ORGANIZATIONAL BEHAVIOR

ORGANIZATIONAL BEHAVIOR


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After studying chapter 15 and listening to class lecture,you should be able to:
Identify the six key elements that define an organization’s structure.
Explain the characteristics of a bureaucracy.
Describe a matrix organization.
Explain the characteristics of a virtual organization.
Summarize why managers want to create boundaryless organizations.
Contrast mechanistic and organic structural models.
List the factors that favor different organizational structures.
Why do structures differ?



L E A R N I N G O B J E C T I V E S


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What Is Organizational Structure?

Key Elements:
Work specialization
Departmentalization
Chain of command
Span of control
Centralization and decentralization
Formalization


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What Determines
Organizational Structure?
To what degree are tasks subdivided into separate jobs?
On what basis will jobs be grouped together?
To whom do individuals and groups report?
How many individuals can a manager efficiently and effectively direct?
Where does decision-making authority lie?
To what degree will there be rules and regulations to direct employees and managers?


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Key Design Questions and Answers for Designing the Proper Organization Structure


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Strategy

Why Do

Structures

Differ?

Organization

Size

Technology

Environment


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Common Organization Designs

A Simple Structure:
Jack Gold’s Men’s Store


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Organizational Chart of a Manufacturing Firm

Board

member

Board

member

Board

member

Board

member

Chief

Executive

Officer

Legal

counsel

President

Industrial

Products

Director-

Human

Resources

Consumer

Products

Director-

Human

Resources

Western

Region

Industrial

Products

Sales

Manager

Eastern

Region

Industrial

Products

Sales

Manager

Western

Region

Consumer

Products

Sales

Manager

Eastern

Region

Consumer

Products

Sales

Manager

etc.

etc.

etc.

etc.

etc.

etc.

etc.

etc.

etc.

etc.

Industrial

Products

Director-

Production

Consumer

Products

Director-

Production

Industrial

Products

Director-

R&D

Consumer

Products

Director-

R&D

V.P Research

and Development

V.P Sales/

Marketing

V.P Human

Resources

V.P

Production

Industrial

Products

Director-

Sales

Consumer

Products

Director-

Sales


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Tall versus Flat Organizations

Chief

Executive

Chief

Executive

Tall hierarchy

Flat hierarchy

Relatively wide

span of control

Relatively narrow

span of control

Tall Organization

Flat Organization


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A Product Organization

Pro-

duction

Acctg.

Sales

R&D

Pro-

duction

Acctg.

Sales

R&D

Pro-

duction

Acctg

Sales

R&D

Product

Group 2

Product

Group 1

Product

Group 3

President

Chief

Executive

Officer


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A Horizontal Organization

Team responsible for core process

(e.g., generating and fulfilling orders)




Team responsible for core process

(e.g., product development)




Team responsible for core process

(e.g., flow of materials)

Adviser

Adviser

Adviser

Overall Manager

Objective:

Reduced

cycle time



Objective:

More new

products



Objective:

Enhanced

product

quality


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Common Organization Designs


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The Bureaucracy
Strengths
Functional economies of scale
Minimum duplication of personnel and equipment
Enhanced communication
Centralized decision making

Weaknesses
Subunit conflicts with organizational goals
Obsessive concern with rules and regulations
Lack of employee discretion to deal with problems


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Decentralization: Benefits When Low and When High

Low Decentralization

(High Centralization)

Eliminates the additional responsibility not desired by people performing routine jobs


Permits crucial decisions to be made by individuals who have the “big picture”

High Decentralization

(Low Centralization)

Can eliminate levels of management, making a leaner organization


Promotes greater opportunities for decisions to be made be people closest to problems



Table 12-1


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The Matrix Structure

Cross-Functional

Coordination

Clear

Accountability

Allocation

of Specialists

Dual Chain

of Command


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Matrix Structure (College of Business Administration)

(Dean)

(Director)

Employee


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A
Matrix Organization

Project

Gamma

manager

Production

support

group

Legal

support

group

Accounting

support

group

Engineering

support

group

Project

Beta

manager

Production

support

group

Legal

support

group

Accounting

support

group

Engineering

support

group

Project

Alpha

manager

Production

support

group

Legal

support

group

Accounting

support

group

Engineering

support

group

Production

department

Legal

department

Accounting

department

Engineering

department

Farm Machinery

Division

President

Functional

authority

Project

authority


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Mechanistic vs. Organic Designs

Dimension

Stability

Specialization

Formal rules

Authority

Mechanistic

Change unlikely

Many specialists

Rigid rules

Centralized in a few top people

Organic

Change likely

Many generalists

Considerable flexibility

Decentralized, diffused throughout the organization

Structure

Table 12-2


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Mechanistic Versus Organic Models


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A Virtual Organization


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Organization Structure: Its Determinants and Outcomes


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New Design Options

Concepts:

Provides maximum flexibility while concentrating on what the organization does best.

Disadvantage is reduced control over key parts of the business.


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What Is Organizational Structure? (cont’d)

Division of labor:
Makes efficient use of employee skills
Increases employee skills through repetition
Less between-job downtime increases productivity
Specialized training is more efficient
Allows use of specialized equipment


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Economies and Diseconomies of Work Specialization

E X H I B I T

15-2


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What Is Organizational Structure? (cont’d)

Grouping Activities By:
Function
Product
Geography
Process
Customer


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What Is Organizational Structure? (cont’d)

Narrow Span Drawbacks:
Expense of additional layers of management.
Increased complexity of vertical communication.
Encouragement of overly tight supervision and discouragement of employee autonomy.


Concept:

Wider spans of management increase organizational efficiency.


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Contrasting Spans of Control

E X H I B I T

15-3


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What Is Organizational Structure? (cont’d)


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Common Organization Designs (cont’d)

Key Elements:
Gains advantages of functional and product departmentalization while avoiding their weaknesses.
Facilitates coordination of complex and interdependent activities.
Breaks down unity-of-command concept.


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New Design Options

Characteristics:
Breaks down departmental barriers.
Decentralizes decision making to the team level.
Requires employees to be generalists as well as specialists.
Creates a “flexible bureaucracy.”


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New Design Options (cont’d)

T-form Concepts:

Eliminate vertical (hierarchical) and horizontal (departmental) internal boundaries.

Breakdown external barriers to customers and suppliers.


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Why Do Structures Differ?


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Why Do Structures Differ?


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Why Do Structures Differ? – Strategy


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The Strategy-Structure Relationship

E X H I B I T

15-9


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Why Do Structures Differ? – Technology

Characteristics of routineness (standardized or customized) in activities:
Routine technologies are associated with tall, departmentalized structures and formalization in organizations.
Routine technologies lead to centralization when formalization is low.
Nonroutine technologies are associated with delegated decision authority.


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Why Do Structures Differ? – Environment

Key Dimensions:
Capacity: the degree to which an environment can support growth.
Volatility: the degree of instability in the environment.
Complexity: the degree of heterogeneity and concentration among environmental elements.


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What Is Organizational Structure? (cont’d)


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The Three Dimensional Model of the Environment

E X H I B I T

15-10

Complexity

Volatility

Capacity


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Organizational Designs and Employee Behavior

Research Findings:
Work specialization contributes to higher employee productivity, but it reduces job satisfaction.
The benefits of specialization have decreased rapidly as employees seek more intrinsically rewarding jobs.
The effect of span of control on employee performance is contingent upon individual differences and abilities, task structures, and other organizational factors.
Participative decision making in decentralized organizations is positively related to job satisfaction.


Because the structure of an organization defines how tasks are divided, grouped, and coordinated, there are six key elements that managers must consider when they design their organization’s structure: work specialization, departmentalization, chain of command, span of control, centralization or decentralization, and formalization. The slide above presents each of those elements as an answer to an important structural question.

1. Work specialization

2. Departmentalization

3. Chain of command

4. Span of control

5. Centralization and decentralization

6. Formalization


Strategy and structure are closely related. Most strategy frameworks focus on three dimensions—innovation, cost minimization, and imitation—and on the structural design that works best with each. If management makes a significant change to its organization’s strategy, then the structure must be modified to accommodate and support the change.

Considerable evidence supports the premise that an organization’s size has a significant effect on its structure. However, the relationship is not linear. Size affects structure at a decreasing rate, and the impact becomes less important as an organization expands. Once an organization has around 2,000 employees, it is already fairly mechanistic. So, adding 500 workers will not have much impact. But adding 500 workers to a company with only 300 employees is likely to result in a shift to a more mechanistic structure.

Technology refers to how an organization transfers its inputs into outputs. Routine activities are automated and specialized, and non-routine activities are customized. Studies show that organizational structures adapt to technology. So, standardized technologies characterize centralized structures, and customized activities characterize decentralized structures. In addition, the relationship between technology and structure is moderated by the degree of formalization. Since both formal regulations and centralized decision making are control mechanisms, management can substitute one for the other. Routine technologies should be associated with centralized control, therefore, when formalization is low. If formalization is high, however, routine technology can be accompanied by decentralization.

Environmental uncertainty greatly influences organizational structure. There are three key dimensions in the environment of any organization: capacity, the degree to which it can support growth; volatility, the degree of its instability; and complexity, the degree of heterogeneity and concentration among its elements. Management will attempt to minimize uncertainty by adjusting the organization’s structure. Scarce, dynamic, and complex environments require flexible, organic structures; whereas, abundant, stable, and simple environments require mechanistic structures.