Chapter 10

ORGANIZATIONAL
STRUCTURE
AND DESIGN
10.1
 LEARNING OBJECTIVES
● You should be able to:
○ Define organizational structure and organizational
design
○ Explain why structure and design are important to
an organization
○ Describe the six key elements of organizational
structure
○ Differentiate mechanistic and organic
organizational design
○ Identify the four contingency factors that influence
organizational design
10.2
 LEARNING OBJECTIVES
(continued)
● You should be able to (continued):
○ Describe a simple structure, a functional structure,
and a divisional structure
○ Explain team-based structures and why
organizations are using them
○ Describe matrix structures, project structures,
autonomous internal units, and boundaryless
organizations
○ Explain the concept of a learning organization and
how it influences organizational design

10.3
DEFINING ORGANIZATIONAL
STRUCTURE
● Organizing - the process of creating an
organization’s structure
● Organizational structure - the formal
framework by which job tasks are
divided, grouped, and coordinated
● Organizational design - process of
developing or changing an
organization’s structure
10.4
 KEY ELEMENTS
OF ORGANIZATIONAL DESIGN
Work Departmentalizatio
Specialization n

Chain Span
of Command of Control

Centralization and
Formalization
Decentralization
10.5
 ELEMENTS OF
ORGANIZATIONAL DESIGN
● Work Specialization
○ The degree to which tasks in an
organization are divided into separate jobs
○ Too much specialization has created
human diseconomies
○ An important organizing mechanism,
though not a source of ever-increasing
productivity
10.6
 ELEMENTS OF
ORGANIZATIONAL DESIGN
● Departmentalization
(continued)
○ The basis by which jobs are grouped
together
■ functional - groups jobs by functions performed
■ geographical - groups jobs on the basis of
territory or geography
■ product - groups jobs by product line
■ process - groups jobs on the basis of product or
customer flow
■ customer - groups jobs on the basis of common
customers 10.7
 ELEMENTS OF
ORGANIZATIONAL DESIGN
● Departmentalization (continued)
(continued)
○ Large organizations combine most or all
forms of departmentalization
○ Trends
■ customer departmentalization is increasingly
being used
■ better able to monitor and respond to
customer needs
■ cross-functional teams are becoming popular
10.8
 FUNCTIONAL
DEPARTMENTALIZATION
(Exhibit 10.2)
Plant Manager

Manager Manager Manager Manager Manager

,
Engineerin A
, ccounti ,
Manufacturin ,
Human ,
Purchasi
g ng g Resources ng

10.9
 GEOGRAPHICAL
DEPARTMENTALIZATION
(Exhibit 10.2) Vice
for
President
Sales
Sales Sales Sales Sales
Western
Director, Southern
Director, Midwestern
Director, Eastern
Director,
Region Region Region Region

10.10
PRODUCT DEPARTMENTALIZATION
(Exhibit 10.2)
Bombardier,
Ltd.
Mass Recreational and Rail
Sector Vehicles
Utility Sect
Transit Products
Sector or
Mass Recreational
Divisio Divisio
Products
Transit
n n
Bombardier-Rot Logistic
Divisio
Equipment
ax (Vienna
) n
Industrial
Divisio
Equipment
n
Bombardier-Rot
ax(Gunskirche 10.11
n)
 PROCESS
DEPARTMENTALIZATION
(Exhibit 10.2)
Plant
Superintendent

Lacquering Inspection
Sawing Planning Assemblin and Finishing and
Departme and Milling g Sanding Departme Shipping
nt Departme Departme Departmen nt Department
Manager nt nt t Manager Manager Manager
Manager

10.12
 CUSTOMER
DEPARTMENTALIZATION
(Exhibit
Directo 10.2)
r
Of
Sales
Manager Manager Manager
Retail
, Wholesale
, Government
,
Accounts Accounts Accounts

10.13
 ELEMENTS OF
ORGANIZATIONAL DESIGN
● Chain of Command
(continued)
○ Continuous line of authority that extends from upper
organizational levels to the lowest levels and clarifies
who reports to whom
○ authority - the rights inherent in a managerial position
to tell people what to do and to expect them to do it
■ responsibility - the obligation to perform any assigned duties
■ unity of command - a person should report to only one
manager
○ These concepts are less relevant today due to
information technology and employee empowerment
10.14
 ELEMENTS OF
ORGANIZATIONAL DESIGN
● Span of Control
(continued)
○ Number of employees that a manager can
efficiently and effectively manage
○ Determines the number of levels and managers
in an organization
○ The wider the span, the more efficient the
organization

10.15
 CONTRASTING SPANS OF
CONTROL
Assuming Span
1 of
(Exhibit 10.3)
Assuming Span of
4
1 4 8 1
2 16 8 1
3 64 64 2
izational4 256 512 3
5 1024 4096 4
6 4096 5
7
Span of 8
Span of 4 Operatives = 4,096
Operatives = 4,096 Managers (levels 1-4) =
Managers (levels 1-6) = 585
1,365 10.16
 ELEMENTS OF
ORGANIZATIONAL DESIGN
● Centralization
(continued)
○ The degree to which decision making is
concentrated at a single point in the organization
● Decentralization
○ The degree to which decisions are made by
lower-level employees
○ Distinct trend toward decentralized decision
making

10.17
FACTORS INFLUENCING DEGREE
OF CENTRALIZATION OR
DECENTRALIZATION (Exhibit 10.4)

10.18
 ELEMENTS OF
ORGANIZATIONAL DESIGN
● Formalization(continued)
○ The degree to which jobs within the
organization are standardized
○ Extent to which employee behaviour is
guided by rules and procedures

10.19
ORGANIZATIONAL DESIGN
DECISIONS
● Mechanistic Organization
○ Rigidly and tightly controlled structure
○ Tries to minimize the impact of differing human
traits
○ Most large organizations have some mechanistic
characteristics
● Organic Organization
○ Highly adaptive and flexible structure
○ Permits organization to change when the need
arises
○ Employees are highly trained and empowered to
handle diverse job activities 10.20
○ Minimal formal rules and little direct supervision
 MECHANISTIC VERSUS
ORGANIC STRUCTURES

Mechanistic Organi
c
● High Specialization ● Cross-Hierarchical
● Rigid Teams
Departmentalization ● Free Flow of
● Clear Chain of Information
Command ● Wide Spans of
● Narrow Spans of Control
10.21
Control ● Decentralization
ORGANIZATIONAL DESIGN
DECISIONS (continued)
● Contingency Factors
○ Strategy and Structure - structure should
facilitate the achievement of goals
○ Size and Structure

10.22
ORGANIZATIONAL DESIGN
DECISIONS (continued)
● Contingency Factors (continued)
○ Technology and Structure
■ unit production - production of items in units or
small batches
■ mass production - production of items in large
batches
■ process production - production of items in
continuous process
○ Mechanistic structure supports routine
technology
○ Organic structure supports non-routine
technology 10.23
 TECHNOLOGY, STRUCTURE,
AND EFFECTIVENESS
Mass
(Exhibit
Process
Unit
Production 10.6)
Production Production

Low vertical Moderate High vertical

Structural vertical differentiation
differentiation
Characteristi differentiation Low horizontal
Low horizontal
cs High horizontal differentiation
differentiation
Most Low Organi differentiation
Mechanisti Low Organi
effective formalization High c formalization
c c
structure formalization

10.24
ORGANIZATIONAL DESIGN
DECISIONS (continued)
● Contingency Factors (continued)
○ Environmental Uncertainty and
Structure
■ one way to reduce environmental
uncertainty is to adjust the organization’s
structure
■ with greater stability, mechanistic
structures are more effective
■ the greater the uncertainty, the greater the
need for an organic structure
■ organizations are being designed to be 10.25
more organic nowadays
 COMMON
ORGANIZATIONAL
● Traditional Organizational Designs
DESIGNS
○ Simple Structure - low
departmentalization, wide spans of control,
authority centralized in a single person, and
little formalization
○ Functional Structure - groups similar or
related occupational specialties together
○ Divisional Structure - composed of
separate divisions 10.26
 COMPARISON OF COMMON
TRADITIONAL DESIGNS (Figure
10.7)

10.27
COMMON ORGANIZATIONAL
DESIGNS (continued)
● Contemporary Organizational Designs
○ Team-Based Structures - entire
organization is made up of work
teams
■ employee empowerment is crucial
■ teams responsible for all work activity
and performance
■ complements functional or divisional
structures in large organizations 10.28
 COMMON ORGANIZATIONAL
DESIGNS (continued)
● Contemporary Organizational Designs
(continued)
○ Matrix Structure - assigns specialists from
different functional departments to work on
projects led by project managers
■ adds vertical dimension to the traditional
horizontal functional departments
■ creates a dual chain of command
10.29
A MATRIX ORGANIZATION IN AN
AEROSPACE FIRM (Exhibit 10.8)

10.30
 COMMON ORGANIZATIONAL
DESIGNS (continued)
● Contemporary Organizational Designs
(continued)
○ Project Structure - employees work
continuously on projects
■ employees do not return to a functional
department at the conclusion of a project
■ all work performed by teams comprised of
employees with appropriate skills and
abilities
10.31
■ tends to be very fluid and flexible
 COMMON ORGANIZATIONAL
DESIGNS (continued)
● Contemporary Organizational Designs
(continued)
○ Autonomous Internal Units –
independent, decentralized business
units
■ each has its own products, clients,
competitors, and profit goals
■ business units are autonomous
10.32
 COMMON ORGANIZATIONAL
DESIGNS (continued)
● Contemporary Organizational Designs (continued)
○ Boundaryless Organization - design is not defined by,
or limited to, the horizontal, vertical, or external
boundaries imposed by a predefined structure
■ strategic alliances break down barriers between the company and
its customers and suppliers
■ seeks to eliminate the chain of command, to have limitless spans
of control, and to replace departments with empowered teams
■ flattens the hierarchy by removing vertical boundaries
■ horizontal boundaries removed by organizing work around
processes instead of functional departments

10.33
 COMMON ORGANIZATIONAL
DESIGNS (continued)
● Contemporary Organizational Designs (continued)
○ Learning Organization - an organizational mind-set
rather than a specific organizational design
■ has developed the capacity to continuously adapt
■ all members take an active role in identifying and
resolving work-related issues
■ practice knowledge management by continually
acquiring and sharing new knowledge
■ environment is conducive to open communication
■ empowered teams are important
■ leadership creates a shared vision for the future
■ organizational culture provides sense of community
10.34
 CHARACTERISTICS OF A
LEARNING ORGANIZATION (Exhibit
Organizational Design
● 10.9)
Boundaryless
● Teams
● Empowerment
Organizational Culture
● Strong Mutual Information Sharing
Relationships ● Open
● Sense of Community The ● Timely
● Caring Learning ● Accurate
● Trust
Organizati
on
Leadership
● Shared Vision
● Collaboration
10.35