INTRODUCTION Designing organizational structure involves the process of organizing (the second management function) and plays an important role in the success of a company.
1. DEFINING ORGANIZATIONAL STRUCTURE Managers need to establish structural designs that will best support and allow employees to do their work effectively and efficiently.
Several important terms must be defined in order to understand the elements of organizational structure and design:
1. Organizing is arranging and structuring work to accomplish the organization’s goals. This process has several purposes, as shown in Exhibit 9-1.
2. Organizational structure is the formal arrangement of jobs within an organization.
3. Organizational design is developing or changing an organization’s structure. This process involves decisions about six key elements: work specialization, departmentalization, chain of command, span of control, centralization/ decentralization, and formalization. Chapter 9 examines each of these structural elements.
A. Work Specialization. Work specialization is dividing work activities into separate job tasks. Most of today’s managers regard work specialization as an important organizing mechanism, but not as a source of ever-increasing productivity.
B. Departmentalization. When work tasks have been defined, they must be arranged in order to accomplish organizational goals. This process, known as departmentalization, is the basis by which jobs are grouped. There are five major ways to departmentalize (see Exhibit 9-2):
1. Functional departmentalization groups jobs by functions performed.
2. Product departmentalization groups jobs by product line.
3. Geographical departmentalization groups jobs on the basis of geographical region.
4. Process departmentalization groups jobs on the basis of product or customer flow.
5. Customer departmentalization groups jobs on the basis of specific and unique customers who have common needs.
6. Popular trends in departmentalization include the following:
a. Customer departmentalization continues to be a highly popular approach because it allows better monitoring of customers’ needs and responds to changes in the needs of customers.
b. Cross-functional teams, which are work teams composed of individuals from various functional specialties, are being used along with traditional departmental arrangements.
C. Chain of Command. The chain of command is the line of authority extending from upper organizational levels to the lowest levels, which clarifies who reports to whom. Three concepts related to chain of command are authority, responsibility, and unity of command.
1. Authority is the rights inherent in a managerial position to tell people what to do and to expect them to do it.
2. Responsibility is the obligation to perform any assigned duties.
3. Unity of command is the management principle that each person should report to only one manager.
D. Span of Control. Span of control is the number of employees a manager can efficiently and effectively manage.
1. The span of control concept is important because it determines how many levels and managers an organization will have. (See Exhibit 9-3 for an example)
2. What determines the “ideal” span of control? Contingency factors such as the skills and abilities of the manager and the employees, the characteristics of the work being done, similarity and complexity of employee tasks, the physical proximity of subordinates, the degree to which standardized procedures are in place, the sophistication of the organization’s information system, the strength of the organization’s culture, and the preferred style of the manager influence the ideal number of subordinates.
3. The trend in recent years has been toward wider (larger) spans of control.
E. Centralization and Decentralization. The concepts of centralization and decentralization address who, where, and how decisions are made in organizations.
1. Centralization is the degree
