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Chapter
8 OrganizationStructure
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Fundamentals Of Organizing
Organization chart
depicts the positions in the firm and how they are arranged
provides a picture of the reporting structure
conveys the following information the boxes represent different work
the titles in the boxes represent the work performed by each unit
reporting and authority relationships indicated by solid lines
showing superior-subordinate connections
levels of management indicated by the number of horizontal
layers in the chart
all persons or units that are on the same rank and report to the
same person are on one level
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Personnel Finance
Manufacturing Sales
Personnel Finance
Manufacturing Sales
Finance R&D Marketing Personnel
Chemical
Products
Metal
Products
President
Conventional Organization Chart
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Fundamentals Of Organizing (cont.)
Differentiation
means that the organization is comprised of many different
units that work on different kinds of tasks
aspect of the organizations internal environment division of labor- assignment of different tasks to different
people or groups
specialization- process in which different individuals and units
perform different tasks
differentiation is high when there are many subunits and many
kinds of specialists who think differently
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The Vertical Structure
Corporate governance
role of a corporations executive staff and board of directors in
ensuring that the firms activities meet the goals of the firms
stakeholders
Authority in organizations
authority- the legitimate right to make decisions and to tell
other people what to do
resides in positionsrather than people in private business enterprises, owners have ultimate authority
traditionally authority has been the primary means of running an
organization
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Authority in organizations (cont.)
board of directors- elected by the stockholders to run the
organization
led by a chair
performs three functions
selecting, assessing, rewarding, and perhaps replacing the CEO
determining the firms strategic direction and reviewing financial
performance
assuring ethical, socially responsible, and legal conduct inside directors- the firms top managers who sit on the board
outside directors - are likely run other companies
successful boards tend to be active, critical participants in
determining company strategies
The Vertical Structure (cont.)
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The Vertical Structure (cont.)
Hierarchical levels
hierarchy- the authority levels of the organizational
pyramid
top management - strategic managers in charge of the entire
organization
middle management - in charge of plants or departments
lowest levels - made up of lower management and workers
called the operational levelof the organization
trend in the U.S. is to reduce the number of hierarchicallayers
subunits- subdivisions of an organization
subunits with fewer layers have higher operating efficiency
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The Vertical Structure (cont.)
Span of control the number of subordinates who report directly to a manager
narrow spans produce tall organizations
wide spans produce flat organizations
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The Vertical Structure (cont.)
Delegation assignment of authority and responsibility to a subordinate
can occur between any two individuals in any type of
structure with regard to any task
responsibility - assignment of a task that an employee is
supposed to carry out
should delegate enough authority to complete the task
accountability- expectation that employees perform a job,
take corrective action when necessary, and report upward on
the status and quality of their performance
managers remain responsible and accountable for their own
actions and those of their subordinates
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The Vertical Structure (cont.)
Delegation (cont.)
advantages of delegation
permits getting work done through others
manager saves time
manager frees herself/himself to devote energy to other
important, higher-level activities
provides subordinates with more important jobs
provides subordinates with the opportunity to develop new skills
and to demonstrate potential
from the organizations perspective, jobs are done more
efficiently and cost-effectively
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Schedule checkpoints for
reviewing progress
Follow through by discussing
progress at appropriate intervals
Give the subordinate the authority, time, and resources
(people, money,equipment) to perform the assignment
Define the goal succinctly
Select the person for the task
Solicit the subordinates viewabout suggested approaches
Steps In Effective Delegation
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The Vertical Structure (cont.)
Decentralization
result of the delegation of responsibility and authority
centralized organization- high-level executives make most
decisions and pass them down to lower levels for implementation
decentralized organization- lower-level managers make
important decisions
ideally, decision making should occur at the level of the
people who are most directly affected and have the most
intimate knowledge about the problem
most U.S. executives understand the importance of decentralizing
decision making to the point of the action
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The Horizontal Structure
Basic concepts
departmentalization- subdividing the organization into
smaller subunits
l ine departments- have responsibility for the principle activities
of the firm
deal directly with the organizations primary goods and services
line managers typically have:
substantial authority and power
ultimate responsibility for major operating decisions accountability for bottom-line results
staff departments- provide specialized support for line units
moving toward a role focused on strategic support and expert advice
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The Horizontal Structure (cont.)
Functional organization
jobs (and departments) are specialized and grouped according
to business functionsand the skills they require
e.g., production, marketing, R&D, human resources, and finance
at the most basic level, functional structure is organized
around the companys value chain
value chain- sequence of activities that flow from raw materials
to the delivery of a product or service
common in both large and small organizations
may be most appropriate in rather simple, stable environments
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Functional organization (cont.)
advantages of functional structure include:
economies of scalecan be realized
effective environmental moni tor ing
performance standardsare better maintained
greater opportunity for special ized trainingand in-depth ski l l
development
technical specialists are relatively free of administrative work
decision makingand l ines of communicationare simple and
clearly understood
The Horizontal Structure (cont.)
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The Horizontal Structure (cont.)
Functional organization (cont.) disadvantages of functional structure
people may care more about their own function than about the
company as a whole
may lose focus on overall product quality and customersatisfaction
managers do not develop knowledge of the other areas of the
business
become specialists, not generalists conflicts arise among functions and communications suffer
accordingly
high differentiation may create barriers to coordination across
functions
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Inbound
logisticsOperations
Outbound
logistics
Marketing
and salesService
President
Line departments
Staff departments
Functional Structure
ProcurementHuman
resources
Informationtechnology
services
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The Horizontal Structure (cont.)
Divisional organization
units grouped around products, customers, or geographic
regions
groups all functions into a single division
duplicates each function across all of the divisions
separate divisions may act almost as separate businesses
work autonomously to achieve the goals of the organization
several ways to create divisional structure
8 - 21Examples Of Functional And
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Examples Of Functional And
Divisional Organizations
A central purchasing department
Separate companywide marketing,
production, design, and
engineering departments
A central-city health department
Plantwide inspection, maintenance,
and supply departments
A university statistics department
teaches statistics for the entire
university
Each division has its own purchasing unit
Each product group has experts in
marketing, design, production, and
engineering
The school district and the prison have
their own health units
Production Team Y does its own
inspection, maintenance, and supply
Each department hires statisticians to
teach its own students
Functional organization Divisional organization
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h i l S ( )
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Divisional organization (cont.) product divisions- all functions that contribute to a given
product are organized under one manager
advantages
inf ormation needs are managed more easily
people have ful l -time commitment to a parti cular product l ine
task responsibil i ties are clear
people receive broader training
flexibility of structure better suits it for unstable environments disadvantages
difficult to coordinate across product lines
managers may not acquire depth of functional knowledge
duplication of effort is expensive
The Horizontal Structure (cont.)
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Th H i l S ( )
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The Horizontal Structure (cont.) Divisional organization (cont.)
customer and geographical divisions
build divisions around customer or geographical distinctions
advantages
can focus on customer needs
can provide faster and better service
disadvantage
duplication of activities across many customer groups and
geographic areas is expensive
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G hi l O i ti
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Generalmanagers for:
New York
Philadelphia
Boston
Generalmanagers for:
Cleveland
Chicago
St. Louis
Generalmanagers for:
Raleigh
Atlanta
Orlando
Generalmanagers for:
Seattle
San Francisco
Los Angeles
Generalmanagers for:
Dallas
Houston
Albuquerque
Northeast
regionalmanager
Midwest
regionalmanager
Southeast
regionalmanager
Pacific
regionalmanager
ChairmanCEO
Southwest
regionalmanager
Geographical Organization
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Th H i t l St t ( t )
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The Horizontal Structure (cont.)
Matrix organization
hybrid form of organization in which functional and divisional
forms overlap
have dual reporting relationships in which some managers
report to two superiors rather than a single line of command
advantages
higher degree of flexibility and adaptability
disadvantages violation of the uni ty of command principle
reporting to two superiors can create confusion
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M t i O i ti l St t
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Production
group
Two-boss
manager
Engineering
group
Two-boss
manager
Personnel
group
Two-boss
manager
Accounting
group
Two-boss
manager
Matrix Organizational Structure
Production
group
Two-boss
manager
Engineering
group
Two-boss
manager
Personnel
group
Two-boss
manager
Accounting
group
Two-boss
manager
Accounting
Project
Manager
A
Project
Manager
B
Project
managementProduction
ChairmanCEO
Engineering PersonnelFunctional
managers
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The Horizontal Structure (cont.)
Matrix organization (cont.)
matrix survival ski l ls
problems can be avoided if behavioral skills are learned
particular skills needed depend on position in the matrix
the matrix diamond illustrates needed skills
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The Horizontal Structure (cont )
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The Horizontal Structure (cont.)
Matrix organization (cont.)
matrix form today- resurgence based on:
pressures to consolidate costs and be faster to market
need for better coordination across functions in the business
need for coordination across countries in global business
understanding of the matrix has increased
matrix is not a structure, but a process
relationships allow information to flow through the organization
norms, values, and attitudes shape how people think
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Williamsons Structures
Functional or U-form (Unitary) Design
Organizational members and units are grouped into
functional departments such as marketing and production
Coordination is required across all departments
Design approach resembles functional departmentalization in
its advantages and disadvantages
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Williamsons StructuresU-Form
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Williamsons Structures
Conglomerate or H-form (Holding) Design
Organization consists of a set of unrelated businesses with a
general manager for each business
Holding-company design is similar to product
departmentalization
Coordination is based on the allocation of resources across
companies in the portfolio
Design has produced only average to weak financial
performance; has been abandoned for other approaches
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Williamsons StructuresH-Form
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Williamsons Structures
Divisional or M-form (Multidivisional) Design An organizational arrangement based on multiple businesses in
related areas operating within a larger organizational framework
The design results from a strategy of related diversification
Some activities are extremely decentralized down to the divisionallevel; others are centralized at the corporate level
The largest advantages of the M-form design are the opportunities
for coordination and sharing of resources
Successful M-form organizations can out perform U-form and H-form organizations
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Williamsons StructuresM-Form
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Davis and Lawrence
Matrix Design An organizational arrangement based on two overlapping bases of
departmentalization (e.g., functional departments and productcategories)
A set of product groups or temporary departments aresuperimposed across the functional departments
Employees in the resulting matrix are members of both theirdepartments and a project team under a project manager
The matrix creates a multiple command structurein which an
employee reports to both departmental and project managers A matrix design is useful when
There is strong environmental pressure
There are large amounts of information to be processed
There is pressure for shared resources
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Davis and Lawrence
Matrix Design Advantages Enhances organizational flexibility
Involvement creates high motivation and increased
organizational commitment
Team members have the opportunity to learn new skills
Provides an efficient way for the organization to use its
human resources
Team members serve as bridges to their departments for theteam
Useful as a vehicle for decentralization
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Davis and Lawrence
Matrix Design Disadvantages Employees are uncertain about reporting relationships
Managers may view design as an anarchy in which they have
unlimited freedom
The dynamics of group behavior may lead to slower decision
making, one-person domination, compromise decisions, or a
loss of focus
More time may be required for coordinating task-related
activities
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Hammer and Stanton
Hybrid Designs An organizational arrangement based on two or more
common forms of organization design
An organization may have a mixture of related divisions and
a single unrelated division
Most organizations use a modified form of organization
design that permits it to have sufficient flexibility to make
adjustments for strategic purposes
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Mintzbergs Structures
Key Part of Organization Strategic apex- Top management and its support staff
Technostructure- Analysts such as industrial engineers,
accountants, planners, and human resource managers
Operating core- Workers who actually carry out the organizationstasks
Middle line- Middle and lower-level management
Support staff- Units that provide support to the organization outside
of the operating workflow (for example, legal counsel, executivedining room staff, and consultants)
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Mintzbergs Structures
Types of Decentralization Vertical and horizontal centralization
Limited horizontal decentralization
Vertical and horizontal decentralization Limited vertical decentralization
Selective decentralization
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Mintzbergs Structures
The Simple StructureThe simple structureuses direct supervision as its primary coordinating
mechanism, has as its most important part its strategic apex, and employs
vertical and horizontal centralization. Relatively small corporations controlled
by aggressive entrepreneurs, new government departments, and medium-sized
retail stores are all likely to exhibit a simple structure. These organizations tendto be relatively young. The CEO (often the owner) retains much of the
decision-making power. The organization is relatively flat and does not
emphasize specialization. Many smaller U-form organizations are structured in
this fashion. Trilogy Software would be an example of a firm using this
approach.
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Mintzbergs Structures
The Machine BureaucracyThe machine bureaucracyuses standardization of work processes as its prime
coordinating mechanism; the technostructure is its most important part; and
limited horizontal decentralization is established. The machine bureaucracy is
quite similar to Burns and Stalkers mechanistic design discussed in Chapter 12
of GriffinsManagement, Seventh Edition. Examples include McDonalds andmost large branches of the U.S. government. This kind of organization is
generally mature in age, and its environment is usually stable and predictable.
A high level of task specialization and a rigid pattern of authority are also
typical. Spans of management are likely to be narrow, and the organization is
usually tall. Large U-form organizations are also likely to fall into thiscategory.
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Mintzbergs Structures
The Professional BureaucracyThe third form of organization design suggested by Mintzberg is the professional
bureaucracy. Examples of this form of organization include universities,
general hospitals, and public accounting firms. The professional bureaucracy
uses standardization of skills as its prime coordinating mechanism, has the
operating core as its most important part, and practices both vertical andhorizontal decentralization. It has relatively few middle managers. Further, like
some staff managers, its members tend to identify more with their professions
than with the organization. Coordination problems are common.
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Mintzbergs Structures
The Divisionalized FormThe divisionalized form, Mintzbergs fourth design, exhibits standardization of
output as its prime coordinating mechanism, the middle line as its most
important part, and limited vertical decentralization. This design is the same as
both the H-form and the M-form described earlier. Limited and Disney are
illustrative of this approach. Power is generally decentralized down to middlemanagementbut no further. Hence each division itself is relatively
centralized and tends to structure itself as a machine bureaucracy. As might be
expected, the primary reason for an organization to adopt this kind of design is
market diversity.
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Mintzbergs Structures
The AdhocracyThe adhocracyuses mutual adjustment as a means of coordination, has at its most important
part the support staff, and maintains selective patterns of decentralization. Most
organizations that use a fully-developed matrix design are adhocracies. An adhocracy
avoids specialization, formality, and unit of command. Even the term itself, derived from
ad hoc, suggests a lack of formality. Sun Microsystems is an excellent example of an
adhocracy.
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Mintzbergs Structures
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Organizational Integration
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Coordination by standardization standardization- establishing common rules and procedures
that apply uniformly to everyone
constrains actions
integrates various units by regulating what people do
formalization- reliance on rules and regulations to govern
how people interact
should apply to most (if not all) situations
most appropriate in relatively stable and unchanging situations
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Organization Integration (cont.)
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Coordination by plan interdependent units are required to meet deadlines and
objectives that contribute to a common goal
does not require a high degree of stability and routinization
units free to modify their actions as long as they are able to meet
deadlines and targets required for working with others
Coordination by mutual adjustment
involves feedback and discussion to jointly determine how to
approach problems and devise mutually agreeable solutions
allows for flexible coordination to deal with novel problems
costly from the standpoint of time
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Organization Integration (cont.)
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Coordination and communication substantial information flows to and from the environment
organizations need to develop structures for processing
information
option one: reducing the need for information
slack resources- extra resources that can be used in a pinch
e.g., inventory reduces the need for information about sales demand
creating self-contained tasks- change from a functional
organization to a product or project organization each unit has the resources needed to perform its task
communications flow within each team rather than among a complex
array of interdependent groups
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Organization Integration (cont.)
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Coordination and communication option two: increasing information processing capabil i ty
invest in information systems- e.g., employing or expanding
computer systems
create hor izontal relationships- foster coordination acrossdifferent units
horizontal processes include:
dir ect contact
l iaison roles
task forces
teams
product, program, or project managers
matrix organization
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Managing High Information-Processing
Demands
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Highinformation
processing
demands
Createslack
resources
Create
self-contained
tasks
Invest in
information
systems
Create
horizontal
relationships
Reduce the
need for
information
Process
more
information
Demands
top related