DESIGNING ORGANIZATIONAL

STRUCTURE—BASIC DESIGNS

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 LEARNING OBJECTIVES

1. Describe six key elements in organizational design.

 Know how to delegate work to others and develop
your skill at delegating.
2. Contrast mechanistic and organic structures.
3. Discuss the contingency factors that favor either the
mechanistic model or the organic model of
organizational design.
4. Describe traditional organizational designs.

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 DESIGNING ORGANIZATIONAL
STRUCTURE
 Organizing – arranging and
structuring work to accomplish an
organization’s goals.
 Designing job responsibilities and their
relationship with each other.
 Organizational Structure – the
formal arrangement of jobs within an
organization.
 Determines the layers in the structure.

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WHY
 Each individual differs in interest, information and
knowledge.
 Specific role to the group as per their attributes
 So that can have coordination, competence and
cooperation
 Supports in accomplishing routine work and innovation
 Organisational change; seating arrangement
 Prediction Human resource like which team will
perform better, who will quit
 Money spent on their training and retention

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CHALLENGING
 Breaking down of goals into sub tasks; and integration of
work/task.
 Transformation due to technology and culture;
 Automation of human capital/knowledge, its replacement
 AI wave is changing the dynamics by infusion of
algorithm
 Social change: generation behavior and gender factor
 Algorithm on human capital assist to predict their
performance and future labour market.


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 DESIGNING ORGANIZATIONAL
STRUCTURE
 Organizational chart – the visual representation
of an organization’s structure.
 Organizational Design – a process involving
decisions about six key elements:
• Work specialization
• Departmentalization
• Chain of command
• Span of control
• Centralization and decentralization
• Formalization

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AMAZON’S STRUCTURE

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 EXHIBIT 10-1
PURPOSES OF ORGANIZING

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 Work specialization: What are you good at?
 Departmentalization: Who do you work with?
 Chain of command: Who do you report to?
 Span of control: How many people do you manage?
 Centralization and decentralization: Who decides?
 Formalization: How many rules do you have?

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 1. WORK SPECIALIZATION

 Work
. specialization – dividing work
activities into separate job tasks.
• Early proponents of work specialization
believed it could lead to great increases in
productivity.
• Overspecialization can result in human
diseconomies such as boredom, fatigue,
stress, poor quality, increased absenteeism,
and higher turnover.
• Division of labour
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 EXHIBIT 10-2
ECONOMIES AND DISECONOMIES OF WORK
SPECIALIZATION

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 2. DEPARTMENTALIZATION
 Departmentalization – the basis by which jobs are
grouped together.
• Functional • Process
– Grouping jobs by functions – Grouping jobs on the
performed basis of product or
• Product customer flow
– Grouping jobs by product • Customer
line – Grouping jobs by type of
• Geographical customer and needs
– Grouping jobs on the basis
of territory or geography

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 EXHIBIT 10-3
THE FIVE COMMON
FORMS OF DEPARTMENTALIZATION

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 EXHIBIT 10-3
THE FIVE COMMON
FORMS OF DEPARTMENTALIZATION
(CONT.)

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 EXHIBIT 10-3
THE FIVE COMMON
FORMS OF DEPARTMENTALIZATION
(CONT.)

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EXAMPLES
 Toyota: Just in time and lean
manufacturing
 Highly centralized; Minimize the waste;
inventory management; continuous
improvement; no brand obsolete; top-
down approach
 Uber less on human capital
 Current is more of flat organization
structure

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DEPARTMENTALIZATION TRENDS

 Increasing use of customer

departmentalization
 Cross-functional team – a work
team composed of individuals from
various functional specialties.

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 3. CHAIN OF COMMAND

 Chain of Command – the continuous line

of authority that extends from upper levels
of an organization to the lowest levels of
the organization—clarifies who reports to
whom.

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 AUTHORITY

 Authority – the rights inherent in a

managerial position to tell people what to
do and to expect them to do it.
• Acceptance theory of authority – the
view that authority comes from the
willingness of subordinates to accept it.

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 AUTHORITY (CONT.)

 Line authority – authority that

entitles a manager to direct the
work of an employee.
 Staff authority – positions with
some authority that have been
created to support, assist, and
advise those holding line authority.

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 EXHIBIT 10-4
CHAIN OF COMMAND AND LINE AUTHORITY

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 EXHIBIT 10-5
LINE VERSUS STAFF AUTHORITY

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 RESPONSIBILITY AND UNITY OF
COMMAND
 Responsibility – the obligation or
expectation to perform.
 Unity of command – the
management principle that each
person should report to only one
manager.

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 4. SPAN OF CONTROL

 Span of control – the number of

employees who can be effectively and
efficiently supervised by a manager.
Wider vs Narrow;
Wide: when layers are small
Narrow: When there are multiple layers

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 5. CENTRALIZATION AND
DECENTRALIZATION
 Centralization – the degree to which
decision-making is concentrated at the upper
levels of the organization.
 Decentralization – the degree to which lower-
level employees provide input or actually
make decisions.
 Employee empowerment – giving employees
more authority (power) to make decisions.

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 EXHIBIT 10-7
CENTRALIZATION OR DECENTRALIZATION

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 6. FORMALIZATION

 Formalization – the degree to which jobs

within the organization are standardized and
the extent to which employee behavior is
guided by rules and procedures.
– Highly formalized jobs offer little discretion
over what is to be done.
– Low formalization means fewer constraints on
how employees do their work.

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 MECHANISTIC AND ORGANIC
STRUCTURES
 Mechanistic organization – an
organizational design that’s rigid and tightly
controlled.
 Organic organization – an organizational
design that’s highly adaptive and flexible.

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 EXHIBIT 10-8
MECHANISTIC VERSUS ORGANIC ORGANIZATIONS

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 Kodak: failed to absorb the digital revolution in
photography.
 Nokia: Once had largest market share worldwide
 2000-2010 were the golden periods
 Touch phone and tablets were not approved by
the management whereas other players in the
market entered with this way.
 2007: Apple’s iphone came in the market; which
still has 5% market share
 Microsoft product head joined Nokia and launched
phone with Microsoft operating systyem and
android which didn’t have good

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 Tie Rack, Segway, IBM, Blackberry Motion, Dell, Motorola,
Polaroid, Pan Am, Borders, Tower Records, Compaq,
General Motors, [Link], and Sears
 Lacks quality decision making at the strategic
level.
 General Motors: External and internal threat
 By Toyota and wages to labour (74$ Vs. 44 $
per hour)
 80% operating efficiency
 Changes: cost, process, structural & cultural

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CONTINGENCY FACTORS AFFECTING
STRUCTURAL CHOICE
 Strategy and Structure
1. Strategy and Structure
– Changes in corporate strategy should lead to changes
in an organization’s structure that support the
strategy.
– Certain structural designs work best with different
organizational strategies.
• The organic structure works well for organizations
pursuing meaningful and unique innovations.
• The mechanistic organization works best for
companies wanting to tightly control costs.
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 Simple Strategy: Single product line
 Organic
 Innovation: Organic
 Efficiency, tight controls, stability: Mechanist
 Banking and financial companies follow
mechanist
 Routine: Mechanist
 Non-routine based: organic

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CONTINGENCY FACTORS (CONT.)

 2. Size and Structure – as an

organization grows larger, its structure
tends to change from organic to
mechanistic with increased
specialization, departmentalization,
centralization, and rules/regulations.

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 Large (more than 200) more: mechanical

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CONTINGENCY FACTORS (CONT.)
 Technology and Structure
– 3. Technology and structure
– Organizations adapt their structures to their
technology.
– Woodward’s classification of firms based on
the complexity of the technology employed:
• Unit production of single units or small batches.
• Mass production of large batches of output.
• Process production in continuous process of
outputs.
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 EXHIBIT 10-9
WOODWARD’S FINDINGS ON
TECHNOLOGY AND STRUCTURE

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CONTINGENCY FACTORS (CONT.)

 Environmental Uncertainty and Structure

– 4. Environmental Uncertainty and Structure
– Mechanistic organizational structures tend to
be most effective in stable and simple
environments.
– The flexibility of organic organizational
structures is better suited for dynamic and
complex environments.

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 TRADITIONAL ORGANIZATIONAL
DESIGNS
 Simple structure – an organizational design with
low departmentalization, wide spans of control,
centralized authority, and little formalization.
 Functional structure – an organizational design
that groups together similar or related occupational
specialties.
 Divisional structure – an organizational structure
made up of separate, semiautonomous units or
divisions.

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 Yahoo lost its wave in internet world; CEO
leadership; slow decision making
 Oil industry

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 EXHIBIT 10-10
TRADITIONAL ORGANIZATIONAL DESIGNS

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 REVIEW LEARNING 1
• Describe six key elements in organizational
design.
- The key elements in organizational design are:
• Work specialization
• Chain of command
• Span of control
• Departmentalization
• Centralization-decentralization
• Formalization

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 REVIEW LEARNING 2

• Contrast mechanistic and organic

structures.
– Mechanistic organization – a rigid and tightly
controlled structure.
– Organic organization – highly adaptive and
flexible.

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 REVIEW LEARNING OBJECTIVE 3

• Discuss the contingency factors that

favor either the mechanistic model or the
organic model of organizational design.
– Structural decisions are influenced by:
• Overall strategy of the organization
• Size of the organization
• Technology use employed by the organization
• Degree of environmental uncertainty

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 REVIEW LEARNING OBJECTIVE 4

• Describe traditional organizational 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 – made up of separate
business units or divisions.

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