CHAPTER 5 DESIGNING ORGANIZATIONAL STRUCTURE: AUTHORITY AND CONTROL

TEACHING OBJECTIVES
1. To examine how the hierarchy emerges and how most companies limit hierarchical levels. (5.1) 2. To address the problems associated with tall hierarchies: communication, motivation, and bureaucratic costs. (5.1) . To consider !ar"inson#s $aw and the minimum chain o% command principle. (5.1) &. To demonstrate how an increased span o% control can prevent a hierarchy %rom becoming too tall. (5.1) 5. To review the %actors that a%%ect the shape o% the hierarchy: hori'ontal di%%erentiation, centrali'ation, and standardi'ation. (5.2) (. To examine )ax *eber#s six principles %or a bureaucratic structure. (5. ) +. To consider the advantages and disadvantages o% a bureaucracy. (5. ) ,. To consider the importance o% the in%ormal organi'ation. (5.&) -. To discuss the trends toward empowerment, sel%.managed teams, cross.%unctional teams, and contingent wor"ers. (5.5)

CHAPTER SUMMARY
To protect shareholders# goals, managers must constantly analy'e organi'ational structure. This chapter examines the vertical dimension o% structure/the hierarchy o% authority created to control an organi'ation#s members. 0ow and why does vertical di%%erentiation occur1 The hierarchy emerges when an organi'ation %aces coordination and motivation problems due to increased hori'ontal di%%erentiation. 2 hierarchy is tall i% it has many levels relative to organi'ational si'e and %lat i% it has %ew levels relative to si'e. )ost large companies do not exceed - or 13 levels and do not increase the number o% managers, because tall hierarchies have problems with communication, motivation, and high bureaucratic costs. !ar"inson#s $aw demonstrates how hierarchies get too tall. The minimum chain o% command principle is explained. 4ncreasing the span o% control can substitute %or increasing hierarchical levels. 5pan o% control is based on the complexity and interrelatedness o% tas"s. 5imple and less interrelated tas"s call %or a wider span o% control. 6actors shape the hierarchy: hori'ontal di%%erentiation, centrali'ation, standardi'ation, and the in%ormal organi'ation. These design decisions can ensure that a hierarchy remains %lat so the organi'ation can control activities. 0ori'ontal di%%erentiation controls employees when an organi'ation cannot increase its hierarchical levels. 0ori'ontal di%%erentiation "eeps the hierarchy %lat, as each %unction has its own hierarchy. 7ecentrali'ing authority improves communication and coordination due to less direct supervision, a%%ecting the si'e o% the hierarchy. 5tandardi'ation reduces direct supervision, because employees %ollow rules, standard operating procedures (58!s), and norms. The in%ormal organi'ation can increase control. The chapter outlines )ax *eber#s six principles o% bureaucratic structures and reviews the advantages o% bureaucratic structure. 2uthority should be based on rational legality, clearly de%ined roles, competence, and rules. 2 bureaucratic structure controls interactions among organi'ational members, reduces transaction costs, provides stability, and increases core competences. )anagers must prevent the hierarchy %rom becoming too tall and centrali'ed. 4% the hierarchy is neglected, organi'ational costs rise, the decision. ma"ing process slows, and the company becomes unresponsive to sta"eholders.

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<estructuring and downsi'ing are a trend to reduce costs. 9oupled with this trend is the use o% empowerment and sel%.managed teams. 2nother cost.saving measure is the use o% contingent wor"ers.

CHAPTER OUTLINE 5.1 Author t!: Ho" #$% &h! V'rt (#) D **'r'$t #t o$ O((ur+

7etermining the level o% vertical di%%erentiation is a basic design challenge. )anagers must determine the shape o% the hierarchy, the number o% levels, and the span o% control (the number o% subordinates a manager oversees). The shape o% the hierarchy, plus the balance between centrali'ation and decentrali'ation, establish the extent o% vertical di%%erentiation. The Emergence of the Hierarchy 2s an organi'ation grows, di%%erentiation and the division o% labor increase, which lead to coordination and motivation problems. 2t this point, the hierarchy emerges to coordinate and motivate members by increasing the number o% managers and organi'ational levels. )anagers choose between a %lat hierarchy with %ew levels relative to company si'e and a tall hierarchy with many levels relative to si'e. (6ig. 5.1) Size and Height Limitations <esearch on si'e and height o% the hierarchy shows that a %irm o% 1,333 has %our levels, one with ,333 has seven levels, and one with up to 133,333 employees stays at nine or 13 levels. (6ig. 5.2) 8rgani'ations actively restrict the number o% managers and the number o% levels as they grow. 5o, most organi'ations have a pyramid structure (6ig. 5. a), not a bloated structure (6ig. 5. b). =otes>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Problems with Tall Hierarchies ?. *hy is the number o% hierarchical levels and managers limited1 2. Tall hierarchies %ace problems. Communication Problems. 2s the chain o% command extends, communication ta"es longer, which slows decision ma"ing. 4n%ormation is distorted, accidentally or deliberately, as it goes up and down the hierarchy. ?. 0ow can in%ormation be distorted1 2. 2 long chain o% command leads to misinterpretation o% the message. 5el%.serving managers give selective in%ormation to decision ma"ers. 5ubordinates tell superiors what they want to hear. 7istortion leads to poor decisions, because decision ma"ers have incorrect in%ormation.

Or,#$ -#t o$#) I$+ ,ht 5.1: P* -'r.+ N'" E/'r, $, H 'r#r(h!

Through mergers and ac@uisitions, !%i'er#s hierarchy had become too tall. They cut the number o% management layers between top scientists %rom 1& to seven and drastically reduced the number o% committees. ?. 0ow did !%i'er#s structure contribute to its problems1 &+ 9opyright : 2313 !earson ;ducation, 4nc. publishing as !rentice 0all

2. *hen organi'ations get too tall, they cannot respond as well or as @uic"ly to the mar"etplace, which is what happened to !%i'er. This was %ixed by %lattening the structure so that the organi'ation could respond better to the mar"et. =otes>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Motivation Problems. The taller the organi'ation, the less managerial authority and responsibility there are. Tall hierarchies decrease motivation because managers, with less authority and responsibility, are less motivated. 4n a %lat structure, managers have more responsibility and are more motivated. 2ccountability in a tall structure decreases, ma"ing it easy %or managers to shir" responsibility. ureaucratic Costs. Tall hierarchies have high bureaucratic costsA a company pays a middle manager an average o% B 33,333 a year, so a cut o% 1,333 extra managers saves B 33 million. $ayo%%s become necessary i% management pays no attention to its hierarchy. 2 company grows and hires managers without considering long.term costs. *hen the company matures, growth ceases, and cost reduction becomes necessary. To avoid layo%%s, a company must continually evaluate its hierarchy. The Par!inson"s Law Problem !ar"inson observed that %rom 1-1& to 1-2,, while the Critish =avy decreased the number o% ships by (, percent, it increased the number o% doc"yard o%%icials by &3 percent and top managers by +- percent. ?. *hy did this occur1 2. !ar"inson#s theory is that managers want to increase the number o% subordinates, not rivals, so they ma"e wor" %or each other. 4n other words, D*or" expands so as to %ill the time available.E =otes>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> The #deal $umber of Hierarchical Levels% The Minimum Chain of Command )anagers should base hiring decisions on whether the value added exceeds the cost. The minimum chain o% command principle states that a company should choose the minimum number o% hierarchical levels needed %or goal achievement. S&an of Control To avoid becoming too tall, an organi'ation can increase the span o% control, the number o% subordinates a manager directly oversees. 7i%%erent companies have di%%erent spans o% control. 2 manager#s span o% control is limited to the number o% subordinates that can be ade@uately supervised. 2n increase in subordinates exponentially increases the subordinate relationships to be managed. 2 manager with two subordinates manages three relationships, but a manager with three subordinates manages six (6igs. 5.(aFb). 4% the span o% control becomes too wide, a manager loses control over subordinates. ?. *hat determines an e%%ective span o% control1 2. Com&le'ity. 6or complex, dissimilar tas"s, the span o% control can be narrow. 6or routine, similar tas"s, the span o% control can be wider. 2 research supervisor has a narrow span o% control, but a production supervisor has a wide span o% control. 9opyright : 2313 !earson ;ducation, 4nc. publishing as !rentice 0all &,

Or,#$ -#t o$#) I$+ ,ht 5.0: Bo1 I,'r R'+h#2'+ &#)t D +$'!
7isney was su%%ering under a structure that was tool tall, and this was hampering innovation. They eliminated a strategic planning o%%ice that was seen as causing a bottlenec" o% new ideas, and this increased the level o% innovation. #nterrelatedness. 4nterrelated tas"s re@uire a narrow span o% control because hori'ontal relationships must be managed. 0ori'ontal relationships are less important i% tas"s are not interrelated. )ost organi'ations have a pyramid.shaped hierarchy, as tas"s are complex and interrelated at the top. =otes>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >> 5.0 Co$tro): 3#(tor+ A**'(t $, th' Sh#2' o* th' H 'r#r(h!

2n e%%ective span o% control must be limited, thus organi'ations use other design challenges to control activities: hori'ontal di%%erentiation, centrali'ation, standardi'ation, and the in%ormal organi'ation. Horizontal (ifferentiation *hen vertical di%%erentiation cannot be increased, an organi'ation maintains control by increasing hori'ontal di%%erentiation and establishing speciali'ed %unctions or divisions. ;ach subunit also has a hierarchy. (6ig. 5.+) ?. *hy does manu%acturing have many levels1 2. )anu%acturing must exercise tight control over subordinates and control costs. 5ales has %ewer levels because it relies on standardi'ation, not direct supervision. <G7 has %ewer levels because complex tas"s are di%%icult to supervise. <G7 o%ten uses proHect teams, a narrow span o% control, and in%ormal norms and values to control behavior. (6ig. 5.,) 0ori'ontal di%%erentiation allows an organi'ation to remain %lat because hierarchies are developed in subunits. ?. *hat problems are caused by hori'ontal di%%erentiation1 2. 0ori'ontal di%%erentiation causes coordination and motivation problems that are controlled through centrali'ation, standardi'ation, and the in%ormal organi'ation. Centralization The communication and coordination problems o% a tall company ma"e a manager#s Hob one o% monitoring and supervising, causing an organi'ation to lose sight o% its goals. 8ne solution is to reduce the number o% managers by decentrali'ing decision ma"ing to lower levels. 7ecentrali'ation "eeps the organi'ational structure %lat. Standardization 2nother way to %latten the hierarchy is through standardi'ation. Tas"s are controlled through rules, standard operating procedures (58!s), and norms, so a wide span o% control is usedA rules eliminate direct supervision, and managers can delegate responsibility because subordinates "now the rules. &9opyright : 2313 !earson ;ducation, 4nc. publishing as !rentice 0all

=otes>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

M#$#,'r #) I/2) (#t o$+: Author t! #$% Co$tro)

)anagers must assure that the hierarchy matches organi'ational needs and is not too tall or centrali'ed. 4% the hierarchy provides too little control, managers must maintain ade@uate supervision over people and resources. )anagerial teams should review the hierarchy#s design. =otes>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >> 5.4 Th' Pr $( 2)'+ o* Bur'#u(r#(!

)ax *eber (1,(&F1-23), a Ierman sociologist, developed an organi'ational structure to improve operations. 0e developed the bureaucracy, a structure in which people %ollow rules and are accountable %or their actions. *eber#s six principles o% bureaucracy distribute responsibilities and authority to maximi'e a company#s e%%ectiveness. Principle One: 2 bureaucracy is %ounded on the concept o% rational.legal authority, a person#s authority is due to position in the organi'ation. !ower should be separate %rom personality. Principle Two: 8rgani'ational roles are determined by technical competence, not social status, "inship, or heredity. This principle re@uires managers to see all potential Hob candidates obHectively. Principle Three: 2 role#s tas" responsibility and decision.ma"ing authority and its relationship to other roles in the organi'ation should be clearly speci%ied. 2 clear pattern o% vertical and hori'ontal di%%erentiation is necessary %or e%%ectiveness. )ole conflict, con%licting demands on a subordinate, and role ambiguity (%ear o% responsibility because o% unclear tas"s) should be eliminated. Principle Four: The organi'ation o% roles in a bureaucracy is such that each lower o%%ice in the hierarchy is under the control and supervision o% a higher o%%ice. !eople "now the chain o% command. Principle Five: Rules, standard operating procedures , and norms should be used to control the behavior and the relationship between roles in an organi'ation. <ules are %ormal written standards o% behavior, whereas norms are unwritten.

Or,#$ -#t o$#) I$+ ,ht 5.4: N'5'r U$%'r'+t /#t' th' Po"'r o* Ru)'+
Ieneral )ills opened a chain o% 9hinese restaurants that had early success. 4n an attempt to open many restaurants @uic"ly, they lost control o% the %ood @uality due to the lac" o% training and standard preparation procedures. 2lthough they did implement procedures, it was too late to save the restaurant, as word had already spread that they had poor @uality and poor service. 4n addition to illustrating the value o% rules and standard operating procedures, this case also serves as an excellent example o% the power o% the reputation e%%ect. 2lthough they %ixed the @uality problem, it was too late in this case to save the organi'ation.

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Principle Six: 2dministrative acts, decisions, and rules should be %ormulated and put in writing. *hen written down, rules become o%%icial guidelines that can be used even when people leave. *ritten documents ensure that people can be held accountable. The *dvantages of ureaucracy 2 bureaucratic structure exists when an organi'ation implements *eber#s six principles. ?. *hat are the advantages o% a bureaucratic structure1 2. 2dvantages: 1. <ules %or designing the hierarchy 2. 4ncreased accountability and reduced transaction costs . <educed costs o% monitoring subordinates &. 4ncreased integration 5. 7ecreased costs o% per%ormance evaluation and o% rule en%orcement (. The position separated %rom the person +. Iuidelines and s"ills able to be passed on to successors ,. 5tability needed %or employees to ta"e long.term perspectives 7espite these advantages, bureaucracies have negative connotations. ?. *hat causes this negative thin"ing1 2. 7isadvantages: 1. 5lowed decision ma"ing and increased costs due to a tall and centrali'ed hierarchy 2. 6ailure to meet sta"eholders# needs due to too many rules Management by +b,ectives This system provides a %ramewor" to both evaluate and to monitor progress toward the achievement o% organi'ational goals. 4t consists o% three steps: 1. 5peci%ic goals and obHectives are established at each level o% the organi'ation. 2. )anagers and their subordinates together determine the subordinates# goals. . )anagers and their subordinates periodically review the subordinates# progress toward meeting the goals.

M#$#,'r #) I/2) (#t o$+: U+ $, Bur'#u(r#(! to B'$'* t th' Or,#$ -#t o$

6or organi'ational e%%ectiveness, managers and employees should %ollow bureaucratic principles. They do not own their positions and must bene%it sta"eholders. )anagers should ma"e hiring, promoting, and rewarding decisions %airly. <eporting relationships should be periodically reviewed to ensure clarity. )anagers and employees should adopt a D@uestioning attitudeE toward the organi'ation. =otes>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

5.6

Th' I$*)u'$(' o* th' I$*or/#) Or,#$ -#t o$

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2t all organi'ational levels, decision ma"ing and coordination occur outside %ormally designed channels. <ules and norms emerge out o% the in%ormal organi'ation, the networ" o% personal relationships that develop over time. ?. *hy should managers understand the in%ormal organi'ation1 2. The in%ormal organi'ation a%%ects the way the D%ormalE hierarchy wor"s.

Or,#$ -#t o$#) I$+ ,ht 5.6: & )%(#t Str 7'+ $ th' G!2+u/ P)#$t
Iypsum, a mineral %or ma"ing wallboard, is mined and processed by the Ieneral Iypsum 9ompany.

*or"ers could ta"e wallboard %or personal use and have excessive absenteeism until a new plant manager reactivated rules that had never been en%orced. The wor"ers initiated stri"es and only went bac" to wor" when authority was de%ined and rules established %or settling disputes.
?. *hat is the role o% the in%ormal organi'ation1 2. )anagers must consider how the in%ormal organi'ation a%%ects both individual and group behavior when ma"ing organi'ational changes. 2ltering the %ormal structure disrupts the in%ormal norms that ma"e the organi'ation wor". The in%ormal organi'ation can enhance organi'ational per%ormance because many accomplishments occur through the in%ormal networ" in ways not revealed by the %ormal hierarchy. =otes>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Refer to Discussion question here to emphasi!e how the informal organi!ation affects the shape of the organi!ation" ################################################################ #################################################################################

5.5

IT8 E/2o"'r/'$t8 #$% S')*9M#$#,'% T'#/+

4n%ormation technology is ma"ing it much easier %or organi'ations to cost.e%%ectively design a structure based upon empowerment and teams. The trend toward decentrali'ation is largely due to technology that allows this to be done cost e%%ectively, without losing many o% the bene%its o% centrali'ation. There%ore, organi'ations today are ma"ing use o% self-managed teams and cross-functional teams as opposed to the traditional bureaucracy. 2s organi'ations become %latter, another trend is to employ contingent wor!ers. organi'ations to both reduce costs and stay %lexible. ?. *ill decentrali'ation abolish the hierarchy1 2. 5ome suggest that more lateral relations will emerge. 8thers contend that even a team.based company composed o% empowered wor"ers needs a hierarchy and a minimum set o% rules and 58!s to control activities. The challenge is to achieve the proper mix o% mechanistic and organic structure. This allows

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?. *hat are the advantages and disadvantages to using contingent wor"ers1 2. 9ontingent wor"ers cost less because they receive no bene%its and are only hired as needed. 5uch employees may have coordination and motivation problems, as there is no promotion or Hob security. 9ontingent wor"ers do not help a company develop core competences. 5till, an estimated 23 percent o% the J.5. wor"%orce is comprised o% contingent wor"ers. =otes>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

DISCUSSION :UESTIONS AND ANS&ERS

$" %hoose a small organi!ation in &our cit&, such as a restaurant or school, and draw a chart showing its structure" Do &ou thin' the num(er of levels in its hierarch& and the span of control at each level are appropriate) *h& or wh& not)

2nswers will vary. 8ne possibility is a locally.owned restaurant with a %our.level hierarchy that includes owner, manager, three assistant managers, and waiters, coo"s, and "itchen help. The number o% levels is appropriate because %our levels is the minimum number %or e%%ectiveness. The span o% control is appropriate. The manager oversees three assistant managers, who oversee 12 people. The tas"s o% waiters, coo"s, and busboys are simple, so a wide span o% control is appropriate. " +n what wa&s can the informal organi!ation and the norms and values of its culture affect the shape of an organi!ation)

2n organi'ation can use the in%ormal organi'ation, norms, and values to increase control. The in%ormal lin"s can augment the %ormal authority relationships. =orms and values standardi'e behavior. The in%ormal organi'ation and norms provide control, so the company can add %ewer levels to the hierarchy and hire %ewer managers as the company grows. ," *hat factors determine the appropriate authorit& and control structure in -a. a research and development la(orator&, -(. a large department store, or -c. a small manufacturing compan&)

a. 2n <G7 lab has a %lat hierarchy and a narrow span o% control. This structure is appropriate because complex tas"s ma"e it di%%icult to monitor employees. The lab uses norms and values to control behavior. Teams could %acilitate mutual adHustment. b. 2 large department store has a %lat hierarchy, and lower.level managers have a wide span o% control: a manager, department heads, assistant managers, and salespeople. The store relies on standardi'ation, rules, and procedures instead o% a tall hierarchy. This structure is appropriate because tas"s are simple and similar, so lower.level managers have a wide span o% control. c. 2 small manu%acturer needs to exert tight controls and monitor employees to control costs. There%ore, it has a taller hierarchy and a smaller span o% control. 7irect supervision ensures that employees are per%orming tas"s appropriately and that costs are minimi'ed. /" 0ow can the principles of (ureaucrac& help managers design the organi!ational hierarch&)

The principles o% bureaucracy ensure that an organi'ation#s structure is e%%ective. 4t instructs managers on the %ollowing: 5 9opyright : 2313 !earson ;ducation, 4nc. publishing as !rentice 0all

a. The basis o% authority. 2uthority should be based on rational.legal authority, determined by the position, not the person. b. 2ssigning roles. <oles should be based on competence, not status or "inship. c. 7e%ining tas"s. Tas"s and decision.ma"ing authority should be clearly de%ined. d. 9ontrolling authority. ;ach lower o%%ice in the hierarchy should report and be responsible to a higher o%%ice. e. 9ontrolling behavior. <ules, standard operating procedures, and norms can control behavior. %. ;nsuring %uture e%%ectiveness. !ut rules in writing. 5. *hen does (ureaucrac& (ecome a pro(lem in an organi!ation) *hat can managers do to prevent (ureaucratic pro(lems from arising)

Cureaucracy becomes a problem when managers %ail to control growth, resulting in a tall and centrali'ed hierarchy, which sti%les innovation, slows decision ma"ing, and increases operating costs. 4% members rely solely on rules, they become unresponsive to sta"eholder needs. )anagers can avoid problems by controlling the hierarchy, even during growth. 2n organi'ation needs the minimum number o% levels %or achieving goals. To prevent an unnecessary increase in managers, a higher.level o%%icer should approve hiring decisions. 4% managers %ollow *eber#s six bureaucratic principles, problems can be prevented.

ORGANIZATIONAL THEORY IN ACTION Pr#(t ( $, Or,#$ -#t o$#) Th'or!: Ho" to D'+ ,$ # H 'r#r(h!
5tudents %orm small groups o% managers assigned to restructure a division by abolishing 25 percent o% managerial positions. 5tudents discuss how to cut positions, how to obtain ade@uate supervision with %ewer managers, and how to ma"e downsi'ing less pain%ul %or employees.

Th' Eth (#) D /'$+ o$ ;5

5tudents examine which wor"ers should be terminated during a restructuring o% middle managers. This is a di%%icult exercise, because regardless o% the methods used, somebody needs to be terminated when 4T replaces the need %or wor"ers. This is a good exercise to relate the issue o% satis%ying sta"eholders# needs to the ethical processes encountered during a typical restructuring. 2s" students %or their personal experiences, as many %amilies or individuals have experienced this situation %irsthand.

M#7 $, th' Co$$'(t o$ ;5

4nstruct students to %ind an example o% a company that has recently changed its hierarchy o% authority or its top.management team and as" them to explain why changes were made.

ANALYZING THE ORGANIZATION: DESIGN MODULE ;5

5tudents will draw an organi'ational chart o% their company#s top management and describe the top. management team. They will discuss their company#s use o% bureaucracy, centrali'ation, standardi'ation, and hori'ontal di%%erentiation. They must evaluate the hierarchy (tall or %lat) and the span o% control (narrow or wide).

CASE 3OR ANALYSIS

A Centralized Structure Transforms Home Depot

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5&

This case illustrates how 0ome 7epot success%ully went %rom an organic structure to a more mechanistic structure. This was in response to competitors li"e $owe#s, who were able to o%%er similar products at a lower cost. $" +n what wa&s can -a. decentrali!ing and -(. centrali!ing authorit& help an organi!ation li'e 0ome Depot to improve its performance)

)a"e sure students understand that the structure needs to match the mar"etplace. )any cases and insights illustrate how companies need to become more organic to be more creative. 4n the 0ome 7epot case, creativity was not needed. *hat was needed was a more e%%icient system. 4n this case, a more mechanistic structure was the solution. 2lso note the downsides o% both strategies. 6or example, by centrali'ing authority, 0ome 7epot certainly gave up the advantages associated with managers having control at the store level. " *hat 'inds of factors change the decision to centrali!e or decentrali!e authorit& over time in a competitive environment, such as the home (uilding suppl& industr&)

4n this case, it was understanding what the mar"etplace wanted. 9reativity and innovation are not valued nearly as much as low prices, hence, 0ome 7epot needed a structure that allowed this. 8ther industries may place more value on creativity, innovation, or the need to change @uic"ly, and then a more decentrali'ed, organic structure would be the solution.

TEACHING SUGGESTIONS
1. Jse a role.play to illustrate the problems with tall hierarchies. 13 students wor" %or a computer company. 5tudent 1 has an idea %or a %ax modem and tells a supervisor who chec"s with a superior. The idea goes through the chain o% command. Cy the tenth person, the idea is distorted. The person is unli"ely to suggest other ideas. 2nother competitor introduces a %ax modem, and the company loses out due to the tall hierarchy and unwillingness to promote innovation. Jse a role.play to demonstrate how span o% control depends on the complexity o% the tas"s. Three students are research scientists loo"ing %or a cure %or cancer. These tas"s are complex, thus the span o% control is narrow. 9onversely, have one student supervise 23 production wor"ers. The wor" is simple, so it is easier to supervise more people. 0ierarchies tend to be pyramid shaped because wor" at top levels is more complex. 2s an out.o%.class assignment, students will loo" at business publications and %ind current examples about structural changes: mergers, ac@uisitions, or downsi'ing. 4nvite a 9;8 %rom a local company to describe the organi'ational structure o% the company. 2s" students to discuss the advantages and disadvantages o% wor"ing %or an organi'ation that implements *eber#s bureaucracy. *ould they enHoy wor"ing under this system1 *hy or why not1 Jse the principles o% management by obHectives in the classroom. That is, the instructor is the manager, and the students are subordinates. <ole play how this might wor" based upon their obHectives in the classroom. =otice how most o% the 8rgani'ational 4nsights and cases in this chapter had a similar theme. 2s" students what this theme is, and discuss. This is in re%erence to many organi'ations having a structure that inhibits change.

2.

. &. 5. (. +.

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