Analyze the behavioral implications of different organizational designs

Discussion Question

Read the Chapter 15-16 of the book,（I uploaded) Out of all the reading assignments, prepare a Discussion Question (DQ). The DQ should focus on something about the material that you found to be INTERESTING, STIMULATING, IMPORTANT, UNCLEAR, or CONTROVERSIAL. Prepare only one DQ (not one from each reading source or chapter). (I don't think you should read all of those, just skim it and find a part you are interested in and write the DQ based on that)

The DQ example: -- When implementing Management by Walking Around (p. 12), how do you find a balance between being holed up at your desk versus risking your employees feeling that you are micromanaging them? Do you see examples of this happening in your office?

Besides, you should also reply to other two DQs from others. You can comment on others' DQ once you have submitted yours. So after you deliver the answer of your DQ, I'll send you two of others' DQs and please reply to them.

15-1 Identify seven elements of an organization’s structure.

15-2 Identify the characteristics of the functional structure, the bureau- cracy, and the matrix structure.

15-3 Identify the characteristics of the virtual structure, the team structure, and the circular structure.

15-4 Describe the effects of downsizing on organizational structures and employees.

15-5 Contrast the reasons for using mechanistic versus organic structural models.

15-6 Analyze the behavioral implications of different organizational designs.

15 Foundations of Organization Structure

LEARNING OBJECTIVES After studying this chapter, you should be able to:

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Foundations of Organization Structure CHAPTER 15 507

FLAT TENED TOO THINLY?

GitHub, a software development organization valued at $2 billion and founded by CEO Chris Wanstrath (shown here) and Tom Preston- Werner in 2007, has revolutionized the way software is developed and made. GitHub has grown from a small, San Francisco start-up with only a few employees to a much larger company, with over 600 employees (nearly doubled in size between 2016 and 2017). Furthermore, GitHub had over 22 million users and over 59 million projects hosted as of 2017. Starting out as a smaller organization, the flat, simple structure GitHub was based on was innovative and helpful in the earlier years. GitHub started with no middle managers, and not many of their employees even had job titles—instead, the employees organically organized and worked on projects as teams (with all sharing responsibility for the management role). One benefit GitHub realized from this structure was that people were not arbitrarily divided or limited by divisions—product, specialty, or otherwise. The open-source structure of the company mirrored the open- source nature of their product.

As organizations grow, however, the appropriateness of different forms of organizational structure may change. This became clear to GitHub in 2014, when developer Julie Ann Horvath announced that she had been the vic- tim of harassment. Horvath was sexually harassed by a GitHub engineer,

Employability Skills Matrix (ESM)

Myth or Science?

Career OBjectives

An Ethical Choice

Point/ Counterpoint

Experiential Exercise

Ethical Dilemma

Case Incident 1

Case Incident 2

Critical Thinking ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Communication ✓ Collaboration ✓ ✓ ✓ ✓ ✓ Knowledge

Application and Analysis

✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Social Responsibility ✓ ✓ ✓ ✓

MyLab Management Chapter Warm Up If your professor has assigned this activity, go to www.pearson.com/ mylab/management to complete the chapter warm up.

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who then rejected her work on several products for turning him down. In an organization without a flat or simple structure, there perhaps would have been more channels for accountability and authority to handle this griev- ance earlier and more efficiently instead of letting it play out for two years.

The limitations of these flat organizations are highlighted by Jo Freeman in her essay “The Tyranny of Structurelessness,” in which she writes that “there is no such thing as a structureless group . . . any group of people of whatever nature that comes together for any length of time for any purpose will inevitably structure itself in some fashion.” The issue that arises is that, without formal control mechanisms, authority and influence are invis- ible because they do not operate through explicit channels. For example, Horvath recounted a conversation with Preston-Werner’s wife in which she was informally threatened and coerced to not write a negative review about the company, telling Horvath that she had “spies” in the organization and apparently had access to the employees’ private chatroom logs. Another issue is a lack of role clarity—Julio Avalos, one of the first 100 hires in 2012 and now the chief business officer (CBO), notes, “Without even a minimal layer of management, it was difficult to have some of those conver- sations and to get people feeling like they understood what was expected of them, and that they were getting the support that they needed to do the best work.”

Wanstrath and GitHub leaders learned their lesson: “I encourage every start-up to think about how you’re building. . . . So many companies think they can put that off ’til later—and then everything explodes. That’s the big- gest lesson for us.” To date, Wanstrath and the board of directors of GitHub have transformed the company’s culture from a flat, flexible, meritocratic organization to one with middle management who must be present at the office and not working remotely.

Sources: Based on J. Bort and M. Weinberger, “GitHub Is Undergoing a Full-Blown Over- haul as Execs and Employees Depart,” Business Insider, February 6, 2016, http://www .businessinsider.com/github-the-full-inside-story-2016-2; K. Finley, “GitHub Swaps CEOs, Proves It Doesn’t Need No Stinking Bosses,” Wired, January 22, 2014, https://www.wired .com/2014/01/github-ceo/; K. Finley, “Why Workers Can Suffer in Bossless Companies Like GitHub,” Wired, March 20, 2014, https://www.wired.com/2014/03/tyranny-flatness/; J. Freeman, The Tyranny of Structurelessness, May 1970, http://www.jofreeman.com/joreen/ tyranny.htm; GitHub, About Page, accessed April 16, 2017, https://github.com/about; M. Mittelman, “Why GitHub Finally Abandoned Its Bossless Workplace,” Bloomberg, Sep- tember 6, 2016, https://www.bloomberg.com/news/articles/2016-09-06/why-github-finally- abandoned-its-bossless-workplace; D. Roberts, “GitHub CEO: What I Learned from Our Harassment Scandal,” Forbes, September 29, 2015, http://fortune.com/2015/09/29/ github-ceo-40-under-40/; and A. Wilhelm and A. Tsotsis, “Julie Ann Horvath Describes Sexism and Intimidation behind Her GitHub Exit,” Tech Crunch, March 15, 2014, https:// techcrunch.com/2014/03/15/julie-ann-horvath-describes-sexism-and-intimidation-behind- her-github-exit/.

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Even for a start-up with only a few employees, choosing an organizational structure requires far more than simply deciding who is the boss and how many employees are needed. The organization’s structure determines what relationships form, the formality of those relationships, and many work out- comes. The structure may also change as organizations grow and shrink, as management trends dictate, and as research uncovers better ways of maximiz- ing productivity.

Structural decisions are arguably the most fundamental ones that a leader must make toward sustaining organizational growth.1 In this chapter, we’ll explore how structure affects employee behavior and the organization as a whole.

What Is Organizational Structure? An organizational structure defines how job tasks are formally divided, grouped, and coordinated.2 Managers should address seven key elements when they design their organization’s structure: work specialization, departmentalization, chain of command, span of control, centralization and decentralization, for- malization, and boundary spanning.3 Exhibit 15-1 presents each element as the answer to an important structural question, and the following sections describe each one.

Work Specialization Early in the twentieth century, Henry Ford became rich by building automo- biles using an assembly line. Every worker was assigned a specific, repetitive task such as putting on the right front wheel or installing the right front door. By dividing jobs into small standardized tasks that could be performed over and over, Ford was able to produce a car every 10 seconds, using employees with relatively limited skills.4

15-1 Identify seven elements of an organization’s structure.

organizational structure The way in which job tasks are formally divided, grouped, and coordinated.

Key Design Questions and Answers for Designing the Proper Organizational Structure

Exhibit 15-1

The Key Question The Answer Is Provided by

1. To what degree are activities subdivided into separate jobs?

Work specialization

2. On what basis will jobs be grouped together?

Departmentalization

3. To whom do individuals and groups report?

Chain of command

4. How many individuals can a manager efficiently and effectively direct?

Span of control

5. Where does decision-making authority lie?

Centralization and decentralization

6. To what degree will there be rules and regulations to direct employees and managers?

Formalization

7. Do individuals from different areas need to regularly interact?

Boundary spanning

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Work specialization, or division of labor, describes the degree to which activi- ties in the organization are divided into separate jobs.5 The essence of work specialization is to divide a job into several steps, each completed by a separate individual. Individuals specialize in doing part of an activity rather than the entirety. Specialization is a means of making the most efficient use of employ- ees’ skills and even successfully improving them through repetition. Less time is spent changing tasks, putting away tools and equipment from a prior step, and getting ready for another.

By the 1960s, it increasingly seemed that the good news of specialization could be carried too far. Human diseconomies began to surface in the form of boredom, fatigue, stress, low productivity, inferior quality, increased absentee- ism, and high turnover, which more than offset the economic advantages (see Exhibit 15-2).6 Managers could increase productivity now by enlarging, rather than narrowing, the scope of job activities. Giving employees a variety of activi- ties to do, allowing them to do a whole and complete job, and putting them into teams with interchangeable skills often achieved significantly higher out- put, with increased employee satisfaction.7

Ford demonstrated that work can be performed more efficiently if work is spe- cialized, and the practice still has applications in many industries. For example, could you build a car by yourself? Not likely! Equally important, it’s easier and less costly to find and train workers to do specific tasks, especially in highly sophis- ticated and complex operations. Work specialization increases efficiency and pro- ductivity by encouraging the creation of customized inventions and machinery.

Most managers today recognize the economies that specialization provides in certain jobs and the problems when it’s carried too far. High work specializa- tion helps fast-food restaurants make and sell hamburgers and fries efficiently, and aids medical specialists in most health maintenance organizations. Wher- ever job roles can be broken down into specific tasks or projects, specialization is possible. Specialization may still confer advantages outside manufacturing, particularly where job sharing and part-time work are prevalent.8 Amazon’s Mechanical Turk program, TopCoder, and others like it have facilitated a new trend in microspecialization, e-lancing, or crowd sourcing in which extremely small pieces of programming, data processing, or evaluation tasks are delegated to a global network of individuals by a program manager who then assembles the results.9 This opens the way for employers to use online platforms to assign multiple workers to tasks in a broader functional role like marketing.10 Auto- mation and the use of computers and information systems within organizations are creating a new form of work specialization in which computers take on spe- cialized work.11

work specialization The degree to which tasks in an organization are subdivided into separate jobs.

Economies and Diseconomies of Work SpecializationExhibit 15-2

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of sp

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Impact from

human diseconomies

(Low) (High)Work specialization

Pr od

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(High)

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Thus, whereas specialization of yesteryear focused on breaking manufactur- ing tasks into specific duties within the same plant, today’s specialization judi- ciously breaks complex tasks into specific elements by technology, expertise, and region. The core principle, however, is the same.

Departmentalization Once jobs have been divided through work specialization, they must be grouped so common tasks can be coordinated. The basis by which jobs are grouped is called departmentalization.12

One of the most popular ways to group activities is by the functions per- formed. A manufacturing manager might organize a plant into engineering, accounting, manufacturing, human resources (HR), and supply chain depart- ments. A hospital might have departments for research, surgery, intensive care, accounting, and so forth. A professional football franchise might have depart- ments for player personnel, ticket sales, and travel and accommodations. The major advantage of this type of functional departmentalization is efficiencies gained from putting specialists that focus on similar areas together.

We can also departmentalize jobs by the type of product or service the organi- zation produces. Procter & Gamble places each major product—such as Tide, Pampers, Charmin, and Pringles—under an executive who has complete global responsibility for it. The major advantage here is increased accountability for performance because all activities related to a specific product or service are under the direction of a single manager.13

When a firm is departmentalized based on geography, or territory, each function (for example, sales) may have western, southern, midwestern, and eastern regions. This form is valuable when an organization’s customers are scattered over a large geographic area and have similar needs within their locations. For this reason, Toyota changed its management structure into geo- graphic regions “so that they may develop and deliver ever better products,” said CEO Akio Toyoda.14

Process departmentalization works for processing customers as well as prod- ucts. If you’ve ever been to a state motor vehicle office to get a driver’s license, you probably went through several departments before receiving your license. In one typical state, applicants go through three steps, each handled by a sep- arate department: (1) validation by the motor vehicles division, (2) process- ing by the licensing department, and (3) payment collection by the treasury department. A final category of departmentalization uses the particular type of customer the organization seeks to reach.

Organizations do not always stay with the basis of departmentalization they first adopt. Microsoft, for instance, used customer departmentalization for years, organizing around its customer bases: consumers, large corporations, software developers, and small businesses. However, in a June 2013 letter from CEO Steve Ballmer to all employees, he announced a restructuring to func- tional departmentalization, citing a need to foster continuing innovation. The new departments grouped jobs by traditional functions, including engineer- ing, marketing, business development, strategy and research, finance, HR, and legal.15

Ballmer expected the change in Microsoft’s organizational structure to “reshape how we interact with our customers, developers, and key innovation partners, delivering a more coherent message and family of product offer- ings.”16 As we see throughout this text, whenever changes are deliberately made in organizations to align practices with organizational goals, particularly the goals of strong leaders, a good execution of the changes creates a much higher probability for improvement. In Microsoft’s case, the results are not

departmentalization The basis by which jobs in an organization are grouped together.

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yet determined—Ballmer, who is a strong leader, announced his retirement 2 months later (he officially left Microsoft in 2014), and further changes ensued. Microsoft continued to struggle with the reorganization, announcing addi- tional changes in its leadership personnel and team structure less than a year later. These changes included, for example, product specialization and func- tional specialization; for instance, the PowerPoint, Excel, and Access teams have been reorganized into content creation and data visualization teams.17

Chain of Command While the chain of command was once a basic cornerstone in the design of organizations, it has far less importance today. But managers should still con- sider its implications, particularly in industries that deal with potential life-or- death situations when people need to rely quickly and suddenly on decision makers. The chain of command is an unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom.

We can’t discuss the chain of command without also discussing authority and unity of command. Authority refers to the rights inherent in a managerial posi- tion to give orders and expect them to be obeyed. To facilitate coordination, each managerial position is given a place in the chain of command, and each manager is given a degree of authority to meet his or her responsibilities. The principle of unity of command helps preserve the concept of an unbroken line of authority. It says that a person should have one and only one superior to whom he or she is directly responsible. If the unity of command is broken, an employee might have to cope with conflicting demands or priorities from several superiors, as is often the case in an organization chart’s dotted-line reporting relationships depicting an employee’s accountability to multiple managers.18

Times change, however, and so do the basic tenets of organizational design. A low-level employee today can access information in seconds that was available only to top managers a generation ago, and many employees are empowered

chain of command The unbroken line of authority that extends from the top of the or- ganization to the lowest echelon and clarifies who reports to whom.

authority The rights inherent in a manage- rial position to give orders and to expect the orders to be obeyed.

unity of command The idea that a subordi- nate should have only one superior to whom he or she is directly responsible.

A global firm that operates on a local scale in more than 200 countries, The Coca-Cola Company is organized into five geographic segments: North America, Latin America, Europe, the Middle East and Africa, and Asia Pacific. The structure enables it to tai- lor its strategy to markets in different stages of economic development and with differing consumer tastes and buying behavior. Source: Kim Kyung-Hoon/Reuters

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to make decisions previously reserved for management.19 Add the popularity of self-managed and cross-functional teams (see Chapter 10) as well as structural designs that include multiple bosses, and you can see why authority and unity of command may appear to hold less relevance. Yet many organizations still find that they are the most productive when they enforce a chain of command. Indeed, one survey of more than 1,000 managers found that 59 percent agreed with the statement, “There is an imaginary line in my company’s organizational chart. Strategy is created by people above this line, while strategy is executed by people below the line.” However, this same survey found that lower-level employees’ buy-in (agreement and active support) to the organization’s overall, big-picture strategy was inhibited by their reliance on the hierarchy for deci- sion making.20

Span of Control How many employees can a manager direct efficiently and effectively? The span of control describes the number of levels and managers in an orga- nization.21 All things being equal, the wider or larger the span, the fewer the levels, and the more employees at each level, the more efficient the organization.22

Assume two organizations each have about 4,100 operative-level employ- ees. One has a uniform span of 4 and the other a span of 8. As Exhibit 15-3 illustrates, the wider span of 8 will have two fewer levels and approximately 800 fewer managers. If the average manager makes $60,000 a year, the wider span will save $48 million a year in management salaries! Obviously, wider spans are more efficient in terms of cost. However, when supervisors no longer have time to provide subordinates with the necessary leadership and support, effectiveness declines and employee performance suffers.23

Narrow or small spans have their advocates. By keeping the span of con- trol to five or six employees, a manager can maintain close control.24 But nar- row spans have three major drawbacks.25 First, they’re expensive because they add levels of management. Second, they make vertical communication in the organization more complex. The added levels of hierarchy slow down decision making and can isolate upper management. Third, narrow spans encourage overly tight supervision and discourage employee autonomy.

span of control The number of subordinates that a manager can direct efficiently and effectively.

Contrasting Spans of ControlExhibit 15-3

1

Assuming span of 4

Span of 4: Operatives Managers (Levels 1–6)

= 4,096 = 1,365

Span of 8: Operatives Managers (Levels 1–4)

O rg

an iz

at io

na l L

ev el

= 4,096 = 585

Members at each level Assuming span of 8

1

(Highest)

2 3 4 5 6 7

1 8

64 512

4,096

4 16 64 256

1,024

4,096

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The trend in recent years has been toward wider spans of control.26 They’re consistent with firms’ efforts to reduce costs, cut overhead, speed decision mak- ing, increase flexibility, get closer to customers, and empower employees. To ensure that performance doesn’t suffer because of these wider spans, however, organizations might invest heavily in employee training because managers rec- ognize they can handle a wider span best when employees know their jobs well or can turn to coworkers with questions.

Centralization and Decentralization Centralization refers to the degree to which decision making is concentrated at a single point in the organization.27 In centralized organizations, top man- agers make all the decisions, and lower-level managers merely carry out their directives. In organizations at the other extreme, decentralized decision making is pushed down to the managers closest to the action or to workgroups.28 The concept of centralization includes only formal authority—that is, the rights inherent to a position.

An organization characterized by centralization is different structurally from one that’s decentralized. A decentralized organization can act more quickly to solve problems, more people provide input into decisions, and employees are less likely to feel alienated from those who make decisions that affect their work lives.29 The effects of centralization and decentralization can be predicted: Cen- tralized organizations are better for avoiding commission errors (bad choices), while decentralized organizations are better for avoiding omission errors (lost opportunities).30

Management efforts to make organizations more flexible and responsive have produced a trend toward decentralized decision making by lower-level managers, who are closer to the action and typically have more detailed knowl- edge about problems than top managers. When Procter & Gamble empowered small groups of employees to make decisions about new-product development independent of the usual hierarchy, it was able to rapidly increase the propor- tion of new products ready for market.31 Concerning creativity, research inves- tigating a large number of Finnish organizations demonstrated that companies with decentralized research and development (R&D) offices in multiple loca- tions were better at producing innovation than companies that centralized all R&D in a single office.32 Sometimes, however, decentralization can be a double- edged sword—one study of nearly 3,000 U.S. Air Force officers suggests that there can sometimes be negative effects of decentralization in organizations with multiteam systems, including excessive risk seeking and coordination failures.33

Decentralization is often necessary for companies with offshore sites because localized decision making is needed to respond to each region’s profit oppor- tunities, client base, and specific laws, while centralized oversight is needed to hold regional managers accountable. Failure to successfully balance these pri- orities can harm not only the organization but also its relationships with for- eign governments.34

Formalization Formalization refers to the degree to which jobs within the organization are standardized.35 If a job is highly formalized, the employee has a minimal amount of discretion over what to do and when and how to do it, resulting in consistent and uniform output. There are explicit job descriptions, lots of organizational rules, and clearly defined procedures covering work processes. Formalization eliminates the possibility of employees engaging in alternative behaviors, and it removes the need for them to consider alternatives. Conversely, where formal- ization is low, job behaviors are relatively unprogrammed and employees have a great deal of freedom to exercise discretion in their work.

centralization The degree to which decision making is concentrated at a single point in an organization.

formalization The degree to which jobs within an organization are standardized.

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The degree of formalization can vary widely between and within organi- zations. Research from 94 high-technology Chinese firms indicated that for- malization is a detriment to team flexibility in decentralized organization structures, suggesting that formalization does not work as well where duties are inherently interactive or where there is a need to be flexible and innova- tive.36 For example, publishing representatives who call on college professors to inform them of their company’s new publications have a great deal of free- dom in their jobs. They have a general standardized sales pitch, which they tailor as needed, and rules and procedures governing their behavior may be little more than suggestions on what to emphasize about forthcoming titles and the requirement to submit a weekly sales report. At the other extreme, clerical and editorial employees in the same publishing houses may need to be at their desks by 8:00 a.m. and follow a set of precise procedures dictated by management.

Boundary Spanning We’ve described ways that organizations create well-defined task structures and chains of authority. These systems facilitate control and coordination for spe- cific tasks, but if there is too much division within an organization, attempts to coordinate across groups can be disastrous. One way to overcome this sense of compartmentalization and retain the benefits of structure is to encourage or create boundary-spanning roles.

Within a single organization, boundary spanning occurs when individuals form relationships with people outside their formally assigned groups.37 An HR executive who frequently engages with the IT group is engaged in boundary spanning, as is a member of an R&D team who implements ideas from a pro- duction team. These activities help prevent formal structures from becoming too rigid and, not surprisingly, enhance organization and team creativity, deci- sion making, knowledge sharing, and performance.38

Boundary-spanning activities occur not only within but also between orga- nizations. Positive results are especially strong in organizations that encourage extensive internal communication; in other words, external boundary span- ning is most effective when it is followed up with internal boundary spanning.39

boundary spanning Individuals forming relationships outside their formally assigned groups.

With more than 7,000 neighborhood and airport locations throughout North America and Europe, Enterprise Rent-A-Car empowers employees at the local level to make decisions that affect their work. Decentralization gives Enterprise a competitive advan- tage by enabling employees to provide personalized service that results in high customer satisfaction. Source: RosaIrene Betancourt 3/Alamy Stock Photo

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In addition, research on 225 manufacturer–distributor dyads in China sug- gests that ties between salespersons and buyers across organizations are linked with greater relationship quality between two organizations than are ties between executives across organizations, but when there are strong relation- ships between executives and employees, there may be cooperation and better conflict resolution.40

Organizations can use formal mechanisms to facilitate boundary-spanning activities. One method is to assign formal liaison roles or develop commit- tees of individuals from different areas of the organization.41 Development activities can also facilitate boundary spanning. Employees with experience in multiple functions, such as accounting and marketing, are more likely to engage in boundary spanning.42 Many organizations may try to set the stage for these sorts of positive relationships by creating job rotation programs so new hires get a better sense of different areas of the organization. Another method to encourage boundary spanning is to bring attention to overall organizational goals, such as efficiency and innovation, and shared identity concepts.43

You probably have personal experience with at least some of the results of decisions that leaders have made in your school or workplace that were related to the elements of organizational structure. The organizational framework, which can be depicted by drawing an organizational chart, can help you clarify these leaders’ decisions. We’ll discuss them next.

Common Organizational Frameworks and Structures Organizational designs are known by many names and are constantly evolving in response to changes in the way work is done. We will start with three of the more common organizational frameworks: the simple structure, the bureaucracy, and the matrix structure.

15-2 Identify the characteristics of the functional structure, the bureaucracy, and the matrix structure.

BMW encourages all employees, including this production worker at its plant in Jakarta, Indonesia, to build relationships throughout the global company. Boundary spanning at BMW links R&D, design, production, and marketing individuals to speed prob- lem solving and innovation and to adapt to market fluctuations. Source: Dadang Tri/Bloomberg/Getty Images

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The Simple Structure What do a small retail store, an electronics firm run by a hard-driving entre- preneur, and an airline’s war room during a pilot’s strike have in common? They probably all use the simple structure.44 The simple structure has a low degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization. It is a flat organization; it usually has only two or three vertical levels, a loose body of employees, and one individual with decision-making authority. Most companies start as a simple structure, and many innovative technology-based firms with short life spans, like cell phone app development firms, remain compact by design.45

Exhibit 15-4 is an organization chart for a retail men’s store owned and man- aged by Jack Gold. Jack employs five full-time salespeople, a cashier, and extra workers for weekends and holidays, but he “runs the show.” Although this type of organization is typical for a small business, in times of crisis large companies often simplify their structures (though not to this degree) as a means of focus- ing their resources.

The strength of the simple structure lies, of course, in its simplicity. It’s fast, flexible, and inexpensive to operate, and accountability is clear. One major weakness is that it becomes increasingly inadequate as an organization grows because its low formalization and high centralization tend to create informa- tion overload at the top. Decision making typically becomes slower as the single executive tries to continue doing it all. This proves the undoing of many small businesses. If the structure isn’t changed and made more elaborate, the firm often loses momentum and can eventually fail.46 The simple structure’s other weakness is that it’s risky—everything depends on one person. An illness for the owner-manager can literally halt the organization’s information and deci- sion-making capabilities.47

The Bureaucracy Standardization! That’s the key concept that underlies all bureaucracies. Con- sider the bank where you keep your checking account; the store where you buy clothes; or the government entities that collect your taxes, enforce health regulations, or provide local fire protection. They all rely on standardized work processes for coordination and control.

The bureaucracy is characterized by highly routine operating tasks achieved through specialization, strictly formalized rules and regulations, tasks grouped into units, centralized authority, narrow spans of control, and decision making that follows the chain of command.48 Bureaucracy incorporates all the stron- gest degrees of departmentalization described earlier.

Bureaucracy is a dirty word in many people’s minds. However, this type of organization does have advantages, primarily the ability to perform standard- ized activities very efficiently. Putting like specialties together in units results

simple structure An organizational structure characterized by a low degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization.

bureaucracy An organizational structure with highly routine operating tasks achieved through specialization, very formalized rules and regulations, tasks that are grouped into functional departments, centralized authority, narrow spans of control, and decision making that follows the chain of command.

A Simple Structure (Jack Gold’s Men’s Store)Exhibit 15-4

Jack Gold, owner-manager

Bob Munson, salesperson

Edna Joiner, salesperson

Johnny Moore, salesperson

Helen Wright, cashier

Jerry Plotkin, salesperson

Norma Sloman, salesperson

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in economies of scale, minimum duplication of people and equipment, and a common language employees all share. Bureaucracies can get by with less talented—and hence less costly—middle- and lower-level managers because rules and regulations substitute for managerial discretion. There is little need for innovative and experienced decision makers below the level of senior exec- utives, and innovative employees often do not mesh well with bureaucracy.49

Listen to this conversation among four executives in one company: “You know, nothing happens in this place until we produce something,” said the pro- duction executive. “Wrong,” commented the R&D manager, “Nothing happens until we design something!” “What are you talking about?” asked the market- ing executive, “Nothing happens until we sell something!” The exasperated accounting manager responded, “It doesn’t matter what you produce, design, or sell. No one knows what happens until we tally up the results!” This conversa- tion highlights how bureaucratic specialization can create conflicts in which the unit perspectives override the overall goals of the organization.

The other major weakness of a bureaucracy is something we’ve all witnessed: obsessive concern with following the rules. When cases don’t fit the rules pre- cisely, there is no room for modification. The bureaucracy is efficient only if employees confront familiar problems with programmed decision rules.50 There are two types of bureaucracies we should explore: functional and divi- sional structures.

The Functional Structure The functional structure groups employees by their similar specialties, roles, or tasks.51 An organization organized into production, marketing, HR, and accounting departments is an example. Many large organi- zations utilize this structure, although this is evolving to allow for quick changes in response to business opportunities. One advantage of the functional struc- ture is that specialists may be able to become experts more easily than if they worked in diversified units. Employees can also be motivated by a clear career path to the top of the organization chart specific to their specialties.

The functional structure works well if the organization is focused on one product or service. Unfortunately, it creates rigid, formal communications because the hierarchy dictates the communication protocol. Coordination

functional structure An organizational structure that groups employees by their similar specialties, roles, or tasks.

Hospitals benefit from standardized work processes and procedures common to a bureaucratic structure because they help employees perform their jobs efficiently. At Christchurch Women’s Hospital in New Zealand, registered nurse Megan Coleman (right) and midwife Sally Strathdee follow formal rules and regulations in caring for mothers and newborns. Source: Greg Wood/AFP/Getty Images

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among many units is a problem, and infighting in units and between units can lead to reduced motivation.

The Divisional Structure The divisional structure groups employees into units by product, service, customer, or geographical market area.52 It is highly depart- mentalized. Sometimes this structure is known by the type of division structure it uses: product/service organizational structure (for example, units for cat food, dog food, and bird food that report to an animal food producer), customer orga- nizational structure (for example, units for outpatient care, inpatient care, and pharmacy that report to hospital administration), or geographic organizational structure (for example, units for Europe, Asia, and South America that report to corporate headquarters).

The divisional structure has the opposite benefits and disadvantages of the functional structure. It facilitates coordination in units to achieve their goals while addressing the specific concerns of each unit. It provides clear respon- sibility for all activities related to a product but with duplication of functions and costs. Sometimes this is helpful, say, when the organization has a unit in Spain and another in China, which are very different markets, and a market- ing strategy is needed for a new product. Marketing experts in both places can incorporate the appropriate cultural perspectives into their region’s market- ing campaign. However, the organization’s marketing function employees in two places may represent an increased cost because they are doing basically the same task in two different countries. It appears as if organizations can shift from a divisional to a functional structure, and vice versa; however, those who shift from a functional to a divisional structure tend to perform the best.53

The Matrix Structure The matrix structure combines the functional and product structures, and we find it in advertising agencies, aerospace firms, R&D laboratories, construction companies, hospitals, government agencies, universities, management con- sulting firms, and entertainment companies.54 Companies that use matrixlike structures include ABB, Boeing, BMW, IBM, and P&G.

The most obvious structural characteristic of the matrix is that it breaks the unity-of-command concept. Employees in the matrix have two bosses: their func- tional department managers and their product managers. Exhibit 15-5 shows the matrix for a college of business administration. The academic departments of accounting, decision and information systems, marketing, and so forth, are

divisional structure An organizational structure that groups employees into units by product, service, customer, or geographical market area.

matrix structure An organizational structure that creates dual lines of authority and combines functional and product departmentalization.

Accounting

Finance

Management

Decision and Information Systems

Marketing

Programs

Undergraduate Master’s Ph.D. Research Community ServiceExecutiveDevelopmentAcademicDepartments

Matrix Structure for a College of Business AdministrationExhibit 15-5

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520 PART 3 The Group

functional units. Overlaid on them are specific programs (that is, products). Thus, members in a matrix structure have a dual chain of command: to their functional department and to their product groups. A professor of accounting teaching an undergraduate course may report to the director of undergraduate programs as well as to the chairperson of the accounting department.

The strength of the matrix is its ability to facilitate coordination when the organization has many complex and interdependent activities.55 Direct and fre- quent contacts between different specialties in the matrix can let information permeate the organization and reach the people who need it more quickly. The matrix reduces so-called bureaupathologies—its dual lines of authority limit people’s tendency to protect their territories at the expense of the orga- nization’s goals.56 A matrix also achieves economies of scale and facilitates the allocation of specialists by both providing the best resources and ensuring that they are efficiently used.57

The major disadvantages of the matrix lie in the confusion it creates, its tendency to foster power struggles, and the stress it places on individuals.58 For individuals who desire security and absence from ambiguity, this work climate can be stressful. Reporting to more than one boss introduces role conflict, and unclear expectations introduce role ambiguity. Without the unity-of-command concept, ambiguity about who reports to whom is significantly increased and often leads to conflict and power struggles between functional and product managers.

Alternate Design Options In the ever-increasing trend toward flatter structures, many organizations have been developing new options with fewer layers of hierarchy and more emphasis on opening the boundaries of the organization.59 In this section, we describe three such designs: the virtual structure, the team structure, and the circular structure.

The Virtual Structure Why own when you can rent? That question captures the essence of the virtual structure (also sometimes called the network, or modular, structure), typically a small, core organization that outsources its major business functions.60 The virtual structure is highly centralized, with little or no departmentalization.

The prototype of the virtual structure is today’s filmmaking organization. In Hollywood’s golden era, movies were made by huge, vertically integrated corporations. Studios such as Metro-Goldwyn-Mayer (MGM), Warner Bros., and 20th Century Fox owned large movie lots and employed thousands of full-time specialists—set designers, camera people, film editors, directors, and actors. Today, most movies are made by a collection of individuals and small companies who come together and make films project by project. This struc- tural form allows each project to be staffed with the talent best suited to its demands rather than just with the people employed by the studio. It minimizes bureaucratic overhead because there is no lasting organization to maintain. It lessens long-term risks and their costs because there is no long term—a team is assembled for a finite period and then disbanded.

Exhibit 15-6 shows a virtual structure in which management outsources all the primary functions of the business. The core of the organization is a small group of executives whose job is to oversee directly any activities done in-house and to coordinate relationships with organizations that manufacture, dis- tribute, and perform other crucial functions. The dotted lines represent the

15-3 Identify the characteris-tics of the virtual struc- ture, the team structure, and the circular structure.

virtual structure A small, core organization that outsources major business functions.

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relationships typically maintained under contracts. Managers in virtual struc- tures spend most of their time coordinating and controlling external relations.

Network organizations often take many forms.61 Some of the more tradi- tional forms include the franchise form, in which there are managers, systems, and other experts in the central node (i.e., executive group), and customer sales and services are carried out by franchise units. This popular form of net- work organization is very common in service business models, such as 7-Eleven, McDonald’s, Jimmy John’s, and Dunkin’ Donuts. In this form, however, franchi- sees do not tend to collaborate or coordinate with one another and may actu- ally be in direct competition for resources from the executive group. Another example is the starburst form, in which a parent firm splits off one of its func- tions into a spinoff firm.62 For example, in 2012, Netflix split off its DVD function into a separate entity, now DVD.com.63

The major advantage of the virtual structure is its flexibility, which allows individuals with an innovative idea and little money to successfully compete against larger, more established organizations. The structure also saves a great deal of money by eliminating permanent offices and hierarchical roles for out- sourced functions.64 The drawbacks have become increasingly clear as popu- larity has grown.65 Virtual organizations are in a state of perpetual flux and reorganization, which means roles, goals, and responsibilities are unclear, set- ting the stage for increased political behavior.

The Team Structure The team structure seeks to eliminate the chain of command and replace departments with empowered teams.66 This structure removes vertical and hor- izontal boundaries in addition to breaking down external barriers between the company and its customers and suppliers.

By removing vertical boundaries, management flattens the hierarchy and minimizes status and rank. Cross-hierarchical teams (which include top execu- tives, middle managers, supervisors, and operative employees), participative decision-making practices, and the use of 360-degree performance appraisals (in which peers and others evaluate performance) can be used. For example, at the Danish firm Oticon A/S, the world’s largest hearing aid manufacturer, all traces of hierarchy have disappeared.67 Everyone works at uniform mobile

team structure An organizational structure that replaces departments with empowered teams, and that eliminates horizontal bound- aries and external barriers between customers and suppliers.

A Virtual StructureExhibit 15-6

Advertising agency

Factories in

South Korea

Executive group

Commissioned sales

representatives

Independent research and development consulting

firm

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workstations, and project teams, not functions or departments, coordinate work.

As previously discussed, functional departments create horizontal boundar- ies between functions, product lines, and units. The way to reduce them is to replace functional departments with cross-functional teams and organize activi- ties around processes. Xerox, for instance, develops new products through multidisciplinary teams that work on a single process instead of on narrow functional tasks.68

When fully operational, the team structure may break down geographic bar- riers. Today, most large U.S. companies see themselves as team-oriented global corporations; many, like Coca-Cola and McDonald’s, do as much business overseas as in the United States, and some struggle to incorporate geographic regions into their structure. In other cases, the team approach is need-based. Such is the case with Chinese companies, which made 93 acquisitions in the oil and gas industry in five years—incorporating each acquisition as a new team unit—to meet forecasted demand that their resources in China could not meet.69 The team structure provides a solution because it considers geography as more of a tactical, logistical issue than a structural one. In short, the goal may be to break down cultural barriers and open opportunities.

Career OBjectives What structure should I choose?

I’m running a small but growing busi- ness and need help figuring out how to keep positions flexible as we expand. What advice can you give me about designing job structures that will help combine my success today with growth for tomorrow?

— Anika Dear Anika: A surprising number of small busi- nesses fail right at the point where they begin to grow, and for many rea- sons, including financing deficits and competitors that copy their clever ideas. However, a frequent problem is that the structure that the company began with is simply not right for a larger firm.

There are ways to meet the chal- lenge. Start by looking at individual jobs and their responsibilities. Make a list for each job. When job roles and responsibilities aren’t defined, you can pick up a great deal of flexibility, assigning employees to tasks exactly when needed. Unfortunately, this flex- ibility also means it’s hard to determine which skills are available or to identify

gaps between planned strategy and available human resources.

Second, you may want to define roles based on broad sets of compe- tencies that span multiple levels of organizational functioning. In this stra- tegic competency model, job roles and incentives are defined based on a clear structure. Here are the steps:

• Look at the top level and think about the future. In the competency model, you should use the mission state- ment and overall organizational strategies to evaluate your organiza- tion’s future needs.

• Once you’ve identified the organiza- tion’s future needs, figure out a smart way to assign responsibilities to indi- viduals. You’ll obviously need some specialization, but at the same time, consider general skills that will be useful for both growth and long-term sustainability.

• As your business grows, identify appli- cants with the potential to meet future needs, and develop employee incen- tives to encourage broad skills profiles.

You’ll want to structure your plan so employees increase in competency as they move up the organization chart.

The most important thing to remember is that you aren’t creating a job structure just for today—make sure it’s ready to grow and change with your business. Grow well!

Sources: Based on G. W. Stevens, “A Critical Review of the Science and Practice of Com- petency Modeling,” Human Resource Devel- opment Review 12 (March 2013): 86–107; P. Capelli and J. R. Keller, “Talent Management: Conceptual Approaches and Practical Chal- lenges,” Annual Review of Organizational Psy- chology and Organizational Behavior 1 (March 2014): 305–31; and C. Fernández-Aráoz, “21st Century Talent Spotting,” Harvard Business Review, June 2014, https://hbr .org/2014/06/21st-century-talent-spotting.

The opinions provided here are of the manag- ers and authors only and do not necessar- ily reflect those of their organizations. The authors or managers are not responsible for any errors or omissions, or for the results obtained from the use of this information. In no event will the authors or managers, or their related partnerships or corporations thereof, be liable to you or anyone else for any decision made or action taken in reliance on the opinions provided here.

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Some organizations create teams incorporating their employees and their customers or suppliers. For example, to ensure that important product parts are made reliably and to exacting specifications by its suppliers, Honeywell International partners some of its engineers with managers at those suppliers.

The Circular Structure Picture the concentric rings of an archery target. In the center are the execu- tives, and radiating outward in rings grouped by function are the managers, then the specialists, then the workers. This is the circular structure.70 Does it seem like organizational anarchy? There is still a hierarchy, but top man- agement is at the very heart of the organization, with its vision spreading outward.

The circular structure has intuitive appeal for creative entrepreneurs, and some small innovative firms have claimed it. As in many of the current hybrid approaches, however, employees are apt to be unclear about whom they report to and who is running the show. We are still likely to see the popularity of the circular structure spread. The concept may have intuitive appeal for spreading a vision of corporate social responsibility (CSR), for instance.

circular structure An organizational structure in which executives are at the center, spreading their vision outward in rings grouped by function (managers, then specialists, then workers).

An Ethical Choice Flexible Structures, Deskless Workplaces

Once upon a time, students fresh from business schools couldn’t wait for that first cubicle to call home, midlevel managers aspired to an office of their own, and executives coveted the corner office. These days, the walls are coming down. As organi- zational structures change, so do their physical environments. Many organi- zations have been trying to make the physical environment reflect the organi- zational structures they adopt.

At online retailer Zappos, not even the CEO wants an office, and all 1,500 employees are welcome throughout the open spaces. Firms like Google have workplace designs of public rooms with lounge areas and large, multiper- son tables. According to Edward Danyo, manager of workplace strategy at phar- maceuticals firm GlaxoSmithKline, shared environments create efficient work gains, including what he esti- mates is a 45 percent increase in the speed of decision making. But there are ethical concerns about the disman- tling of the physical and mental organi- zational structure:

• Where will confidential discussions take place? In some contemporary workplace designs, ad hoc confer- ence rooms address the need for separate gatherings. This may not be optimal if the walls are made of glass, if employees will feel stig- matized when called into a meeting room, or if they become reluctant to approach human resources staff with issues because of privacy concerns.

• How can differences in personality traits be overcome? Employees high in extraversion will be more comfort- able building collaborative relation- ships without assigned workspaces, while introverted individuals may be uncomfortable without an estab- lished office structure where they can get to know others over time.

• How can personal privacy be main- tained? Zappos gives employees personal lockers, asks employees to angle laptop screens away from neighbors, and tries to make open spaces more private by encouraging ear buds to create a sound barrier between working employees.

• How can you assure your clients about confidentiality? Even walled, soundproof rooms for virtual or live meetings may not provide the de- sired level of security for clients who need to know their business will stay on a need-to-know basis.

• How will expectations and account- abilities be enforced? In an envi- ronment without offices and some- times without job titles, there is an even greater need for clearly assigned goals, roles, and expecta- tions. Otherwise, open collaborative structures may foster diffusion of responsibility and confusion.