978-0134237473 Chapter 6 Lecture Note Part 1

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Chapter 6 – Organizational Structure and Design

CHAPTER

ORGANIZATIONAL

STRUCTURE AND

DESIGN

LEARNING OUTCOMES

After reading this chapter, students should be able to:

6-1. Describe six key elements in organizational design.

6-2. Identify the contingency factors that favor the mechanistic model or the organic model of

organizational design.

6-3. Compare and contrast traditional and contemporary organizational designs.

6-4. Discuss the design challenges faced by today’s organizations.

Management Myth

MYTH: Bureaucracies are inefficient.

TRUTH: Bureaucratic organizations are still alive and well and continue to dominate most

medium-sized and large organizations.

SUMMARY

This chapter discusses the key concepts and their components and how managers create a

structured environment where employees can work efficiently and effectively. Once the

organization’s goals, plans, and strategies are in place, managers must develop a structure that

will best facilitate the attainment of those goals.

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Chapter 6 – Organizational Structure and Design

I. WHAT ARE THE SIX KEY ELEMENTS IN ORGANIZATIONAL DESIGN?

A. Introduction

1. Organizing is the function of management that determines what needs to be done;

how it will be done; and who is to do it. It creates the organizational structure.

2. Organization design decisions are typically made by senior managers.

3. Basic concepts of organization design were formulated by management writers

such as Henri Fayol and Max Weber in the early 1900s.

4. These principles still provide valuable insights into designing effective and

efficient organizations.

B. What Is Work Specialization?

1. Traditional view:

a) Work specialization is dividing work activities into separate jobs tasks.

1) Individuals specialize in doing part of an activity.

2) Work specialization makes efficient use of the diversity of skills that workers

hold.

b) Some tasks require highly developed skills; others lower skill levels.

c) Excessive work specialization or human diseconomies, can lead to boredom,

fatigue, stress, low productivity, poor quality, increased absenteeism, and high

turnover. (See Exhibit 6-1.)

2. Today’s view:

a) Specialization is an important organizing mechanism for employee efficiency,

but it is important to recognize the economies work specialization can provide

as well as its limitations.

C. What Is Departmentalization?

1. Traditional view:

a) Departmentalization – common work activities are grouped back together

so work gets done in a coordinated and integrated way.

b) There are five common forms of departmentalization (see Exhibit 6-2).

1) Functional departmentalization – employees based on work performed

(e.g., engineering, accounting, information systems, human resources)

2) Product departmentalization – employees based on major product areas in

the corporation (e.g., women’s footwear, men’s footwear, and apparel and

accessories)

3) Customer departmentalization – employees based on customers’ problems

and needs (e.g., wholesale, retail, government)

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Chapter 6 – Organizational Structure and Design

4) Geographic departmentalization – employees based on location served

(e.g., North, South, Midwest, East)

5) Process departmentalization – employees based on the basis of work or

customer flow (e.g., testing, payment)

2. Today’s view:

a) Many companies are using cross-functional teams, which are teams made up

of individuals from various departments and that cross traditional departmental

lines.

D. What are Authority and Responsibility?

1. Traditional view:

a) The chain of command is the continuous line of authority that extends from

upper organizational levels to the lowest, and clarifies who reports to whom.

b) Authority refers to the rights inherent in a managerial position – to give orders

and expect the orders to be obeyed.

c) Each management position has specific inherent rights that incumbents acquire

from the position’s rank or title.

1) Authority is related to one’s position and ignores personal characteristics.

d) When managers delegate authority, they must allocate commensurate

responsibility.

1) When employees are given rights, they assume a corresponding obligation

to perform and should be held accountable for that performance.

2) Allocating authority without responsibility creates opportunities for abuse.

3) No one should be held responsible for something over which he or she has

no authority.

2. What are the different types of authority relationships?

a) The early management writers distinguished between two forms of authority.

1) Line authority entitles a manager to direct the work of an employee.

(a) It is the employer-employee authority relationship that extends from

top to bottom.

(b) See Exhibit 6-3.

certain decisions without consulting anyone.

(d) Sometimes the term “line” is used to differentiate line managers from

staff managers.

(e) Line emphasizes managers whose organizational function contributes

directly to the achievement of organizational objectives (e.g.,

production and sales).

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2) Staff managers have staff authority (e.g., human resources and payroll).

(a) A manager’s function is classified as line or staff based on the organization’s

objectives.

(b) As organizations get larger and more complex, line managers find that they

do not have the time, expertise, or resources to get their jobs done

effectively.

reduce some of their informational burdens.

(d) Exhibit 6-4 illustrates line and staff authority.

3. What is Unity of Command?

a) The chain of command is the continuous line of authority that extends from

upper organizational levels to the lowest and clarifies who reports to whom.

b) An employee who has to report to two or more bosses might have to cope with

conflicting demands or priorities.

c) Therefore, the early management writers argued that an employee should have

only one superior (unity of command).

d) If the chain of command had to be violated, early management writers always

explicitly designated that there be a clear separation of activities and a

supervisor responsible for each.

e) The unity of command concept was logical when organizations were

comparatively simple.

f) There are instances today when strict adherence to the unity of command

creates a degree of inflexibility that hinders an organization’s performance.

4. Today’s view:

a) The early management writers assumed that the rights inherent in one’s formal

position in an organization were the sole source of influence.

b) This might have been true 30 or 60 years ago.

c) It is now recognized that you do not have to be a manager to have power, and

that power is not perfectly correlated with one’s level in the organization.

d) Authority is but one element in the larger concept of power.

5. How do authority and power differ?

a) Authority and power are frequently confused.

b) Authority is a right, the legitimacy of which is based on the authority figure’s

position in the organization.

1) Authority goes with the job.

c) Power refers to an individual’s capacity to influence decisions.

1) Authority is part of the larger concept of power.

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2) Exhibit 6-5 visually depicts the difference.

d) Power is a three-dimensional concept.

1) It includes not only the functional and hierarchical dimensions but also

centrality.

2) While authority is defined by one’s vertical position in the hierarchy, power is

made up of both one’s vertical position and one’s distance from the

organization’s power core, or center.

e) Think of the cone in Exhibit 6-5 as an organization.

1) The closer you are to the power core, the more influence you have on

decisions.

2) The existence of a power core is the only difference between A and B in

Exhibit 6-5.

f) The cone analogy explicitly acknowledges two facts:

1) The higher one moves in an organization (an increase in authority), the closer

one moves to the power core.

2) It is not necessary to have authority in order to wield power because one can

move horizontally inward toward the power core without moving up.

(a) Example, administrative assistants, “powerful” as gatekeepers with

little authority.

3) Low-ranking employees with contacts in high places might be close to the

power core.

4) So, too, are employees with scarce and important skills.

(a) The lowly production engineer with twenty years of experience might

be the only one in the firm who knows the inner workings of all the old

production machinery.

g) Power can come from different areas.

1) John French and Bertram Raven have identified five sources, or bases, of

power.

(a) See Exhibit 6-6.

(b) Coercive power – based on fear; Reward power – based on the ability

to distribute something that others value; Legitimate power – based on

one’s position in the formal hierarchy; Expert power – based on one’s

expertise, special skill, or knowledge; Referent power – based on

identification with a person who has desirable resources.

E. What is Span of Control?

1. Traditional view:

a) How many employees can a manager efficiently and effectively direct? What is

the span of control?

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b) This question received a great deal of attention from early management writers.

c) There was no consensus on a specific number but early writers favored small

spans of less than six employees to maintain close control.

d) Level in the organization is a contingency variable.

1) Top managers need a smaller span than do middle managers, and middle

managers require a smaller span than do supervisors.

2. There is some change in theories about effective spans of control.

3. Today’s view:

a) Many organizations are increasing their spans of control.

b) The span of control is increasingly being determined by contingency variables.

1) The more training and experience employees have, the less direct supervision

needed.

c) Other contingency variables should also be considered; similarity of employee

tasks, the task complexity, the physical proximity of employees, the degree of

standardization, the sophistication of the organization’s management

information system, the strength of the organization’s value system, the

preferred managing style of the manager, etc.

A Question of Ethics

A small percentage of companies are revealing to employees details about everything from

financials to staff performance reviews. Advocates of this approach say it is a good way to build

trust and allow employees to see how they are making contributions to the company. Critics say

open management can be expensive and time consuming. As work becomes more collaborative,

the sharing of details may become inevitable.

Questions for students to consider:

What ethical issues might arise in an “open economy?”

What are the implications for (a) managers and (b) employees?

F. How Do Centralization and Decentralization Differ?

1. Traditional view:

a) Centralization and decentralization are a function of how much decision

making authority is pushed down to lower levels in the organization.

b) Centralization-decentralization is a degree phenomenon.

c) By that, we mean that no organization is completely centralized or completely

decentralized.

d) Early management writers felt that centralization in an organization depended

on the situation.

1) Their objective was the optimum and efficient use of employees.

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2) Traditional organizations were structured in a pyramid, with power and

authority concentrated near the top of the organization.

3) Given this structure, historically, centralized decisions were the most

prominent.

e) Organizations today are more complex and are responding to dynamic changes.

1) Many managers believe that decisions need to be made by those closest to the

problem.

2. Today’s view:

a) Managers often choose the amount of centralization or decentralization that

will allow them to best implement their decisions and achieve organizational

goals.

b) One of the central themes of empowering employees was to delegate to them

the authority to make decisions on those things that affect their work.

1) That’s the issue of decentralization at work.

2) It doesn’t imply that senior management no longer makes decisions.

G. What is Formalization?

1. Traditional view:

a) Formalization refers to how standardized an organization’s jobs are and the

extent to which employee behavior is guided by rules and procedures.

b) Early management writers expected organizations to be fairly formalized, as

formalization went hand-in-hand with bureaucratic-style organizations.

2. Today’s view:

a) Organizations rely less on strict rules and standardization to guide and regulate

employee behavior.

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