MPW Chapter 10: Designing Organization Structure

Ib. Contingency factors of strategic goals, environment, and technology influence the correct structural approach.

A mechanistic, vertical structure is appropriate for a cost leadership strategy, which typically occurs in a stable environment. An organic, horizontal approach is needed for a differentiation strategy and when the organization needs flexibility to cope with an uncertain environment.

3E. Matrix approach:

A structural approach that uses both functional and divisional chains of command simultaneously, in the same part of the organization. The matrix structure evolved as a way to improve horizontal coordination and information sharing.

2E. In a geographic-based structure, all functions in a specific country or region report to the same division manager. The structure focuses company activities on local market conditions.

Competitive advantage may come from the production or sale of a product or service adapted to a given country or region. (Ex10.5)

E. Three traditional approaches to departmentalization are:

functional, divisional, and matrix. An alternative approach to divisional structure is to group employees and departments based on geographic region or customer group. [The Disney Channel is structured into geographic divisions to better address the interests of children and teens in different parts of the world.]

C. Chain of command is associated with two underlying principles:

unity of command and scalar principle

A. Organization structure is defined as:

(1)the set of formal tasks assigned to individuals and departments; (2)formal reporting relationships, including lines of authority, decision responsibility, number of hierarchical levels, and span of managers' control; and (3)the design of systems to ensure effective coordination of employees across departments. Ensuring coordination across departments is just as critical as defining the departments to begin with. Without effective coordination systems, no structure is complete.

1E. Functional Adv&Disadv -Grouping employees by common task permits economies of scale and efficient resource use. -Large, functionally based departments enhance the development of in-depth skills because people work on a variety of related problems and are associated with other experts within their own department. -Because the chain of command converges at the top, the functional structure also offers a way to centralize decision making and provide unified direction from top managers.

- The primary disadvantages reflect barriers that exist across departments. Because people are separated into distinct departments, communication and coordination across functions are often poor, causing a slow response to environmental changes. -Innovation and change require involvement of several departments. Another problem is that decisions involving more than one department may pile up at the top of the organization and be delayed.

3E. Matrix Adv&Disadv The matrix can be highly effective in a complex, rapidly changing environment in which the organization needs to be flexible, innovative, and adaptable. The conflict and frequent meetings generated by the matrix allow new issues to be raised and resolved. The matrix structure makes efficient use of HR because specialists can be transferred from one division to another.

-A major problem with the matrix is the confusion and frustration caused by the dual chain of command. Matrix bosses and two-boss employees have difficulty with the dual reporting relationships. The matrix structure also can generate a high level of conflict because it pits divisional against functional goals in a domestic structure, or product line versus country goals in a global structure. Rivalry between the two sides of the matrix can be exceedingly difficult for two-boss employees to manage. -This problem leads to the third disadvantage: time lost to meetings and discussions devoted to resolving this conflict. Often the matrix structure leads to more discussion than action because different goals and points of view are being addressed. Managers may spend a great deal of time coordinating meetings and assignments, which takes time away from core work activities.

2J. Service technology can be defined as follows: -Intangible output. The output of a service firm is intangible. Services are perishable and, unlike physical products, cannot be stored in inventory. The service is either consumed immediately or lost forever. Manufactured products are produced at one point in time and can be stored until sold at another time.

-Direct contact with customers. Employees and customers interact directly to provide and purchase the service. Production and consumption are simultaneous. Service firm employees have direct contact with customers. In a manufacturing firm, technical employees are separated from customers, and hence no direct interactions occur.

Ib. Typically, strategic goals of cost efficiency occur in more stable environments, while goals of innovation and flexibility occur in more uncertain environments. The terms mechanistic and organic can be used to explain structural responses to strategy and the environment.

-Goals of efficiency and a stable environment are associated with a mechanistic system. This type of organization typically has a rigid, vertical, centralized structure, with most decisions made at the top. The organization is highly specialized and characterized by rules, procedures, and a clear hierarchy of authority. - With goals of innovation and a rapidly changing environment, however, the organization tends to be much looser, free-flowing, and adaptive, using an organic system. The structure is more horizontal, and decision-making authority is decentralized. People at lower levels have more responsibility and authority for solving problems, enabling the organization to be more fluid and adaptable to changes.

D. However, not every organization should decentralize all decisions. Within many companies, there is often a "tug of war between centralization and decentralization," as top executives want to centralize some operations to eliminate duplication while business division managers want to maintain decentralized control. Managers should diagnose the organizational situation and select the decision-making level that will best meet the organization's needs. Factors that typically influence centralization versus decentralization are as follows:

-Greater change and uncertainty in the environment are usually associated with decentralization. -The amount of centralization or decentralization should fit the firm's strategy. -In times of crisis or risk of company failure, authority may be centralized at the top.

5E. Virtual Network Adv/Disadv (Ex10.9) -biggest advs are flexibility & competitiveness on a global scale [today's business organizations can benefit from a flexible network approach that lets them shift resources and respond quickly. A network organization can draw on resources and expertise worldwide to achieve the best quality and price and can sell its products and services worldwide. Flexibility comes from the ability to hire whatever services are needed and to change a few months later without constraints from owning plants, equipment, and facilities. The organization can redefine itself continually to fit new product and market opportunities. This structure is perhaps the leanest of all organization forms because little supervision is required. Large teams of staff specialists and administrators are not needed. A network organization may have only two or three levels of hierarchy, compared with ten or more in traditional organizations]

-One of the major disadvantages is lack of hands-on control. [Managers do not have all operations under one roof and must rely on contracts, coordination, negotiation, and electronic linkages to hold things together. Each partner in the network necessarily acts in its own self-interest. The weak and ambiguous boundaries create higher uncertainty and greater demands on managers for defining shared goals, managing relationships, keeping people focused and motivated, and coordinating activities so that everything functions as intended. ] -Customer service and loyalty can also suffer if outsourcing partners fail to perform as expected. Finally, in this type of organization, employee loyalty can weaken. Employees might feel that they can be replaced by contract services. A cohesive corporate culture is less likely to develop, and turnover tends to be higher because emotional commitment between organization and employee is fragile.

F. The next stage involves reengineering to structure the organization into teams working on horizontal processes.

-Reengineering: The radical redesign of business processes to achieve dramatic improvements in cost, quality, service, and speed. [ Because the focus of reengineering is on horizontal workflows rather than function, reengineering generally leads to a shift away from a strong vertical structure to one emphasizing stronger horizontal coordination. The vertical hierarchy is flattened, with perhaps only a few senior executives in traditional support functions such as finance and HR. ]

J. Joan Woodward found that manufacturing firms could be categorized according to three basic types of production technology: 1. Small-batch and unit production. -large, one-of-a-kind products, such as computer controlled machines. -like traditional skilled-craft work bc humans part of process -custom clothing, special order machine tools, satellites, & submarines. 2. Large-batch and mass production. -standardized productions runs -large volume same products -standard prods go into inventory for sale as customers need them -makes greater use of machines than #1 -machines dp most physical work/employees compliment machinery -ex: car assembly lines & large-batch techniques to produce tobacco products/textiles 3. Continuous process production -sophisticated & complex form of production tech -runs continuously -human operators not part of actual production; they simply read dials, fix machines, & manage production process -ex: chemical plants, distilleries, petroleum refineries, & nuclear power plants

-Small-batch production: A type of manufacturing technology that involves the production of goods in batches of one or a few products designed to customer specification. -Mass production: Characterized by long production runs to manufacture a large volume of products with the same specifications. -continuous process production: Involves mechanization of the entire workflow and nonstop production, such as in chemical plants or petroleum refineries.

G. Task Forces, Teams, & Project Management: -task force: A temporary team or committee designed to solve a problem involving several departments. -A cross-functional team: furthers horizontal coordination because participants from several departments meet regularly to solve ongoing problems of common interest. -project manager: A manager who is responsible for a specific work project that involves people from various functions and levels of the organization.

-Task force members represent their departments and share information that enables coordination. -In addition to creating task forces, companies also set up cross-functional teams. This team is similar to a task force except that it works with continuing rather than temporary problems and might exist for several years. Team members think in terms of working together for the good of the whole rather than just for their own departments. -Companies also use project managers to increase coordination. Project managers might also have titles such as product manager, integrator, program manager, or process owner. The distinctive feature of the project manager position is that the person is not a member of one of the departments being coordinated. Project managers are located outside the departments and have responsibility for coordinating several departments to achieve desired project outcomes. Product managers set budget goals, marketing targets, and strategies and obtain the cooperation from advertising, production, and sales personnel needed for implementing product strategy.

Ib. Exhibit 10.13 shows a simplified continuum that illustrates how different structural approaches are associated with strategy and the environment.

-The pure functional structure is appropriate for achieving internal efficiency goals in a stable environment. The vertical functional structure uses task specialization and a strict chain of command to gain efficient use of scarce resources, but it does not enable the organization to be flexible or innovative. -In contrast, horizontal teams are appropriate when the primary goal is innovation and the organization needs flexibility to cope with an uncertain environment. Each team is small, is able to be responsive, and has the people and resources necessary for performing its task. The flexible horizontal structure enables organizations to differentiate themselves and respond quickly to the demands of a shifting environment but at the expense of efficient resource use.

3E. The success of the matrix structure depends on the abilities of people in key matrix roles.

-Two-boss employees: In a matrix structure, a person who reports to two supervisors simultaneously. [they must resolve conflicting demands from the matrix bosses They must work with senior managers to reach joint decisions. They need excellent human relations skills with which to confront managers and resolve conflicts.] -matrix boss: A functional or product supervisor responsible for one side of the matrix. -top leader: In a matrix structure, the person who oversees both the product and the functional chains of command and is responsible for the entire matrix. [The top leader oversees both the product and functional chains of command. His or her responsibility is to maintain a power balance between the two sides of the matrix. If disputes arise between them, the problem will be kicked upstairs to the top leader.]

2C. span cont. Research over the past 40 or so years shows that span of management varies widely and that several factors influence the span. Generally, when supervisors must be closely involved with subordinates, the span should be small, and when supervisors need little involvement with subordinates, it can be large. The following list describes the factors that are associated with less supervisor involvement and thus larger spans of control:

-Work performed by subordinates is stable and routine. -Subordinates perform similar work tasks. -Subordinates are concentrated in a single location. -Subordinates are highly trained and need little direction in performing tasks. -Rules and procedures defining task activities are available. -Support systems and personnel are available for the manager. -Little time is required in nonsupervisory activities, such as coordination with other departments or planning. -Managers' personal preferences and styles favor a large span.

4E. Team Adv/Disadv -breaks down barriers across departments & improve coordination & cooperation -members know one another's problems & compromise rather than blindly pursue own goals -team concept enables the org to adapt more quickly to customer requests & envmt changes and speeds the decision making bc decisions need not go to top hierarchy -morale boost. employees typically enthusiastic about involvement in bigger projects rather than narrow departmental tasks

-conflicts and dual loyalties -cross-functional team may make different work demands on than department managers -large amounts of time devoted to meetings, increased coord time (Unless the organization truly needs teams to coordinate complex projects and adapt to the environment, it will lose production efficiency with them) -may cause too much decentralization (Senior department managers who traditionally made decisions might feel left out when a team moves ahead on its own. Team members often do not see the big picture of the corporation and may make decisions that are good for their group, but bad for the organization as a whole)

4E. How it works One approach to using teams in organizations is through cross-functional teams. [ Cross-functional teams can provide needed horizontal coordination to complement an existing divisional or functional structure. A frequent use of cross-functional teams is for change projects, such as new product or service innovation. Team members typically still report to their functional departments, but they also report to the team, one member of whom may be the leader. ] The second approach is to use permanent teams (similar to formal department). [ Each team brings together employees from all functional areas focused on a specific task or project, such as parts supply and logistics for an automobile plant. Emphasis is on horizontal communication and information sharing because representatives from all functions are coordinating their work and skills to complete a specific organizational task. Authority is pushed down to lower levels, and front-line employees are often given the freedom to make decisions and take action on their own. Team members may share or rotate team leadership. ]

-cross-functional teams: A group of employees from various functional departments that meet as a team to resolve mutual problems. -permanent teams: A group of employees from all functional areas permanently assigned to focus on a specific task or activity.

2E. Divisional Approach In contrast to the functional approach, in which people are grouped by common skills and resources, the divisional structure occurs when departments are grouped together based on similar organizational outputs.

-divisional structure: An organizational structure that groups employees and departments based on similar organizational outputs (products or services), such that each division has a mix of functional skills and tasks. (also called an M-form [multidivisional] or a decentralized form)

H. The highest level of horizontal coordination is relational coordination

-relational coordination: Frequent horizontal coordination and communication carried out through ongoing relationships of shared goals, shared knowledge, and mutual respect.

2C. The average span of control used in an organization determines whether the structure is tall or flat:

-tall structure: An organizational structure characterized by an overall narrow span of management and a relatively large number of hierarchical levels. -flat structure: An organizational structure characterized by an overall broad span of management and relatively few hierarchical levels.

4E. Teams are related to the "bossless" trend. [ Teams are responsible for all key operating decisions, such as product selection, pricing, ordering, hiring, and in-store promotions, and they are accountable for their performance. ]

-team-based structure: A structure in which an entire organization is made up of horizontal teams that coordinate their activities and work directly with customers to accomplish organizational goals.

J. The difference among the three manufacturing technologies is called technical complexity. The structural characteristics associated with each type of manufacturing technology are illustrated in Exhibit 10.14.

-technical complexity: The degree to which complex machinery is involved in the production process to the exclusion of people.

5E. Some organizations take this networking approach to the extreme to create an innovative structure.

-virtual network structure: An organizational structure in which the organization subcontracts most of its major functions to separate companies and coordinates their activities from a small headquarters organization.

J. Structure Fits the Technology: Technology includes the knowledge, tools, techniques, and activities used to transform organizational inputs into outputs. Technology includes machinery, employee skills, and work procedures.

A useful way to think about technology is as "production activities." The production activities may be to produce Web site content, steel castings, television programs, or computer software. Technologies vary between manufacturing and service organizations.

C. Authority and responsibility for different tasks should be distinct.

All individuals in the organization should know to whom they report, as well as the successive management levels all the way to the top.

F. Coordination: The managerial task of adjusting and synchronizing the diverse activities among different individuals and departments.

Collaboration: A joint effort between people from two or more departments to produce outcomes that meet a common goal or shared purpose. [and that are typically greater than what any of the individuals or departments could achieve working alone.]

2E. Divisional Adv&Disadv By dividing employees and resources along divisional lines, the organization will be flexible and responsive to change because each unit is small and tuned in to its environment. By having employees working on a single product line, the concern for customers' needs is high.

Coordination across functional departments is better because employees are grouped together in a single location and committed to one product line. Great coordination exists within divisions; however, coordination across divisions is often poor. Problems can occur when autonomous divisions go in opposite directions. Another major disadvantage is duplication of resources and the high cost of running separate divisions. Instead of a single research department in which all research people use a single facility, each division may have its own research facility. The organization loses efficiency and economies of scale. In addition, the small size of departments within each division may result in a lack of technical specialization, expertise, and training.

E. Organizing for Horizontal Coordination one reason for the growing use of teams and networks is that many managers recognize the limits of traditional vertical organization structures in a fast-shifting environment.

In general, the trend is toward breaking down barriers between departments, and many companies are moving toward horizontal structures based on work processes rather than departmental functions.Footnote However, regardless of the type of structure, every organization needs mechanisms for horizontal integration and coordination. The structure of an organization is not complete without designing the horizontal as well as the vertical dimensions of structure.

D. Organizations may have to experiment to find the correct hierarchical level at which to make decisions.

In the United States and Canada, the trend over the past 30 years has been toward greater decentralization of organizations. Decentralization is believed to relieve the burden on top managers, make greater use of employees' skills and abilities, ensure that decisions are made close to the action by well-informed people, and permit more rapid response to external changes. Stanley McChrystal, former commander of U.S. and North Atlantic Treaty Organization (NATO) forces in Afghanistan, once said, "I learned ... that any complex task is best approached by flattening hierarchies. It gets everybody feeling like they're in the inner circle, so that they develop a sense of ownership." Even Japanese companies such as Toyota, which have a strong tradition of centralization, are seeing the power of decentralization for promoting a sense of ownership.

F. Exhibit 10.10 illustrates the evolution of organizational structures, with a growing emphasis on horizontal coordination. Although the vertical functional structure is effective in stable environments, it does not provide the horizontal coordination that is needed in times of rapid change.

Innovations such as cross-functional teams, task forces, and project managers work within the vertical structure but provide a means to increase horizontal communication and cooperation.

2J. Some services can be broken down into explicit steps, so that employees can follow set rules and procedures.

Lean services that looks at how to design service work to improve both quality and efficiency. When services can be standardized, a tight centralized structure can be effective, but service firms in general tend to be more organic, flexible, and decentralized.

B. Work Specialization

Organizations perform a wide variety of tasks. A fundamental principle is that work can be performed more efficiently if employees are allowed to specialize.

H. When relational coordination is high, people share information and coordinate their activities without having to have bosses or formal mechanisms telling them to do so. To build relational coordination into the fabric of the organization, managers invest in training people in the skills needed to interact with one another and resolve cross-departmental conflicts based on shared goals rather than emphasizing goals of their separate departments.

People are given freedom from strict work rules so that they have the flexibility to interact and contribute wherever they are needed, and rewards are based on team efforts and accomplishments. Front-line supervisors typically have smaller spans of control so they can develop close working relationships with subordinates and coach and mentor employees.

2J. One distinct feature of service technology that directly influences structure is the need for employees to be close to the customer.

Structural characteristics are similar to those for continuous manufacturing technology, shown in Exhibit 10.14. Service firms tend to be flexible, informal, and decentralized. Horizontal communication is high because employees must share information and resources to serve customers and solve problems. Services also are dispersed; hence each unit is often small and located geographically close to customers. For example, banks, hotels, fast-food franchises, and doctors' offices disperse their facilities into regional and local offices to provide faster and better service to customers.

I. Organizing is important because it follows strategy—the topic of Part 3 of this book. Strategy defines what to do; organizing defines how to do it.

Structure is a powerful tool for reaching strategic goals, and a strategy's success often is determined by its fit with organizational structure.

J. Note that centralization is high for mass production and low for small-batch and continuous process. Unlike small-batch and continuous process production, standardized mass-production machinery requires centralized decision making and well-defined rules and procedures.

The administrative ratio and the percentage of indirect labor required also increase with technological complexity. Because the production process is nonroutine, closer supervision is needed. More indirect labor, in the form of maintenance people, is required because of the machinery's complexity; thus, the indirect/direct labor ratio is high. Span of control for first-line supervisors is greatest for mass production. On an assembly line, jobs are so routine that a supervisor can handle an average of 48 employees. The number of employees per supervisor in small-batch and continuous process production is lower because closer supervision is needed. Overall, small-batch and continuous process firms have somewhat loose, flexible structures (organic), and mass production firms have tight vertical structures (mechanistic).

I. How do managers know whether to design a structure that emphasizes the formal, vertical hierarchy or one with an emphasis on horizontal communication and collaboration?

The answer lies in the organization's strategic goals and the nature of its technology. Exhibit 10.12 illustrates that forces affecting organization structure come from both outside and inside the organization. -External strategic needs, such as environmental conditions, strategic direction, and organizational goals, create top-down pressure for designing the organization in such a way as to fit the environment and accomplish strategic goals. -Structural decisions also take into consideration pressures from the bottom up—that is, from the technology and work processes that are performed to produce the organization's products and services.

E. Another fundamental characteristic of organization structure is departmentalization:

The basis for grouping individual positions into departments and departments into the total organization. Managers make choices about how to use the chain of command to group people together to perform their work.

1C. Authority, Responsibility, and Delegation

The chain of command illustrates the authority structure of the organization. 1Ca. Authority: The formal and legitimate right of a manager to make decisions, issue orders, and allocate resources to achieve outcomes desired by the organization. 1Cb. Responsibility: The duty to perform the task or activity that one has been assigned. 1Cc. Delegation: When managers transfer authority and responsibility to positions below them in the hierarchy.

B. Work specialization is defined as:

The degree to which organizational tasks are subdivided into individual jobs. Sometimes called division of labor.

I. Organizing

The deployment of organizational resources to achieve strategic goals; involves assigning tasks, grouping tasks into departments, and allocating resources. The deployment of resources is reflected in the organization's division of labor into specific departments and jobs, formal lines of authority, and mechanisms for coordinating diverse organization tasks.

5E. The idea behind networks is that a company can concentrate on what it does best and contract out other activities to companies with distinctive competence in those specific areas, which enables a company to do more with less.

The different organizational parts are drawn together contractually and coordinated electronically, creating a new form of organization. Much like building blocks, parts of the network can be added or taken away to meet changing needs.

2E. With a divisional structure, seperate divisions can be organized with responsibility for individual products, services, product groups, major projects or programs, divisions, businesses, or profit centers.

The divisional structure is also sometimes called a product structure, program structure, or self-contained unit structure. Each of these terms means essentially the same thing: Diverse departments are brought together to produce a single organizational output, whether it is a product, a program, or service to a single customer.

Ib. Exhibit 10.13 also illustrates how other forms of structure represent intermediate steps on the organization's path to efficiency or innovation. The functional structure with cross-functional teams and project managers provides greater coordination and flexibility than the pure functional structure.

The divisional structure promotes differentiation because each division can focus on specific products and customers, although divisions tend to be larger and less flexible than small teams. Exhibit 10.13 does not include all possible structures, but it illustrates how structures can be used to facilitate the organization's strategic goals.

1Cb. Responsibility:

The duty to perform the task or activity that one has been assigned. Responsibility is the flip side of the authority coin.

F. The Need for Coordination-- As organizations grow and evolve, two things happen. First, new positions and departments are added to deal with factors in the external environment or with new strategic needs. Second, senior managers have to find a way to tie all these departments together.

The formal chain of command and the supervision it provides is effective, but it is not enough. The organization needs systems to process information and enable communication among people in different departments and at different levels.

2C. Line authority is defined as:

The formal power to direct and control immediate subordinates.

A. Organization structure

The framework in which an organization defines how tasks are divided, resources are deployed, and departments are coordinated.

E. Five approaches to structural design reflect different uses of the chain of command in departmentalization, as illustrated in Exhibit 10.3.

The functional, divisional, and matrix are traditional approaches that rely on the chain of command to define departmental groupings and reporting relationships along the hierarchy. Two innovative approaches are the use of teams and virtual networks, which have emerged to meet changing organizational needs in a turbulent global environment. 1. vertical functional 2. divisional 3. matrix 4. team based 5. virtual network The basic difference among structures (illustrated in Exhibit 10.3) is the way in which employees are departmentalized and to whom they report. Each structural approach is described in detail in the following sections.

A. Organizing the Vertical Structure

The organizing process leads to the creation of organization structure, which defines how tasks are divided and resources deployed.

G. In some organizations, project managers are included on the organization chart, as illustrated in Exhibit 10.11.

The project manager is drawn to one side of the chart to indicate authority over the project, but not over the people assigned to it. The dashed lines to the project manager indicate responsibility for coordination and communication with assigned team members, but department managers retain line authority over functional employees.

2C. Having too many hierarchical levels and narrow spans of control is a common structural problem for organizations. In a survey conducted for the Conference Board, 72 percent of managers surveyed said that they believed their organizations had too many levels of management.

The result may be that routine decisions are made too high in the organization, which pulls higher-level executives away from important, long-range strategic issues and limits the creativity, innovativeness, and accountability of lower-level managers. The trend in recent years has been toward wider spans of control as a way to facilitate delegation.

2C. Staff authority is defined as:

The right to advise, counsel, and recommend in the manager's area of expertise. Staff authority is a communication relationship; staff specialists advise managers in technical areas.

4E. Team Approach Probably the most widespread trend in departmentalization in recent years has been the implementation of team concepts. The vertical chain of command is a powerful means of control, but passing all decisions up the hierarchy takes too long and keeps responsibility at the top.

The team approach gives managers a way to delegate authority, push responsibility to lower levels, and be more flexible and responsive in a complex and competitive global environment.

3E. How it works The dual lines of authority make the matrix unique. To see how the matrix works, consider the global matrix structure illustrated in Exhibit 10.7.

The two lines of authority are geographic and product. The geographic boss in Germany coordinates all subsidiaries in Germany, and the plastics products boss coordinates the manufacturing and sale of plastics products around the world. Managers of local subsidiary companies in Germany would report to two superiors, both the country boss and the product boss. The dual authority structure violates the unity-of-command concept described earlier in this chapter, but that is necessary to give equal emphasis to both functional and divisional lines of authority. Dual lines of authority can be confusing, but after managers learn to use this structure, the matrix provides excellent coordination simultaneously for each geographic region and each product line.

E. Popular contemporary approaches to departmentalization include team and virtual network structures.

Total Attorneys uses cross-functional teams to improve coordination on software and services projects for small law firms. Whole Foods Market uses a team-based structure.

1Ca. Another important concept related to authority is delegation:

When managers transfer authority and responsibility to positions below them in the hierarchy. Most organizations today encourage managers to delegate authority to the lowest possible level to provide maximum flexibility to meet customer needs and adapt to shifts in the environment.

I. Factors Shaping Structure: Vertical hierarchies continue to thrive because they provide important benefits for organizations. Some degree of vertical hierarchy is often needed to organize a large number of people effectively to accomplish complex tasks within a coherent framework.

Without a vertical structure, people in a large, global firm wouldn't know what to do. However, in today's environment, an organization's vertical structure often needs to be balanced with strong horizontal mechanisms to achieve peak performance.

2E. When a huge organization produces products for different markets:

the divisional structure works because each division is an autonomous business.

D. Centralization and decentralization pertain to the hierarchical level at which decisions are made.

-Centralization: Means that decision authority is located near top organization levels. -decentralization Means that decision authority is pushed down to lower organization levels.

1Ca. Authority is distinguished by three characteristics:

1. Authority is vested in organizational positions, not people. Managers have authority because of the positions they hold, and other people in the same positions would have the same authority. 2. Authority flows down the vertical hierarchy. Positions at the top of the hierarchy are vested with more formal authority than are positions at the bottom. 3. Authority is accepted by subordinates. Although authority flows from the top down, subordinates comply because they believe that managers have a legitimate right to issue orders. The acceptance theory of authority argues that a manager has authority only if subordinates choose to accept his or her commands. If subordinates refuse to obey because the order is outside their zone of acceptance, a manager's authority disappears.

2E. Geographic- or customer-based divisions

An alternative for assigning divisional responsibility is to group company activities by geographic region or customer group. (Ex10.5)

1E. Veritcal Functional approach functional structure is defined as:

An organizational structure in which activities are grouped together by common function from the bottom to the top of the organization. (also called a U-form [unitary structure])

C. Chain of command

An unbroken line of authority that links all individuals in the organization and specifies who reports to whom.

In addition to the vertical structure, every organization needs mechanisms for horizontal integration and coordination.

As organizations grow, they add new positions, departments, and hierarchical levels, which leads to greater coordination problems. Ways to increase horizontal coordination include task forces, teams, project managers, and relational coordination.

F. Without coordination, a company's left hand will not act in concert with the right, causing problems and conflicts. Coordination is required regardless of whether the organization has a functional, divisional, or team structure.

Employees identify with their immediate department or team, taking its interest to heart, and they may not want to compromise and collaborate with other units even for the good of the organization as a whole. The problem of coordination and collaboration is also amplified in the international arena because organizational units are differentiated not only by goals and work activities, but also by geographical distance, time differences, cultural values, and perhaps language. Coordination is the outcome of information and cooperation. Managers can design systems and structures to promote horizontal coordination and collaboration.

J. Types of technologies include manufacturing and service. Small batch and continuous process technologies are associated with a more flexible horizontal structure, whereas a tighter vertical structure is appropriate for mass production.

Examples of service firms include banks, hotels, and law firms. Service technologies tend to have more flexible horizontal structures.

2E. How it works: In a divisional structure, divisions are created as self-contained units, with separate functional departments for each division.

For example, in Exhibit 10.4, each functional department resource needed to produce the product is assigned to each division. Whereas in a functional structure, all R&D engineers are grouped together and work on all products, in a divisional structure, separate R&D departments are created within each division. Each department is smaller and focuses on a single product line or customer segment. Departments are duplicated across product lines.

Ib. Structure Follows Strategy: Studies demonstrate that business performance is strongly influenced by how well the company's structure is aligned with its strategic intent and the needs of the environment, so managers strive to pick strategies and structures that are congruent.

In Chapter 8, we discussed several strategies that business firms can adopt. Two strategies proposed by Michael E. Porter are differentiation and cost leadership. With a differentiation strategy, the organization attempts to develop innovative products unique to the market. With a cost leadership strategy, the organization strives for internal efficiency.

2E. The primary difference between divisional and functional structures is that in a divisional structure, the chain of command from each function converges lower in the hierarchy.

In a divisional structure, differences of opinion among R&D, marketing, manufacturing, and finance would be resolved at the divisional level rather than by the president. Thus, the divisional structure encourages decentralization.

5E. Virtual Network Approach -most recent approach to departmentalization -extends the idea of horizontal coordination and collaboration beyond the boundaries of the org

In a variety of industries, vertically integrated, hierarchical organizations are giving way to loosely interconnected groups of companies with permeable boundaries. ***Outsourcing, which means farming out certain activities, such as manufacturing or credit processing, has become a significant trend*** Rather than shifting entire functions to contractors, this "personal outsourcing" approach allows people to shift only certain tedious and time-consuming tasks to be handled by the outsourcing partner while they focus on higher-value work.

B. Despite the apparent advantages of specialization, many organizations are moving away from this principle. With too much specialization, employees are isolated and do only a single, boring job.

In addition, too much specialization creates separation and hinders the coordination that is essential for organizations to be effective. Many companies are implementing teams and other mechanisms that enhance coordination and provide greater challenge for employees.

H. Relational coordination isn't a structural device or mechanism such as a project manager, but rather is part of the very fabric and culture of the organization.

In an organization with a high level of relational coordination, people share information freely across departmental boundaries, and people interact on a continuous basis to share knowledge and solve problems. Coordination is carried out through a web of ongoing positive relationships rather than because of formal coordination roles or mechanisms. Rather than having people separated into cubicles, companies are using open offices with quiet spaces designed for conversation and impromptu problem solving.

2C. Line and Staff Authority An important distinction in many organizations is between line authority and staff authority, reflecting whether managers work in line departments or staff departments in the organization's structure.

Line departments perform tasks that reflect the organization's primary goal and mission. In a software company, line departments make and sell the product. In an Internet-based company, line departments would be those that develop and manage online offerings and sales. Staff departments include all those that provide specialized skills in support of line departments. Staff departments have an advisory relationship with line departments and typically include marketing, labor relations, research, accounting, and HR.

**Fundamental characteristics of vertical organization structure include work specialization (B), chain of command (C), span of management (D), and centralization and decentralization (E).

Managers in every organization face the question about how to organize for maximum efficiency and effectiveness. Organizations such as Simon & Schuster, Starbucks, and the City of New York have created CDO positions to meet changing needs.

1Cc. Accountability

Means that people with authority and responsibility are subject to reporting and justifying task outcomes to those above them in the chain of command. Accountability is the mechanism through which authority and responsibility are brought into alignment. For organizations to function well, everyone needs to know what they are accountable for and accept the responsibility and authority for performing it.

1E. How it works The functional structure groups positions into departments based on similar skills, expertise, work activities, and resource use. A functional structure can be thought of as departmentalization by organizational resources because each type of functional activity--accounting, HR, engineering, and manufacturing--represents specific resources for performing the organization's task.

People, facilities, and other resources representing a common function are grouped into a single department. The functional structure is a strong vertical design. Information flows up and down the vertical hierarchy, and the chain of command converges at the top of the organization. In functional structure, people within a department communicate primarily with other in the same department to coordinate work and accomplish tasks or implement decisions that are passed down the hierarchy. Managers and employees are compatible because of similar training and expertise. Typically, rules and procedures govern the duties and responsibilities of each employee, and employees at lower hierarchical levels accept the right of those higher in the hierarchy to make decision issue orders.

5e. How it works The organization may be viewed as a central hub surrounded by a network of outside specialists, sometimes spread all over the world, as illustrated in Exhibit 10.8.

Rather than being housed under one roof, services such as accounting, design, manufacturing, and distribution are outsourced to separate organizations that are connected electronically to a central office. Networked computer systems, collaborative software, and the Internet enable organizations to exchange data and information so rapidly and smoothly that a loosely connected network of suppliers, manufacturers, assemblers, and distributors can look and act as one seamless company.

2C. Span of Management is defined as:

The number of employees reporting to a supervisor; sometimes called span of control. this characteristic of structure determines how closely a supervisor can monitor subordinates. traditional 7-10 lean orgs got 30, 40+

3E. One unique feature of the matrix is that it has dual lines of authority. In Exhibit 10.6, the functional hierarchy of authority runs vertically, and the divisional hierarchy of authority runs horizontally.

The vertical structure provides traditional control within functional departments, and the horizontal structure provides coordination across departments. The matrix structure, therefore, supports a formal chain of command for both functional (vertical) and divisional (horizontal) relationships. As a result of this dual structure, some employees actually report to two supervisors simultaneously.

1Cb. Typically, managers are assigned authority commensurate with their responsibilities. When managers have responsibility for task outcomes but little authority, the job is possible but difficult.

They rely on persuasion and luck. When managers have authority exceeding responsibility, they may become tyrants, using authority to achieve frivolous outcomes.

2J. Service Technology: Examples of service organizations include consulting companies, law firms, brokerage houses, airlines, hotels, advertising companies, amusement parks, and educational organizations. In addition, service technology characterizes many departments in large corporations, even manufacturing firms.

Thus, the structure and design of these departments reflect their own service technology rather than the manufacturing plant's technology. [Service technology: Characterized by intangible outputs and direct contact between employees and customers.]

1Ca. more on delegation

delegating decision making to lower-level managers and employees can be highly motivating and improve speed, flexibility, and creativity. However, many managers find delegation difficult. When managers can't delegate, they undermine the role of their subordinates and prevent people from doing their jobs effectively.

C. unity of command:

means that each employee is held accountable to only one supervisor.

1A. The set of formal tasks and formal reporting relationships provides a framework for vertical control of the organization. The characteristics of vertical structure are portrayed in the:

organization chart (A visual representation of an organization's structure) [ ex10.1 ]

C. Scalar principle:

refers to a clearly defined line of authority in the organization that includes all employees