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Mgmt 371

Chapter Twelve

Managing Organizational Design

Much of the slide content was created by Dr, Charlie Cook, Houghton Mifflin, Co.©
The Nature of
Organization Design
 Organization Design
 The overall set of structural elements and the
relationships among those elements used to manage
the total organization.
 A means to implement strategies and plans to achieve
organizational goals.
 Organization Design Concepts
 Organizations are not designed and then left intact.
 Organizations are in a continuous state of change.
 Designs for larger organizations are extremely complex
and have many nuances and variations.

Universal Perspectives on
Organization Design
 Bureaucratic Model (Max Weber)
 A logical, rational, and efficient organization design
based on a legitimate and formal system of
 Modeled on Helmuth von Moltke's
development of the General Staff.

Universal Perspectives on
Organization Design
 Bureaucratic Model (Max Weber)
 Characteristics
 A division of labor with each position filled by an
 A consistent set of rules that ensure uniformity in
task performance.
 A hierarchy of positions which creates a chain of
 Impersonal management; with the appropriate
social distance between superiors and
 Employment and advancement is based on
technical expertise, and employees are protected
from arbitrary dismissal. 4
Bureaucratic Model
 Advantages
 Efficiency in function due to well-defined
practices and procedures.
 Organizational rules prevent favoritism.
 Recognition of and requirement for
expertise stresses the value of an
organization’s employees.

Bureaucratic Model
 Disadvantages
 Organizational inflexibility and rigidity due
to rules and procedures.
 Neglects the social and human processes
within the organization.
 Belief in “one best way” to design an
organization does not apply to all
organizations and their environments.

Rensis Likert:
System 1 and
System 4

Situational Influences on
Organization Design
 Core Technology
 Is the conversion processes used to transform inputs
into outputs.
 Is an organization’s most important technology.

 Joan Woodward
 Initially sought a correlation between organization size
and design; instead, she found a potential relationship
between technology and design:
 As the complexity of technology increases, so do the

number of levels of management.

Situational Influences on
Organization Design (Woodward)
 Woodward’s Basic Forms of Technology
 Unit or small-batch technology
 Produces custom-made products to customer

specifications, or else produces in small quantities,

similar to Likert’s System 4 organization and organic
 Large batch/mass production
 Uses assembly-line production methods to

manufacture large quantities of products; resembles

Likert’s System 1 and mechanistic organizations.
 Continuous process
 Uses continuous-flow processes to convert raw

materials by process or machine into finished

products; resembles Likert’s System 4 and organic
organizations. 9
Situational Influences on Organization
Design (Burns & Stalker)
 Burns and Stalker
 Forms of the organizational environment
 Stable environments that remain constant over time.

 Unstable environments subject to uncertainty and

rapid change.
 Organization Designs
 Mechanistic organizations that are similar to

bureaucratic or System 1 models and ; found most

frequently in stable environments.
 Organic organizations that are flexible and informal

models; usually found in unstable and unpredictable


Situational Influences on Organization
Design (Lawrence & Lorsch)
 Lawrence and Lorsch
 Differentiation
 The extent to which the organization is broken
down into subunits.
 Integration
 The degree to which the various subunits must
work together in a coordinated fashion.

Situational Influences on
Organization Design (cont’d)
 Organizational Size
 Defined as the total number of full-time or full-time
equivalent employees
 Research findings:
Small firms tend to focus on their core
 Large firms have more job specialization,

standard operating procedures, more rules and

regulations, and are more decentralized.
 Organizational Life Cycle
 A progression through which organizations evolve as
they grow and mature—birth, youth, midlife, maturity
and decline.

Organizational Life Cycle

Birth Youth Maturity Declin


Strategy and
Organization Design
 Structure follows strategy.
 Corporate-Level Strategy
 Single-product strategy
 Related or unrelated diversification
 Portfolio approach to managing strategic
business units

Strategy and
Organization Design (cont’d)
 Business-Level Strategy
 Defender
 Prospecting
 Analyzer
 Generic Competitive Strategies
 Differentiation
 Cost leadership
 Focus

Strategy and Organization Design
 Organizational Functions
 Major functions of the organization influence
an organization’s design.

Basic Forms of Organization
Design (Functional Design)
 Functional or U-form (Unitary) Design
 Organizational members and units are grouped
into functional departments such as marketing and
 Coordination is required across all departments.
 Design approach resembles functional
departmentalization in its advantages and

Functional Design for a Small
Manufacturing Company

Basic Forms of Organization
Design (Holding Design)
 Conglomerate or H-form (Holding) Design
 Organization consists of a set of unrelated
businesses with a general manager for each
 Holding-company design is similar to product
 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.

Conglomerate (H-form) Design at

Basic Forms of Organization
Design (Divisional Design)
 Divisional or M-form (Multidivisional)
 Multiple businesses in related areas operating
within a larger organizational framework.
 Results from a strategy of related diversification.
 Some activities are decentralized down to the
divisional level; others are centralized at the
corporate level.
 M-form design advantages are the opportunities for
coordination and sharing of resources.
 Successful M-form organizations can out perform
U-form and H-form organizations. 21
Multidivisional (M-form) Design
at Limited Brands

Basic Forms of Organization
Design (Matrix Design)
 Matrix Design
 Two overlapping bases of departmentalization:
 A set of product groups or temporary departments are

superimposed across the functional departments.

 Employees in the matrix belong to their departments
and the project team:
 A multiple command structure in 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

 There is pressure for shared resources.

Basic Forms of Organization
Design (Matrix Design)
 Matrix Design Advantages
 Enhances organizational flexibility.
 Creates high motivation and increased
organizational commitment for team members.
 Gives team members opportunity to learn new skills.
 Provides an efficient way for the organization to use
its human resources.
 Uses team members as bridges to their departments
for the team.
 Useful as a vehicle for decentralization.

Basic Forms of Organization
Design (Matrix Design)
 Matrix Design Disadvantages
 Employees are uncertain about reporting
 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.

A Matrix Organization

Basic Forms of Organization
Design (Hybrid Designs)
 Hybrid Designs
 Based on two or more common forms of
organization design—may have a mixture of
related divisions and a single unrelated
 Most organizations use a modified form of
organization design that permits them to have
sufficient flexibility to make adjustments for
strategic purposes.

Emerging Issues in Organization
 The Team Organization
 Relies almost exclusively on project-type teams,
with little or no underlying functional hierarchy.
 The Virtual Organization
 Has little or no format structure with few
permanent employees, leased facilities, and
outsourced basic support services.
 May conduct its business entirely on-line and
exists only to meet for a specific and present

Emerging Issues in Organization
 The Learning Organization (Peter Senge)
 Works to facilitate the lifelong learning and
development of its employees while transforming
itself to respond to changing demands and needs.
 According to Peter Senge, the basic rationale for
such organizations is that in situations of rapid
change only those that are flexible, adaptive and
productive will excel.

Issues in International
Organization Design
 The trend toward internationalization of
 How to design a firm to deal most effectively
with international forces and to compete in
global markets:
 Create an international division?
 Establish an international operating group?
 Make international operations an autonomous

Common Organization Designs for
International Organizations