Chapter 10

Defining organisational structure and design Organisational structure
The formal arrangement of jobs within an organisation.

Organisational Structure and Design

Organisational design
A process involving decisions about six key elements:
Work specialization Departmentalization Chain of command Span of control centralisation and decentralisation Formalization

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Organisational structure Work specialisation
The degree to which tasks in the organisation are divided into separate jobs with each step completed by a different person.
Overspecialization can result in human diseconomies from boredom, fatigue, stress, poor quality, increased absenteeism, and higher turnover.

Departmentalisation by type
Functional
Grouping jobs by functions performed

Process
Grouping jobs on the basis of product or customer flow

Product
Grouping jobs by product line

Customer
Grouping jobs by type of customer and needs

Geographic
Grouping jobs on the basis of territory or geography

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Functional departmentalisation

Geographical departmentalisation

• Advantages • Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations • Coordination within functional area • In-depth specialization • Disadvantages • Poor communication across functional areas • Limited view of organisational goals • Advantages • More effective and efficient handling of specific regional issues that arise • Serve needs of unique geographic markets better • Disadvantages • Duplication of functions • Can feel isolated from other organisational areas

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Figure 10.2a

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Figure 10.2b

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Product departmentalisation

Process departmentalisation

+ More efficient flow of work activities + Allows specialisation in particular products and services + Managers can become experts in their industry + Closer to customers – Duplication of functions – Limited view Source: Bombardier Annual Report. of organisational goals
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– Can only be used with certain types of products

Figure 10.2c

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Figure 10.2d

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Customer departmentalisation

Organisation structure (cont’d) Chain of command
The continuous line of authority that extends from upper levels of an organisation to the lowest levels of the organisation and clarifies who reports to who.

+ Customers’ needs and problems can be met by specialists - Duplication of functions - Limited view of organisational goals

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Figure 10.2e

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Organisation structure (cont’d) Authority
The rights inherent in a managerial position to tell people what to do and to expect them to do it.

Organisation structure (cont’d) Span of control
The number of employees who can be effectively and efficiently supervised by a manager. Width of span is affected by:
Skills and abilities of the manager Employee characteristics Characteristics of the work being done Similarity of tasks Complexity of tasks Physical proximity of subordinates Standardization of tasks

Responsibility
The obligation or expectation to perform.

Unity of command
The concept that a person should have one boss and should report only to that person.

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Contrasting spans of control

Organisation structure (cont’d) Centralisation
The degree to which decision-making is concentrated at a single point in the organisations. organisations in which top managers make all the decisions and lower-level employees simply carry out those orders.

Decentralisation organisations in which decision-making is pushed down to the managers who are closest to the action.

Employee Empowerment
Increasing the decision-making,

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Figure 10.3

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Factors that influence the amount of centralisation
More Centralisation
Environment is stable. Lower-level managers are not as capable or experienced at making decisions as upper-level managers. Lower-level managers do not want to have a say in decisions. Decisions are significant. organisation is facing a crisis or the risk of company failure. Company is large. Effective implementation of company strategies depends on managers retaining say over what happens.

Factors that influence the amount of decentralisation
More decentralisation
Environment is complex, uncertain. Lower-level managers are capable and experienced at making decisions. Lower-level managers want a voice in decisions. Decisions are relatively minor. Corporate culture is open to allowing managers to have a say in what happens. Company is geographically dispersed. Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions.

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Organisation structure (cont’d) Formalisation
The degree to which jobs within the organisation 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.

Mechanistic versus organic organisation

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Table 10.2

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Structural contingency factors Structural decisions are influenced by:
Overall strategy of the organisation organisational structure follows strategy.

Structural contingency factors (cont’d) Strategy and structure
Achievement of strategic goals is facilitated by changes in organisational structure that accommodate and support change.

Size of the organisation
Firms change from organic to mechanistic organisations as they grow in size.

Size and structure
As an organisation grows larger, its structure tends to change from organic to mechanistic with increased specialization, departmentalization, centralisation, and rules and regulations.

Technology use by the organisation
Firms adapt their structure to the technology they use.

Degree of environmental uncertainty
Dynamic environments require organic structures; mechanistic structures need stable environments.

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Structural contingency factors (cont’d) Technology and structure organisations 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

Woodward’s findings on technology, structure, and effectiveness

Routine technology = mechanistic organisations Non-routine technology = organic organisations

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Table 10.3

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Structural contingency factors (cont’d) Environmental uncertainty and structure
Mechanistic organisational structures tend to be most effective in stable and simple environments. The flexibility of organic organisational structures is better suited for dynamic and complex environments.

Common organisational designs Traditional designs
Simple structure
Low departmentalization, wide spans of control, centralised authority, little formalization

Functional structure
Departmentalization by function
Operations, finance, human resources, and product research and development

Divisional structure
Composed of separate business units or divisions with limited autonomy under the coordination and control the parent corporation.

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Strengths and weaknesses of common traditional organisational designs

Organisational designs (cont’d) Contemporary organisational designs
Team structures
The entire organisation is made up of work groups or selfmanaged teams of empowered employees.

Matrix and project structures
Specialists for different functional departments are assigned to work on projects led by project managers. Matrix participants have two managers.

Project structures
Employees work continuously on projects; moving on to another project as each project is completed.

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Figure 10.4

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A Matrix organisation in an aerospace firm

Organisational designs (cont’d) Contemporary organisational designs (cont’d)
Boundaryless organisation
An flexible and unstructured organisational design that is intended to break down external barriers between the organisation and its customers and suppliers. Removes internal (horizontal) boundaries:
Eliminates the chain of command Has limitless spans of control Uses empowered teams rather than departments

Eliminates external boundaries:
Uses virtual, network, and modular organisational structures to get closer to stakeholders.

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Figure 10.6

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Removing boundaries
Virtual organisation
An organisation that consists of a small core of full-time employees and that temporarily hires specialists to work on opportunities that arise.

Organisational designs (cont’d) The learning organisation
An organisation that has developed the capacity to continuously learn, adapt, and change through the practice of knowledge management by employees. Characteristics of a learning organisation:
An open team-based organisation design that empowers employees Extensive and open information sharing Leadership that provides a shared vision of the organisation’s future, support and encouragement A strong culture of shared values, trust, openness, and a sense of community.

Network organisation
A small core organisation that outsources its major business functions (e.g., manufacturing) in order to concentrate what it does best.

Modular organisation
A manufacturing organisation that uses outside suppliers to provide product components for its final assembly operations.
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Characteristics of a learning organisation

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Figure 10.7

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