CHAPTER 10

ORGANIZATION STRUCTURE AND DESIGN

1. INTRODUCTION.
The right organizational structure can play an important role in an organiz
ation's evolution.
This chapter introduces the elements of organizational structure.
2. DEFINING ORGANIZATION STRUCTURE AND DESIGN.
There are several definitions that must be understood as a precursor to und
erstanding
organizational structure and design.
A. Organizing is the process of creating an organization's structure.
B. Organization structure is an organization's framework as expressed by
its degree
of complexity, formalization, and centralization.
C. Complexity is defined as the amount of differentiation in an organizat
ion.

D. Formalization is the degree to which an organization relies on rules a

nd
procedures to direct the behavior of employees.

E. Centralization is defined as the concentration of decision-making auth

ority in
upper management. Decentralization is the handing down of decision-m
aking
authority to lower levels in an organization.

F. Organization design is the development or changing of an organization'

s
structure.

3. BUILDING THE VERTICAL DIMENSION OF ORGANIZATIONS.

In the first chapter, we discussed the fact that organizations consist of b
oth operatives and
managers. How are these organizational categories determined and how is th
e interaction
among these levels defined? These are just a few of the issues that are di
scussed in this
section.
A. Unity of command is defined as the principle that a subordinate should
have one
and only one superior to whom he or she is directly responsible.
1. In the classical view, unity of command was strictly adhered to.
 In the
rare instance when the principle had to be violated, it was clea
rly
designated that there be an explicit separation of activities an
d a supervisor
responsible for each.
2. In the contemporary view, the unity of command principle is viewe
d as
logical when organizations are simple. However, if situations w
arrant, the
advantages of flexibility in structure that comes from violating
the unity of
command principle far outweigh the disadvantages.

B. Authority and responsibility. Authority is defined as the rights inhe

rent in a
managerial position to give orders and expect them to be obeyed. Res
ponsibility
is defined as an obligation to perform assigned activities.

1. In the classical view, authority was a major doctrine. It was vi

ewed as the
glue that held organizations together. Authority related to one
's position
within the organization. When authority was delegated, commensu
rate
responsibility had to be allocated.
a. Authority and responsiblity needed to be equal.
b. Responsibility cannot be delegated.
c. The contradiction here was answered by recognizing two forms
of
responsibility: operating responsibility and ultimate respo
nsibility.
d. There were also two forms of authority relationships: line
authority is the authority that entitles a manager to direc
t the work
of a subordinate--it follows the chain of command which is
the
flow of authority from the top to the bottom of an organiza
tion;
and staff authority which is authority that supports, assis
ts, and
advises holders of the authority.
2. In the contemporary view, we look at the perspective that authori
ty is only
valid if subordinates are willing to accept it and also at autho
rity as only
one element in the larger concept of power.
a. Chester Barnard presented the acceptance theory of authority
which proposes that authority comes form the willingness of
subordinates to accept it.
 1. What determines if subordinates accept orders?
2. According to Barnard, the following conditions must be
met.
a. They understand the order.
b. They feel the order is consistent with the purpose
of the organization.
c. The order doesn't conflict with their personal
beliefs.
d. They are able to perform the task as directed.
b. Power is defined as the capacity to influence decisions.

C. Span of control is defined as the number of subordinates a manager can

direct
efficiently and effectively.

1. The classical view favored small spans, typically no more than si

x, in
order to maintain close control.
2. The contemporary view establishes that more and more organization
s are
increasing their spans of control. The span of control is incre
asingly being
determined by looking at various contingency factors.
4. BUILDING THE HORIZONTAL DIMENSION OF ORGANIZATIONS.
An organization's structure also has a horizontal dimension that looks at h
ow work
activities are organized at each specific level of the organization.
A. Division of labor describes splitting a job into a number of steps wit
h each step
being completed by a separate individual.
1. In the classical view of division of labor, the diversity of skil
ls that workers
held were efficiently used. Also, division of labor was viewed
as an
unending source of increased productivity.
2. In the contemporary view, researchers began to recognize that the
re was
a point at which the human diseconomies from division of labor e
xceeded
the economic advantages. These human diseconomies took the form
of
boredom, fatigue, stress, low productivity, poor quality, increa
sed
absenteeism, and high turnover.

B. Departmentalization is another area in which classical and contemporar

y views
differ.
1. In the classical view, activities in the organization had to be s
pecialized
and grouped into departments. The approach to grouping selected
activities should be the one that best contributes to the attain
ment of the
organization's objectives and goals. There were five approaches
to
departmentalizing.
a. Functional departmentalization grouped activities by functio
ns
performed.
b. Product departmentalization grouped activities by product li
ne.
c. Customer departmentalizaton grouped activities on the basis
of
common customers.

d. Geographic departmentalization grouped activities on the bas

is of
territory.
e. Process departmentalization grouped activities on the basis
of
product or customer flow.
2. In the contemporary view, most large organizations continue to us
e most
or all of the classical departmental groupings. However, two tr
ends can
be noted.
a. Customer departmentalization is becoming increasingly
emphasized.
b. Rigid departmentalization is being complemented by the use o
f
teams that cross over departmental lines cross-functional t
eams.

c. The concept of cross-functional teams evolved from matrix

organizations which is an organizing approach that assigns
specialists from different functional departments to work o
n one
or more projects that are led by a project manager.
5. THE CONTINGENCY APPROACH TO ORGANIZATION DESIGN.
Classical views of organization design were that the ideal structural desig
n was a
mechanistic/bureaucratic organization. We now recognize that the ideal or
ganization
design depends on contingency factors.
A. Mechanistic and organic organizations. Two diverse organizational for
ms can
be described.
1. A mechanistic organization or bureaucracy is a structure that is
high in
complexity, formalization, and centralization.
2. An organic organization or adhocracy is a structure that is low i
n
complexity, formalization, and centralization.

B. Strategy and structure. Strategy and structure are closely linked, an

d as strategy
changes, the structure should also.
C. Size and structure. There is considerable historical evidence that an
organization's size significantly affects its structure.
D. Technology and structure. Every organization uses some form of techno
logy to
transform inputs into outputs. Two research studies on the relations
hip between
technology and structure have been significant.
1. Joan Woodward found that three distinct technologies had increasi
ng
levels of complexity and sophistication.
a. Unit production describes the production of items in units o
r small
batches.
b. Mass production describes large-batch manufacturing.
c. Process production describes continuous-process production.
2. Charles Perrow looked at knowledge technology rather than
manufacturing technology. He proposed that technology be viewed
from
two dimensions.
a. Task variability describes the number of exceptions individu
als
encounter in their work.
b. Problem analyzability describes the type of search procedure
s
employees follow in responding to exceptions.
3. What's our conclusion? We can conclude that the processes or met
hods
that transform inputs into outputs differ by their degree of rou
tineness. In
general, the more routine the technology, the more standardized
the
structure can be.

E. Environment and structure. Research has shown that environment is a m

ajor
influence on structure. We also know that mechanistic organizations
tend to be
ill-equipped to respond to rapid environmental change.
6. APPLICATIONS OF ORGANIZATION DESIGN.
There are a number of orgnizational design options that you might see in to
day's
organizations.
A. The simple structure is an organization that's low in complexity and f
ormalization
but high in centralization.
1. Its strengths are its flexibility, speed, and inexpensive cost to
maintain.
2. Its major weakness is that it's effective only in small organizat
ions.
B. As an organization grows and as the number of employees rises, the org
anizational
structure tends to become more formalized. It becomes more bureaucrat
ic. There
are two options most likely to be used.
1. A functional structure expands the concept of functional
departmentalization and creates an organizational design that gr
oups
similar or related occupational specialties together.
2. The divisional structure is an organizational structure made up o
f
autonomous, self-contained units.
3. However, many contemporary organizations are finding that the tra
ditional
hierarchical organizational designs like the functional and divi
sional
structures aren't appropriate for the increasingly dynamic and c
omplex
environments they face.

C. One of the new concepts in organization design is the team-based struc

ture
which is an organization structure made up of work groups or teams th
at perform
that organization's work.
D. The final concept in organizational design is the boundaryless organiz
ation which
describes an organization whose design is not defined by, or limited
to, the
boundaries imposed by a predefined structure.
1. This organization design is also sometimes called the network org
anization,
the modular corporation, or the virtual corporation.
 2. What factors have contributed to the development of such an organ
ization
design?
a. Increasing globalization of markets and competitors has crea
ted the
need to respond quickly to changes anywhere in the world.
b. The advances that we've seen in technology also have contrib
uted
to the development of the boundaryless organization.
c. Finally, the need for rapid innovation has contributed to th
e rise of
the boundaryless organization structure.

ANSWERS TO REVIEW QUESTIONS

1. Why is organizing important?
Organizing is important and fulfills many different purposes. The process a
llows the
division of work into specific jobs and departments. It allows the assignm
ent of tasks and
responsibilities associated with specific jobs. It coordinates diverse org
anizational tasks. It
clusters jobs into units and establishes relationships among individuals,
groups, and
departments. It establishes formal lines of authority. Finally, it allows
the allocation and
deployment of organizational resources.
2. Which is more efficient - a wide or a narrow span of control? Why?
All other things being equal, a wide span is more efficient. This is true
because it requires
fewer managers. However, it is important to recognize that, at some point
, effectiveness
will decline.
3. Why did the classical writers argue that authority should equal responsibil
ity?

The classical writers argued that authority should equal responsibility so

that managers
were not responsible for outcomes over which they had no authority and to
protect against
excessive use of authority.
4. Can the manager of a staff department have line authority? Explain.
Yes. Managers of staff departments have line authority over those individu
als in their
department who report directly to them.
5. Describe the ways that managers can departmentalize.
Management can departmentalize by function, product or service, customer or
client,
 geography, or process.
6. Compare and contrast Woodward's and Perrow's technology frameworks. What ar
e their
implications for organization design?
Woodward found distinct relationships between her technology classification
s (unit
production, mass production, and process production) and the subsequent st
ructure of the
organizations. She also found that the effectiveness of the organization w
as related to the
"fit" between technology and structure. The implication for organization d
esign is that
managers should consider the technology classification and make sure it fi
ts with the type
of appropriate structure.
Perrow proposed that technology can be viewed in terms of two dimensions:
task
variability and problem analyzability. He used these two dimensions to co
nstruct a matrix
of four cells. Each cell represents a certain type of technology: routine
, engineering, craft,
and nonroutine. Perrow argues that each technology should be matched with
a preferred
organization design. Essentially, this translates into using a mechanisti
c design with routine
and engineering technologies, and an organic design with craft and nonrout
ine
technologies.
7. What are three major contingency factors that affect organization design? H
ow?
Three major contingency factors that affect organization design include str
ategy, size, and
technology. Strategy affects organization design in that structure should
change as an
organization's strategy changes. Size affects organization design because
as organizations
grow, they tend to become more formalized and bureaucratic. Finally, techn
ology affects
organization design because the production process should fit with the typ
e of organization
structure in order to be effective.
8. What are the characteristics of mechanistic and organic organizations?
Mechanistic organizations are high in complexity, formalization, and centra
lization.
Organic organizations are low in complexity, formalization, and centraliza
tion.
9. Do you think the various types of organization structure designs described
in this
chapter would also be appropriate for not-for-profit organizations? Explai
n.
Yes, these organization designs would also be appropriate for not-for-profi
t organizations.
These organizations also face design issues regarding complexity, formaliz
ation, and
centralization.
10. What do you think some of the disadvantages of team-based structures and bo
undaryless
organizations might be? Could these disadvantages be minimized? How?
Obviously, team-based structures and boundaryless organizations are going t
o have
minimal formalization and centralization. This could create some coordinat
ion and control
problems for managers. However, these disadvantages could be minimized by
having
mechanisms in place to manage conflicts over coordination and control.