Chapter 10
Designing Organizational Structure—Basic Designs
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. Focus on the following learning objectives as you read and study this chapter.
LEARNING OBJECTIVES
2. Contrast mechanistic and organic structures.
4. Describe traditional organizational designs.
It’s Your Career
You Can’t Do It All: The Importance of Delegating
One of the most difficult tasks for individuals in their first management or team
leadership position is accepting that they can’t do everything. The reality is that
you have to give up some control and assign the authority and responsibility for work to
others. Here’s what you need to know to successfully delegate:
1. Clarify the assignment. The place to begin is determining what is to be
delegated and to whom.
3. Allow the employee to participate. Individual motivation and accountability
4. Inform others that delegation has occurred. Delegation shouldn’t take place
behind the scenes.
6. Recognize key performance milestones and accomplishments.
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.
10.1 DEFINING ORGANIZATIONAL STRUCTURE
Managers need to establish structural designs that will best support and allow
employees to do their work effectively and efficiently.
Several important terms must be defined in order to understand the elements
of organizational structure and design:
1. Organizing is arranging and structuring work to accomplish the
2. Organizational structure is the formal arrangement of jobs within
an organization.
3. Organizational design is developing or changing an
organization’s structure. This process involves decisions about six
key elements: work specialization, departmentalization, chain of
elements.
A. Work Specialization. Work specialization is dividing work activities into
separate job tasks. Most of today’s managers regard work specialization
as an important organizing mechanism, but not as a source of ever-
B. Departmentalization. When work tasks have been defined, they must
be arranged in order to accomplish organizational goals. This process,
known as departmentalization, is the basis by which jobs are grouped.
There are five major ways to departmentalize (see Exhibit 10–3):
2. Product departmentalization groups jobs by product line.
4. Process departmentalization groups jobs on the basis of
product or customer flow.
6. Popular trends in departmentalization include the following:
a. Customer departmentalization continues to be a highly
popular approach because it allows better monitoring of
customers’ needs and responds to changes in the needs
of customers.
b. Cross-functional teams, which are work teams
composed of individuals from various functional
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.
a. The acceptance theory of authority proposed by Chester
Barnard says that authority comes from the willingness of
subordinates to accept it. Barnard contended that
subordinates will accept orders only if the following
conditions are satisfied:
1. They understand the order.
3. The order does not conflict with their personal
b. Line authority entitles a manager to direct the work of an
employee. It is the employer–employee authority
2. Responsibility is the obligation to perform any assigned duties.
3. Unity of command is the management principle that each person
should report to only one manager.
D. Span of Control. Span of control is the number of employees a
manager can efficiently and effectively manage.
1. The span of control concept is important because it determines
2. What determines the “ideal” span of control? Contingency factors
3. The trend in recent years has been toward wider (larger) spans of
control.
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.
5. A number of factors influence the degree of centralization or
decentralization in an organization (see Exhibit 10-7).
F. Formalization refers to the degree to which jobs within an organization
are standardized and the extent to which employee behavior is guided by
rules and procedures.
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.
3. Formalization not only fosters relatively unstructured job
11.2 MECHANISTIC AND ORGANIC STRUCTURES
Organizations do not have identical structures. Even companies of comparable
size do not necessarily have similar structures.
A. Two Models of Organizational Design. (See Exhibit 10-8)
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”
11.3 CONTINGENCY FACTORS
Appropriate organizational structure depends upon four contingency variables:
A. Strategy and structure. The organization’s strategy is one of the
contingency variables that influences organizational design.
1. Alfred Chandler originated the strategy-structure relationship. His
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.
mechanistic and organic organizations.
B. Size and structure. Considerable historical evidence indicates that an
organization’s size significantly affects its structure. Larger organizations
tend to have more specialization, departmentalization, centralization, and
formalization, although the size-structure relationship is not linear.
C. Technology has been shown to affect an organization’s choice of
structure.
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
sophistication.
a) Unit production is the production of items in units or small
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 10-9 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?
Student answers to these questions will vary.
D. Environmental uncertainty and structure
Environmental uncertainty is the final contingency factor that has been
shown to affect organizational structure. Environmental uncertainty may
FUTURE VISION: Workplace Hierarchy: Why It’s Still Important
Is organizational hierarchy important? Are the concepts of chain of command
and authority still relevant? Do employees really need to know who reports to
whom and who is responsible for what? Here are some reasons why and why
not:
Why Hierarchy IS Relevant:
• Hierarchy is a fundamental
structural principle of all
organizational systems from
biological to social. Hierarchies
Why Hierarchy ISN’T Relevant:
• A hierarchical system can
inhibit innovation and
employee engagement
because of intrusive,
The following discussion questions are posed:
Talk About It 1: What do YOU think? Will organizational hierarchy continue to be
relevant and important in future workplaces?
Talk About It 2: From a manager’s perspective, discuss why employees need to
know who reports to whom and who is responsible for what.
Student answers to these questions will vary.
11.4 TRADITIONAL ORGANIZATIONAL DESIGNS
A number of different organizational designs can be found in today’s
organizations. Exhibit 10-10 summarizes the strengths and weaknesses of each
of these designs.
A. A simple structure is an organizational design with low departmentaliza-
tion, wide spans of control, authority centralized in a single person, and
little formalization.
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
and formalized. When contingency factors favor a bureaucratic or
mechanistic design, one of the following two options is likely to be used:
1. A functional structure is an organizational design that groups
ANSWERS TO REVIEW AND DISCUSSION
QUESTIONS
Student answers to these questions will vary.
10-1. 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
10-2. Contrast mechanistic and organic organizations.
10-3. Would you rather work in a mechanistic or an organic organization? Why?
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
10-4. Contrast the three traditional organizational designs.
A simple structure is one with low departmentalization, wide spans of control, authority
10-5. 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?
10-6. Researchers are now saying that efforts to simplify work tasks actually have
negative results for both companies and their employees. Do you agree? Why or why
not?
Studies as far back as 1924 show that simplified jobs lead to boredom. In 1950, other
PERSONAL INVENTORY ASSESSMENTS
Student answers to these questions will vary.
ETHICS DILEMMA
Student answers to these questions will vary.
In this dilemma, a lifeguard is fired from their job because they left their patrol area to
save a drowning man. When the employer eventually offered the lifeguard their job back
(after the story hit the media), the lifeguard declined. Students are asked what they
think, their possible concerns, and how the lessons of organizational design apply to this
10-9. What do you think? What ethical concerns do you see in this situation?
10-10. 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
EMPOWERING PEOPLE (DELEGATING) SKILL
A manager’s job is to do things through other people. This requires that a manager
learn to trust and empower those they supervise. In this exercise, the author gives five
behaviors for effective delegation. Students are to then to read through the scenario and
write a paper describing how they would handle the situation described.
In the scenario, Ann is already following several of guidelines given for recommendation,
by clarifying the assignment and allowing Ricky to participate. In Ricky’s meeting with
WORKING TOGETHER: TEAM EXERCISE
Form groups of three to four students and have each group choose an organization with
which students in the group are familiar (where students work, a student organization to
which they belong, your college or university, etc.). Have students draw an organization
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,
• Survey at least 10 different managers about how many employees they
supervise. Also ask them whether they feel they could supervise more
employees or whether they feel the number they supervise is too many. Graph
your survey results and write a report describing what you found. Draw some
• Draw an organizational chart of an organization with which you’re familiar (where
you work, a student organization to which you belong, your college or university,
etc.). Be very careful in showing the departments (or groups) and especially be
careful to get the chain of command correct. Be prepared to share your chart with
• Using the organizational chart you just created, redesign the organization’s
structure. What structural changes might make this organization more efficient
and effective? Write a report describing what you would do and why. Be sure to
include an example of the original organizational chart as well as a chart of your
• Steve’s and Mary’s suggested readings: Gary Hamel, The Future of
Management (Harvard Business School Press, 2007); Thomas Friedman, The
World Is Flat 3.0 (Picador, 2007); Harold J. Leavitt, Top Down: Why Hierarchies
Are Here to Stay and How to Manage Them More Effectively (Harvard Business
School Press, 2005); and Thomas W. Malone, The Future of Work (Harvard
Business School Press, 2004). (LO: 1, Describe six key elements in
• Choose one of the three topics discussed in the section on today’s organizational
design challenges. Research this topic and write a paper about it. Focus on
finding current information and current examples of companies dealing with these
• In your own words, write down three things you learned in this chapter about
being a good manager. (LO: 1, Describe six key elements in organizational
design, AACSB: Reflective thinking) (LO: 2, Contrast mechanistic and organic
• Self-knowledge can be a powerful learning tool. Go to mymanagementlab and
complete these self-assessment exercises: How Well Do I Handle Ambiguity?
What Type of Organizational Structure Do I Prefer? How Good Am I at Playing
Politics? and How Willing Am I to Delegate? Using the results of your
ANSWERS TO CASE APPLICATION 1
QUESTIONS
Student answers to these questions will vary.
Ask Chuck
10-11. Describe and evaluate what Charles Schwab is doing.
It is easy for a company to lose sight of their goals. While other lines of business may be
potential moneymakers, going beyond a firm’s core competence can lead a firm into
10-12. How might the company’s culture of not buying into hype and not taking
excessive risks affect its organizational structural design?
10-13. What structural implications—good and bad—might Schwab’s intense focus on
customer feedback have?
Schwab’s focus on customer feedback would indicate a flexible structure that is able to
10-14. Do you think this arrangement would work for other types of organizations? Why
or why not?
This type of customer focus would not work well for firms that operate on a thin margin.
ANSWERS TO CASE APPLICATION 2
QUESTIONS
Student answers to these questions will vary.
A New Kind of Structure
10-15. 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
10–16. What structural implications—good and bad—does this approach have? (Think
in terms of the six organizational design elements.)
Have students break into groups and discuss how the advantages and disadvantages of
using a network organizational structure from the perspective of:
• Work Specialization
10–17. Do you think this arrangement would work for other types of organizations? Why
or why not?
The network organization design used by Pfizer has helped to balance recent layoffs the
10–18. What role do you think organizational structure plays in an organization’s
efficiency and effectiveness? Explain.