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Publishing as Prentice Hall 1

Organizational Theory,
Design, and Change

Sixth Edition
Gareth R. Jones

Chapter 4

Basic Challenges of
Organizational
Design
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Learning Objectives
1. Describe the four basic organizational
design challenges confronting
managers and consultants
2. Discuss the way in which these
challenges must be addressed
simultaneously if a high-performing
organizational structure is to be
created
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Learning Objectives (cont.)
3. Distinguish among the design choices
that underlie the creation of either a
mechanistic or an organic structure
4. Recognize how to use contingency
theory to design a structure that fits
an organizations environment
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Differentiation
! The process by which an organization
allocates people and resources to
organizational tasks
! Establishes the task and authority
relationships that allow the
organization to achieve its goals
! Division of labor: the degree of
specialization in the organization
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Differentiation (cont.)
! In a simple organization, differentiation
is low because the division of labor is
low
! Individuals typically perform all
organizational tasks
! In a complex organization,
differentiation is high because the
division of labor is high

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Figure 4.1: Design Challenge
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Figure 4.1: Design Challenge
(cont.)
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Figure 4.1: Design Challenge
(cont.)
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Figure 4.1: Design Challenge
(cont.)
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Figure 4.1: Design Challenge
(cont.)
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Organizational Roles
! Set of task-related behaviors required
of a person by his or her position in an
organization
! As the division of labor increases,
managers specialize in some roles and
hire people to specialize in others
! Specialization allows people to develop
their individual abilities and knowledge
within their specific role
! Organizational structure is based on a
system of interlocking roles

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Organizational Roles (cont.)
! Authority: the power to hold people
accountable for their actions and to
make decisions concerning the use of
organizational resources
! Control: the ability to coordinate
and motivate people to work in the
organizations interests
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Subunits: Functions and Divisions
! Function: a subunit composed of a group
of people, working together, who possess
similar skills or use the same kind of
knowledge, tools, or techniques to perform
their jobs
! Division: a subunit that consists of a
collection of functions or departments that
share responsibility for producing a
particular good or service
! Organizational complexity: the number
of different functions and divisions
possessed by an organization
! Degree of differentiation
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Function Types
! Support functions: facilitate an
organizations control of its relations
with its environment and its
stakeholders
! Purchasing, sales and marketing, public
relations, and legal affairs
! Production functions: manage and
improve the efficiency of an
organizations conversion processes so
that more value is created
! Production operations, production control,
and quality control

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Function Types (cont.)
! Maintenance functions: enable an
organization to keep its departments
in operation
! Personnel, engineering, and janitorial
services
! Adaptive functions: allow an
organization to adjust to changes in
the environment
! Research and development, market
research, and long-range planning
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Function Types (cont.)
! Managerial functions: facilitate the
control and coordination of activities
within and among departments
! Acquisition of, investment in, and
control of resources
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Figure 4.2: Building Blocks of
Differentiation
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Vertical and Horizontal
Differentiation
! Hierarchy: a classification of people
according to their relative authority and rank
! Vertical differentiation: the way an
organization designs its hierarchy of authority
and creates reporting relationships to link
organizational roles and subunits
! Establishes the distribution authority between levels
! Horizontal differentiation: the way an
organization groups organizational tasks into
roles and roles into subunits (functions and
divisions)
! Roles differentiated according to their main task
responsibilities
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Figure 4.3: Organizational
Chart of the B.A.R. and Grille
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Figure 4.4: Organizational
Design Challenges
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Balancing Differentiation and
Integration
! Horizontal differentiation is supposed
to enable people to specialize and
become more productive
! Specialization often limits communication
between subunits
! People develop subunit orientation
! Subunit orientation: a tendency to view
ones role in the organization strictly from
the perspective of the time frame, goals, and
interpersonal orientations of ones subunit
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Balancing Differentiation and
Integration (cont.)
! When subunit orientation occurs,
communication fails and coordination
becomes difficult
! Integration: the process of
coordinating various tasks, functions,
and divisions so that they work
together and not at cross-purposes
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Types of Integration
Mechanisms
! Hierarchy of authority: dictates
who reports to whom
! Direct contact: managers meet face
to face to coordinate activities
! Problematic that a manager in one
function has no authority over a manager
in another
! Liaison roles: a specific manager is
given responsibility for coordinating
with managers from other subunits on
behalf of their subunits
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Types of Integration
Mechanisms (cont.)
! Task force: managers meet in
temporary committees to coordinate
cross-functional activities
! Task force members responsible for
taking coordinating solutions back to
their respective functions for further
input and approval
! Teams: a permanent task force used
to deal with ongoing strategic or
administrative issues
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Types of Integration
Mechanisms (cont.)
! Integrating role: a new, full-time
role established to improve
communications between divisions
! Focused on company-wide integration
! Integrating department: a new
department intended to coordinate
the activities of functions or divisions
! Created when many employees enact
integrating roles
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Table 4.1: Types and Examples
of Integrating Mechanisms
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Figure 4.5: Integrating
Mechanisms
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Figure 4.5: Integrating
Mechanisms (cont.)
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Figure 4.5: Integrating
Mechanisms (cont.)
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Balancing Differentiation and
Integration
! Managers facing the challenge of
deciding how and how much to
differentiate and integrate must:
! Carefully guide the process of
differentiation so that it develops the core
competences that give the organization a
competitive advantage
! Carefully integrate the organization by
choosing appropriate integrating
mechanisms that allow subunits to
cooperate and that build up the
organizations core competences
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Balancing Centralization and
Decentralization
! Centralized organization: the
authority to make important decisions
is retained by top level managers
! Top managers able to coordinate activities
to keep the organization focused on its
goals
! Decentralized organization: the
authority to make important decisions
is delegated to managers at all levels
in the hierarchy
! Promotes flexibility and responsiveness
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Balancing Centralization and
Decentralization (cont.)
! Ideal balance entails:
! Enabling middle and lower managers
who are at the scene of the action to
make important decisions
! Allowing top managers to focus on long-
term strategy making
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Balancing Standardization and
Mutual Adjustment
! Standardization: conformity to specific
models or examples that are considered
proper in a given situation
! Defined by rules and norms
! Mutual adjustment: the process
through which people use their judgment
rather than standardized rules to address
problems, guide decision making, and
promote coordination
! Formalization: the use of rules and
procedures to standardize operations
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Balancing Standardization and
Mutual Adjustment (cont.)
! Socialization: Understood Norms
! Rules: formal, written statement that specify
the appropriate means for reaching desired
goals
! Norms: standards or styles of behavior that
are considered typical for a group of people
! May arise informally
! External rules may become internalized norms
! Socialization: the process by which
organizational members learn the norms of
an organization and internalize these
unwritten rules of conduct
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Standardization versus
Mutual Adjustment
! Challenge facing managers is:
! To find a way of using rules and norms to
standardize behavior, and
! to allow for mutual adjustment to give
managers opportunity to discover new
and better ways to achieve goals
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Mechanistic and Organic
Organizational Structures
! Mechanistic structures: designed to
induce people to behave in predictable,
accountable ways
! Decision-making authority is centralized
! Subordinates are closely supervised
! Information flows mainly in a vertical direction along a
clearly defined path
! Hierarchy principal integrating mechanism
! Tasks and roles coordinated primarily through
standardization and formal written rules
! Best suited to organizations that face stable,
unchanging environments

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Mechanistic and Organic
Organizational Structures (cont.)
! Organic structures: structures that
promote flexibility, so people initiate
change and can adapt quickly to
changing conditions
! Decision making distributed throughout the
hierarchy
! Coordination is achieved through mutual
adjustments
! Status conferred by ability to provide creative
leadership
! Encourages innovative behavior
! Suited to dynamic environments
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Figure 4.6: How the Design Challenges Result
in Mechanistic and Organic Structures
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Figure 4.7: Task and Role
Relationships
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Contingency Approach
! A management approach in which the
design of an organizations structure is
tailored to the sources of uncertainty
facing an organization
! Organization should design its
structure to fit its environment
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Figure 4.8: Fit Between the
Organization and Its Environment
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Lawrence & Lorsch: Differentiation,
Integration, and the Environment
! Investigated how companies in
different industries differentiate and
integrate their structures to fit the
environment
! Three industries that experienced
different levels of uncertainty:
! The plastics industry
! The food-processing industry
! The container or can-manufacturing industry
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Table 4.2: The Effect of Uncertainty on
Differentiation and Integration in Three
Industries
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Findings:
Lawrence and Lorsch
! When environment is perceived as
more unstable and uncertain:
! Effective organizations are less
formalized, more decentralized, and rely
more on mutual adjustment
! When environment is perceived as
stable and certain:
! Effective organizations have a more
centralized, standardized, and formalized
structure
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Figure 4.9: Functional Differentiation
and Environmental Demands
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Burns and Stalker
! Also found that organizations need
different kinds of structure to control
their activities based on the
environment
! Organic structures are more effective
when the environment is unstable and
changing
! Mechanistic structures are more effective
in stable environments
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Figure 4.10: Relationship Between
Environmental Uncertainty and Structure