Ahmeds Tajuddin Organizational Structure and Design {HRM 401}
33eab26522e8347eb4a03c83cf605a2144e204a2.doc
Slide # 1
Basic Challenges of Organizational Planning
Different organizational structures cause people to behave in different ways.
Thus managers designing a structure must have a clear idea about two things:
what they are trying to achieve and what effect their choices will have
on
organizational stakeholders. As the Johnson & Johnson case suggests, organizations constantly have to evaluate the way their organizational structure is
working. There is no "right" way to design an organization so that it can achieve
its goals. Organizational design is an evolving process: Managers must
constantly monitor the structure in order to achieve
organizational objectives.
Organizational design involves difficult choices about how to control coordinate
and motivate-the tasks in an organization and the people who perform them, to
maximize the organization's ability to create value. If an organization is to
remain effective and successful as it changes and grows and as its environment
changes and grows, management must continuously evaluate how the
organization divides up the work that needs to be done and how it controls its
human, financial, and physical resources.
As organizations grow, managers must decide how to control and coordinate the
activities that are required for the organization to create value. The principal
design challenge is how to manage differentiation to achieve organizational
goals. Differentiation is the process by which an organization allocates people
and resources to organizational tasks and establishes the task and authority
relationships that allow the organization to achieve its goals.' In short, it is the
process of establishing and controlling the division of labor, or degree of
specialization, in the organization.
Tajuddin Ahmeds Organizational Structure and Design {HRM 401}
33eab26522e8347eb4a03c83cf605a2144e204a2.doc
Slide # 2
Organizational Roles
The basic building blocks of differentiation are organizational roles. An organizational role is a set of task-related behaviors required of a person by his or
her position in an organization.
Organizational structure is based on a system of interlocking roles, and the
relationship of one role to another is defined by task-related behaviors. Some
roles require people to oversee the behavior of others. A person who can hold
another person accountable for his or her performance possesses authority over
the other person. Authority is the power to hold people accountable for their
actions and to make decisions concerning the use of organizational resources.
The differentiation of an organization into individual organizational roles results
in clear authority and responsibility requirements for each task in the system.
When an individual clearly understands the responsibilities of his or her role and
what a superior can require of a person in that role, the result within the
organization is control-the ability to coordinate and motivate people to work in
the organization's interests.
Tajuddin Ahmeds Organizational Structure and Design {HRM 401}
33eab26522e8347eb4a03c83cf605a2144e204a2.doc
Slide # 3
Subunits: Functions and Divisions
In most organizations, people with similar and related roles are grouped into a
subunit. The main subunits that develop in organizations are functions (or
departments) and divisions. A function is a subunit in which people possess
similar skills or use the same set of resources.
As organizations grow in size, they differentiate into five basic functional roles.'
Support functions facilitate an organization's control of its relations with its
environment and its stakeholders. Support functions include purchasing, to
handle the acquisition of inputs; sales and marketing, to handle the disposal of
outputs, and public relations and legal affairs, to respond to the needs of outside
stakeholders
Production functions manage and improve the efficiency of an organization's
conversion processes so that more value is created. Production functions include
production operations, production control, and quality control. At the Ford
Motor Company, the production operations department controls the
manufacturing process; production control decides on the most efficient way to
produce cars at the lowest cost; and quality control monitors product quality.
Maintenance functions enable an organization to keep its departments in
operation. Maintenance functions include personnel, to recruit and train workers
and improve skills; engineering, to repair broken machinery; and janitorial
services, to keep the work environment safe and healthy-conditions that are very
important.
Tajuddin Ahmeds Organizational Structure and Design {HRM 401}
33eab26522e8347eb4a03c83cf605a2144e204a2.doc
Slide # 4
Adaptive functions allow an organization to adjust to changes in the environment. Adaptive functions include research and development, market research, and long- range planning, which allow an organization to learn from and
attempt to manage its environment and thus increase its core competences.
Managerial functions facilitate the control and coordination of activities within
and among departments. Managers at different organizational levels direct the
acquisition of, investment in, and control of resources to improve the
organization's ability to create value.
Top management, for example, is responsible for formulating strategy and
establishing the policies the organization uses to control its environment. Middle
managers are responsible for managing the organization's resources to meet its
goals. Lower-level managers oversee and direct the activities of the work force.
Vertical and Horizontal Differentiation
The organizational chart vertically differentiates organizational roles in terms of
the authority that: goes with each role. A classification of people according to
authority and rank is called a hierarchy. Roles at the top of an organization's
hierarchy possess more authority and responsibility than do roles farther down
in the hierarchy; each lower role is under the control or supervision of a higher
one. Managers designing an organization have to make decisions about the
extent of vertical differentiation to have in the organization: How many levels
should there be from top to bottom? To maintain control over the various
functions in the restaurant. Vertical differentiation refers to the way an
organization designs its hierarchy of authority and creates reporting
relationships to link organizational roles and subunits.
Balancing Differentiation and Integration
Horizontal differentiation is supposed to enable people to specialize and thus
become more productive. Companies have often found, however, that specialization limits communication between functional departments and prevents them
from learning from one another. As a result of horizontal differentiation, the
members of different functions or divisions develop a subunit orientation-a
tendency to view one's role in the organization strictly from the perspective of
the time frame, goals, and interpersonal orientations of one's subunit.
Tajuddin Ahmeds Organizational Structure and Design {HRM 401}
33eab26522e8347eb4a03c83cf605a2144e204a2.doc
Slide # 5
Integration and Integrating Mechanisms
How to facilitate communication and coordination among subunits is a major
challenge for managers. One reason for problems on this front is that the development of subunit orientations makes communication difficult and complex.
Integration is the process of coordinating various tasks, functions, and divisions
so that they work together and not at cross-purpose.
Hierarchy of Authority
The simplest integrating device is an organizations hierarchy of authority,
which differentiates people by how much authority they have. Because the
hierarchy dictates who reports to whom, it coordinates various organizational
roles, Managers must carefully divide and allocate authority within a function
and between one function and others to promote coordination.
Tajuddin Ahmeds Organizational Structure and Design {HRM 401}
33eab26522e8347eb4a03c83cf605a2144e204a2.doc
Slide # 6
Direct Contact. Direct contact between people in different subunits is an integrating mechanism that is more complex than a hierarchy of authority. The
principal problem with integration across functions is that a manager in one
function has no authority over a manager in another. Only the CEO or somebody
else above the functional level has power to intervene if two functions come into
conflict. Consequently, establishing personal relationships between people at all
levels in different functions is an important step in overcoming the problems that
arise because people (or groups or departments) have different subunit
orientations. Managers from different functions who have opportunities for
direct contact with each other can work together to solve common problems. If
disputes still arise, however, it is important for both parties to be able to appeal
to a common superior who is not far removed from the scene of the problem.
Liaison Roles. When the need for communication among subunits increases, one
member or a few members from a subunit are likely to have responsibility for
coordinating with other subunits. The people who hold these connecting, or
liaison, roles are able to develop in-depth relations with people in other subunits.
This interaction helps overcome barriers between subunits. Over time, as the
people in liaison roles learn to cooperate, they can become increasingly flexible
in accommodating other subunits' requests.
Task Forces. As an organization increases in size and complexity, more than
two subunits may need to work together to solve common problems. Increasing
an organization's ability to serve its customers effectively, for example, may
require input from production, marketing, engineering, and research and
development. The solution commonly takes the form of a task force, a temporary committee set up to handle a specific problem. One person from each
function joins a task force, which meets until it finds a solution.
Integrating Roles or Departments
As organizations become large and complex, communication barriers between
functions and divisions are likely to increase. Managers in different product
divisions, for example, may never meet one another. In organizations that
employ many thousands of people, coordinating subunits becomes especially
difficult. One way to overcome these barriers is to create integrating roles that
coordinate subunits. An integrating role is a full-time position established
specifically to improve communication between divisions. (A liaison role, in
contrast, is part of a person's full-time job.)
Tajuddin Ahmeds Organizational Structure and Design {HRM 401}
33eab26522e8347eb4a03c83cf605a2144e204a2.doc
Slide # 7
The purpose of an integrating role is to promote the sharing of information and
knowledge to enhance organizational goals such as innovation and product
development, increased flexibility, and heightened customer service. People in
integrating roles are often senior managers who have decided to give up
authority in a specific function and focus on integration. They often chair task
forces and teams and report directly to top management.
When a company has many employees in integrating roles, it creates an
integrating department, which coordinates the activities of subunits.
In general, the more complex and highly differentiated an organization is, the
more complex are the integration needed mechanisms to overcome
communications and coordination barriers between functions and divisions.
Tajuddin Ahmeds Organizational Structure and Design {HRM 401}
33eab26522e8347eb4a03c83cf605a2144e204a2.doc
Slide # 8
Differentiation Versus Integration
The design issue facing managers is to establish a level of integration that
matches the organization's level of differentiation. Managers must achieve an
appropriate balance between differentiation and integration. The organization is
employing integration mechanisms complex enough to solve its communications
and coordination problems. As a result, the right balance between differentiation
and integration has not been achieved. The organization is not able to effectively
coordinate and control the activities of its various subunits. This design is
ineffective because integration is expensive: Every hour that employees spend in
committees that are not really needed costs the organization thousands of dollars
because the employees are not being put to their most productive use.
An organization that has a relatively simple, clearly defined role structure
normally needs to use only simple integrating mechanisms. Its managers may
find that the hierarchy of authority provides all the control and coordination they
need to achieve organizational goals.
Managers facing the challenge of deciding how and how much to differentiate
and integrate must do two things: (1) They must carefully guide the process of
differentiation so that it develops the core competences that give the
organization a competitive advantage. (2) They must carefully integrate the
organization by choosing appropriate integrating mechanisms that allow subunits to cooperate and that build up the organization's core competences.
Tajuddin Ahmeds Organizational Structure and Design {HRM 401}
33eab26522e8347eb4a03c83cf605a2144e204a2.doc
Slide # 9
Balancing Centralization and Decentralization
In discussing vertical differentiation, we noted that establishing a hierarchy of
authority is supposed to improve the way an organization functions because
people can be held accountable for their actions and because the hierarchy
defines the area of each person's authority within the organization. Many
companies, however, complain that when a hierarchy of authority exists, people
are constantly looking to their superiors for directions. When something new or
unusual occurs, they prefer to let it pass, or they pass it on to their superior
rather than assume responsibility and take the risk of dealing with it. As
responsibility and risk taking decline, so does organizational performance because the organization does not exploit new opportunities for using its core
competences. When nobody is willing to take responsibility, decision making
becomes slow and the organization becomes inflexible-that is, unable to change
and adapt itself to new developments.
Centralization Versus Decentralization of Authority
Authority gives one person the power to hold other people accountable for their
actions and the right to make decisions about the use of organizational
resources. It is possible to design an organization in which managers at the top
of the hierarchy have all power to make important decisions. Subordinates take
orders from the top, are accountable for how well they obey those orders, and
have no authority to initiate new actions or use resources for purposes that they
believe are important. When the authority to make important decisions is
retained by managers at the top of the hierarchy, authority is said to be highly
centralized. By contrast, when the authority to make important decisions about
organizational resources and to initiate new projects is delegated to managers at
all levels in the hierarchy, authority is highly decentralized.
Balancing Standardization and Mutual Adjustment
Written rules and standard operating procedures (SOPs) and unwritten norms
and values help to control behavior in organizations. They specify how an
employee is to perform his or her organizational role, and they set forth the tasks
and responsibilities associated with that role.
Many companies, however, complain that employees tend to follow written and
unwritten guidelines too rigidly instead of adapting them to the needs of a
particular situation. Strictly following rules may stifle innovation; rules
Tajuddin Ahmeds Organizational Structure and Design {HRM 401}
33eab26522e8347eb4a03c83cf605a2144e204a2.doc
Slide # 10
specifying how decisions are to be made leave no room for creativity and
imaginative responses to unusual circumstances. As a result, decision making
becomes inflexible, innovation is stifled, and organizational performance
suffers.
The challenge facing all organizations, large and small, is to design a structure
that achieves the right balance between standardization and mutual adjustment.
Standardization is conformity to specific models or examples that are considered
proper in a given situation. Standardized decision-making and coordination
procedures make people's actions predictable in certain circumstances. Mutual
adjustment is the compromise that emerges when decision making and
Coordination are evolutionary processes and people use their judgment rather
than standardized rules to address a problem. The right balance makes some
actions predictable so that basic organizational tasks and goals are achieved yet
it gives employees the freedom to behave flexibly so that they can respond to
new and changing situations creatively.
Tajuddin Ahmeds Organizational Structure and Design {HRM 401}
33eab26522e8347eb4a03c83cf605a2144e204a2.doc
Slide # 11
Formalization: Written Rules
Formalization is the use of written rules and procedures to standardize operations." In an organization in which formalization and standardization are
extensivefor example, the military, Federal Express, or United Parcel Service-everything is done by the book.
There is no room for mutual adjustment; rules specify how people are to
perform their roles and how decisions are to be made, and employees are
accountable for following the rules. Moreover, employees have no authority to
break the rules. A high level of formalization typically implies centralization of
authority.
A low level of formalization implies that coordination is the product of mutual
adjustment among people across organizational functions and that decision
making is a dynamic process in which employees apply their skills and abilities
to respond to change and solve problems. Mutual adjustment typically implies
decentralization of authority because employees must have the authority to
commit the organization to certain actions when they make decisions.
Socialization: Understood Norms
Rules are formal, written statements that specify the appropriate means for
reaching desired goals. As people follow rules, they behave in accordance with
certain specified principles. Norms are standards or styles of behavior that are
considered typical for a group of people. People follow a norm because it is a
generally agreed-upon standard for behavior. Many norms arise informally as
people work together over time. In some organizations it is the norm that people
generally take an hour and a quarter for lunch, despite a formally specified
one-hour lunch break. Over time, people internalize norms. The norms become
part of their way of viewing and responding to the world.
Standardization Versus Mutual Adjustment
The design challenge facing managers is to find a way of using rules and norms
to standardize behavior while at the same time providing employees with the
opportunity to discover new and better ways of achieving organizational goals.
Within an organization some functions require more standardization than others.
Coordinating the Formal and Informal Organizations
Tajuddin Ahmeds Organizational Structure and Design {HRM 401}
33eab26522e8347eb4a03c83cf605a2144e204a2.doc
Slide # 12
The structure that management designs allocates people and resources to organizational tasks and roles and is a blueprint for how things are supposed to
happen. Yet at all levels in the organization decision making and coordination
frequently take place outside the formally designed channels as people interact
informally on the job. Moreover, many of the rules and norms that employees
used to perform their tasks emerge out of informal interactions between people
and not from the formal blueprint and rules established by managers.
Thus, while establishing a formal structure of interrelated roles, managers are
also creating an informal social structure that affects behavior in ways that may
differ from the ways the managers intended. The emergence of conflict between
managers and employees in a gypsum plant illustrates the importance of
understanding the way the informal organization works.
Tajuddin Ahmeds Organizational Structure and Design {HRM 401}
33eab26522e8347eb4a03c83cf605a2144e204a2.doc
Slide # 13
Mechanistic and Organic Organizational Structures
Each design challenge has implications for how an organization as a whole and
the people in the organization behave and perform. Useful concepts for addressing the way in which management's responses to the challenges collectively
influence how an organizational structure works are the concepts of mechanistic
structure and organic structure."
Mechanistic Structures
Mechanistic structures are designed to induce people to behave in predictable,
accountable ways. Decision-making authority is centralized and proceeds from
the top down in a clearly defined hierarchy. Subordinates are closely supervised,
and information flows mainly in a vertical direction. In a mechanistic structure
roles are clearly defined. There is usually a one-to-one correspondence between
a person and a task.
In a mechanistic structure, the hierarchy is the principal integrating mechanism
both within and between functions. Because tasks are organized to prevent
miscommunication, the organization does not need to use complex integrating
mechanisms. Tasks and roles are coordinated primarily through standardization.
Formal written rules and procedures specify role responsibilities, and
standardization (together with the hierarchy) is the main means of organizational
control.
Organic Structures
Organic structures are at the opposite end of the organizational design spectrum
from mechanistic structures. Organic structures promote flexibility, so people
initiate change and can adapt quickly to changing conditions.
Organic structures are decentralized; decision-making authority is distributed
throughout the hierarchy, and people assume authority and make decisions as
organizational needs dictate. Roles are loosely defined-people perform various
tasks and continually develop skills in new activities.
The Contingency Approach to Organizational Design
Tajuddin Ahmeds Organizational Structure and Design {HRM 401}
33eab26522e8347eb4a03c83cf605a2144e204a2.doc
Slide # 14
Obviously, the decision about whether to design an organic or a mechanistic
structure depends on the particular situation an organization faces: the environment it confronts, its technology and the nature of the tasks it performs, and
the type of people it employs. In general, the contingencies or sources of
uncertainty facing an organization shape the organization's design. The contingency approach to organizational design tailors organizational structure to the
sources of uncertainty facing an organization. The structure is designed to
respond to various contingencies-things that might happen and therefore must be
planned for.