Chapter 10 - Organizing

Chapter 10
Designing Adaptive Organizations
• The deployment of organizational resources to achieve
strategic goals
 Division of labor
 Lines of authority
 Coordination
• All organizations wrestle with structural design and
• Organizing is important because it follows from strategy
• Strategy  What to do
• Organizing  How to do it
Organizing the Vertical Structure
Organizing Structure Defines:
 The set of formal tasks assigned to individuals and
 Formal reporting relationships including
lines of authority, decision responsibility, # of
hierarchical levels, span of managers’ control
 The design of the systems to ensure effective
coordination across departments
Sample Organization Chart
Organizing Concepts
Work Specialization is the degree to which
organizational tasks are subdivided into
individual jobs; also called division of labor
Chain of Command is an unbroken line of
authority that links all individuals in the
organization and specifies who reports to whom:
(1) Unity of Command (2) Scalar Principle
Authority, Responsibility,
Accountability, and Delegation
 Authority is the formal and legitimate right of a manager to
make decisions, issue orders, and allocate resources to
achieve organizational outcomes
 Authority is vested in organizational positions, not people
 Authority flows down the vertical hierarchy
 Authority is accepted by subordinates
 Responsibility
 Accountability is the mechanism through which authority
and responsibility are aligned; Sarbanes-Oxley Act
 Delegation is the process managers use to transfer authority
and responsibility down the chain
Line and Staff Authority
Line departments perform primary business tasks (primary
goal & mission) with line authority to direct & control
immediate subordinates (decision-making)
 Sales
 Production
Staff departments support line departments with staff
authority to advise, recommend, & counsel (no decisionmaking)
 Human Resources, Labor Relations
 Accounting, Finance
 Research, Marketing
Span of Management (Control)
• The # of employees reporting to a supervisor
• Tall Organizations have more levels and narrow span
• Flat Organizations have a wide span and fewer levels:
Less supervision/larger spans of control
Work is stable and routine
Subordinates perform similar work
Subordinates are in one location
Highly trained/require little direction
Rules and procedures are defined
Few planning or nonsupervisory activities
Manager’s preference
Reorganization and Span of Management
Centralization and Decentralization
• Centralization – decision authority is located near the
top of the organization
• Decentralization – decision authority is pushed
downward to all levels (Current Trend):
– uses workers' skills, relieves top managers, has wellinformed people make decisions, and permit rapid
• 3 Factors influencing centralization vs. decentralization:
1. Change and uncertainty  decentralization
2. Strategic fit
3. Crisis  centralization
Departmentalization: Functional
• Departmentalization: Basis for grouping positions
into departments and departments into the total
• Vertical Functional Approach: Grouping of positions
into departments based on skills, expertise, work
activities, and resource use
Departmentalization: Functional (continued)
• Advantages:
– Efficient use of resources
– Economies of scale
– In-depth skill specialization and development
– Top manager direction & control
• Disadvantages:
– Poor communication across functional departments
– Slow response to external changes
– Lagging innovation
– Decisions concentrated at top of hierarchy, creating
Departmentalization - Divisional
Divisional Structure - Grouping based on organizational
• Product, Program, or SBU-Based Divisions
• Geographic or Customer-Based Divisions
Departmentalization: Divisional (continued)
• Advantages:
– Fast response, flexibility in unstable environment
– Fosters concern for customer needs
– Excellent coordination across functional departments
• Disadvantages:
– Duplication of resources across divisions
– Less technical depth and specialization
– Poor coordination across divisions
10.5 Geographic-Based Global Org. Structure
• Geographic or Customer-Based Divisions
- group activities by geography or customer
10.6 Dual-Authority in a Matrix Organization
Departmentalization: Matrix Approach
• Combines functional and divisional approaches
• Advantages: Improve coordination and information:
– More efficient use of resources than single hierarchy
– Flexibility, adaptability to changing environment
– Interdisciplinary cooperation, expertise available to all
• Disadvantages: Dual lines of authority (Two-boss employee)
– Frustration & confusion
– High conflict b/w two sides of the matrix
– Many meetings, more discussion than action
10.7 Global Matrix Structure
Departmentalization: Team Approach
• Very widespread trend;
• Horizontal teams coordinate their work, and work
directly with customers to accomplish the organization’s
• Cross-functional teams
• Permanent teams:
• Examples:
– Project Team, Task Force Team
– Committee
– Agency
Departmentalization: Team Approach
• Advantages:
– Reduced barriers among dept’s, increased compromise
– Shorter response time, quicker decisions (Responsive)
– Allows managers to delegate authority Better morale,
enthusiasm from employee involvement
• Disadvantages:
– Dual loyalties and conflict
– Time and resources spent on meetings;
– Unplanned decentralization
Virtual Network
Approach (Structure)
• The Most Recent Trend
• The firm subcontracts most of its major
functions to separate companies
• Extends idea of horizontal coordination and
collaboration beyond the boundaries of the
– Partnerships
– Alliances
• Could be a loose interconnected group
– Outsourcing
Network Approach to Departmentalization
Departmentalization: Virtual Network
• Advantages:
– Can draw on expertise worldwide
– Highly flexible and responsive
– Reduced overhead costs
• Disadvantages:
– Lack of control
– Weak boundaries
– Greater demands on managers
– Weaker employee loyalty
Risks of Outsourcing (Lee, 2014)
• Intellectual property (trade secret):
– Sony (Japanese) outsourced to LG, Samsung (Korean).
LG, Samsung learned the Sony technologies (1970s &
80s); Now Samsung & LG are selling more electronics
(TV, Phones) than Sony.
Transportation cost
Supply chain
Ethics, Trust, Customer Loyalty
– Kathie Lee Gifford (1996)
– Barbie Doll – Mattel – Lead Paint (2007)
Organizing for Horizontal Coordination
• Companies need more flexibility than vertical
structure can offer
– Meet fast-shifting environment
– Break down barriers between
– Need integration and coordination
• Lack of coordination and cooperation can cause
information problems
– Growing global challenge
• Chrysler Case
Evolution of Organization Structures
Business Process Reengineering (BPR)
Business process reengineering, is the
radical redesign of business processes to
achieve dramatic improvements in cost,
quality, service, and speed
• BPR vs. Downsizing
• BPR vs. TQM
• BPR & Information Systems
Task Forces, Teams, and Project Management
Task Force – a temporary team or
committee formed to solve a
specific short-term problem
involving several departments
Cross-functional Team – furthers
horizontal coordination by
including members across the
Project Manager
– person
responsible for
activities of
departments for
the completion of
a specific project
Project Manager’s Relationships to Departments
Relational Coordination
• Frequent, timely, problem-solving
communication carried out through
[employee] relationships of shared goals,
shared knowledge, and mutual respect.
Structure Follows Strategy
 Business performance is influenced by
 Strategic goals should drive structure:
Differentiation  Divisional Structure
Innovation & Flexibility  Horizontal Team
 Structure should facilitate strategic goals:
Factors Affecting Organization Structure
(Nader & Tushman, 1997)
Relationship of Structural Approach to Strategy
Structure Fits the Technology
• Knowledge, tools, techniques, and activities
should match production activities
• Manufacturing firms can be categorized
according to (Woodward, 1965):
– Small-batch and unit production
– Large-batch and mass production
– Continuous process production
• The technical complexity of each type of firm
Manufacturing Technology and Organization
Structure (Woodward, 1965)
Review Questions
• Discuss the fundamental characteristics of organizing, including such
concepts as work specialization, chain of command, span of
management, and centralization versus decentralization.
• Describe functional and divisional approaches to structure.
• Explain the matrix approach to structure and its application to both
domestic and international organizations.
• Describe the contemporary team and virtual network structures and
why they are being adopted by organizations.
• Explain why organizations need coordination across departments
and hierarchical levels, and describe mechanisms for achieving
• Identify how structure can be used to achieve an organization’s
strategic goals.
• Define production technology (manufacturing, service, and digital)
and explain how it influences organization structure.
Review Questions (continued)
Explain briefly Authority in management
Explain briefly Responsibility in management.
Explain briefly Accountability in management.
Delegation sometimes cause more problems. Explain briefly when
delegation become most effective.
• In classical management theory, a manager is most effective when
the span of management is less than 7. Does the theory still apply to
today’s business environment? Explain briefly why or why not.
• Explain the major difference between Tall Structure and Flat
Structure, in term of the span of management.
• Explain the major difference between Tall Structure and Flat
Structure, in term of the organizational efficiency.
Review Questions (continued)
Explain briefly BPR.
Explain briefly the major difference between BPR & Downsizing.
Explain briefly the major difference between BPR & TQM.
Explain briefly why BPR has something to do with Information
Review Questions (continued)
What are advantages & disadvantages of Functional Approach?
What are advantages & disadvantages of Divisional Approach?
What are advantages & disadvantages of Matrix Approach?
What are advantages & disadvantages of Team Approach?
What are advantages & disadvantages of Virtual Network
• During WWII, General Patton, General MacArthur were
considered most brilliant commanders in the U.S. Army, but
General Eisenhower was chosen to be a supreme commander to
lead Allied Forces. Explain the major reason, from the managerial
Review Questions (continued)
• Explain briefly the risk of outsourcing your business operations in
a case of SONY and LG.
• Explain briefly the risk of outsourcing your business operations in
terms of supply chain.
• Explain briefly the quality risk of outsourcing your business
• Explain briefly the ethics issue of outsourcing your business
operations, using an example of Kathie Lee Gifford case (1996).
• Explain briefly what problem Lee Iacocca, a new CEO of Chrysler
found out, in term of organizational structure in early 1980s.
• Explain briefly why Chrysler needed coordination in the 1980s.

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