A. Technology
1. Technology refers to how an organization transfers its inputs into outputs.
a. Every organization has at least one technology for converting financial, human,
and physical resources into products or services.
b. The Chinese consumer electronics company Haier uses an assembly-line process
to make its products.
c. Colleges may use a number of instruction technologies—the ever-popular formal
lecture method, the case analysis method, the experiential exercise method, the
programmed learning method, etc.—to educate its students.
B. Environment
1. An organization’s environment includes outside institutions or forces that can affect
its performance, such as suppliers, customers, competitors, government regulatory
agencies, and public pressure groups.
2. Dynamic environments create significantly more uncertainty for managers than do
static ones.
3. Any organization’s environment has three dimensions: capacity, volatility, and
complexity.
a. Capacity
i. The degree to which it can support growth.
b. Volatility
i. Refers to the degree of instability in an environment.
c. Complexity
i. The degree of heterogeneity and concentration among environmental
elements.
d. In contrast, environments characterized by heterogeneity and dispersion are called
complex.
4. Exhibit 15-9 summarizes our definition of the environment along its three
dimensions.
a. The arrows indicate movement toward higher uncertainty.
b. Thus, organizations that operate in environments characterized as scarce,
dynamic, and complex face the greatest degree of uncertainty because they have
high unpredictability, little room for error, and a diverse set of elements in the
environment to monitor constantly.
5. Given this three-dimensional definition of environment, we can offer some general
conclusions about environmental uncertainty and structural arrangements.
a. The more scarce, dynamic, and complex the environment, the more organic a
structure should be.
b. The more abundant, stable, and simple the environment, the more the mechanistic
structure will be preferred.
C. Institutions
1. Another factor that shapes organizational structure is institutions. These are cultural
factors that act as guidelines for appropriate behavior.
2. Institutional theory describes some of the forces that lead many organizations to have
similar structures and, unlike the theories we’ve described so far, focuses on pressures
that aren’t necessarily adaptive.
a. The most obvious institutional factors come from regulatory pressures; certain
industries under government contracts, for instance, must have clear reporting
relationships and strict information controls.
b. Sometimes simple inertia determines an organizational form—companies can be
structured in a particular way just because that’s the way things have always been
done.
c. Organizations in countries with high power distance might have a structural form
with strict authority relationships because it’s seen as more legitimate in that
culture.
d. Some have attributed problems in adaptability in Japanese organizations to the
institutional pressure to maintain authority relationships.
e. Sometimes organizations start to have a particular structure because of fads or
trends.
f. Many companies have recently tried to copy the organic form of a company like
Google only to find that such structures are a very poor fit with their operating
environment.
3. Institutional pressures are often difficult to see specifically because we take them for
granted, but that doesn’t mean they aren’t powerful.
II. Organizational Designs and Employee Behavior
A. We opened this chapter by implying that an organization’s structure can have significant
effects on its members.
1. A review of the evidence leads to a pretty clear conclusion: you can’t generalize!
2. Not everyone prefers the freedom and flexibility of organic structures.
3. Some people are most productive and satisfied when work tasks are standardized and
ambiguity minimized—that is, in mechanistic structures.
4. So, any discussion of the effect of organizational design on employee behavior has to
address individual differences.
B. Let’s consider employee preferences for work specialization, span of control, and
centralization.
1. The evidence generally indicates that work specialization contributes to higher
employee productivity—but at the price of reduced job satisfaction.
2. It is probably safe to say no evidence supports a relationship between span of control
and employee satisfaction or performance.
3. We find fairly strong evidence linking centralization and job satisfaction.
C. We can draw one obvious insight: other things equal, people don’t select employers
randomly.
1. They are attracted to, are selected by, and stay with organizations that suit their
personal characteristics.
2. Job candidates who prefer predictability are likely to seek out and take employment
in mechanistic structures, and those who want autonomy are more likely to end up in
an organic structure.
3. Thus, the effect of structure on employee behavior is undoubtedly reduced when the
selection process facilitates proper matching of individual characteristics with
organizational characteristics.
D. Research suggests national culture influences the preference for structure.
1. Organizations that operate with people from high power-distance cultures, such as
Greece, France, and most of Latin America, find their employees are much more
accepting of mechanistic structures than are employees from low power-distance
countries.
2. So consider cultural differences along with individual differences when predicting
how structure will affect employee performance and satisfaction.
III. Summary and Implications for Managers
A. The theme of this chapter is that an organization’s internal structure contributes to
explaining and predicting behavior.
1. That is, in addition to individual and group factors, the structural relationships in
which people work has a bearing on employee attitudes and behavior.
B. What’s the basis for this argument?
1. To the degree that an organization’s structure reduces ambiguity for employees and
clarifies concerns such as “What am I supposed to do?” “How am I supposed to do
it?” “To whom do I report?” and “To whom do I go if I have a problem?” shapes their
attitudes and facilitates and motivates them to higher levels of performance.
C. Exhibit 15-10 summarizes what we’ve discussed. Specific implications for managers are
below:
1. Specialization can make operations more efficient, but remember that excessive
specialization can create dissatisfaction and reduced motivation.
2. Avoid designing rigid hierarchies that overly limit employees’ empowerment and
autonomy.
3. Balance the advantages of virtual and boundaryless organizations against the potential
pitfalls before adding flexible workplace options.
4. Downsize your organization to realize major cost savings, and focus the company
around core competencies—but only if necessary, because downsizing can have a
significant negative impact on employee affect.
5. Consider the scarcity, dynamism, and complexity of the environment, and balance the
organic and mechanistic elements when designing an organizational structure.
EXPANDED CHAPTER OUTLINE
I. What Is Organizational Structure?
A. Introduction
1. An organizational structure defines how job tasks are formally divided, grouped,
and coordinated.
2. There are six key elements: (Exhibit 15-1)
a. Work specialization
b. Departmentalization
c. Chain of command
d. Span of control
e. Centralization and decentralization
f. Formalization
B. Work Specialization
1. Henry Ford became rich and famous by building automobiles on an assembly line,
demonstrating that work can be performed more efficiently by using a work
specialization strategy.
a. Every Ford worker was assigned a specific, repetitive task.
b. By dividing jobs up into small standardized tasks, Ford was able to produce cars
at the rate of one every 10 seconds, while using employees who had relatively
limited skills.
c. Work specialization, or division of labor, describes the degree to which activities
in the organization are subdivided into separate jobs.
d. In essence, an entire job is broken into a number of steps, each completed by a
separate individual.
2. By the 1960s, there became increasing evidence that a good thing can be carried too
far.
3. The human diseconomies from specialization—boredom, fatigue, stress, low
productivity, poor quality, increased absenteeism, and high turnover—more than
offset the economic advantages. (Exhibit 15-2)
a. In such cases, enlarging the scope of job activities could increase productivity.
4. Most managers today recognize the economies specialization provides in certain jobs
and the problems when it’s carried too far.
a. High work specialization helps McDonald’s make and sell hamburgers and fries
efficiently and aids medical specialists in most health maintenance organizations.
b. Amazon’s Mechanical Turk program, TopCoder, and others like it have facilitated
a new trend in microspecialization in which extremely small pieces of
programming, data processing, or evaluation tasks are delegated to a global
network of individuals by a program manager who then assembles the results.
c. This emerging trend suggests there still may be advantages to be had in
specialization.
5. Thus, whereas specialization of yesteryear focused on breaking manufacturing tasks
into specific duties within the same plant, today’s specialization breaks complex tasks
into specific elements by technology, by expertise, and often globally.
C. Departmentalization
1. Grouping jobs together so common tasks can be coordinated is called
departmentalization.
2. One of the most popular ways to group activities is by functions performed.
a. For example, a manufacturing manager might organize a plant by separating
engineering, accounting, manufacturing, personnel, and purchasing specialists
into common departments.
b. The advantage to this type of grouping is obtaining efficiencies from putting like
specialists together.
3. Tasks can also be departmentalized by the type of product or service the organization
produces.
a. Procter & Gamble recently reorganized along these lines. Each major product—
such as Tide, Pampers, Charmin, and Pringles—will be placed under the authority
of an executive who will have complete global responsibility for that product.
b. The major advantage to this type of grouping is increased accountability for
product performance under a single manager.
4. Another way to departmentalize is on the basis of geography or territory.
a. The sales function, for instance, may have western, southern, mid-western, and
eastern regions.
5. Process departmentalization can be used for processing customers as well as products.
For example, at the state motor vehicles office you might find:
a. Validation by motor vehicles division.
b. Processing by the licensing department.
c. Payment collection by the treasury department.
6. A final category of departmentalization is by type of customer.
a. Microsoft, for instance, recently reorganized around four customer markets:
consumers, large corporations, software developers, and small businesses.
D. Chain of Command
1. The chain of command was once a basic cornerstone in the design of organizations; it
is far less important today.
2. The chain of command is an unbroken line of authority that extends from the top of
the organization to the lowest echelon and clarifies who reports to whom.
3. Two complementary concepts: authority and unity of command.
a. Authority—the rights inherent to management to give orders and expect the
orders to be obeyed.
b. The unity-of-command principle helps preserve 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.
4. Times change, and so do the basic tenets of organizational design. The concepts of
chain of command have less relevance today because of technology and the trend of
empowering employees.
5. A low-level employee today can access information in seconds that a generation ago
was available only to top managers.
6. Operating employees are empowered to make decisions previously reserved for
management.
7. Add the popularity of self-managed and cross-functional teams and the creation of
new structural designs that include multiple bosses, and you can see why authority
and unity of command hold less relevance.
8. Many organizations still find they can be most productive by enforcing the chain of
command.
a. Indeed, one survey of more than 1,000 managers found that 59 percent of them
agreed with the statement, “There is an imaginary line in my company’s
organizational chart. Strategy is created by people above this line, while strategy
is executed by people below the line.”
b. However, this same survey found that buy-in to the organization’s strategy by
lower-level employees was inhibited by too much reliance on hierarchy for
decision making.
E. Span of Control
1. How many employees a manager can efficiently and effectively direct is an important
question.
2. All things being equal, the wider or larger the span of control, the more efficient the
organization.
3. Exhibit 15-3 illustrates that reducing the number of managers leads to significant
savings.
4. Wider spans are more efficient in terms of cost.
5. However, at some point, wider spans reduce effectiveness.
6. Narrow or small spans have their advocates. By keeping the span of control to five or
six employees, a manager can maintain close control.
7. Narrow spans have three major drawbacks.
a. First, as already described, they are expensive because they add levels of
management.
b. Second, they make vertical communication in the organization more complex.
c. Third, narrow spans of control encourage overly tight supervision and discourage
employee autonomy.
8. The trend in recent years has been toward wider spans of control.
a. They are consistent with recent efforts by companies to reduce costs, cut
overhead, speed up decision making, increase flexibility, get closer to customers,
and empower employees.
b. To ensure that performance does not suffer because of these wider spans,
organizations have been investing heavily in employee training.
F. Centralization and Decentralization
1. Centralization refers to the degree to which decision making is concentrated at a
single point in the organization.
a. In centralized organizations, top managers make all the decisions, and lower-level
managers merely carry out their directives.
b. In organizations at the other extreme, decentralized decision making is pushed
down to the managers closest to the action.
2. The concept of centralization includes only formal authority—that is, the rights
inherent in a position.
3. An organization characterized by centralization is inherently different structurally
from one that’s decentralized.
a. A decentralized organization can act more quickly to solve problems, more people
provide input into decisions, and employees are less likely to feel alienated from
those who make decisions that affect their work lives.
b. Management efforts to make organizations more flexible and responsive have
produced a recent trend toward decentralized decision making by lower-level
managers, who are closer to the action and typically have more detailed
knowledge about problems than top managers.
c. Sears and JCPenney have given their store managers considerably more discretion
in choosing what merchandise to stock.
i. This allows those stores to compete more effectively against local merchants.
d. Similarly, when Procter & Gamble empowered small groups of employees to
make many decisions about new-product development independent of the usual
hierarchy, it was able to rapidly increase the proportion of new products ready for
market.
4. Research investigating a large number of Finnish organizations demonstrates that
companies with decentralized research and development offices in multiple locations
were better at producing innovation than companies that centralized all research and
development in a single office.
G. Formalization
1. Formalization refers to the degree to which jobs within the organization are
standardized.
a. A highly formalized job gives the job incumbent a minimum amount of discretion
over what is to be done, when it is to be done, and how he or she should do it.
Employees can be expected always to handle the same input in exactly the same
way.
2. Low formalization—job behaviors are relatively nonprogrammed, and employees
have a great deal of freedom to exercise discretion in their work.
3. The degree of formalization can vary widely between organizations and within
organizations.
H. Boundary Spanning
1. We’ve described ways that organizations create well-defined task structures and
chains of authority.
a. These systems facilitate control and coordination for specific tasks, but if there is
too much division within an organization, attempts to coordinate across groups
can be disastrous.
b. One way to overcome compartmentalization and retain the positive elements of
structure is to encourage or create boundary-spanning roles.
2. Within a single organization, boundary spanning occurs when individuals form
relationships with people outside their formally assigned groups.
a. Boundary-spanning activities occur not only within but also between
organizations.
b. Gathering information from external knowledge sources is especially
advantageous in highly innovative industries where keeping up with the
competition is challenging.
c. Positive results are especially strong in organizations that encourage extensive
internal communication; in other words, external boundary spanning is most
effective when it is followed up with internal boundary spanning.
3. Organizations can use formal mechanisms to facilitate boundary-spanning activities
through their structures. One method is to assign formal liaison roles or develop
committees of individuals from different areas of the organization.
4. Development activities can also facilitate boundary spanning.
a. Employees with experience in multiple functions, such as accounting and
marketing, are more likely to engage in boundary spanning.
5. Many organizations try to set the stage for these sorts of positive relationships by
creating job rotation programs so new hires get a better sense of different areas of the
organization.
6. A final method to encourage boundary spanning is to bring attention to overall
organizational goals and shared identity concepts.
II. Common Organizational Designs
A. The Simple Structure
1. The simple structure is characterized most by what it is not rather than what it is.
a. It is not elaborate.
b. It has a low degree of departmentalization, wide spans of control, authority
centralized in a single person, and little formalization.
c. The simple structure is a “flat” organization; it usually has only two or three
vertical levels.
d. One individual has the decision making authority.
2. The simple structure is most widely practiced in small businesses in which the
manager and the owner are one and the same. (Exhibit 15–4)
3. The strength of the simple structure lies in its simplicity. It is fast, flexible,
inexpensive to maintain, and accountability is clear.
4. One major weakness is that it is difficult to maintain in anything other than small
organizations.
5. It becomes increasingly inadequate as an organization grows because its low
formalization and high centralization tend to create information overload at the top.
6. As size increases, it is very difficult for the owner-manager to make all the choices.
a. If the structure is not changed and made more elaborate, the firm often loses
momentum and can eventually fail.
7. The simple structure’s other weakness is that it is risky—everything depends on one
person. Illness can literately destroy the information and decision- making center of
the company.
B. The Bureaucracy
1. Standardization—the key concept for all bureaucracies.
2. The bureaucracy is characterized by:
a. Highly routine operating tasks achieved through specialization.
b. Very formalized rules and regulations.
c. Tasks that are grouped into functional departments.
d. Centralized authority.
e. Narrow spans of control.
f. Decision making that follows the chain of command.
3. Its primary strength is in its ability to perform standardized activities in a highly
efficient manner.
a. Putting like specialties together in functional departments results in economies of
scale, minimum duplication of personnel and equipment, etc.
b. Bureaucracies get by nicely with less talented and less costly middle- and
lower-level managers.
4. Weaknesses
a. Specialization creates subunit conflicts; functional unit goals can override the
organization’s goals.
b. Obsessive concern with following the rules.
c. The bureaucracy is efficient only as long as employees confront familiar problems
with programmed decision rules.
5. The Functional Structure
a. The functional structure groups employees by their similar specialties, roles, or
tasks.
b. An organization organized into production, marketing, human resources, and
accounting departments is an example.
i. Many large organizations utilize this structure, although this is evolving to
allow for quick changes in response to business opportunities.
c. Still, there are advantages, including that the functional structure allows
specialists to become experts more easily than if they worked in diversified units.
i. Employees can also be motivated by a clear career path to the top of the
organization chart specific to their specialties.
d. The functional structure works well if the organization is focused on one product
or service.
i. Unfortunately it creates rigid, formal communications because the hierarchy
dictates the communication protocol.
ii. Coordination among many units is a problem, and infighting in units and
between units can lead to reduced motivation.
6. The Divisional Structure
a. The divisional structure groups employees into units by product, service,
customer, or geographical market area.
i. It is highly departmentalized.
b. Sometimes this structure is known by the type of division structure it uses:
product/service organizational structure (like units for cat food, dog food, and
bird food that report to an animal food producer), customer organizational
structure (like units for outpatient care, inpatient care, and pharmacy that report to
hospital administration), or geographic organizational structure (like units for
Europe, Asia, and South America that report to corporate headquarters).
c. The divisional structure has the opposite benefits and disadvantages of the
functional structure.
d. It facilitates coordination in units to achieve on-time completion, budget targets,
and development and introduction of new products to market, while addressing
the specific concerns of each unit.
e. It provides clear responsibility for all activities related to a product, but with
duplication of functions and costs.
C. The Matrix Structure
1. The matrix structure is used in advertising agencies, aerospace firms, research and
development laboratories, construction companies, hospitals, government agencies,
universities, management consulting firms, and entertainment companies.
2. It combines two forms of departmentalization—functional and product:
a. The strength of functional departmentalization—putting like specialists together
and the pooling and sharing of specialized resources across products.
b. Its major disadvantage is the difficulty of coordinating the tasks.
c. Product departmentalization facilitates coordination.
d. It provides clear responsibility for all activities related to a product, but with
duplication of activities and costs.
3. The most obvious structural characteristic of the matrix is that it breaks the
unity-of-command concept. (Exhibit 15-5)
4. Its strength is its ability to facilitate coordination when the organization has a
multiplicity of complex and interdependent activities.
5. The dual lines of authority reduce tendencies of departmental members to protect
their worlds.
6. It facilitates the efficient allocation of specialists.
7. The major disadvantages of the matrix lie in the confusion it creates, its propensity to
foster power struggles, and the stress it places on individuals.
8. Violation of unity-of-command concept increases ambiguity that often leads to
conflict.
9. Confusion and ambiguity also create the seeds of power struggles.
10. Reporting to more than one boss introduces role conflict, and unclear expectations
introduce role ambiguity.
III. Alternate Design Options
A. The Virtual Organization
1. The essence of the virtual organization is that it is typically a small, core
organization that outsources major business functions.
a. Also referred to as modular or network organization.
b. It is highly centralized, with little or no departmentalization.
c. The prototype of the virtual structure is today’s movie-making organization.
i. In Hollywood’s golden era, movies were made by huge, vertically integrated
corporations.
(a) Nowadays, most movies are made by a collection of individuals and small
companies who come together and make films project by project.
(b) This structural form allows each project to be staffed with the talent most
suited to its demands, rather than having to choose just from those people
the studio employs.