Structure
McGraw-Hill/Irwin Organizational McShane/Von Glinow OB 5e
Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Choosing an Organizational Structure at BioWare
Ray Muzyka (left) and Greg Zeschuk (right) designed an organizational structure for their electronic games company, Bioware, that balances the need for teamwork and information sharing.
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Organizational Structure Defined
Division of labor and patterns of coordination, communication, workflow, and formal power that direct organizational activities. Relates to many OB topics
e.g. job design, teams, power,
org culture, org change
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Division of Labor
Subdividing work into separate jobs assigned to different people Division of labor is limited by ability to coordinate work Potentially increases work efficiency Necessary as company grows and work becomes more complex
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Coordinating Work Activities
1.
Informal communication
Sharing information, forming common mental
models Allows flexibility Vital in nonroutine and ambiguous situations Easiest in small firms Applied in team-based structures Includes integrator roles
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Coordinating Work Activities
1.
Formal hierarchy
Direct supervision Assigns formal (legitimate) power to manage others Coordination strategy for departmentalization
2.
Standardization
a) Standardized processes (e.g., job descriptions) b) Standardized outputs (e.g., sales targets) c) Standardized skills (e.g., training)
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Elements of Organizational Structure
Departmentalization
Span of Control
Elements of Organizational Structure
Formalization Centralization
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Span of Control
Number of people directly reporting to the next level
Assumes coordination through
direct supervision
Wider span of control possible when:
Other coordinating
mechanisms present Routine tasks Low employee interdependence
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Tall vs Flat Structures
As companies grow, they:
Build taller hierarchy Widen span, or both
Problems with tall hierarchies
Overhead costs Worse upward information Focus power around managers,
so staff less empowered
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Issues with Tall vs Flatter Structures
Firms moving toward flatter structures (delayering) because taller hierarchies have:
Higher mgt overhead costs Less information flow Less staff empowerment
But also problems with flatter hierarchies
Undermines management functions Increases workload and stress Restricts management career development
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Centralization and Decentralization Centralization
Formal decision making authority is held by a few people, usually at the top
Decision making authority is dispersed throughout the organization
Decentralization
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Formalization
The degree to which organizations standardize behavior through rules, procedures, formal training, and related mechanisms. Formalization increases as firms get older, larger, and more regulated Problems with formalization
Reduces organizational flexibility Discourages organizational learning/creativity Reduces work efficiency Increases job dissatisfaction and work stress
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Growing an Organic Taxi
Award-winning TAXI relies on an organic structure to maintain its creative advantage. TAXI cofounder Paul Lavoie (bottom right in this New York City office photo) says that most firms are "so layered that a great idea was easily crushed...We needed a flexible infrastructure, able to move with the pace of change. TAXI started lean and nimble, and remains so today."
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Mechanistic vs. Organic Structures
Organic Structure
Wide span of control Little formalization Decentralized decisions
Mechanistic Structure
Narrow span of control High formalization High centralization
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Departmentalization
Specifies how employees and their activities are grouped together Three functions of departmentalization
1. Establishes chain of command 2. Creates common mental models, measures of
performance, etc
3. Encourages coordination through informal
communication
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Functional Organizational Structure
Organizes employees around specific knowledge or other resources (e.g., marketing, production)
CEO
Finance
Production
Marketing
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Evaluating Functional Structures
Benefits
Economy of scale Supports professional identity and career paths Easier supervision
Limitations
More emphasis on subunit than organizational
goals Higher dysfunctional conflict Poorer coordination -- requires more controls
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Divisional Structure
Organizes employees around outputs, clients, or geographic Products
Consumer areas
CEO
Healthcare
Lighting Lifestyle
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Divisional Structure
Different forms of divisional structure
Geographic structure Product structure Client structure
Best form depends on environmental diversity or uncertainty Movement away from geographic form
Less need for local representation Reduced geographic variation More global clients
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Evaluating Divisional Structures
Benefits
Building block structure -- accommodates growth Focuses on markets/products/clients
Limitations
Duplication, inefficient use of resources Specializations are dispersed--silos of knowledge Politics/conflict when two forms of equal value
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TeamBased Structure
Self-directed work teams Teams organized around work processes Typically organic structure
Wide span of control many employees work
without close supervision Decentralized with moderate/little formalization
Usually found within divisionalized structure
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Evaluating TeamBased Structures
Benefits
Responsive, flexible Lower admin costs Quicker, more informed decisions
Limitations
Interpersonal training costs Slower during team development Role ambiguity increases stress Problems with supervisor role changes Duplication of resources
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Bioware's Matrix Structure
Ray Muzyka (left) and Greg Zeschuk (right) adopted a matrix organizational structure for their electronic games company, Bioware, because it balances the need for teamwork and information sharing.
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Matrix Structure (Projectbased)
Employees ( ) are temporarily assigned to a specific project team and have a permanent functional unit
CEO
Game1 Project Leader Art Dept Leader Software Dept Leader Audio Dept Leader
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Game2 Project Leader
Game3 Project Leader
Evaluating Matrix Structures
Benefits
Uses resources and expertise effectively Improves communication, flexibility, innovation Focuses specialists on clients and products Supports knowledge sharing within specialty Solution when two divisions have equal importance
Limitations
Increases goal conflict and ambiguity Two bosses dilutes accountability More conflict, organizational politics, and stress
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Network Organizational Structure
Product development partner (U.S.A.) Callcenter partner (Philippines)
Alliance of firms creating a product or service Supporting firms beehived around a "hub" or "core" firm
Core Firm
Accounting partner (U.S.A.) Assembly partner (Mexico)
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Package design partner (UK)
Evaluating Network Structures
Benefits
Highly flexible Potentially better use of skills and technology Not saddled with same resources for all products
Limitations
Exposed to market forces Less control over subcontractors than in-house
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External Environment & Structure
Dynamic
High rate of change Use team-based, network, or other organic structure
Stable
Steady conditions, predictable change Use mechanistic structure
Complex
Many elements (such as stakeholders) Decentralize
Simple
Few environmental elements Less need to decentralize
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External Environment & Structure
(con't)
Diverse
Several products, clients, regions Use divisional form aligned with the diversity
Integrated
Single product, client, place Use functional structure, or geographic division if global
Hostile
Competition and resource scarcity Use organic structure for responsiveness
Munificent
Plenty of resources and product demand Less need for organic structure
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Effects of Organizational Size
As organizations grow, they have:
More division of labor (job specialization) Greater use of standardization More hierarchy and formalization More decentralization
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Technology and Structure
Technology refers to mechanisms or processes by which an organization turns out its product or service Two contingencies:
Variability -- the number of exceptions to standard
procedure that tend to occur. Analyzability -- the predictability or difficulty of the required work
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Organizational Strategy
Structure follows strategy
Strategy points to the environments in which the
organization will operate Leaders decide which structure to apply
Differentiation strategy
Providing unique products or attracting clients who
want customization
Cost leadership strategy
Maximize productivity in order to offer competitive
pricing
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Organizational Structure
McGraw-Hill/Irwin McShane/Von Glinow OB 5e
13-33 Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.