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C H A P T E R T H I R T E E N
Designing Eective
Organizations 13
Lecture Outline
Organizational Structure: The Basic
Dimensions of Organizations
Hierarchy of Authority
Span of Control
Division of Labor
Line Versus Sta Positions
Decentralization
Departmentalization: Ways of Structuring
Organization
Functional Organizations
Product Organizations
Matrix Organizations
Organizational Design
Classical and Neoclassical Approaches
The Contingency Approach
Mintzberg’s Framework
The Vertically Integrated Organization
Interorganizational Designs
Boundaryless Organizations
Conglomerates
Strategic Alliances
This chapter examines the .led of organizational
structure and organizational design. The formal
con.guration between individuals and groups with
respect to the allocation of tasks, responsibilities, and
authority is known as organizational structure. The
.ve elements of organization structure are:
hierarchy, division of labor, span of control, line
versus sta positions, and decentralization.
Departmentalization is the combination of people
into departments in organizations. There are several
approaches examined in this chapter: (1) functional
organization, (2) product organization, and (3) matrix
organization. The contingency approach to
organizational design is based on the belief that
external environments within which organizations
operate should in6uence the choice of design. A key
factor is the degree to which the organization is
subject to change. In a stable environment, a
mechanistic organization is most appropriate. In a
turbulent environment, organic organization would be
most eective. Henry Mintzberg suggests that
depending on which groups are in power one of .ve
organizational designs (simple structure, machine
bureaucracy, professional bureaucracy, divisional
structure, or adhocracy) will emerge. In addition to
intraorganizational design (the arrangement of units
within an organization), .rms may create
interorganizational designs that combine more that
one organization including boundaryless, modular,
and virtual. Boundaryless organizations are designed
so that there is no chain of command, the span of
control is unlimited and empowered teams replace
rigid departments. Modular organizations outsource
secondary aspects of the company’s operations.
Finally, virtual organizations combine forces with
others on a temporary basis to form new
organizations. Other interorganizational designs are
conglomerates and strategic alliances. Strategic
alliances operate along a continuum ranging from
mutual service consortia through value chains.
©2013 Pearson Education, Inc. publishing as Prentice Hall 70
ANNOTATED OUTLINE
1. ORGANIZATIONAL STRUCTURE: THE BASIC DIMENSIONS OF ORGANIZATIONS
Organizational structure - the formal con.guration between individuals and
groups with respect to the allocation of tasks, responsibilities, and authority
within organizations
Organization chart ― a diagram that represents how various tasks or
functions are interrelated within the organization
Reporting relationships – who answers to whom
A. Hierarchy of authority: up and down the organizational ladder
1. Hierarchy of authority ― the distinction between higher-level
individuals and lower-level individuals
2. Downsizing – eliminating entire levels of organizational structure
B. Span of control: breadth of responsibility
1. Span of control ― number of people formally required to report to
each individual manager
a. Tall ― organizations with many levels
b. Flat ― organizations with few levels
c. Wide span of control ― responsibility for many individual
reports; organization has a 6at hierarchy
d. Narrow span of control ― responsibility for few individual
reports; organization has a tall hierarchy
C. Division of labor: carving up the work to be done
1. Division of labor ― tasks to be performed within an organization are
divided into specialized jobs
a. The more specialized are jobs, the narrower the range
incumbents are required to perform
D. Line versus sta positions: decision makers versus advisers
1. Line positions ― decision-making power
2. Sta& positions ― provides advice and recommendations
E. Decentralization: delegating power downward
1. Centralization ― tendency for a few powerful individuals or groups to
hold most of the decision making power
2. Decentralization ― process of delegating power from higher to lower
levels within the organization
a. Employees respond to dierent levels of centralization based on
perceptions of fairness.
2. DEPARTMENTALIZATION: WAYS OF STRUCTURING ORGANIZATIONS
Departmentalization – ways of organizing companies into coherent units
A. Functional organizations: departmentalization by task
1. Functional organizations – departmentalize people by functions
they perform
a. Most basic approach to departmentalization
i. As organizations grow in complexity, more departments
are added or deleted as the need arises
ii. Avoids duplication of eort and takes advantage of
economies of scale
©2013 Pearson Education, Inc. publishing as Prentice Hall 71
iii. Could cause narrow-mindedness and discourage
innovation
B. Product organizations: departmentalization by type of output
1. Product organization – creates self-contained divisions each of which
is responsible for everything to do with a certain product or group of
products
a. Drawbacks ― loss of economies of scale from the duplication of
various departments within operating units
1. Problems of coordination across product lines may arise
C. Matrix organizations - departmentalization by both function and product
1. Matrix organization – combines both the function and product forms
of departmentalization
a. Types of bosses
i. Employee is required to report to both a functional
manager and a product manager (dual authority)
ii. Three kinds of bosses: top leader, matrix bosses, and
two-boss managers
iii. Matrix boss has authority over function or product
iv. Two-boss managers report to both functional and
product manager
b. When are matrix organizations used?
i. In complex and uncertain environments
ii. When there is a need for economies of scale in the use
of internal resources
c. Degree of permanence
i. Permanent overlay – project teams are kept going
after a project is completed
a. Mature matrix both functional and product lines
are permanent and equally strong in the
organization
ii. Temporary overlay - projects are crossed with
functions on a short-term basis
d. Advantages and disadvantages:
i. They permit 6exible use of human resources
ii. They oer an eCcient means of responding quickly to a
changing, unstable environment
iii. They enhance communication among managers
iv. They create frustration and stress as a result of the dual
reporting system
3. ORGANIZATIONAL DESIGN: COORDINATING THE STRUCTURAL ELEMENTS OF
ORGANIZATIONS
Organizational design ― process of coordinating the structural elements of
organizations in the most appropriate manner
A. Classical and neoclassical approaches: the quest for the one best design
1. Classical organizational theory ― eective organizations are those
with a formal hierarchy, a clear set of rules, specialization of labor,
highly routine tasks, and a highly impersonal working environment
a. Ideal form ― bureaucracy (Max Weber)
2. Neoclassical organizational theory ― attempt to improve classical
approach; emphasizes the need to pay attention to basic human needs
©2013 Pearson Education, Inc. publishing as Prentice Hall 72
a. Organizations designed with 6at hierarchies, high degree of
decentralization
B. The contingency approach: design according to environmental conditions
1. The contingency approach to organizational design - design based
on environmental conditions
a. Based on belief that most appropriate way to design
organizations depends on the external environments within
which they operate
i. The external environment – the sum of all the forces
impinging on an organization with which it must deal
eectively if it is to survive
(a). How stable the environment is (unchanging)
(b). How unstable (turbulent) the environment is
ii. Mechanistic versus organic organizations: designs for
stable versus turbulent conditions
(a). Mechanistic organization ― people perform
specialized jobs, many rigid rules, authority
vested in a few top ranking oCcials
Eective when environment is stable
(b). Organic organization ― jobs tend to be very
general, few rules, decisions made by low-level
employees
Eective when the environment is turbulent
Self-Assessment Exercise Which Do You Prefer ― Mechanistic or Organic
Organizations?
Students should consider the following upon completion of the exercise.
1. How did you score? That is, which organizational form, mechanistic or organic, did
this exercise suggest that you prefer?
2. Think back over the jobs you’ve had. For the most part, have these been in
organizations that were mechanistic or organic?
3. Do you think you were any more committed to organizations in which you worked
whose designs matched your preferences as compared to those in which there was a
mismatch?
C. Mintzberg’s Framework: Five Organizational Forms
1. Organizations are composed of .ve basic elements - the one that
dominates determines the most eective organizational design.
a. Operating core – employees who perform the basic work
©2013 Pearson Education, Inc. publishing as Prentice Hall 73
D. The vertically integrated organization
1. Vertically integrated organizations - companies that own their own
E. Team-based organizations
1. Team-based organizations – autonomous work teams are organized
4. INTERORGANIZATIONAL DESIGNS: JOINING MULTIPLE ORGANIZATIONS
Intraorganizational designs – the arrangements of units within one
A. The boundaryless organization: business without barriers
1. Boundaryless organization - organization in which chains of
Winning
Practices
When Is It Time To Go Virtual?
Use Winning Practices for a discussion on Virtual Organizations.
B. Conglomerates: Diversi.ed “Megacorporations”
1. Conglomerate - when an organization diversi.es by adding an
C. Strategic alliances: joining forces for mutual bene.t
1. Strategic alliance - organizational design in which two or more
©2013 Pearson Education, Inc. publishing as Prentice Hall 74
a. Mutual service consortia ― arrangements between two
b. Value-chain partnerships ― alliances between companies
c. Joint ventures ― arrangements where companies work
3. Strategic alliances in the global economy
a. Popular between companies from developed countries and
1. Market access
2. Exchange technology and manufacturing services
4. An alternative to the joint venture
a. Spino& ― an entirely new company separate from the original
You Be the Consultant Suggested Answers
1. What would you recommend with respect to the following structural variables:
hierarchy of authority (tall or at?), division of labor (specialized or not?), span of
control (wide or narrow?), and degree of centralization (highly centralized or highly
decentralized?). Explain the reasons behind your recommendations.
Student answers will vary. Key points are presented in bullet form.
2. How do you think the company should be departmentalized—by task (functional), by
output (product), both task and output (matrix), or process (horizontal)? What are the
reasons for these conclusions?
3. If the company were thinking about entering into a strategic alliance with another,
what factors would have to be considered? What kind of company would be an
e)ective partner in an alliance with this software *rm?
©2013 Pearson Education, Inc. publishing as Prentice Hall 75
©2013 Pearson Education, Inc. publishing as Prentice Hall 76
