Chapter Summary

I. What Is Organizational Structure?

Organizational structure is the manner in which an organization divides its labour into specific tasks and achieves coordination among these tasks. It broadly refers to how the organization’s individuals and groups are put together or organized to accomplish work. Organizational structure intervenes between goals and accomplishments and thus influences organizational effectiveness. Structure affects how effectively and efficiently group effort is coordinated. To achieve its goals, an organization has to divide labour among its members and then coordinate what has been divided.

II. The Division and Coordination of Labour

Labour has to be divided because individuals have physical and intellectual limitations. There are two basic dimensions to the division of labour, a vertical dimension and a horizontal dimension. Once labour is divided, it must be coordinated to achieve organizational effectiveness.

A. Vertical Division of Labour

The vertical division of labour is concerned primarily with apportioning authority for planning and decision making. A couple of key themes or issues underlie the vertical division of labour.

  • Autonomy and Control. The domain of decision making and authority is reduced as the number of levels in the hierarchy increases. A flatter hierarchy pushes authority lower and involves people further down the hierarchy in more decisions.
  • Communication. As labour is progressively divided vertically, timely communication and coordination can become harder to achieve. As the number of levels in the hierarchy increases, filtering is more likely to occur.

B. Horizontal Division of Labour

The horizontal division of labour involves grouping the basic tasks that must be performed into jobs and then into departments so that the organization can achieve its goals. Just as organizations differ in the extent to which they divide labour vertically, they also differ in the extent of horizontal division of labour. A couple of key themes or issues underlie the horizontal division of labour.

  • Job Design. Job design is an important component in the horizontal division of labour. The horizontal division of labour strongly affects job design and it has profound implications for the degree of coordination necessary. It also has implications for the vertical division of labour and where control over work processes should logically reside.
  • Differentiation. Also important is differentiation which is the tendency for managers in separate functions or departments to differ in terms of goals, time spans, and interpersonal styles. As organizations engage in increased horizontal division of labour, they usually become more and more differentiated.

C. Departmentation

One way of grouping jobs is to assign them to departments. The assignment of jobs to departments is called departmentation. It represents one of the core aspects of horizontal division of labour. There are several methods of departmentation.

  • Functional departmentation. Employees with closely related skills and responsibilities (functions) are located in the same department. The main advantage of functional departmentation is efficiency. It works best in small to medium-sized firms that offer relatively few product lines or services.
  • Product departmentation. Departments are formed on the basis of a particular product, product line, or service. Each of these departments can operate fairly autonomously. A key advantage is better coordination and fewer barriers to communication among the functional specialists who work on a particular product line. They also have more potential for responding to customers in a timely way. A disadvantage is that product-oriented departments might actually work at cross purposes.
  • Matrix departmentation. This is an attempt to capitalize simultaneously on the strengths of both functional and product departmentation. Employees remain members of a functional department while also reporting to a product or project manager. As a result, it is very flexible. Problems could arise when product or project managers do not see eye-to-eye with various functional managers and because employees assigned to a product or project team in essence report to a functional manager as well as a product or project manager.
  • Other Forms of Departmentation. Several other forms of departmentation also exist. Under geographic departmentation, relatively self-contained units deliver the organization's products or services in specific geographic territories. Under customer departmentation relatively self-contained units deliver the organization's products or services to specific customer groups. The obvious goal is to provide better service to each customer group through specialization. Finally, it is not unusual to see hybrid departmentation, which involves some combination of these structures. In other words, a structure based on some mixture of functional, product, geographic, or customer departmentation. They attempt to capitalize on the strengths of various structures, while avoiding the weaknesses of others.

D. Basic Methods of Coordinating Divided Labour

The tasks that help organizations achieve its goals must be coordinated so that goal accomplishment is realized. Coordination is the process of facilitating timing, communication, and feedback among work tasks. There are five basic methods of coordination.

  • Direct Supervision. This is a very traditional form of coordination. Working through the chain of command, designated supervisors or managers coordinate the work of their subordinates.
  • Standardization of Work Processes. Some jobs are so routine that the technology itself provides a means of coordination and little direct supervision is necessary for them to be coordinated. Work processes can also be standardized by rules and regulations.
  • Standardization of Outputs. Coordination can also be achieved through the standardization of work outputs. The concern shifts to ensuring that the work meets certain physical and economic standards.
  • Standardization of Skills. Coordination can be achieved through the standardization of skills. This is the case when technicians and professionals know what to expect of each other because of their standard training.
  • Mutual Adjustment. Mutual adjustment relies on informal communication to coordinate tasks. It is useful for coordinating the most simple and the most complicated divisions of labour.

The five methods of coordinating divided labour can be crudely ordered in terms of the degree of discretion they permit individual workers in terms of task performance. Direct supervision permits little discretion. Standardization of processes and outputs permits successively more discretion. Finally, standardization of skills and mutual adjustment put even more control into the hands of those who are actually doing the work.

E. Other Methods of Coordination

Sometimes coordination problems require more customized, elaborate mechanisms. This is especially the case for lateral coordination across highly differentiated departments. Integration is the process of attaining coordination across different departments.

In ascending order of elaboration, three methods of achieving integration include the use of liaison roles, task forces, and full-time integrators.

  • Liaison Roles. A liaison role is occupied by a person in one department who is assigned to help achieve coordination between his or her department and another department. The person serves as a part-time link between two departments.
  • Task Forces and Teams. Task forces are temporary groups set up to solve coordination problems across several departments. Representatives from each department are included on a full-time or part-time basis.
  • Integrators. Integrators are organizational members who are permanently assigned to facilitate coordination between departments. They are especially useful for dealing with conflict between (1) highly interdependent departments, (2) which have very diverse goals and orientations, (3) in a very ambiguous environment.

    III. Traditional Structural Characteristics

    Over the years, management scholars and practising managers have agreed on a number of characteristics that summarize the structure of organizations.

    A. Span of Control

    The span of control is the number of subordinates supervised by a superior. The larger the span, the less potential there is for coordination by direct supervision. As the span increases, the attention that a supervisor can devote to each subordinate decreases. Spans at the upper levels tend to be smaller.

    B. Flat versus Tall

    A flat organization refers to an organization with relatively few levels in its hierarchy of authority, while a tall organization refers to an organization with many levels in its hierarchy of authority. Thus, flatness versus tallness is an index of the vertical division of labour. Flatter structures tend to push decision-making powers downward and generally enhance vertical communication and coordination.

    C. Formalization

    Formalization refers to the extent to which work roles are highly defined by the organization. A very formalized organization tolerates little variability in the way members perform their tasks. Detailed, written job descriptions, thick procedure manuals, and the requirement to “put everything in writing” are evidence of formalization that stems from rules, regulations, and procedures.

    D. Centralization

    Centralization refers to the extent to which decision making power is localized in a particular part of the organization. In the most centralized organization, the power for all key decisions would rest in a single individual, such as the president. In a more decentralized organization, decision-making power would be dispersed down through the hierarchy and across departments.

    E. Complexity

    Complexity refers to the extent to which organizations divide labour vertically, horizontally, and geographically. The essential characteristic of complexity is variety, and as an organization grows in complexity it has more kinds of people performing more kinds of tasks in more places, whether these places are departments or geographic territories.

    IV. Summarizing Structure - Organic versus Mechanistic

    Mechanistic structures are organizational structures characterized by tallness, narrow spans, specialization, high centralization, and high formalization. Organic structures are organizational structures characterized by flatness, wider spans, fewer authority levels, less specialization, less formalization, and decentralization.

    In general, more mechanistic structures are called for when an organization's environment is more stable and its technology is more routine. Organic structures tend to work better when the environment is less stable and the technology is less routine.

    V. Network and Virtual Organizations

    Recent years have seen the advent of new, more organic organizational structures. In a network organization, various functions are coordinated by market mechanisms and by managers and formal lines of authority. Emphasis is placed on who can do what most effectively and economically rather than on fixed ties dictated by an organizational chart. All of the assets necessary to produce a finished product or service are present in the network as a whole, not held in-house by one firm.

    The most interesting networks are dynamic or virtual organizations. In a virtual organization an alliance of independent companies share skills, costs, and access to one another’s markets. It consists of a network of continually evolving independent companies. Each partner in a virtual organization contributes only in its area of core competencies. The key advantage of network and virtual organizations is their flexibility and adaptability.

    VI. The Modular Organization

    A modular organization is an organization that performs a few core functions and outsources noncore activities to specialists and suppliers. Services that are often outsourced include the manufacture of parts, trucking, catering, data processing, and accounting. Thus, modular organizations are like hubs that are surrounded by networks of suppliers that can be added or removed as needed. By outsourcing noncore activities, modular organizations are able to keep unit costs low and develop new products more rapidly. They work best when they focus on the right specialty and have good suppliers.

    VII. The Boundaryless Organization

    In a boundaryless organization, the boundaries that divide employees such as hierarchy, job function, and geography as well as those that distance companies from suppliers and customers are broken down. A boundaryless organization seeks to remove vertical, horizontal, and external barriers so that employees, managers, customers, and suppliers can work together, share ideas, and identify the best ideas for the organization.

    Instead of being organized around functions with many hierarchical levels, the boundaryless organization is made up of self-managing and cross-functional teams that are organized around core business processes that are critical for satisfying customers such as new-product development or materials handling. The traditional vertical hierarchy is flattened and replaced by layers of teams making the organization look more horizontal than vertical. Some believe that the boundaryless organization is the perfect organizational structure for the 21st century.

    VIII. The Impact of Size

    Organizational size has a number of effects on the structure of organizations.

    A. Size and Structure

    In general, large organizations are more complex and less centralized than small organizations. Larger organizations have greater horizontal specialization and require more integrators and other coordination functions. Large organizations also rely more on formalization and often display greater vertical and geographic complexity.

    B. Downsizing

    During the 1980's and 1990's, millions of jobs disappeared as organizations attempted to increase efficiency and cut costs in an era of global competition, government deregulation, corporate raiding, changing consumer preferences, and advancing technologies. Downsizing is the intentional reduction of workforce size with the goal of improving organizational efficiency or effectiveness. Downsizing has a number of implications for organizational structure.

    • Downsizing and Structure. Downsizing usually results in a different organization, not just a smaller one. That is because there are different forces at work than those which drive growth. Also, white collar managerial and staff jobs have been hit hardest changing how organizations are structured. Downsizing is often accompanied by reducing horizontal and vertical complexity. Organizations become flatter and self-managed teams take over supervisory and quality control functions.
    • Problems with Downsizing. There can be a downside to downsizing. Many organizations have not done a good job of anticipating and managing the structural and human consequences of downsizing. Organizations have a tendency to become mechanistic, particularly more formalized and centralized when threatened which works against needed flexibility in times of change. Firms may also be overzealous in their cutting and end up sub-contracting work to consultants which may be both inferior in quality and more expensive. Removing levels from the organization may be a good idea, provided that it doesn't overload the remaining staff and that everyone is comfortable with the greater levels of delegation required. Finally, the process of downsizing must be considered. Surprising people with workforce cuts is likely to result in low morale, reduced productivity, and continuing distrust of management.

    Research has shown that contrary to expectations, downsizing does not result in cost reductions in the long run or improvements in productivity. However, when carefully and properly implemented, downsizing can have positive consequences.

    IX. A Footnote: Symptoms of Structural Problems

    There are a number of symptoms of structural problems in organizations.

    Bad job design. There is a reciprocal relationship between job design and organizational structure. Frequently, improper structural arrangements turn good jobs into poor jobs in practice.

    The right hand doesn't know what the left is doing. If repeated examples of duplication of effort occur, or if parts of the organization work at cross-purposes, structure is suspect.

    Persistent conflict between departments. A failure of integration is often the source of conflicts.

    Slow response times. Delayed responses might be due to improper structure.

    Decisions made with incomplete information. If decisions have been made with incomplete information, and the information existed somewhere in the organization, structure could be at fault.

    A proliferation of committees. When committee is piled on committee, or when task forces are being formed with great regularity, it is often a sign that the basic structure of the organization is being “patched up” because it does not work well.


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