Chapter 15 Foundations of Organization Structure Page 543
Chapter 15
Foundations of
Organization Structure
LEARNING OBJECTIVES
After studying this chapter, students should be able to:
15-1.Identify seven elements of an organization’s structure.
matrix structure.
circular structure.
15-4.Describe the effects of downsizing on organizational structures and employees.
15-5.Contrast the reasons for using mechanistic versus organic structural models.
15-6.Analyze the behavioral implications of different organizational designs.
INSTRUCTOR’S RESOURCES
Instructors may wish to use the following resources when presenting this chapter.
Text Exercises
Career OBjectives: What Structure Should I Choose?
An Ethical Choice: Flexible Structures, Deskless Workplaces
MyLab Management
oPersonal Inventory Assessments: Organizational Structure Assessment
oWatch It!: ZipCar: Organizational Structure
oTry It!: Simulation: Organizational Structure
Myth or Science?: “Employees Can Work Just as Well from Home”
Point/Counterpoint: Open Air Offices Inspire Creativity and Enhance Productivity
Questions for Review
Experiential Exercise: The Sandwich Shop
Ethical Dilemma: Post-Millennium Tensions in the Flexible Organization
Text Cases
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Case Incident 1: Creative Deviance: Bucking the Hierarchy?
Case Incident 2: Turbulence on United Airlines
Instructor’s Choice
This section presents an exercise that is NOT found in the student’s textbook. Instructor’s
Choice reinforces the text’s emphasis through various activities. Some Instructor’s
Choice activities are centered on debates, group exercises, Internet research, and student
experiences. Some can be used in class in their entirety, while others require some
additional work on the student’s part. The course instructor may choose to use these at
any time throughout the class—some may be more effective as icebreakers, while some
may be used to pull together various concepts covered in the chapter.
Web Exercises
and ideas for researching OB topics on the Internet. The exercises “Exploring OB Topics
on the Web” are set up so that you can simply photocopy the pages, distribute them to
your class, and make assignments accordingly. You may want to assign the exercises as
an out-of-class activity or as lab activities with your class.
Summary and Implications for Managers
The theme of this chapter is that an organization’s internal structure contributes to
explaining and predicting behavior. That is, in addition to individual and group factors,
the structural relationships in which people work have a bearing on employee attitudes
and behavior. What’s the basis for this argument? 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. Exhibit 15-10 summarizes what we’ve discussed. Specific
implications for managers are below:
Specialization can make operations more efficient, but remember that excessive
specialization can create dissatisfaction and reduced motivation.
Avoid designing rigid hierarchies that overly limit employees’ empowerment and
autonomy.
Balance the advantages of virtual and boundaryless organizations against the
potential pitfalls before adding flexible workplace options.
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.
Consider the scarcity, dynamism, and complexity of the environment, and balance
the organic and mechanistic elements when designing an organizational structure.
Chapter 15 Foundations of Organization Structure Page 545
Chapter 15 begins with a discussion of how structure changes in an organization that is experiencing
growth. Even for a startup with only a few employees, choosing an organizational structure requires far
more than simply deciding who’s the boss and how many employees are needed. The organization’s
structure will determine what relationships form, the formality of those relationships, and many work
outcomes. The structure may also change as organizations grow and shrink, as management trends dictate,
and as research uncovers better ways of maximizing productivity. Structural decisions are arguably the
most fundamental ones a leader has to make toward sustaining organizational growth. In this chapter, we’ll
explore how structure affects employee behavior and the organization as a whole.
BRIEF CHAPTER OUTLINE
I. What Is Organizational Structure?
A. Introduction
grouped, and coordinated.
2. There are six key elements. (Exhibit 15-1)
B. Work Specialization
1. Henry Ford became rich and famous by building automobiles on an assembly
work specialization strategy.
carried too far.
3. The human diseconomies from specialization—boredom, fatigue, stress, low
productivity, inferior quality, increased absenteeism, and high turnover—more
than offset the economic advantages. (Exhibit 15-2)
5. Thus, whereas specialization of yesteryear focused on breaking manufacturing
globally.
C. Departmentalization
departmentalization.
2. One of the most popular ways to group activities is by functions performed.
organization produces.
4. Another way to departmentalize is on the basis of geography or territory.
products.
6. A final category of departmentalization is by type of customer.
D. Chain of Command
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2. The chain of command is an unbroken line of authority that extends from the
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.
concepts of chain of command have less relevance today because of
technology and the trend of empowering employees.
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.
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.
F. Centralization and Decentralization
1. Centralization refers to the degree to which decision making is concentrated
at a single point in the organization.
2. The concept of centralization includes only formal authority—that is, the
rights inherent in a position.
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3. An organization characterized by centralization is inherently different
structurally from one that’s decentralized.
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.
a. However, sometimes decentralization can be a double-edged sword—one
study of nearly 3,000 U.S. Air Force officers suggests that there can
sometimes be negative effects of decentralization in organizations with
multiteam systems, including excessive risk seeking and coordination
failures.
G. Formalization
1. Formalization refers to the degree to which jobs within the organization are
standardized.
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
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.
organizations.
b. 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. 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.
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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.
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.
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.
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.
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.
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.
4. Weaknesses
the organization’s goals.
b. Obsessive concern with following the rules.
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c. The bureaucracy is efficient only as long as employees confront familiar
problems with programmed decision rules.
5. The Functional Structure
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.
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.
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.
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 their goals, while addressing
the specific concerns of each unit.
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.
shared specialized resources across products.
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b. Product departmentalization facilitates coordination and provides clear
responsibility for all activities related to a product, but with duplication of
activities and costs.
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.
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.
2. 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. Managers in virtual structures spend most of their time coordinating and
controlling external relations.
c. Network organizations often take many forms. Some of the more
“traditional” forms include the franchise form in which there are
units.
i. This popular form of network organization is very common in service
business models, such as 7-Eleven, McDonald’s, Jimmy John’s, and
Dunkin’ Donuts.
ii. However, in this form, franchisees do not tend to collaborate or
for resources from the executive group.
iii. Another example is the starburst form in which a “parent” firm splits
off one of its functions into a “spinoff” firm.
(a) For example, in 2012 Netflix split off its DVD function into its
own separate entity, now DVD.com.
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4. 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
behavior.
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
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
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
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.
responsibility (CSR) initiatives, for instance.