Chapter 11
Designing Organizational Structure
Once managers are done planning, then what? This is when managers need to begin to
“work the plan.” And the first step in doing that involves designing an appropriate
organizational structure. This chapter covers the decisions involved with designing this
structure. We also address the issue of structure with an emphasis on the new designs
that companies are implementing to deal with an increasingly competitive environment
that focuses on efficiency. Focus on the following learning objectives as you read and
study this chapter.
LEARNING OBJECTIVES
1. Describe six key elements in organizational design.
2. Contrast mechanistic and organic structures.
4. Describe traditional organizational designs.
5. Discuss organizing for flexibility in the twenty-first century.
• Develop your skill at acquiring and using power.
• Know how to stay connected and “in the loop” when working remotely.
It’s Your Career
2. Communicate. Communicate. Communicate. Communication is always
3. Choose appropriate technology. Know and choose the tools that are most
appropriate for your situation.
4. Be aware of the “people” aspects of remote work arrangements. When a
person is not physically at a workplace, it is hard to build closeness and
CHAPTER OUTLINE
INTRODUCTION
Designing organizational structure involves the process of organizing (the second
management function) and plays an important role in the success of a company.
11.1 SIX ELEMENTS OF ORGANIZATIONAL DESIGN
Managers need to establish structural designs that will best support and allow
1. Organizing is arranging and structuring work to accomplish the
3. Organizational design is developing or changing an
organization’s structure. This process involves decisions about six
key elements: work specialization, departmentalization, chain of
command, span of control, centralization-decentralization, and
1. Functional departmentalization groups jobs by functions
performed.
2. Product departmentalization groups jobs by product line.
3. Geographical departmentalization groups jobs on the basis of
geographical region.
5. Customer departmentalization groups jobs on the basis of
specific and unique customers who have common needs.
6. Today’s View. Popular trends in departmentalization include the
following:
a. Customer departmentalization continues to be a highly
popular approach because it allows better monitoring of
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specialties, are being used along with traditional
departmental arrangements.
C. Chain of Command. The chain of command is the line of authority
extending from upper organizational levels to the lowest levels, which
clarifies who reports to whom. Three concepts related to chain of
command are authority, responsibility, and unity of command.
1. Authority is the rights inherent in a managerial position to tell
people what to do and to expect them to do it.
2. They feel the order is consistent with the
organization’s purpose.
4. They are able to perform the task as directed.
b. Line authority entitles a manager to direct the work of an
2. Responsibility is the obligation to perform any assigned duties.
4. Today’s View. Information technology has made some of the early
theories of management less relevant. While in the past elements
like chain of command, authority, responsibility, and unity of
1. The span of control concept is important because it determines
how many levels and managers an organization will have (See
Exhibit 11-4 for an example).
2. What determines the “ideal” span of control? Contingency factors
3. The trend in recent years has been toward wider (larger) spans of
control.
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E. Centralization and Decentralization. The concepts of centralization and
decentralization address who, where, and how decisions are made in
organizations.
1. Centralization is the degree to which decision-making is
concentrated at upper levels of the organization.
3. The current trend is toward decentralizing decision-making in
order to make organizations more flexible and responsive.
4. A number of factors influence the degree of centralization or
decentralization in an organization (see Exhibit 11-5).
5. Today’s View. Employee empowerment is giving employees
more authority (power) to make decisions.
1. In a highly formalized organization, employees have little
2. In a less-formalized organization, employees have much freedom
and can exercise discretion in the way they do their work.
between organizations and even within organizations.
11.2 MECHANISTIC AND ORGANIC STRUCTURES
1. A mechanistic organization is an organizational design that is
rigid and tightly controlled. It is characterized by high
2. An organic organization is an organizational design that is highly
3. Under what circumstances is each design favored? It “depends”
on contingency variables.
11.3 CONTINGENCY FACTORS AFFECTING STRUCTURAL CHOICE
1. Alfred Chandler originated the strategy-structure relationship. His
finding that structure follows strategy indicates that as
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organizations change their strategies, they must change their
structure to support that strategy.
2. Most current strategy/structure frameworks focus on three
strategy dimensions:
a. Innovation needs the flexibility and free flow of information
present in the organic organization.
1. Every organization uses some form of technology to transform
inputs into outputs.
2. Joan Woodward’s study of structure and technology shows that
organizations adapt to their technology. She found that three
distinct technologies have increasing levels of complexity and
3. Woodward found in her study of these three groups that distinct
relationships exist among these technologies, the subsequent
structure of the organization, and the effectiveness of the
organization. Exhibit 111-7 provides a summary of these findings.
LEADER MAKING A DIFFERENCE
Chairman and CEO of Haier Group, Zhang Ruimin is considered to be one of China’s
leading corporate executives. He was responsible for turning his company into a global
brand with almost $30 billion in revenue. He did this by promoting efficient mass
production, setting a high standard of quality and by using self-managed groups. Zhang
believes success requires a different competency. So he reorganized the company into
self-managed groups, each devoted to a customer or group of similar customers. Zhang
gets it! He understands clearly how an organization’s design can help it be successful.
What can you learn from this leader making a difference?
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more uncertain the environment, the more flexible and responsive the
organization needs to be.
11.4 TRADITIONAL ORGANIZATIONAL DESIGN OPTIONS
A number of different organizational designs can be found in today’s
2. The major limitation of a simple structure is that it is most effective
when used in small organizations.
B. As an organization grows, its structure tends to become more specialized
11.5 ORGANIZING FOR FLEXIBILITY IN THE TWENTY-FIRST CENTURY
Today’s increasingly dynamic and complex environment demands greater
flexibility and innovation in organizational structure. Many organizations are
1. One of these arrangements is the matrix structure, an
2. Another of these designs is the project structure, an
organizational structure in which employees continuously work on
1. The Virtual Organization. A virtual organization operates with a
2. Task Forces. Another structural option an organization might use
is a task force (also called an ad hoc committee), which is a
temporary committee or team formed to tackle a specific short–
10.
FUTURE VISION: Flexible Organizations
In the future, it is predicted that organizations will increasingly rely on contract
employees and part-timers to get the work done. The result of this will be organizations
with greater flexibility. Because workers will be doing pieces of work for multiple
companies, it means greater control over their own career and less dependency on a
single employer. This type of arrangement is similar to today’s consultants who work on
assignments for varying time frames.
Where employees work is also expected to change. Employees should expect to
work in geographically dispersed areas, not so much in “headquarter cities.” This may
also mean that a greater percentage of workers will be able to work either from home or
satellite offices, cutting down on commuting distances.
The following discussion questions are posed:
Talk About It 1: What are the challenges of “flexibility” for organizations and managers?
For workers?
Talk About It 2: What about you? How do you feel about working like this?
1. Telecommuting provides the company a way to grow without
having to incur any additional fixed costs such as office buildings,
2. Some managers are reluctant to have their employees become
3. Employees often express the same concerns about working
4. Managing telecommuters then becomes a matter of keeping
employees feeling like they’re connected and engaged, a topic we
1. Compressed workweek, which is a workweek where employees
work longer hours per day but fewer days per week.
2. Flextime (also known as flexible work hours), which is a
3. Job sharing, which is the practice of having two or more people
split a full-time job.
1. As organizations eliminate full-time jobs through downsizing and
2. One of the main issues businesses face with their contingent
workers, especially those who are independent contractors or
freelancers, is classifying who actually qualifies as one.
a. Companies don’t have to pay Social Security, Medicare, or
unemployment insurance taxes on workers classified as
independent contractors. And those individuals also aren’t
covered by most workplace laws.
ANSWERS TO REVIEW AND DISCUSSION QUESTIONS
11-1. Discuss the traditional and contemporary views of each of the six key elements of
organizational design.
Traditionally, work specialization was viewed as a way to divide work activities into
11-2. Would you rather work in a mechanistic or an organic organization? Why?
11-3. Contrast the three traditional organizational designs.
Students’ answers to this question will vary. Many students prefer the structure provided
by a mechanistic organization, whereas others would be less productive in an
organization with structural rigidity. Note that SAL #III.A.1 “What Type of Organization
Structure Do I Prefer?” addresses whether each of your students would like to work in a
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bureaucracy (a mechanistic organization). Students might want to revisit this
assessment in answering this question. (LO: 2, Contrast mechanistic and organic
structures, AACSB: Reflective thinking)
11-4. With the availability of advanced information technology that allows an
organization’s work to be done anywhere at any time, is organizing still an important
managerial function? Why or why not?
11-5. Differentiate between matrix and project structures.
A project structure, unlike the matrix structure, has no formal departments where
11-6. How can an organization operate without boundaries?
11-7. What structural issues might arise in managing employees’ flexible work
arrangements? Think about what you’ve learned about organizational design. How might
that information help a manager address those issues?
11–8. Why are more companies today relying on contingent workers?
11–11. What do you think? What ethical concerns do you see in this situation?
11–12. What lessons can be applied to organizational design from this story?
(LO: 4, Describe traditional organizational designs, AACSB: Ethical understanding and
reasoning)
SKILLS EXERCISE: DEVELOPING YOUR AQUIRING POWER SKILL
Managers need to know how to acquire and use power if they are to perform well in their
job. When a manager has power, he or she is not as dependent on others for critical
resources. And if the resources a manager controls are important, scarce, and
nonsubstitutable, her power will increase because others will be more dependent on her
for those resources. In this exercise, students are given eight behaviors for the effective
acquisition and use of power. Students are then asked to keep a journal and identify
their own use of power and to identify the use of power by a business executive. (LO: 2,
Discuss how organizations organize for collaboration, AACSB: Communication abilities)
Then, students are asked to work in groups of three or four to draft guidelines for their
office. Students should be prepared to share their guidelines with the class.
(LO: 5, Discuss organizing for flexibility in the twenty-first century, AACSB: Analytical
thinking)
MY TURN TO BE A MANAGER
• Find three different examples of organizational charts. In a report, describe each
of them. Try to decipher the organization’s use of organizational design
elements, especially departmentalization, chain of command, centralization,
decentralization, and formalization. (LO: 1, Describe six key elements in
organizational design, AACSB: Analytical thinking)
• Using current business periodicals, research open innovation efforts by
companies. Choose three examples of businesses using this and describe and
evaluate what each is doing. (LO 5, Discuss organizing for flexibility in the
twenty-first century, AACSB: Analytical Thinking)
• Visit the When Work Works website at www. whenworkworks.org. This
organization works to bring research on workplace flexibility into practice. Visit
the “Find Solutions” page of the website and review the guidance provided for
employers. What resources are available for managers looking to create more
flexible work arrangements? (LO: 5, Discuss organizing for flexibility in the
twenty-first century, AACSB: Analytical Thinking)
ANSWERS TO CASE APPLICATION 1
QUESTIONS
A New Kind of Structure
11–13. Describe and evaluate what Pfizer is doing with its PfizerWorks.
What Jordan Cohen has created at Pfizer is a network organization. It’s a form of the
11–14. What structural implications—good and bad—does this approach have? (Think
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• Work Specialization
• Departmentalization
• Chain of Command
• Span of Control
• Centralization and Decentralization
• Formalization
Some groups may be assigned more than one design element. For more information on
Pfizer’s new structure, go to the Website
http://www.fastcompany.com/magazine/122/scuttling-scut-work.html. (LO: 1, Describe
six key elements in organizational design, AACSB: Analytical thinking)
11–15. Do you think this arrangement would work for other types of organizations? Why
or why not?
11–16. What role do you think organizational structure plays in an organization’s
efficiency and effectiveness? Explain.
11-17. What do you think about using “volunteers” to do work that other people get paid
to do?
The concept of free labor is now being explored by Verizon’s e-commerce unit where
volunteers who are passionate about their products, (i.e., high speed internet, telephone,
and television service) help answer customer questions. While this sounds like a win-win
(people who are knowledge experts working for free), it has the potential to create a lot
of problems for the organization. Have students explore the concept of management
control and structure for this new type of arrangement. Questions that might arise
include: How do you make sure people show up for “work?” What if these volunteers
make a mistake that puts the company at risk for a lawsuit? What if they are rude to
customers? (LO: 5, Discuss organizing for flexibility in the twenty-first century, AACSB:
Analytical thinking)
11–18. If you were in Mark Studness’s position, what would you be most concerned
about in this arrangement? How would you “manage” that concern?
11–19 How do these “volunteers” fit into an organization’s structure? Take each of the six
11–20. Do you think this approach could work for other types of work being done or in
other types of organizations? Explain.