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Chapter 15 Foundations of Organization Structure Page 543
1.
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.
business units, closing locations, or reducing staff.
2. Despite the advantages of being a lean organization, the impact of downsizing
on organizational performance has been very controversial.
a. Part of the problem is the effect of downsizing on employee attitudes.
4. 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.
5. The following are some effective strategies for downsizing and suggestions
for implementing them.
the company is taking their perspective into account.
c. Participate. Employees worry less if they can participate in the process in
and honors their contributions.
6. Companies that make themselves lean can be more agile, efficient, and
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
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.
Chapter 15 Foundations of Organization Structure Page 544
2. Most current strategy frameworks focus on three strategy dimensions—
innovation, cost minimization, and imitation—and the structural design that
works best with each.
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.
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.
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.
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 (the owner of GE
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.
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
Chapter 15 Foundations of Organization Structure Page 545
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.
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.
Chapter 15 Foundations of Organization Structure Page 546
1. A review of the evidence leads to a pretty clear conclusion: you can’t
generalize!
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.
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.
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.
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.
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.
Chapter 15 Foundations of Organization Structure Page 547
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
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
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.
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)
productivity.
4. Most managers today recognize the economies specialization provides in
certain jobs and the problems when it’s carried too far.
Chapter 15 Foundations of Organization Structure Page 548
health maintenance organizations.
b. Amazon’s Mechanical Turk program, TopCoder, and others like it have
facilitated a new trend in “microspecialization,” “eLancing,” or “crowd
sourcing” in which extremely small pieces of programming, data
processing, or evaluation tasks are delegated to a global network of
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
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.
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.
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
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.
Chapter 15 Foundations of Organization Structure Page 549
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.
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.
Chapter 15 Foundations of Organization Structure Page 550
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.
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.
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
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
systems, including excessive risk seeking and coordination failures.
G. Formalization
1. Formalization refers to the degree to which jobs within the organization are
standardized.
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.
Chapter 15 Foundations of Organization Structure Page 551
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 this sense of compartmentalization and retain the
benefits 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.
may be cooperation and better conflict resolution.
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.
areas of the organization.
6. A final method to encourage boundary spanning is to bring attention to overall
organizational goals, such as efficiency and innovation, and shared identity
concepts.
II. Common Organizational Designs
A. The Simple Structure
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.
Chapter 15 Foundations of Organization Structure Page 552
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.
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.
