities of one
-
of
-
a
-
kind products are
produced by the skills of the workers who work
together in small groups.

•
Appropriate structure is
decentralized

and flexible.

•
Mass Production Technology


Automated machines that are programmed to make
high volumes of standard products.

•
Formal

structure is the best choice for workers who
must perform repetitive tasks.

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Determinants of Structure

•
Human Resources


Highly skilled workers whose jobs require working
in teams usually need a more
flexible

structure.


Higher skilled workers (e.g., CPA’s and doctors)
often have internalized professional
norms
.

•
Managers must take into account all four
factors (environment, strategy, technology and
human resources) when designing the
structure of the organization.

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Organization Structure Issues

•
How to group
tasks

into individual jobs.

•
How to group
jobs

into functions and divisions.

•
Coordinating
functions

and divisions.

•
Allocating
authority
.

•
Types of
integrating

mechanisms.

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Grouping Tasks Into Jobs: Job Design

•
Job Design


The process by which managers decide how to divide
tasks into specific jobs.

•
Division of Labor


Splitting the work

to be performed into particularly
impersonal

tasks

and assigning tasks to individual workers.



The appropriate division of labor results in an effective
and efficient workforce.

•
Job Simplification


Reducing the tasks each worker performs: too much
simplification results in
boredom
.

Enhance specification and

independence

Internal cohesion and

external decoupling

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Job Design

•
Job
Enlargement


Increasing the number of tasks for a given job by
changing the division of labor.


The intention is to reduce boredom and fatigue by
increasing variety of tasks performed.

•
Job
Enrichment


Increasing the degree of responsibility a worker has
over a job.

•
Intended to increase worker involvement and self
-
discretion.

•
Requires a flexible organizational structure to allow
employees to act flexibly and creatively.

Increase the width of task

Increase the depth of task

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The Job Characteristics Model

Figure 7.2

Source: Adapted from J. R. Hackman and G. R. Oldham,
Work Redesign

(Reading, MA: Addison
-
Wesley, 1980).

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Job Characteristics Model

Job Characteristic

Skill variety

Employee uses a wide range of skills.

Task identity

Worker is involved in all tasks of the job
from beginning to end of the production
process

Task significance

Worker feels the task is meaningful to
organization.

Auton
omy

Employee has freedom to schedule tasks
and carry them out.

Feedback

Worker gets direct information about how
well the job is done.


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Grouping Jobs into Functions

•
Functional Structure


An organizational structure composed of all the
departments

that an organization requires to
produce its goods or services.


Advantages

•
Encourages learning from others doing
similar

jobs.

•
Easy for managers to monitor and
evaluate

workers.


Disadvantages

•
Difficult for departments to
communicate

with others.

•
Preoccupation with own department and losing sight
of organizational
goals
.

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The
Functional
Structure of
Pier 1
Imports

Figure 7.3

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Divisional Structures

•
Divisional Structure


An organizational structure composed of separate
business units

within which are the functions that
work together to produce a specific
product

for a
specific
customer
.

•
Divisions create smaller, manageable parts of a firm.

•
Divisions develop a
business
-
level

strategy to
compete.

•
Divisions have marketing, finance, and other
functions.

•
Functional

managers report to
divisional

managers
who then report to
corporate

upper management.

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Types of Divisional Structures

•
Product

Structure


Customers are served by self
-
contained divisions
that handle a specific type of product or service.

•
Allows functional managers to
specialize

in one
product area.

•
Division managers become experts in their area.

•
Removes need for direct supervision of division by
corporate managers.

•
Divisional management improves the use of
resources.

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Types of Divisional Structures (cont’d)

•
Geographic

Structure


Each regional or a country or area with customers
with differing needs is served by a local self
-
contained division producing products that best
meet those needs.


Global geographic structure

•
Different divisions serve each world region when
managers find different problems or demands across
the globe.

•
Generally, this structure is adopted when managers
are pursuing a multidomestic strategy.

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Types of Divisional Structures (cont’d)

•
Market (Customer) Structure


Each
kind of customer

is served by a self
-
contained division


Global market (customer) structure

•
Customers in different regions buy
similar

products so
firms can
locate

manufacturing facilities and product
distribution networks where they decide is best.

•
Firms pursuing a
global strategy

will use this type of
structure.

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Product,
Market, and
Geographic
Structures

Figure 7.4

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Viacom’s 2001
Product
Structure

Figure 7.5

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Global Geographic and Global Product Structures

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Matrix Design Structure

•
Matrix

Structure


An organizational structure that simultaneously
groups people and resources
by function and
product.

•
Results in a complex network of superior
-
subordinate
reporting relationships.

•
The structure is very flexible and can respond rapidly
to the need for change.

•
Each employee has
two bosses

(functional manager
and product manager) and possibly cannot satisfy
both.

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Matrix Structure

Figure 7.6a

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Product Team Design Structure

•
Product Team Structure


The members are
permanently

assigned to the
team and empowered to bring a product to market.

•
Avoids problems of two
-
way communication and the
conflicting demands of functional and product team
bosses.


Cross
-
functional team is composed of a group of
managers from different departments working
together to perform organizational tasks.

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Product Team Structure

Figure 7.6b

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Coordinating Functions and Divisions:

Allocating Authority

•
Authority


The power to hold people accountable for their
actions and to make decisions concerning the use
of organizational resources.

•
Hierarchy of Authority


An organization’s chain of command, specifying the
relative authority of each manager.

•
Span of Control
: refers to the number of workers a
manager manages.

Authority vs. responsibility vs. accountability

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Allocating Authority (cont’d)

•
Span of Control


The
number of subordinates

who report directly to
a manager.

•
Line Manager


Managers in the direct
chain of command

who have
authority over people and resources lower down.


Primarily responsible for the production of goods or
services.

•
Staff Manager


Managers who are functional
-
area specialists that
give
advice

to line managers.

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The Hierarchy
of Authority
and Span of
Control at
McDonald’s
Corporation

Figure 7.7

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Tall and Flat Organizations

•
Tall structures have
many levels

of authority
and narrow spans of control.


As hierarchy levels increase, communication gets
difficult, creating delays in the time being taken to
implement decisions.


Communications can also become
garbled

as it is
repeated through the firm.

•
Flat structures have
fewer levels

and wide
spans of control.


Structure results in quick communications but can
lead to overworked managers.

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Flat Organizations

Figure 7.8a

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Tall Organizations

Figure 7.8b

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The Minimum Chain of Command

•
Managers should carefully evaluate:


Do the organization have the right number of
middle managers?


Can the structure be altered to
reduce levels
?

•
Centralized

and
Decentralized

of Authority


Decentralization puts more authority at lower levels
and leads to flatter organizations.

•
Works best in
dynamic
, highly competitive
environments.


Stable

environments favor centralization of
authority.

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Integrating Mechanisms

Figure 7.9

Internal coordination

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Strategic Alliances and Network Structures

•
Strategic Alliance


An agreement in which managers pool or share
firm’s resources and know
-
how with a foreign
company and the two firms share in the rewards
and risks of starting a new
venture
.

•
Network Structure:


A series of strategic alliances that an organization
creates with suppliers, manufacturers, and
distributors to produce and market a product.


Network structures allow firms to bring resources
together in a
boundary
-
less

organization.

Externally cooperative linkage

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Homework 6

•
Adam Smith, in his Wealth of Nations (Book 5,
Chapter 1, Part 3, Article 2), argued that
university teachers should not be paid salaries
but rather that they should have to rely on the
fees they can collect from the students they
teach. What would be the advantages of this
systems? What difficulties do you see with this
proposal to pay piece rates to faculty?