A tall organization has fewer levels of authority relative to the size of the organization.

CHAPTER 10

Managing Organizational Structure and Culture

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Learning Objectives

Identify the factors that influence managers’ choice of an organizational structure.

Explain how managers group tasks into jobs that are motivating and satisfying for employees.

Describe the types of organizational structures managers can design, and explain why they choose one structure over another.

Explain why managers must coordinate jobs, functions, and divisions using the hierarchy of authority and integrating mechanisms

List the four sources of organizational culture, and explain why and how a company’s culture can lead to competitive advantage.

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Organizational Structure

Organizational architecture

The organizational structure, control systems, culture, and human resource management systems that together determine how efficiently and effectively organizational resources are used

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Designing Organizational Structure (1 of 4)

Organizing

Process by which managers establish the structure of working relationships among employees to allow them to achieve an organization’s goals efficiently and effectively

Copyright Patrick Heagney/Getty Images RF

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Organizational design: The process by which managers create a specific type of organizational structure and culture so that a company can operate in the most efficient and effective way.

Designing Organizational Structure (2 of 4)

Organizational structure

Formal system of task and reporting relationships that coordinates and motivates organizational members so they work together to achieve organizational goals

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Designing Organizational Structure (3 of 4)

Organizational design

The process by which managers create a specific type of organizational structure and culture so that a company can operate in the most efficient and effective way

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Designing Organizational Structure (4 of 4)

The way an organization’s structure works depends on the choices managers make about:

How to group tasks into individual jobs

How to group jobs into functions and divisions

How to allocate authority and coordinate functions and divisions

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Figure 10.1 Factors Affecting Organizational Structure

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Figure 10.1 Factors Affecting Organizational Structure

Four factors are important determinants of the type of organizational structure or culture managers select: the nature of the organizational environment, the type of strategy the organization pursues, the technology (and particularly information technology) the organization uses, and the characteristics of the organization’s human resources.

The Organizational Environment

The quicker the environment changes, the more problems face managers

Structure must be more flexible (i.e., decentralized authority) when environmental change is rapid

Strategy

Different strategies require the use of different structures

A differentiation strategy needs a flexible structure, low cost may need a more formal structure

Increased vertical integration or diversification also requires a more flexible structure

Technology

The combination of skills, knowledge, tools, equipment, computers and machines used in the organization

More complex technology makes it harder for managers to regulate the organization

Technology

Technology can be measured by:

Task variety: the number of new problems a manager encounters

Task analyzability: the availability of programmed solutions to a manager to solve problems

Human Resources

Highly skilled workers whose jobs require working in teams usually need a more flexible structure

Higher skilled workers (e.g., CPA’s and doctors) often have internalized professional norms and values

Human Resources

Managers must take into account all four factors (environment, strategy, technology and human resources) when designing the structure of the organization

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Grouping Tasks into Jobs: Job Design

Job design

The process by which managers decide how to divide tasks into specific jobs

The appropriate division of labor results in an effective and efficient workforce.

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Job Design

Job simplification

The process of reducing the number of tasks that each worker performs

Job enlargement

Increasing the number of different tasks in a given job by changing the division of labor

Job enrichment

Increasing the degree of responsibility a worker has over a job

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Job Enrichment

Empowering workers to experiment to find new or better ways of doing the job

Encouraging workers to develop new skills

Allowing workers to decide how to do the work

Allowing workers to monitor and measure their own performance

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The Job Characteristics Model (1 of 2)

Skill variety

Employee uses a wide range of skills

Task identity

Worker is involved in all tasks of the job from beginning to end of the production process

Task significance

Worker feels the task is meaningful to the organization

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The Job Characteristics Model

Skill variety: Employee uses a wide range of skills

Task identity: Worker is involved in all tasks of the job from beginning to end of the production process

Task significance: Worker feels the task is meaningful to organization

Autonomy: Employee has freedom to schedule tasks and carry them out

Feedback: Worker gets direct information about how well the job is done

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The Job Characteristics Model (2 of 2)

Autonomy

Employee has freedom to schedule tasks and carry them out

Feedback

Worker gets direct information about how well the job is done

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Grouping Jobs into Functions

Functional structure

An organizational structure composed of all the departments that an organization requires to produce its goods or services

Jump to Appendix 1 for description

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Function - Group of people, working together, who possess similar skills or use the same kind of knowledge, tools, or techniques to perform their jobs.

Functional Structure (1 of 2)

Advantages

Encourages learning from others doing similar jobs

Easy for managers to monitor and evaluate workers

Allows managers to create the set of functions they need in order to scan and monitor the competitive environment

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Functional Structure (2 of 2)

Disadvantages

Difficult for departments to communicate with others

Preoccupation with own department and losing sight of organizational goals

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Example – A.C. Moore Arts & Crafts

A.C. Moore is organized with a functional structure

Examples of divisions are marketing and merchandising, stores and loss prevention, store operations, merchandise administration, real estate, and legal

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http://www.theofficialboard.com/org-chart/a.c.-moore-arts-crafts

Divisional Structures

Divisional structure

An organizational structure composed of separate business units within which are the functions that work together to produce a specific product for a specific customer

Product, market, geographic

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Figure 10.3 Product, Market, and Geographic Structures

Jump to Appendix 2 for description

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Figure 10.3 Product, Market, and Geographic Structures

There are three forms of divisional structure:

When managers organize divisions according to the type of good or service they provide, they adopt a product structure. When managers organize divisions according to the area of the country

or world they operate in, they adopt a geographic structure. When managers organize divisions according to the type of customer they focus on, they adopt a market structure.

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Types of Divisional Structures (1 of 3)

Product structure

Managers place each distinct product line or business in its own self-contained division.

Divisional managers have the responsibility for devising an appropriate business-level strategy to allow the division to compete effectively in its industry or market.

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Product structure

Allows functional managers to specialize in one product area

Division managers become experts in their area

Removes need for direct supervision of division by corporate managers

Divisional management improves the use of resources

Global Product Structure

Each product division takes responsibility for deciding where to manufacture its products and how to market them in foreign countries worldwide

Product Structure

Allows functional managers to specialize in one product area

Division managers become experts in their area

Removes need for direct supervision of division by corporate managers

Divisional management improves the use of resources

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Types of Divisional Structures (2 of 3)

Geographic structure

Divisions are broken down by geographic location

Global geographic structure

Managers locate different divisions in each of the world regions where the organization operates

Generally, occurs when managers are pursuing a multi-domestic strategy

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Figure 10.4 Global Geographic and Global Product Structures

Jump to Appendix 3 for description

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Types of Divisional Structures (3 of 3)

Market structure

Groups divisions according to the particular kinds of customers they serve

Allows managers to be responsive to the needs of their customers and act flexibly in making decisions in response to customers’ changing needs

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Matrix Design Structure

Matrix structure

An organizational structure that simultaneously groups people and resources by function and product

The structure is very flexible

Each employee has two bosses

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Matrix structure

An organizational structure that simultaneously groups people and resources by function and product

Results in a complex network of superior–subordinate reporting relationships

The structure is very flexible and can respond rapidly to the need for change

Each employee has two bosses (functional manager and product manager) and possibly cannot satisfy both

Matrix Structure

Jump to Appendix 4 for description

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In a matrix structure, managers group people and resources in two ways simultaneously: by function and by product.

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Product Team Structure (1 of 2)

Product team structure

Structure in which employees are permanently assigned to a cross-functional team and report only to the product team manager or to one of the manager’s direct subordinates

Does away with dual reporting relationships and two-boss managers

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Product Team Structure: Cross-functional team is composed of a group of managers from different departments working together to perform organizational tasks.

Product Team Structure (2 of 2)

Cross-functional team

A group of managers brought together from different departments to perform organizational tasks

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Figure 10. 5 Product Team Structure

Jump to Appendix 5 for description

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The product team structure differs from a matrix structure in two ways:

It does away with dual reporting relationships and two-boss employees.

Functional employees are permanently assigned to a cross-functional team that is empowered to bring a new or redesigned product to market.

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Allocating Authority (1 of 3)

Authority

Power to hold people accountable for their actions and to make decisions concerning the use of organizational resources

Hierarchy of authority

An organization’s chain of command, specifying the relative authority of each manager

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Hierarchy of authority: An organization’s chain of command, specifying the relative authority of each manager

Span of control: The number of subordinates who report directly to a manager

Allocating Authority (2 of 3)

Span of control

The number of subordinates who report directly to a manager

Jump to Appendix 6 for description

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Allocating Authority (3 of 3)

Line manager

Someone in the direct line or chain of command who has formal authority over people and resources at lower levels

Staff manager

Someone responsible for managing a specialist function, such as finance or marketing.

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Minimum Chain of Command: Top managers should always construct a hierarchy with the fewest levels of authority necessary to efficiently and effectively use organizational resources.

Tall and Flat Organizations (1 of 2)

Tall structures have many levels of authority and narrow spans of control.

As hierarchy levels increase, communication gets difficult, creating delays in the time being taken to implement decisions.

Communications can also become distorted as it is repeated through the firm.

Such structures can become expensive.

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Tall Organizations

Jump to Appendix 7 for description

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Tall Organizations: A tall organization has many levels of authority relative to company size.

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Tall and Flat Organizations (2 of 2)

Flat structures have fewer levels and wide spans of control

Jump to Appendix 8 for description

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Flat organizations: Has fewer levels relative to company size

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Centralization and Decentralization of Authority

Decentralizing authority

Giving lower-level managers and non-managerial employees the right to make important decisions about how to use organizational resources

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Disadvantages

Teams may begin to pursue their own goals at the expense of organizational goals

Can result in a lack of communication among divisions

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Integrating Mechanisms

Jump to Appendix 9 for description

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Integrating mechanisms: Organizing tools that managers can use to increase communication and coordination among functions and divisions.

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Organizational Culture (1 of 2)

Organizational culture

The shared set of beliefs, expectations, values, and norms that influence how members of an organization relate to one another and cooperate to achieve organizational goals

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Organizational Culture (2 of 2)

Organizational ethics

The moral values, beliefs, and rules that establish the appropriate way for an organization and its members to deal with each other and with people outside the organization

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Figure 10.9 Sources of an Organization’s Culture

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Figure 10.9 Sources of an Organization’s Culture

Organizational culture is shaped by the interaction of four main factors:

The personal and professional characteristics of people within the organization

Organizational ethics

The nature of the employment relationship

The design of its organizational structure.

These factors work together to produce different cultures in different organizations and cause changes in culture over time.

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Employment Relationship

Human resource policies

Can influence how hard employees will work to achieve the organization’s goals

How attached they will be to the organization

Whether or not they will buy into its values and norms

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Strong, Adaptive Cultures Versus Weak, Inert Cultures

Adaptive cultures

Values and norms help an organization to build momentum and to grow and change as needed to achieve its goals and be effective.

Inert cultures

Those that lead to values and norms that fail to motivate or inspire employees

Lead to stagnation and often failure over time

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Video: The Container Store

The Container Store provides significantly more training for its employees than the industry norm. How does this training impact job enrichment at The Container Store?

Employees at The Container Store have a 5-minute "huddle" every morning. What is the purpose of this meeting, and how does it reinforce the culture of the organization?

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Container Store; Run time: 12:30

The Container Store was launched in 1978 in a small facility in Dallas, TX. Its mission was to help people organize their lives, both at home and work. For 12 consecutive years, The Container Store has been rated by Fortune magazine as one of the top 100 companies to work for. The company achieves profitability and success through a motivational environment that puts employees first, customers second, and shareholders third. Its management philosophy is simple: If employees are happy and taken care of, they will treat customers the same way, and the secret to success is outstanding customer service. The Container Store achieves this core principle through employee teamwork. Employees are dedicated, motivated and happy at work. According to employees, there are not only strong relationships and support among employees in each store, but there are also strong and open communication channels throughout the organization. Continuous improvement and shared responsibility are essential elements in building relationships with employees, and the company provides significantly more employee training than the Industry norm.

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Appendix 1 Grouping Jobs into Functions

Jump back to Slide 14

The graphic depicts the functional structure of Pier 1 Imports.

The top level is the president and CEO, one office.

Under the president and CEO are the executive vice president and CFO, the executive vice president of merchandising, the executive vice president of global supply chain, the executive vice president of planning and allocations, the executive vice president of human resources, the executive vice president of marketing, the executive vice president of compliance and general counsel secretary.

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Appendix 2 Figure 10.3 Product, Market, and Geographic Structures

Jump back to Slide 19

The graphic shows the three forms of divisional structure.

Product structure. Top of the hierarchy is the CEO, under which is the Corporate managers. The corporate managers over see the Production Divisions of washing machine and dryer division, the lighting division, and the television and stereo division. Each production division has four functions underneath it.

Geographic structure. Top of the hierarchy is the CEO, under which is the Corporate managers. The corporate managers over see the Geographic Divisions of the northern region, western region, southern region, and eastern region. Each production division has four functions underneath it.

Market structure. Top of the hierarchy is the CEO, under which is the Corporate managers. The corporate managers over see the Market Divisions of large business customers, small business customers, educational institutions, and individual customers. Each production division has four functions underneath it.

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Appendix 3 Figure 10.4 Global Geographic and Global Product Structures

Jump back to Slide 23

The graphic shows the two forms of structure.

Global geographic structure. Top of the hierarchy is the CEO, under which is the Corporate managers. The corporate managers oversee the Pacific region, South American region, European region, and the North American region. Each production division has four functions underneath it.

Global product structure. Top of the hierarchy is the CEO, under which is the Corporate managers. The corporate managers over see four product divisions. The product divisions share the responsibility for foreign subsidiaries for the Pacific, South American, and European regions.

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Appendix 4 Matrix Structure

Jump back to Slide 26

In this organizational chart, the CEO heads the organization with functional managers underneath. The managers oversee engineering, sales and marketing, product design, research and development, and manufacturing.

The CEO is connected to the four product teams A, B, C, and D through product team managers.

Connected horizontally with the product teams and vertically with the departments, are product teams with two-boss employees.

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Appendix 5 Figure 10. 5 Product Team Structure

Jump back to Slide 29

In this chart, the product team structure is outlined.

With the CEO overseeing all departments (engineering, sales and marketing, product design, and research and development) there is then a network connecting these departments with product teams which consist of one product team manager and four team members each. These teams then feed into their own manufacturing units.

The network suggests that any department relates to any product team.

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Appendix 6 Allocating Authority (2 of 3)

Jump back to Slide 31

Figure 10.6 shows the hierarchy of authority and span of control at McDonald’s Corporation.

McDonald’s is a simple hierarchy with Steve Easterbrook, the president and chief executive officer at the head. Under him are:

Mike Andres President McDonald's U S A

Doug Goare President International Lead Markets

Doug Goare President International Lead Markets

Dave Homan President High-Growth Markets

Peter Bensen Chief administrative officer

Robert Gibbs Executive vice president and C C O

Kevin Ozan Executive vice president and C F O

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Appendix 7 Tall Organizations

Jump back to Slide 34

This organization chart shows a tall hierarchy, with seven levels.

Positions 1 and 2 head the levels. Under them branches two different levels. Positon 3 is shown on the right. It leads to 4, 5, 6. Position 6 branches into two other levels, with position 7 to the right.

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Appendix 8 Tall and Flat Organizations (2 of 2)

Jump back to Slide 35

This organization chart shows a flat hierarchy, with three levels.

Position 1 heads the organization, followed below with three more positions, and each of these positions oversees two other positions.

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Appendix 9 Integrating Mechanisms

Jump back to Slide 37

Figure 10.8 shows types and examples of integrating mechanisms.

On the left side is a list of direct contacts, moving from simple to complex:

Liaison roles Marketing manager and research and development manager meet to brainstorm new product ideas.

Task forces Representatives from marketing, research and development, and manufacturing meet to discuss launch of new product.

Cross-functional teams A cross-functional team composed of all functions is formed to manage product to its launch in the market.

Integrating roles and departments Senior managers provide members of cross-functional team with relevant information from other teams and from other divisions.

To the right are graphics of liaison roles (two connected circles), task force (a square with corners relating both diagonally and consecutively), a cross-functional team (a square encompassed by a circle, each corner relating diagonally and consecutively), and integrating role (washing machine on the left of integrating role and television and stereo division on the right).

In the cross-functional team, there are managers at each corner responsible for integration.

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