HNDBM – 12. Organization Structure
Lim Sei Kee @ cK
Organization structureo How job tasks are formally divided, grouped
and coordinated
o Six key elements to design organization
structure
Key design questions and answers for designing the proper organizational structure
The key question The answer is provided by
1. To what degree are activities subdivided into separate jobs?
Work Specialization
2. On what basis will jobs be grouped together?
Departmentalization
3. To whom do individuals and groups report?
Chain of Command
4. How many individuals can a manager efficiently and effectively direct?
Span of Control
5. Where does decision-making authority lie?
Centralization and decentralization
6. To what degree will there be rules and regulations to direct employees and managers?
Formalization
Work specializationThe degree to which activities in the
organization are subdivided into separate
jobs.
Efficient use of employees skills
Efficient use of organizational resources
Departmentalization The basis by which jobs are grouped
together.
By functions
Type of product
Basis of geography or territory
By process
Type of customer
Chain of commandThe unbroken line of authority that extends
from the top of the organization to the
lowest level and clarifies who reports to
whom.
Authority – the rights inherent in a
managerial position to give orders and to
expect the orders to be obeyed
Unity of command – a subordinate should
have only one superior to whom he or she is
directly responsible
Span of controlThe number of subordinates a manager can
efficiently and effectively direct.
Narrow - can maintain close supervision
Expensive, as they add levels to management
Vertical communication more complex
Encourage tight supervision and discourage
employee autonomy
Wider – reduce costs, cut overhead, speed up
decision making, increase flexibility
Investing heavily on training
Centralization and decentralizationThe degree to which decision making is
concentrated at a single point in the
organization
The degree to which decision making
requires multiple parties to make their own
independent decisions.
FormalizationThe degree to which jobs within the
organization are standardized.
High – minimum amount of discretion over
what is to be done, when it is to be done, and
how he/she should do it
Low – non-programmed job, employees have
a great deal of freedom to exercise discretion
in their work.
Organizational designsSimple structure
Bureaucracy
Matrix structure
Simple structureA structure characterized by a low degree of
departmentalization, wide spans of control,
authority decentralized in a single person,
and a little formalization.Owner - Manager
Salesperson
Salesperson
Salesperson
Salesperson
Cashier
Simple structureStrength
Fast, flexible and accountability is clear
Weakness
As organization grows, it become
inadequate
BureaucracyA structure with highly routine operating
tasks achieved through specialization, very
formalized rules and regulations, tasks that
are grouped into functional departments,
centralized authority, narrow spans of
control and decision making that follows the
chain of command.
BureaucracyStrength
Ability to perform standardized activity in
a highly efficient manner
Economies of scale, minimum duplication
of personnel and equipment
Weakness
Specialization creates subunit conflicts
Obsessive concern with following the rules
The matrix structureA structure that creates dual lines of
authority and combines functional and
product departmentalization.
The matrix structureStrength
Facilitate the efficient allocation of specialists and sharing of specialized resources across products.
Facilitate coordination when the organization has a multiplicity of complex activities
Weakness
Creates confusion
New structural optionsTeam structure
Virtual organization
Boundaryless organization
Team structure The use of teams as the central device to
coordinate work activities.
Breaks down departmental barriers
Decentralizes decision making
Require employees who are specialists
Virtual organization A small, core organization that outsources
major business functions.
Highly centralized with little or no
departmentalization
Drawback – reduces management’s control
over key parts of its business
Boundaryless organizationAn organization that seeks to eliminate the
chain of command, have limitless spans of
control, and replace departments with
empowered teams.
ideal or companies in the growing
technology industry.
communicate mainly through email, phone
and other virtual methods rather than more
traditional face-to-face communication
Mechanistic versus organic modelsMechanistic model Organic model
High specialization Cross-functional teams
Rigid departmentalization Cross-hierarchical teams
Clear chain of command Free flow of information
Narrow spans of control Wide spans of control
Centralization Decentralization
High formalization Low formalization
Why do structures differ?Strategy
Size
Technology
Environment
Strategy Innovation strategy – a strategy that emphasizes
the introduction of major new products and services.
Cost-minimization strategy – a strategy that
emphasizes tight cost controls, avoidance of
unnecessary innovation or marketing expenses and
price cutting.
Imitation strategy – a strategy that seeks to move
into new products or new markets only after their
viability has already been proven
Strategy – structure relationship Strategy Structural option
Innovation Organic: a loose structure, low specialization, low formalization, decentralized
Cost minimization
Mechanistic: tight control, extensive work specialization, high formalization, high centralization
Imitation Mechanistic and organic: mix of loose and tight properties, tight controls over current activities and loose controls for new undertakings
SIZE
Large – tend to have more specialization, more
departmentalization, more vertical levels and
more rules and regulations
TECHNOLOGY
o How an organization transfers its inputs to
outputs.
ENVIRONMENT
o Institutions or forces outside that potentially
affect the organization’s performance.