Chapter 07 – Designing Organizational Structure
7-1
Chapter 07
Designing Organizational Structure
Learning Objectives 7-2
Key Definitions/Terms 7-2
Chapter Overview 7-3
Lecture Outline 7-4
Lecture Enhancers 7-19
Management in Action 7-20
Building Management Skills 7-24
Managing Ethically 7-27
Small Group Breakout Exercise 7-28
Be the Manager 7-29
Case in the News 7-30
Supplemental Features 7-31
Manager’s Hot Seat 7-31
Instructor’s PowerPoint Slides 7-32
CHAPTER CONTENTS
Chapter 07 – Designing Organizational Structure
7-2
LO 7-2. Explain how managers group tasks into jobs that are motivating
and satisfying for employees.
LO 7-3. Describe the types of organizational structures managers can
design, and explain why they choose one structure over another.
LO 7-4. Explain why managers must coordinate jobs, functions, and
LO 7-5. Describe how information technology (IT) is helping managers
build strategic alliances and network structures to increase
efficiency and effectiveness.
authority: The power to hold people accountable
for their actions and to make decisions concerning
the use of organizational resources.
boundaryless organization: an organization
whose members are linked by computers, email,
computer-aided design systems, video
teleconferencing and cloud-based software, and
who rarely, if ever, see one another face-to-face.
decentralizing authority: Giving lower-level
managers and nonmanagerial employees the right
to make important decisions about how to use
organizational resources.
divisional structure: An organizational structure
composed of separate business units within which
are the functions that work together to produce a
specific product for a specific customer.
LEARNING OBJECTIVES
KEY DEFINITIONS/TERMS
Chapter 07 – Designing Organizational Structure
7-3
hierarchy of authority: An organization’s chain of
command, specifying the relative authority of each
manager.
job enrichment: Increasing the degree of
responsibility a worker has over his or her job.
job simplification: The process of reducing the
number of tasks that each worker performs.
matrix structure: An organizational structure that
simultaneously groups people and resources by
function and by product.
network structure: A series of strategic alliances
that an organization creates with suppliers,
manufacturers, and/or distributors to produce and
market a product.
organizational design: The process by which
managers make specific organizing choices that
product structure: An organizational structure in
which each product line or business is handled by a
self-contained division.
product team structure: An organizational
structure in which employees are permanently
risks of starting a new venture.
task force: A committee of managers from various
functions or divisions who meet to solve a specific,
mutual problem; also called ad hoc committee.
To create high performing organizations, managers must design an organizational structure that
maximizes the efficient use of resources. This chapter opens by examining the four critical factors that
help managers to determine the most appropriate organizational structure. Next, it discusses three
components of organizational design: job design, grouping jobs into functions and divisions, and the
coordination of functions and divisions. The chapter closes with a discussion of integrating
mechanisms and the growing popularity of global strategic alliances and business-to-business network
structures.
CHAPTER OVERVIEW
Chapter 07 – Designing Organizational Structure
NOTE ABOUT INSTRUCTOR’S
POWERPOINT SLIDES
The Instructor PowerPoint Slides include most
Student PowerPoint slides, along with additional
material that can be used to expand the lecture.
Images of the Instructor PowerPoint slides can be
found at the end of this chapter on page 7-33.
Management Snapshot (pp. 229-230)
Disney Lets Studios Set Structure and Culture
How Can Organizational Structure Influence Employee Creativity?
Walt Disney Company owns several organizations, including Walt Disney Animation
Studios, Marvel Studios, and Pixar Animation Studios. Although the three studios are all
owned by the same company and roughly do the same type of work (produce movies),
they have different stories and different organizational cultures.
Ed Catmull, president of Walt Disney Animation Studios and Pixar, said that when two
organizations merge there is typically a push to consolidate workflows and to reduce
LECTURE OUTLINE
Chapter 07 – Designing Organizational Structure
I. Designing Organizational Structure
A. Organizing is the process by which managers
establish the structure of working relationships
among employees to allow them to achieve
organizational goals efficiently and effectively.
1. Organizational structure is the formal
system of task and job reporting relationships
that determines how employees use resources
to achieve goals.
2. Organizational design is the process by
which managers make specific organizing
choices about tasks and job relationships that
result in a particular organizational structure.
3. According to contingency theory, managers
design organizational structures to fit the
factors or circumstances that are affecting the
company and causing them the most
uncertainty.
B. Four factors are important determinants of the
type of organizational structure or culture managers
select:
1. The Organizational Environment: The
more quickly the external environment is
changing and the greater the uncertainty within
it, the greater the need to speed decision-
making and communication so that resources
can be obtained.
a. In such situations, managers make
organizing decisions that result in more
flexible structures and entrepreneurial
cultures. Therefore, they are likely to
decentralize authority, empower lower-
LO 7-1: Identify the factors
that influence
managers’ choice
of an
organizational
structure.
POWERPOINT SLIDES 7-4 TO 7-7
Chapter 07 – Designing Organizational Structure
that emphasize obedience and being a team
player. Managers in this situation prefer to
make decisions with a clearly defined
hierarchy of
authority, standard operating procedures,
and restrictive norms to guide and govern
employees’ activities.
c. In today’s marketplace, increasing
competition is putting pressure on
managers to find ways to attract customers
and increase efficiency and effectiveness.
2. Strategy: Different strategies often call for
the use of different organizational structures
and cultures.
a. A differentiation strategy aimed at
increasing quality usually succeeds best in
a flexible structure with a culture that
values innovation.
b. In contrast, a low-cost strategy aimed at
driving down costs works best in a more
formal structure with more conservative
norms, which gives managers greater
a. The more complicated the technology,
the greater the need for a more flexible
structure that allows managers to respond
quickly to unexpected situations.
Chapter 07 – Designing Organizational Structure
are simple and procedures to produce
goods and services have been outlined in
advance.
c. According to researcher Charles Perrow,
two factors determine how complicated or
nonroutine technology is. They are task
variety and task analyzability.
i. Nonroutine technologies are
characterized by high task variety and
low task analyzability.
ii. Routine technologies are
characterized by low task variety and
high task analyzability.
iii. Examples of nonroutine technology
are found in the work of scientists in an
R&D laboratory who develop new
products.
iv. Examples of routine technology
include typical mass production or
assembly operations, where workers
perform the same task repeatedly and
managers identify programmed
solutions necessary to perform a task
efficiently.
4. Human Resources: The more highly skilled
a workforce, and the greater the number of
employees who work together in groups or
teams, the more likely an organization is to use
a flexible, decentralized structure and a
professional culture based on values and norms
that foster employee autonomy and self-
control.
a. Flexible structures, characterized by
Chapter 07 – Designing Organizational Structure
managers make about three issues:
i. How to group tasks into individual
jobs
ii. How to group jobs into functions
and divisions
iii. How to allocate authority and
coordinate or integrate functions, and
divisions.
II. Grouping Tasks into Jobs: Job Design
A. The first step in organizational design is job
design, the process by which managers decide how
to divide into specific jobs the tasks that have to be
performed.
1. The result of the job design process is a
division of labor among employees.
Establishing an appropriate division of labor
among employees is vital to increasing
efficiency and effectiveness.
2. When deciding how to assign tasks to
individual jobs, managers must be careful not
to oversimplify jobs. Job simplification is the
process of reducing the number of tasks that
each worker performs. Too much job
simplification may reduce efficiency rather
than increase it, if workers become bored and
unhappy.
B. Job Enlargement and Job Enrichment
1. Job enlargement is increasing the number
of different tasks in a given job by changing the
division of labor. By increasing the range of
tasks performed by a worker, managers hope to
reduce boredom and increase motivation to
perform.
2. Job enrichment is increasing the degree of
responsibility a worker has over a job by:
skills,
c. allowing workers to decide how to do
McGraw-Hill Education.
worker feels his or her job is meaningful
because of its effect on people outside the
who could get the most customer
names in a given day. As a result of
5. Feedback is the extent to which actually
doing a job provides a worker with clear and
direct information regarding how well he or she
has performed the job.
6. The five job characteristics affect an
employee’s motivation by affecting three
critical psychological states:
a. feeling that one’s work is meaningful
b. feeling responsible for work outcomes,
and
c. feeling responsible for knowing how
those outcomes affect others.
III. Grouping Jobs into Functions and
Divisions: Designing Organizational
Structure
A. After task allocation, the next organizing
decision is how to group jobs together to best
match the needs of the organization’s environment,
strategy, technology, and human resources.
1. Most top-management teams group jobs into
departments and develop a functional structure.
2. As the organization grows, managers design
a divisional structure or a matrix or product
team structure.
B. Functional Structure: A function is a group of
people, working together, who possess similar
skills or use the same knowledge, tools, or
techniques to perform their jobs. A functional
structure is a structure composed of all the
departments that an organization requires to
1. The advantages of grouping jobs according
to function are:
a. When people who perform similar jobs
are grouped together, they can learn from
observing one another.
b. When people who perform similar jobs
Chapter 07 – Designing Organizational Structure
are grouped together, it is easier for
managers to monitor and evaluate their
performance.
c. The functional structure allows managers
to create the set of functions they need to
scan and monitor the competitive
environment.
2. As an organization grows, the functional
structure may become less efficient and
effective for the following reasons:
a. Managers in different functions may find
it more difficult to communicate and
coordinate with one another.
b. Functional managers may become so
preoccupied with supervising their own
specific departments that they lose sight of
organizational goals.
C. Divisional Structures: Product, Market, and
Geographic:
As the problems associated with growth and
diversification increase over time, most managers
of large organizations choose a divisional
structure and create a series of business units, each
of which produces a specific kind of product for a
specific kind of customer. Each division is a
collection of functions or departments that work
together to produce the product. There are three
different forms of divisional structure: product
structure, geographic structure, and market
structure.
1. Product Structure: When using a product
it needs to produce goods or services.
b. It allows functional managers to
c. It frees corporate managers from the
need to supervise directly each division’s
day-to-day activities.
d. The extra layer of management, the
divisional management layer, can improve
the use of organizational resources.
e. It puts divisional managers close to their
customers and lets them respond quickly
and appropriately.
2. Geographic Structure: When organizations
expand rapidly both at home and abroad,
functional structures can create problems
because managers in one central location may
find it increasingly difficult to deal with
problems arising in other regions of the country
or world.
a. In such cases, a geographic structure, in
which divisions are broken down by
geographical location, is chosen.
b. Managers are most likely to use a global
use a global product structure when they
a. A market structure, also called customer
LO 7-3: Describe the types of
organizational
structures managers
can design, and
explain why they
choose one structure
over another.
POWERPOINT SLIDES 7-12 TO 7-
25
TEXT REFERENCE
Managing Globally:
Reorganization Focuses on Local
Clients
The Michael Baker Corporation has
worked on some high-profile
engineering projects around the
world, including the 789-mile Trans-
Alaska Pipeline in North America
and the 135-mile KHMR-American
Friendship Highway in Cambodia.
leadership of projects. (Box in text on
Chapter 07 – Designing Organizational Structure
make decisions in response to customers’
changing needs.
D. Matrix and Product Team Designs: Matrix
and product team designs are the most flexible type
of organization structures.
1 Matrix Structure: In a matrix structure,
managers group people and resources in two
ways simultaneously: by function and by
product. The result is a complex network of
reporting relationships that makes the matrix
structure very flexible.
a. Each person in a product team reports to
two managers: 1) a functional boss, who
assigns individuals to a team and evaluates
their performance, and 2) the boss of the
specific skills needed by the team change.
To keep the matrix flexible, product teams
are
TEXT REFERENCE
Management Insight:
Restoring a Team-First Culture
In the 2013 NFL season, Miami
Dolphins offensive lineman Jonathan
Martin said he had been bullied by
three of his teammates, causing him
extreme emotional distress. As a
well as by teammates John Jerry and
Mike Pouncey. The harassment
included racial slurs, sexual taunts,
and jokes that Martin was gay.
Chapter 07 – Designing Organizational Structure
employees, and (2) functional employees
are permanently assigned to a cross-
functional team.
b. A cross-functional team is a group of
managers brought together from different
departments to perform organizational
tasks. They report only to the product team
manager or to one of his or her
subordinates.
c. Increasingly, organizations are making
empowered cross-functional teams an
essential part of their organizational
architecture to help them gain a
competitive advantage in fast-changing
organizational environments.
IV. Coordinating Functions and Divisions
A. The more complex the structure a company uses to
group its activities, the greater are the problems of
linking and coordinating its different functions and
divisions. Coordination becomes a problem because
each function or division develops a different orientation
toward the other groups that affects the way it interacts
with them.
B. Allocating Authority: To coordinate the activities of
people, functions, and divisions and to allow them to
work together, managers must develop a clear hierarchy
of authority.
1. Authority is the power vested in a manager to
make decisions and use resources to achieve
organizational goals by virtue of his or her position
in an organization.
a. The hierarchy of authority is an
organization’s chain of command. Every
manager, at every level of the hierarchy,
supervises one or more subordinates.
b. The term span of control refers to the
number of subordinates who report directly to a
Chapter 07 – Designing Organizational Structure
authority over people and resources.
d. A staff manager is a manager responsible for
a specialist function.
e. Managers at each level of the hierarchy
confer on managers below them the authority to
make decisions. By accepting this authority,
those lower-level managers are accountable for
how well they make those decisions.
2. Tall and Flat Organizations: As an organization
grows in size, its hierarchy of authority normally
lengthens, making the organizational structure taller.
a. A tall organization has many levels of
authority relative to company size.
b. A flat organization has fewer levels relative
to company size.
c. As a hierarchy becomes taller, effective
ii. Also, it can result in the distortion of
commands and messages being transmitted
up and down the hierarchy.
3. The Minimum Chain of Command: The
principle of the minimum chain of command states
Chapter 07 – Designing Organizational Structure
4. Centralization and Decentralization of
Authority: Another way in which managers keep
the organizational hierarchy flat is by
decentralizing authority, that is, giving lower-level
managers and non-managerial employees the right
to make important decisions about how to use
organizational resources.
a. Decentralizing authority allows the
organization to behave in a flexible way as it
grows and becomes taller.
b. However, too much decentralization has
disadvantages, including managers who may
begin to pursue their own goals at the expense
of organizational goals and a lack of
communication among functions or divisions
that may prevent possible synergies.
c. Top managers must seek a balance between
centralization and decentralization of authority
that best responds to the four contingencies that
they face.
d. If managers in a stable environment are using
Managers can use various integrating mechanisms to
increase communication and coordination among
functions and divisions. The greater the complexity of
an
organization’s structure, the greater is the need for
coordination among functions and divisions.
jobs, functions, and divisions
using the hierarchy of
authority and integrating
mechanisms.
POWERPOINT SLIDES 7-26 TO 7-
35
Chapter 07 – Designing Organizational Structure
a. The responsibility for coordination is a part of
the liaison’s full-time job.
b. Usually an informal relationship forms
between the people involved, greatly easing
strains between functions.
2. Task Forces: If two or more functions share
common problems, and direct contact and liaison
roles do not provide sufficient coordination, a task
force may be appropriate.
a. One manager from each relevant function or
division is assigned to a task force that meets to
solve a specific, mutual problem.
b. Members are responsible for reporting to
their own departments on the issues addressed
and solutions recommended.
c. Task forces are often called ad hoc
committees because they are temporary. Once
the problem is resolved, the task force is
disbanded.
integration among functions or divisions to achieve
performance gains from synergies.
important integrating roles become.
V. Strategic Alliances, B2B Network Structures,
Chapter 07 – Designing Organizational Structure
7-18
and IT
1. A strategic alliance is a formal agreement that
commits two or more companies to exchange or
share their resources in order to produce and market
a product. Strategic alliances are usually formed
because the companies involved have similar
interests and believe they can benefit by
cooperating.
2. A B2B network structure is a series of global
strategic alliances that one or several organizations
create with suppliers, manufacturers, and/or
distributors to produce and market a product.
complex organizational structure.
3. The process of outsourcing—using outside
suppliers and manufacturers to produce goods and
services—helps to keep the organization’s structure
to the popularity of the idea of a boundaryless
organization. Such an organization is composed of
people linked by IT—computers, email, computer-
each other face-to–face.
5. Large consulting companies utilize their
employees in this way. Consultants are connected
by laptops to the organization’s knowledge
6. With the B2B network structure, most or all of
the companies in an industry use the same software
platform to link to each other and establish industry
specifications and standards as well as to solicit bids
McGraw-Hill Education.
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