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1. Exhibit 15-6 shows a virtual organization in which management outsources all of the
primary functions of the business.
a. The dotted lines in this exhibit represent those relationships typically maintained
under contracts.
b. In essence, managers in virtual structures spend most of their time coordinating
and controlling external relations, typically by way of computer-network links.
2. The major advantage to the virtual organization is its flexibility.
3. Virtual organizations’ drawbacks have become increasingly clear as their popularity
has grown.
a. They are in a state of perpetual flux and reorganization, which means roles, goals,
and responsibilities are unclear, setting the stage for political behavior.
b. Cultural alignment and shared goals can be lost because of the low degree of
interaction among members.
c. Team members who are geographically dispersed and communicate infrequently
find it difficult to share information and knowledge, which can limit innovation
and slow response time.
4. Ironically, some virtual organizations are less adaptable and innovative than those
with well-established communication and collaboration networks.
a. A leadership presence that reinforces the organization’s purpose and facilitates
communication is thus especially valuable.
B. The Team Structure
1. The team structure seeks to eliminate the chain of command and replace
departments with empowered teams.
2. This structure removes vertical and horizontal boundaries in addition to breaking
down external barriers between the company and its customers and suppliers.
a. By removing vertical boundaries, management flattens the hierarchy and
minimizes status and rank.
3. Cross-hierarchical teams (which include top executives, middle managers,
supervisors, and operative employees), participative decision-making practices, and
the use of 360-degree performance appraisals (in which peers and others evaluate
performance) can be used.
a. When fully operational, the team structure may break down geographic barriers.
4. Today, most large U.S. companies see themselves as team-oriented global
corporations; many, like Coca-Cola and McDonald’s, do as much business overseas
as in the United States, and some struggle to incorporate geographic regions into their
structure.
C. The Circular Structure
1. Picture the concentric rings of an archery target. In the center are the executives, and
radiating outward in rings grouped by function are the managers, then the specialists,
then the workers. This is the circular structure.
a. The circular structure has intuitive appeal for creative entrepreneurs, and some
small innovative firms have claimed it. However, as in many of the current hybrid
approaches, employees are apt to be unclear about whom they report to and who
is running the show.
2. We are still likely to see the popularity of the circular structure spread. The concept
may have intuitive appeal for spreading a vision of corporate social responsibility
(CSR) initiatives, for instance.
II. The Leaner Organization: Organizational Downsizing
A. The goal of the new organizational forms we’ve described is to improve agility by
creating a lean, focused, and flexible organization.
B. Downsizing is a systematic effort to make an organization leaner by selling off business
units, closing locations, or reducing staff.
1. It has been very controversial because of its potential negative impacts on employees.
2. The radical shrinking of Motorola Mobility in recent years was a case of downsizing
due to loss of market share and changes in consumer demand.
3. Some companies downsize to focus on their core competencies.
4. Some companies focus on lean management techniques to reduce bureaucracy and
speed decision making.
C. Despite the advantages of being a lean organization, the impact of downsizing on
organizational performance has been very controversial.
1. Reducing the size of the workforce has an immediately positive outcome in the huge
reduction in wage costs.
2. Companies downsizing to improve strategic focus often see positive effects on stock
prices after the announcement.
D. Part of the problem is the effect of downsizing on employee attitudes.
1. Those who remain often feel worried about future layoffs and may be less committed
to the organization.
2. Stress reactions can lead to increased sickness absences, lower concentration on the
job, and lower creativity.
E. In companies that don’t invest much in their employees, downsizing can also lead to
more voluntary turnover so vital human capital is lost.
1. The result is a company that is more anemic than lean.
F. Companies can reduce negative impacts by preparing for the post-downsizing
environment in advance, thus alleviating some employee stress and strengthening support
for the new strategic direction.
G. The following are some effective strategies for downsizing and suggestions for
implementing them.
1. Invest. Companies that downsize to focus on core competencies are more effective
when they invest in high-involvement work practices afterward.
2. Communicate. When employers make efforts to discuss downsizing with employees
early, employees are less worried about the outcomes and feel the company is taking
their perspective into account.
3. Participate. Employees worry less if they can participate in the process in some way.
In some companies, voluntary early retirement programs or severance packages can
help achieve leanness without layoffs.
4. Assist. Providing severance, extended health care benefits, and job search assistance
demonstrates a company does really care about its employees and honors their
contributions.
H. Companies that make themselves lean can be more agile, efficient, and productive—but
only if they make cuts carefully and help employees through the process.
III. Why Do Structures Differ?
A. Introduction
1. The mechanistic model (Exhibit 15-7)—synonymous with the bureaucracy—has
extensive departmentalization, high formalization, a limited information network
(mostly downward), and little participation in decision making.
2. The organic model (Exhibit 15-7) looks a lot like the boundaryless organization; it
uses cross-hierarchical and cross-functional teams, low formalization, a
comprehensive information network, and high participation in decision making.
3. Why are some organizations structured along mechanistic lines while others are
organic?
B. Organizational Strategy
1. An organization’s structure is a means to help management achieve its objectives.
a. Objectives derive from the organization’s overall strategy.
b. Structure should follow strategy.
2. Most current strategy frameworks focus on three strategy dimensions—innovation,
cost minimization, and imitation—and the structural design that works best with each.
a. An innovation strategy means a strategy for meaningful and unique innovations.
This strategy may appropriately characterize 3M Company.
b. A cost-minimization strategy tightly controls costs, refrains from incurring
unnecessary innovation or marketing expenses, and cuts prices in selling a basic
product. This describes Walmart’s strategy.
c. An imitation strategy tries to capitalize on the best of both minimize risk and
maximize opportunity for profit.
i. It moves into new products or new markets only after viability has been
proven by innovators.
ii. It copies successful ideas of innovators.
3. Exhibit 15-8 describes the structural option that best matches each strategy.
a. Innovators need the flexibility of the organic structure, whereas cost minimizers
seek the efficiency and stability of the mechanistic structure.
b. Imitators combine the two structures.
i. They use a mechanistic structure to maintain tight controls and low costs in
their current activities but create organic subunits in which to pursue new
undertakings.
C. Organizational Size
1. An organization’s size significantly affects its structure.
2. Large organizations—employing 2,000 or more people—tend to have more
specialization, more departmentalization, more vertical levels, and more rules and
regulations than do small organizations.
3. The impact of size becomes less important as an organization expands.
4. Once an organization has around 2,000 employees, it’s already fairly mechanistic. An
additional 500 employees will not have much impact.
5. However, adding 500 employees to a 300-employee firm is likely to result in a
mechanistic structure.
D. 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.
E. 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.
a. To minimize uncertainty, managers may broaden their structure to sense and
respond to threats.
b. For example, most companies, including Pepsi and Southwest Airlines, have
added social networking departments to counter negative information posted on
blogs.
3. Any organization’s environment has three dimensions: capacity, volatility, and
complexity.
a. Capacity
i. The degree to which it can support growth.
ii. Rich and growing environments generate excess resources, which can buffer
times of relative scarcity.
b. Volatility
i. Refers to the degree of instability in an environment.
ii. A dynamic environment with a high degree of unpredictable change makes it
difficult for management to make accurate predictions.
iii. At the other extreme is a stable environment.
c. Complexity
i. The degree of heterogeneity and concentration among environmental
elements.
ii. Simple environments are homogeneous and concentrated.
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.
F. 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.
IV. 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. Different factors stand out in different structures as well.
a. In highly formalized, heavily structured, mechanistic organizations, the level of
fairness in formal policies and procedures is a very important predictor of
satisfaction.
b. In more personal, individually adaptive organic organizations, employees value
interpersonal justice more.
4. Some people are most productive and satisfied when work tasks are standardized and
ambiguity minimized—that is, in mechanistic structures.
5. 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.
a. However, work specialization is not an unending source of higher productivity.
b. Problems start to surface, and productivity begins to suffer, when the human
diseconomies of doing repetitive and narrow tasks overtake the economies of
specialization.
c. As the workforce has become more highly educated and desirous of jobs that are
intrinsically rewarding, we seem to reach the point at which productivity begins to
decline more quickly than in the past.
2. There is still a segment of the workforce that prefers the routine and repetitiveness of
highly specialized jobs.
a. Some individuals want work that makes minimal intellectual demands and
provides the security of routine; for them, high work specialization is a source of
job satisfaction.
b. The question, of course, is whether they represent 2 percent of the workforce or
52 percent.
c. Given that some self-selection operates in the choice of careers, we might
conclude that negative behavioral outcomes from high specialization are most
likely to surface in professional jobs occupied by individuals with high needs for
personal growth and diversity.
3. It is probably safe to say no evidence supports a relationship between span of control
and employee satisfaction or performance.
a. Although it is intuitively attractive to argue that large spans might lead to higher
employee performance because they provide more distant supervision and more
opportunity for personal initiative, the research fails to support this notion.
b. Some people like to be left alone; others prefer the security of a boss who is
quickly available at all times.
c. Consistent with several of the contingency theories of leadership discussed in
Chapter 12, we would expect factors such as employees’ experiences and abilities
and the degree of structure in their tasks to explain when wide or narrow spans of
control are likely to contribute to their performance and job satisfaction.
d. However, some evidence indicates that a manager’s job satisfaction increases as
the number of employees supervised increases.
4. We find fairly strong evidence linking centralization and job satisfaction.
a. In general, less centralized organizations have a greater amount of autonomy.
b. And autonomy appears positively related to job satisfaction. But, again, while one
employee may value freedom, another may find autonomous environments
frustratingly ambiguous.
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.
V. 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.
