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After reading this chapter, you should be able to:

  1. Define organizational structure and organizational design.
  2. Explain why structure and design are important to an organization.
  3. Describe the six key elements of organizational structure.
  4. Differentiate mechanistic and organic organizational designs.
  5. Identify the four contingency factors that influence organizational design.
  6. Describe bureaucracy and its strengths.
  7. Explain team-based structures and why organizations are using them.
  8. Describe matrix organizations, project structures and autonomous internal units.
  9. Identify the characteristics of a boundaryless organization and this structure's appeal.
  10. Explain the concept of a learning organization and how it influences organizational design.
  11. Describe the role that technology plays in organizational design.



Organizations are experimenting with different approaches to organization structure and design. This chapter describes the foundations of organization structure and introduces students to different forms of organization design. In this chapter, we look at organizational structure dimensions, contingency factors that affect organizational design, and various configurations of organizational structures.

The right organizational structure can play an important role in an organization's evolution. This chapter introduces the elements of organizational structure. The process of organizing - the second management function - is how an organization's structure is created.



There are several definitions that must be understood as a precursor to understanding organizational structure and design. Organizing is the process of creating an organization's structure. And the term organization structure describing the organization's framework as expressed by its degree of complexity, formalization, and centralization. In another words it is the way in which an organization's activities are divided, organized and coordinated.

The term complexity is defined as the amount of differentiation in an organization. The more division of labour there is in an organization, the more vertical levels in the hierarchy and the geographically dispersed the organizationís unit the more difficult it is to coordinate people and their activities.
Formalization is the degree to which an organization relies on rules and procedures to direct the behavior of employees. The more rules and regulation in an organization, the more formalized the organizationís structure.
Centralization is defined as the concentration of decision-making authority in upper management.
Decentralization is the handing down of decision-making authority to lower levels in an organization.


Organization design is the development or changing of an organization's structure. It involves decision about six key elements: Work specialization, departmentalization, chain of command, span of control, centralization/decentralization, and formalization.

Work Specialization is the degree to which tasks in an organization are divided into separate jobs. Another term for this is division of labor.

Work specialization can be traced back to the writings of Adam Smith.

Work specialization was seen as a way to make the most efficient use of worker's skill because workers would be placed in jobs according to their skills and paid accordingly.

Other advantages of work specialization included improvement in employees' skills at performing a task, more efficient employee training, and encouragement of special inventions and machinery to perform work tasks.

Work specialization was viewed as a source of unending productivity improvements. And it was - up to a certain point.

The human diseconomies from work specialization included boredom, fatigue, stress, lowered productivity, poor quality of work, increased absenteeism, and higher job turnover.



In the first chapter, we discussed the fact that organizations consist of both operatives and managers. How are these organizational categories determined and how is the interaction among these levels defined? These are just a few of the issues that are discussed in this section.

The chain of command is an unbroken line of authority that extends from the upper levels of the organization to the lowest levels and clarifies who reports to whom. Three related concepts include authority, responsibility, and unity of command.

Unity of command is defined as the principle that a subordinate should have one and only one superior to whom he or she is directly responsible.

In the classical view, unity of command was strictly adhered to. In the rare instance when the principle had to be violated, it was clearly designated that there be an explicit separation of activities and a supervisor responsible for each.

In the contemporary view, the unity of command principle is viewed as logical when organizations are simple. However, if situations warrant, the advantages of flexibility in structure that comes from violating the unity of command principle far outweigh the disadvantages.


Authority and responsibility. Authority is defined as the rights inherent in a managerial position to give orders and expect them to be obeyed. Responsibility is defined as an obligation to perform assigned activities.

In the classical view, authority was a major doctrine. It was viewed as the glue that held organizations together. Authority related to one's position within the organization. When authority was delegated, commensurate responsibility had to be allocated.

Authority and responsibility needed to be equal.

Responsibility cannot be delegated.

The contradiction here was answered by recognizing two forms of responsibility: operating responsibility and ultimate responsibility.

There were also two forms of authority relationships: Line authority is the authority that entitles a manager to direct the work of a subordinate. It follows the chain of command, which is the flow of authority from the top to the bottom of an organization; and staff authority, which is authority that supports, assists, and advises holders of the authority.

In the contemporary view, we look at the perspective that authority is only valid if subordinates are willing to accept it and also at authority as only one element in the larger concept of power.

Chester Barnard presented the acceptance theory of authority, which proposes that authority come form, the willingness of subordinates to accept it.

What determines if subordinates accept orders?
According to Barnard, the following conditions must be met.
a. They understand the order.
b. They feel the order is consistent with the purpose of the organization.
c. The order doesn't conflict with their personal beliefs.
d. They are able to perform the task as directed.

Power is defined as the capacity to influence decisions.


Span of control is defined as the number of subordinates a manager can direct efficiently and effectively. The span of control concept is important because it determines how many levels and managers an organization will have. (See Figure 10-6, p. 307)

The classical view favored small spans, typically no more than six, in order to maintain close control.

The contemporary view establishes that more and more organizations are increasing their spans of control. The span of control is increasingly being determined by looking at various contingency factors.



An organization's structure also has a horizontal dimension that looks at how work activities are organized at each specific level of the organization.

Division of labor describes splitting a job into a number of steps with each step being completed by a separate individual.

In the classical view of division of labor, the diversity of skills that workers held were efficiently used. Also, division of labor was viewed as an unending source of increased productivity.

In the contemporary view, researchers began to recognize that there was a point at which the human diseconomies from division of labor exceeded the economic advantages. These human diseconomies took the form of boredom, fatigue, stress, low productivity, poor quality, increased absenteeism, and high turnover.

The trend in recent years has been toward larger span of control.

Departmentalization is another area in which classical and contemporary views differ.

In the classical view, activities in the organization had to be specialized and grouped into departments. The approach to grouping selected activities should be the one that best contributes to the attainment of the organization's objectives and goals. There were five approaches to departmentalizing.

Functional departmentalization grouped activities by functions performed.(See Figure 10-1, p. 302)

Product departmentalization grouped activities by product line.(See Figure 10-2, p.303)

Customer departmentalization grouped activities on the basis of common customers. (See figure 10-5, p.304)

Geographic departmentalization grouped activities on the basis of territory. (See Figure 10-.3, p. 303)

Process departmentalization grouped activities on the basis of product or customer flow. (See Figure 10-4, p. .304)

In the contemporary view, most large organizations continue to use most or all of the classical departmental groupings. However, two trends can be noted.

Customer departmentalization is becoming increasingly emphasized.

Rigid departmentalization is being complemented by the use of teams that cross over departmental lines cross-functional teams.

The concept of cross-functional teams evolved from matrix organizations which is an organizing approach that assigns specialists from different functional departments to work on one or more projects that are led by a project manager.



Organizing by function brings together in one department everyone engaged in one activity or several related activities that are called functions. In on organization the department are basically being divided into five types. These include:

Functional Departmentalization

The logical and basic form of departmentalization. It is used mainly by smaller firm that offers a limited line of products because it makes efficient use of specialized resources. Another major advantage of a functional structure is that it makes supervision easier, since each manager must be expert in only a narrow range of skills. In addition, a functional structure make it easier to mobilize specialized skills and bring them to bear where they are most needed. (Refer slide 1)

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Product Departmentalization

Often referred to as organization by division, brings together in one work unit all those involved in the production and marketing of a products or a related group of products in a certain geographic area.  Unlike functional department, a division resembles a separate business. The division head focuses primarily on the operations of his or her division, is accountable for profit or loss, and may even compete with other units of the same firm. But a division is unlike a separate business in one crucial aspect: the division manager must still report to central headquarters.  (See slide 2)

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Customer Departmentalization

In division by customer, the organization is divided according to a different ways customers uses the products (see slide 3). The assumption underlying customer department is that customers in each department have a common set of problems and needs that can best be met by having specialists for each.

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Geographic Departmentalization

An organization sales function might have western, southern, mid western and eastern regions. (Look at slide 4) If an organization customers are scattered over a large geographic area, this form of departmentalization can be valuable. Geographic departmentalization is logical when a plant must be located as close as possible to source of raw materials , to major markets or to specialized personnel.

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Process Departmentalization

The last slide shows the various production department in an aluminum plant. Each department specialized in one specific phase (or process) in the production of aluminum tubing.

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In many organization, rigid departmental division are being replaced by a hybrid grouping of individuals who are experts in various specialties and who work together in an organizational arrangement known as cross-functional team. Whatís unique about cross-functional teams is hat they bring together a diversity of experts who might never cross path in a traditional organization although their work might be highly interdependent.

The cross-functional teams are doing everything from designing a new products and seeing that it makes it to the marketplace, to preparing a long term corporate strategy. The concept behind the cross-functional teams isnít entirely new. During the 1960s, an unusual organization arrangement known as the matrix organization was developed by companies in the U.S aerospace industry. This matrix structure sometimes referred to as a "multiple command" system, is a hybrid that attempts to combine the benefits of both types of designs while avoiding the drawbacks.

An organization with matrix structure has two types of structure existing simultaneously. Employees have in effect two bosses-that is they work in two chains of command. One chain is a functional or division. The second is a horizontal overlay that combines people from various divisions or functional departments into a projects led by a project or group manager who is an expert.



Classical views of organization design were that the ideal structural design was a mechanistic/bureaucratic organization. We now recognize that the ideal organization design depends on contingency factors.

Mechanistic and organic organizations. Two diverse organizational forms can be described. (See Figure 10-7, p. 310)

A mechanistic organization or bureaucracy is a structure that is high in complexity, formalization, and centralization.

An organic organization or adhocracy is a structure that is low in complexity, formalization, and centralization.

Strategy and structure. Strategy and structure are closely linked, and as strategy changes, the structure should also. Most currently strategy-structure frameworks tends to focus on three strategy dimensions:

Innovation - needs the flexibility and free flow of information of the organic organization

Cost minimization - needs the efficiency, stability, and tight controls of the mechanistic organization

Imitation- which uses characteristics of both mechanistic and organic

Size and structure. There is considerable historical evidence that an organization's size significantly affects its structure.

Technology and structure. Every organization uses some form of technology to transform inputs into outputs. Two research studies on the relationship between technology and structure have been significant.

Joan Woodward found that three distinct technologies had increasing levels of complexity and sophistication. (Table 10-3, p. 313)

Unit production describes the production of items in units or small batches.

Mass production describes large-batch manufacturing.

Process production describes continuous-process production.

Charles Perrow looked at knowledge technology rather than manufacturing technology. He proposed that technology be viewed from two dimensions.

Task variability describes the number of exceptions individuals encounter in their work.

Problem analyzability describes the type of search procedures employees follow in responding to exceptions.

What's our conclusion? We can conclude that the processes or methods that transform inputs into outputs differ by their degree of routines. In general, the more routine the technology, the more standardized the structure can be.

Environment and structure. Research has shown that environment is a major influence on structure. We also know that mechanistic organizations tend to be ill equipped to respond to rapid environmental change.



There is a number of organizational design options that you might see in today's organizations.

The simple structure is an organization that's low in complexity and formalization but high in centralization.

Its strengths are its flexibility, speed, and inexpensive cost to maintain.

Its major weakness is that it's effective only in small organizations.

As an organization grows and as the number of employees rises, the organizational structure tends to become more formalized. It becomes more bureaucratic. There are two options most likely to be used.

A functional structure expands the concept of functional departmentalization and creates an organizational design that groups similar or related occupational specialties together.

The divisional structure is an organizational structure made up of autonomous, self-contained units.

However, many contemporary organizations are finding that the traditional hierarchical organizational designs like the functional and divisional structures aren't appropriate for the increasingly dynamic and complex environments they face.

One of the new concepts in organization design is the team-based structure which is an organization structure made up of work groups or teams that perform that organization's work.

Another variation in organizational arrangements is based on the fact that many of today's organizations deal with work activities of different time requirements and magnitude.

One of these arrangements is the matrix organization, which assigns specialists from different functional departments to work on one or more projects being led by project managers. (See Figure 10-8, p. 319)

Another of these designs is the project structure, which is a structure in which employees are permanently assigned to projects.

Some large organizations have adopted a structure that's described as autonomous internal units, a design in which there are autonomous decentralized business units, each with its own products, clients, competitors, and profit goals.

The other concept in organizational design is the boundaryless organization, which describes an organization whose design is not defined by, or limited to, the boundaries imposed by a predefined structure.

This organization design is also sometimes called the network organization, the modular corporation, or the virtual corporation.

What factors have contributed to the development of such an organization design?

Increasing globalization of markets and competitors has created the need to respond quickly to changes anywhere in the world.

The advances that we've seen in technology also have contributed to the development of the boundaryless organization.

Finally, the need for rapid innovation has contributed to the rise of the boundaryless organization structure.

Finally, some organizations have adopted an organizational philosophy of a learning organization -an organization that has developed the continuous capacity to adapt and change because all members take an active role in identifying and resolving work-related issues.



Technology has had a profound impact on organizations and the way they're structured. Technology can affect communications and communications affects organizational design.

Technology-information technology- has radically changed the way organizational members communicate. Two of the most important developments are networked computer systems and wireless capabilities.

In a networked computer system, an organization links its computers together through compatible hardware and software. The computer system has implications for the communications used by organizational members.

Electronic mail or e-mail is the instantaneous transmission of written massages on computers that are linked together.

A voice-mail system is a communication system that digitizes a spoken message, transmits it over a computer network, and stores the message on disk for the receiver to retrieve later.

Facsimile (fax) machines are a communication system that allows the transmission of documents containing both text and graphics.

Teleconferencing is a communication system that allows a group of people to confer simultaneously using telephone or e-mail.

Electronic data interchange (EDI) is a communication system that allows organizations to exchange standard business transaction documents.

Intranets are internal organizational communication systems that use Internet technology and are accessible only by organizational members.

Networked computer systems require organizations to "be wired". Wireless communication, on the other hand, does not. Wireless products are making it possible for organizational members to be linked anytime, anywhere.

The impact of these communications technologies have for organizational design are profound.

Communications and the exchange of information are no longer constrained by geography or time.

Organizations no longer need to be structured to facilitate and support the flow of information and work activities.

Several of the contemporary organizational designs wouldn't be feasible without communications technology.

Telecommuting, a work design option in which workers are linked to the workplace by computers and modem, are possible because of information technology.

Virtual workplaces are offices that are characterized by open spaces, movable furniture, portable phones, laptop computers, and electronic files.

What are the 4 contingency variables that should be considered in organization?
What is matrix structure?
Distinguish between Product Departmentalization and Geographic Departmentalization.
Explain the concepts of Unity of Command and Chain of Command.