Chapter 7: Designing Organization Structure

• Organizing


  The deployment of organizational resources to achieve strategic goals
• Organizing is important because it follows from strategy. Strategy defines what to do, and organizing defines how to do it.
• Organization structure


  • The set of formal tasks assigned to individuals and departments
  • Formal reporting relationships
  • The design of systems to ensure effective coordination of employees across department
• Organization chart


  The visual representation of an organization's structure
• Division of labor


  The degree to which organizational tasks are subdivided into separate jobs
• Division of labor is losing popularity because too much specialization leads to employee isolation and boredom.
• Chain of command


  An unbroken line of authority that links all employees in an organization and shows who reports to whom
• Authority


  The formal and legitimate right of a manager to make decisions, issue orders, and allocate resources to achieve organizationally desired outcomes
• Authority is vested in organizational positions, not people.
• Authority flows down the vertical hierarchy.
• Authority is accepted by subordinates.
• Responsibility


  The duty to perform the task or activity as assigned
• Accountability


  The mechanism through which authority and responsibility are aligned
• Delegation


  The process that managers use to transfer authority and responsibility down the hierarchy
• Line authority


  Managers have formal authority to direct and control immediate subordinates
• Line departments perform tasks that reflect the organization's primary goal and mission.
• Staff authority


  Narrow authority that includes the right to advise, recommend, and counsel in the staff specialists' area of expertise
• Staff departments support line departments.
• Span of management


  The number of employees reporting to a supervisor
• Factors associated with a larger span of management

  • Work is stable and routine
  • Subordinates perform similar work in one location
  • Subordinates are highly trained
  • Rules and procedures are defined
  • Support systems and personnel are available
  • There are few nonsupervisory activities
  • Manager prefers a large span
• Tall structure


  Span of management that is narrow and has many hierarchical levels
• Flat structure


  Span of management that is wide and has few hierarchical levels
• Common structural problem is too many levels with a span that is too narrow.
• Centralization


  Decision authority is located near the top of the organization
• Decentralization


  Decision authority is pushed downward to lower organization levels
• Factors that influence centralization

  • Rapid change and uncertainty in the environment are associated with decentralization
  • Fits the firm's strategy
  • Crisis requires centralization
• Departmentalization


  Basis for grouping positions into departments and departments into the total organization
• Five approaches to departmentalization

  • Functional
  • Divisional
  • Matrix
  • Team
  • Virtual network
• Functional structure


  The grouping of activities by common function from the bottom to the top of the organization
• Positions are grouped into departments based on similar skills, expertise, work activities, and resource use.
• Divisional structure


  Departments are grouped together based on similar organizational outputs
• Divisional structure focuses company activities on local market conditions.
• Divisional structure provides a competitive advantage by selling a product adapted to a given country.
• Matrix approach


  Combines both functional and divisional approaches simultaneously, in the same part of the organization
• Matrix approach improves coordination and information.
• Dual lines of authority


  Make the matrix unique
• Two-boss employees


  Employees who report to two supervisors simultaneously and must resolve conflicting demands from the matrix bosses
• Matrix boss


  The product or functional boss who is responsible for one side of the matrix
• Top leader


  Person who oversees both the product and functional chains of command and is responsible for the entire matrix
• Cross-functional teams


  Consist of employees from various functional departments who are responsible to meet as a team and resolve mutual problems