Organization Structure

The Weaknesses of the simple structure

> Difficult to maintain in anything other than small organizations. > It becomes increasingly inadequate as an organization grows because its low formalization and high centralization tend to create information overload at the top. > Risky—everything depends on one person. Illness can literately destroy the information and decision making center of the company.

Drawbacks of Narrow Span of Control

> Expense of additional layers of management. > Increased complexity of vertical communication. > Encouragement of overly tight supervision and discouragement of employee autonomy.

The Mechanistic Model

> High specialization > Rigid departmentalization > Clear chain of command > Narrow spans of control > Centralization > High formalization

Characteristics of large organization

> More specialization > More departmentalization > More vertical levels > More rules and regulations

Management efforts to make organizations more flexible and responsive have

> Produced a recent trend toward decentralized decision making by lower level managers, who are closer to the action and typically have more detailed knowledge about problems than top managers. Sears and JCPenney have given their store managers considerably more discretion in choosing what merchandise to stock. This allows those stores to compete more effectively against local merchants. Similarly, when Procter & Gamble empowered small groups of employees to make 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.

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. For example, when manufactures mass-market fashion goods that are rip-offs of designer styles.

Strengths of Matrix Structure

Ability to facilitate coordination when the organization has a multiplicity of complex and interdependent activities. The dual lines of authority reduce tendencies of departmental members to protect their worlds. It facilitates the efficient allocation of specialists.

Increased popularity of self-managed and cross-functional teams and the creation of new structural designs that include multiple bosses

Causes authority and unity of command hold less relevance. Still, many organizations find they can be most productive by enforcing the chain of command. Indeed, one survey of more than 1,000 managers found that 59% 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." 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.

Contrast Mechanistic and Organic Structural Models

First, the mechanistic model is synonymous with bureaucracy and has extensive departmentalization, high formalization, a limited information network (mostly downward), and little participation in decision making. The organic model looks a lot like the boundaryless organization. It uses cross-hierarchical and cross-functional teams, low formalization, a comprehensive information network, and high participation in decision making.

Advantages of virtual organization

Flexibility

The concepts of chain of command have less relevance today because of

Technology and the trend of empowering employees. A low-level employee today can access information in seconds that a generation ago was available only to top managers. Operating employees are empowered to make decisions previously reserved for management.

Span of Control

The number of subordinates a manager can efficiently and effectively direct.

Organizations that operate in environments characterized as scarce, dynamic, and complex face the greatest degree of uncertainty because

They have high unpredictability, little room for error, and a diverse set of elements in the environment to monitor constantly.

The Virtual Organization

Typically a small, core organization that outsources major business functions. Also referred to as a modular or network organization. It is highly centralized, with little or no departmentalization.

Concept of Span of Control

Wider spans of management increase organizational efficiency.

Advantages of a decentralized organization

> Can act more quickly to solve problems. > More people provide input into decisions. > Employees are less likely to feel alienated from those who make decisions that affect their work lives.

The Organic Model

> Cross-functional teams > Cross-hierarchical teams > Free flow of information > Wide spans of control > Decentralization > Low formalization

Six traits of Bureaucracy

> Highly routine operating tasks achieved through specialization > Very formalized rules and regulations. > Tasks grouped into functional departments. > Strong centralized authority. > Narrow spans of control. > Decision making that follows the chain of command.

Functional departments create

Horizontal boundaries

Telecommuting is blurring organizational boundaries.

The security analyst with Merrill Lynch who does her job from her ranch in Montana or the software designer in Boulder, Colorado, who works for a San Francisco firm are just two of the millions of workers operating outside the physical boundaries of their employers' premises.

Structural option for Cost-minimization strategy

Mechanistic > Tight control > Extensive work specialization > High Formalisation > High Centralization

Structural option for Imitation

Mechanistic and organic > Mix of loose with tight properties > Tight controls over current activities > Looser controls for new undertakings

Structural option for Innovation Strategy

Organic > A loose structure > Low Specialization > Low formalization > Decentralized

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.

Six Elements of an Organization's Structure

1. Work specialization 2. Departmentalization 3. Chain of command 4. Span of control 5. Centralization and decentralization 6. Formalization.

Strengths of Bureaucracy

> Ability to perform standardized activities in a highly efficient manner. > Putting like specialties together in functional departments results in economies of scale, minimum duplication of personnel and equipment, etc. > Bureaucracies get by nicely with less talented and less costly middle- and lower-level managers.

Technology refers to

> How an organization transfers its inputs into outputs. > Every organization has at least one technology for converting financial, human, and physical resources into products or services. > Ford Motor Company predominantly uses an assembly-line process to make its products. > Colleges may use a number of instruction technologies—the ever-popular formal lecture method, the case analysis method, the experiential exercise method, the programmed learning method, etc. to educate its students.

Characteristics of the simple structure

> Low degree of departmentalization > Wide spans of control > Authority centralized in a single person > Little formalization.

Wider vs Narrow Spans of Control

Reducing the number of managers leads to significant savings. Wider spans are more efficient in terms of cost. However, at some point, wider spans reduce effectiveness. Narrow or small spans have their advocates. By keeping the span of control to five or six employees, a manager can maintain close control. Narrow spans have three major drawbacks. First, as already described, they are expensive because they add levels of management. Second, they make vertical communication in the organization more complex. Third, narrow spans of control encourage overly tight supervision and discourage employee autonomy. The trend in recent years has been toward wider spans of control. 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. To ensure that performance does not suffer because of these wider spans, organizations have been investing heavily in employee training.

The Boundaryless Organization

Seeks to eliminate the chain of command, has limitless spans of control, and replaces departments with empowered teams.

The simple structure is

A "flat" organization; it usually has only two or three vertical levels. One individual has the decision making authority. Most widely practiced in small businesses in which the manager and the owner are one and the same.

Chain of command

An unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom. It was once a basic cornerstone in the design of organizations, but it is far less important today.

An organization's size significantly affects its structure.

As the organization grow larger, it becomes more mechanistic. The impact of size becomes less important as an organization expands. Once an organization has around 2,000 employees, it's already fairly mechanistic. An additional 500 employees will not have much impact. However, adding 500 employees to a 300-employee firm is likely to result in a mechanistic structure.

Centralization refers to

The degree to which decision making is concentrated at a single point in the organization. In centralized organizations, top managers make all the decisions, and lower-level managers merely carry out their directives.

Formalization

The degree to which jobs within the organization are standardized. The degree of formalization can vary widely between organizations and within organizations.

A virtual organization in which management outsources all of the primary functions of the business.

The dotted lines in this exhibit represent those relationships typically maintained under contracts. In essence, managers in virtual structures spend most of their time coordinating and controlling external relations, typically by way of computer-network links.

Two complementary concepts of Chain of Command are

Authority and unity of command.

When fully operational, the boundaryless organization

Breaks down geographic barriers. Today, most large U.S. companies see themselves as 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. The boundaryless organization provides one solution because it considers geography more of a tactical, logistical issue than a structural one.

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.

The concept of centralization includes only

Formal authority—that is, the rights inherent in a position. An organization characterized by centralization is inherently different structurally from one that's decentralized.

A highly formalized job

Gives the job incumbent a minimum amount of discretion over what is to be done, when it is to be done, and how he or she should do it. Employees can be expected to always handle the same input in exactly the same way. The greater the standardization, the less input the employee has into how the job is done.

Departmentalization

Grouping jobs together so common tasks can be coordinated.

The principle of unity of command

Helps preserve the concept of an unbroken line of authority. It states that a person should have only one superior to whom he/she is directly responsible.

The most obvious structural characteristic of the matrix is that

It breaks the unity of command concept.

By the 1960s, there became increasing evidence that a good thing can be carried too far.

The human diseconomies from specialization are boredom, fatigue, stress, low productivity, poor quality, increased absenteeism, and high turnover. They more than offset the economic advantages. In such cases, enlarging the scope of job activities could increase productivity. Most managers today recognize the economies specialization provides in certain jobs and the problems when it's carried too far. High work specialization helps McDonald's make and sell hamburgers and fries efficiently and aids medical specialists in most health maintenance organizations. Amazon's Mechanical Turk program, TopCoder, and others like it have facilitated a new trend in microspecialization in which extremely small pieces of programming, data processing, or evaluation tasks are delegated to a global network of individuals by a program manager who then assembles the results. For example, a manager who has a complex but routine computer program to write might send a request for specific subcomponents of the code to be written and tested by dozens of subcontracted individuals in the network (which spans the entire globe), enabling the project to be completed far more quickly than if a single programmer were writing the parts. This emerging trend suggests there still may be advantages to be had in specialization.

Weaknesses of Matrix Structure

The major disadvantages of the matrix lie in the confusion it creates, its propensity to foster power struggles, and the stress it places on individuals. Violation of the unity of command concept increases ambiguity that often leads to conflict. Confusion and ambiguity also create the seeds of power struggles. Reporting to more than one boss introduces role conflict, and unclear expectations introduce role ambiguity.

Given this three-dimensional definition of environment, we can offer some general conclusions about environmental uncertainty and structural arrangements.

The more scarce, dynamic, and complex the environment, the more organic a structure should be. The more abundant, stable, and simple the environment, the more the mechanistic structure will be preferred.

Authority

The rights inherent to management to give orders and expect the orders to be obeyed.

Strength and Weakness of Functional and Product Departmentalization

The strength of functional departmentalization is putting like specialists together and the pooling and sharing of specialized resources across products. Its major disadvantage is the difficulty of coordinating tasks. Product departmentalization facilitates coordination. It provides clear responsibility for all activities related to a product, but with duplication of activities and costs.

Organizational Structure

The way in which job tasks are formally divided, grouped, and coordinated

The way to reduce these barriers is

To replace functional departments with cross-functional teams and organize around processes. Then use lateral transfers and rotate people into and out of different functional areas.

Decentralized

Decision making is pushed down to the managers closest to the action.

Numerous studies have examined the technology-structure relationship. What differentiates technologies?

Degree of routineness. > Routine activities are characterized by automated and standardized operations. > Nonroutine activities are customized and require frequent revision and updating.

Work specialization, or division of labor

Describes the degree to which activities in the organization are subdivided into separate jobs. In essence, an entire job is broken into a number of steps, each completed by a separate individual

Key Dimensions of Environment

Capacity: the degree to which an environment can support growth. Rich and growing environments generate excess resources, which can buffer times of relative scarcity. Volatility: the degree of instability in the environment characterized by a high degree of unpredictable change. The environment is dynamic, making it difficult for management to predict accurately the probabilities associated with various decision alternatives. At the other extreme is a stable environment. Complexity: the degree of heterogeneity and concentration among environmental elements. Simple environments are homogeneous and concentrated. In contrast, environments characterized by heterogeneity and dispersion are called complex.

Bureaucracy

Characterized by standardization. Efficient only as long as employees confront familiar problems with programmed decision rules.

The Matrix Structure

Combines two forms of departmentalization—functional and product:. Common in advertising agencies, aerospace firms, research and development laboratories, construction companies, hospitals, government agencies, universities, management consulting firms, and entertainment companies.

Category of departmentalization

> One of the most popular ways to group activities is BY FUNCTIONS PERFORMED. For example, a manufacturing manager might organize his or her plant by separating engineering, accounting, manufacturing, personnel, and purchasing specialists into common departments. The advantage to this type of grouping is obtaining efficiencies from putting like specialists together. > BY THE TYPE OF PRODUCT OR SERVICE THE ORGANIZATION PRODUCES. The major advantage to this type of grouping is increased accountability for product performance under a single manager. > BY GEOGRAPHY OR TERRITORY. The sales function, for instance, may have western, southern, mid-western, and eastern regions. > BY PROCESS DIFFERENCES. Process departmentalization can be used for processing customers as well as products. For example, at the state motor vehicles office you might find: Validation by motor vehicles division, Processing by the licensing department, and Payment collection by the treasury department. > BY TYPE OF CUSTOMER. Microsoft, for instance, recently reorganized around four customer markets: consumers, large corporations, software developers, and small businesses. The assumption is that customers in each department have a common set of problems and needs that can best be met by having specialists for each.

Managers should:

> Recognize that 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.

Disadvantages of virtual organization

> Reduces management's control over key parts of its business. Virtual organizations' drawbacks have become increasingly clear as their popularity has grown. > They are in a state of perpetual flux and reorganization, which means roles, goals, and responsibilities are unclear, setting the stage for political behavior. > Cultural alignment and shared goals can be lost because of the low degree of interaction among members. > Team members who are geographically dispersed and communicate infrequently find it difficult to share information and knowledge, which can limit innovation and slow response time. Ironically, some virtual organizations are less adaptable and innovative than those with well-established communication and collaboration networks. A leadership presence that reinforces the organization's purpose and facilitates communication is thus especially valuable.

The Strength of the simple structure

> Simple, fast, and flexible. > Inexpensive to maintain. > Accountability is clear.

Weaknesses of Bureaucracy

> Subunit conflicts. > Unit goals dominate. > Obsessive behavior. > Covering weak management.

Tools of Boundaryless Organization

> Uses cross-hierarchical teams. > Uses participative decision-making practices. > Uses 360-degree performance appraisals

Research Findings

> Work specialization contributes to higher employee productivity, but it reduces job satisfaction. > The benefits of specialization have decreased rapidly as employees seek more intrinsically rewarding jobs. > The effect of span of control on employee performance is contingent upon individual differences and abilities, task structures and other organizational factors. > Participative decision making in decentralized organizations is positively related to job satisfaction.

Low formalization, where job behaviors are relatively non-programmed

Allows employees to have a great deal of freedom to exercise discretion in their work.

Another goal of boundaryless organizations is to

Break down cultural barriers through strategic alliances. Firms such as NEC Corporation, Boeing, and Apple each have strategic alliances or joint partnerships with dozens of companies. These alliances blur the distinction between one organization and another as employees work on joint projects. Some companies allow customers to perform functions previously done by management. For example, some AT&T units receive bonuses based on customer evaluations of the teams that serve them.

By the late 1940s, most manufacturing jobs in industrialized countries were being done by work specialization. Why?

Management saw this as a means to make the most efficient use of its employees' skills. Managers also looked for other efficiencies that could be achieved through work specialization. For example, employee skills at performing a task successfully increase through repetition. Training for specialization is more efficient from the organization's perspective. It increases efficiency and productivity, encouraging the creation of special inventions and machinery. For much of the first half of this century, managers viewed work specialization as an unending source of increased productivity. Henry Ford became rich and famous by building automobiles on an assembly line, demonstrating that work can be performed more efficiently by using a work specialization strategy. Every Ford worker was assigned a specific, repetitive task. By breaking jobs up into small standardized tasks, Ford was able to produce cars at the rate of one every ten seconds, while using employees who had relatively limited skills.

Dynamic environments create significantly more uncertainty for managers than do static ones. To minimize uncertainty,

Managers may broaden their structure to sense and respond to threats. For example, most companies, including Pepsi and Southwest Airlines, have added social networking departments to counter negative information posted on blogs. Or companies may form strategic alliances, such as when Microsoft and Yahoo! joined forces to better compete with Google.