Essentials of

Contemporary
Management

Chapter Organizing:
7 Designing Organizational Structure

PowerPoint Presentation by Charlie Cook

© Copyright The McGraw-Hill Companies, Inc., 2004. All rights reserved.
 Learning Objectives
• After studying the chapter, you should be able to:
Identify the factors that influence managers’
choice of an organizational structure.
Explain how managers group tasks into jobs
that are motivating and satisfying for employees.
Describe the types of organizational structures
managers can design, and explain why they choose
one structure over another.
Explain why there is a need to both centralize
and decentralized authority.

© Copyright 2004 McGraw-Hill. All rights reserved. 7–2

 Learning Objectives (cont’d)
Explain why managers must coordinate and
integrate between jobs, functions, and divisions
as an organization grows.
Explain why managers who seek new ways to
increase efficiency and effectiveness are using
strategic alliances and network structures.

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 Organizational Structure
• Organizational Architecture
The organizational structure, control systems,
culture, and human resource management systems
that together determine how efficiently and
effectively organizational resources are used.

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 Designing Organizational Structure
• Organizing
The process by which managers establish working
relationships among employees to achieve goals.
• Organizational Structure
Formal system of task and reporting relationships
showing how workers use resources.
• Organizational design
The process by which managers make specific
choices that result in a particular kind of
organizational structure.

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 Factors Affecting Organizational Structure

Figure 7.1
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 Determinants of Structure
• The Organizational Environment
The quicker the environment changes, the more
problems face managers.
Structure must be more flexible (i.e., decentralized
authority) when environmental change is rapid.

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 Determinants of Structure
• Strategy
Different strategies require the use of different
structures.
• A differentiation strategy needs a flexible structure,
low cost may need a more formal structure.
• Increased vertical integration or diversification also
requires a more flexible structure.

Chandler: Structure follows strategy

Corporate/
Business
Entities 工欲善其事必先利其器
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 Determinants of Structure
• Technology
The combination of skills, knowledge, tools,
equipment, computers and machines used in the
organization.
More complex technology makes it harder for
managers to regulate the organization.
• Organizations utilizing complex technology require a
flexible structure to be managed efficiently.
• Organizations utilizing routine technology can be
more readily managed using a formal structure.
• Organizations with high employee interaction
requirements need a flexible structure.

© Copyright 2004 McGraw-Hill. All rights reserved. 7–9

 Types of Technology
• Small Batch Technology
Small quantities of one-of-a-kind products are
produced by the skills of the workers who work
together in small groups.
• Appropriate structure is decentralized and flexible.
• Mass Production Technology
Automated machines that are programmed to make
high volumes of standard products.
• Formal structure is the best choice for workers who
must perform repetitive tasks.

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 Determinants of Structure
• Human Resources
Highly skilled workers whose jobs require working
in teams usually need a more flexible structure.
Higher skilled workers (e.g., CPA’s and doctors)
often have internalized professional norms.
• Managers must take into account all four
factors (environment, strategy, technology and
human resources) when designing the
structure of the organization.

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 Organization Structure Issues
• How to group tasks into individual jobs.
• How to group jobs into functions and divisions.
• Coordinating functions and divisions.
• Allocating authority.
• Types of integrating mechanisms.

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 Grouping Tasks Into Jobs: Job Design
• Job Design
The process by which managers decide how to divide
tasks into specific jobs.
Enhance specification and
• Division of Labor independence
Splitting the work to be performed into particularly
impersonal tasks and assigning tasks to individual workers.
 The appropriate division of labor results in an effective
and efficient workforce.
Internal cohesion and
• Job Simplification external decoupling
Reducing the tasks each worker performs: too much
simplification results in boredom.
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 Job Design
• Job Enlargement Increase the width of task
Increasing the number of tasks for a given job by
changing the division of labor.
The intention is to reduce boredom and fatigue by
increasing variety of tasks performed.
• Job Enrichment Increase the depth of task
Increasing the degree of responsibility a worker has
over a job.
• Intended to increase worker involvement and self-
discretion.
• Requires a flexible organizational structure to allow
employees to act flexibly and creatively.

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 The Job Characteristics Model

Source: Adapted from J. R. Hackman and G. R. Oldham,

Work Redesign (Reading, MA: Addison-Wesley, 1980). Figure 7.2
© Copyright 2004 McGraw-Hill. All rights reserved. 7–15
 Job Characteristics Model
Job Characteristic
Skill variety Employee uses a wide range of skills.

Task identity Worker is involved in all tasks of the job

from beginning to end of the production
process

Task significance Worker feels the task is meaningful to

organization.

Autonomy Employee has freedom to schedule tasks

and carry them out.

Feedback Worker gets direct information about how

well the job is done.

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 Grouping Jobs into Functions
• Functional Structure
An organizational structure composed of all the
departments that an organization requires to
produce its goods or services.
Advantages
• Encourages learning from others doing similar jobs.
• Easy for managers to monitor and evaluate workers.
Disadvantages
• Difficult for departments to communicate with others.
• Preoccupation with own department and losing sight
of organizational goals.

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 The
Functional
Structure of
Pier 1
Imports

Figure 7.3
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 Divisional Structures
• Divisional Structure
An organizational structure composed of separate
business units within which are the functions that
work together to produce a specific product for a
specific customer.
• Divisions create smaller, manageable parts of a firm.
• Divisions develop a business-level strategy to
compete.
• Divisions have marketing, finance, and other
functions.
• Functional managers report to divisional managers
who then report to corporate upper management.

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 Types of Divisional Structures
• Product Structure
Customers are served by self-contained divisions
that handle a specific type of product or service.
• Allows functional managers to specialize in one
product area.
• Division managers become experts in their area.
• Removes need for direct supervision of division by
corporate managers.
• Divisional management improves the use of
resources.

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 Types of Divisional Structures (cont’d)
• Geographic Structure
Each regional or a country or area with customers
with differing needs is served by a local self-
contained division producing products that best
meet those needs.
Global geographic structure
• Different divisions serve each world region when
managers find different problems or demands across
the globe.
• Generally, this structure is adopted when managers
are pursuing a multidomestic strategy.

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 Types of Divisional Structures (cont’d)
• Market (Customer) Structure
Each kind of customer is served by a self-
contained division
Global market (customer) structure
• Customers in different regions buy similar products so
firms can locate manufacturing facilities and product
distribution networks where they decide is best.
• Firms pursuing a global strategy will use this type of
structure.

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 Product,
Market, and
Geographic
Structures

Figure 7.4
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Viacom’s 2001
Product
Structure

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Figure 7.5
Global Geographic and Global Product Structures

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 Matrix Design Structure
• Matrix Structure
An organizational structure that simultaneously
groups people and resources by function and
product.
• Results in a complex network of superior-subordinate
reporting relationships.
• The structure is very flexible and can respond rapidly
to the need for change.
• Each employee has two bosses (functional manager
and product manager) and possibly cannot satisfy
both.

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 Matrix Structure

Figure 7.6a
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 Product Team Design Structure
• Product Team Structure
The members are permanently assigned to the
team and empowered to bring a product to market.
• Avoids problems of two-way communication and the
conflicting demands of functional and product team
bosses.
Cross-functional team is composed of a group of
managers from different departments working
together to perform organizational tasks.

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 Product Team Structure

Figure 7.6b
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 Coordinating Functions and Divisions:
Allocating Authority
• Authority
The power to hold people accountable for their
actions and to make decisions concerning the use
of organizational resources.
• Hierarchy of Authority
An organization’s chain of command, specifying the
relative authority of each manager.
• Span of Control: refers to the number of workers a
manager manages.

Authority vs. responsibility vs. accountability

© Copyright 2004 McGraw-Hill. All rights reserved. 7–30

 Allocating Authority (cont’d)
• Span of Control
The number of subordinates who report directly to
a manager.
• Line Manager
Managers in the direct chain of command who have
authority over people and resources lower down.
Primarily responsible for the production of goods or
services.
• Staff Manager
Managers who are functional-area specialists that
give advice to line managers.
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The Hierarchy
of Authority
and Span of
Control at
McDonald’s
Corporation

Figure 7.7

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 Tall and Flat Organizations
• Tall structures have many levels of authority
and narrow spans of control.
As hierarchy levels increase, communication gets
difficult, creating delays in the time being taken to
implement decisions.
Communications can also become garbled as it is
repeated through the firm.
• Flat structures have fewer levels and wide
spans of control.
Structure results in quick communications but can
lead to overworked managers.

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 Flat Organizations

Figure 7.8a
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 Tall Organizations

Figure 7.8b
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 The Minimum Chain of Command
• Managers should carefully evaluate:
Do the organization have the right number of
middle managers?
Can the structure be altered to reduce levels?
• Centralized and Decentralized of Authority
Decentralization puts more authority at lower levels
and leads to flatter organizations.
• Works best in dynamic, highly competitive
environments.
Stable environments favor centralization of
authority.

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Internal coordination
Integrating Mechanisms

Figure 7.9
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Externally cooperative linkage
Strategic Alliances and Network Structures
• Strategic Alliance
An agreement in which managers pool or share
firm’s resources and know-how with a foreign
company and the two firms share in the rewards
and risks of starting a new venture.
• Network Structure:
A series of strategic alliances that an organization
creates with suppliers, manufacturers, and
distributors to produce and market a product.
Network structures allow firms to bring resources
together in a boundary-less organization.

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 Homework 6

• Adam Smith, in his Wealth of Nations (Book 5,

Chapter 1, Part 3, Article 2), argued that
university teachers should not be paid salaries
but rather that they should have to rely on the
fees they can collect from the students they
teach. What would be the advantages of this
systems? What difficulties do you see with this
proposal to pay piece rates to faculty?

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