Chapter 5: Basic Organization Designs



PART III: ORGANIZING

CHAPTER 5 - Organizational Structure and Culture

LEARNING OUTCOMES

After reading this chapter students should be able to:

1. Describe 6 key elements in organizational design.

2. Identify the contingency factors that favor the mechanistic model or the organic model.

3. Compare and contrast traditional and contemporary organizational designs.

4. Discuss the characteristics and importance of organizational culture.

|Opening Vignette—The Fanatical Burger Business |

|SUMMARY |

|Businesses, if they are lucky, can have a lot in common with cults. Apple Computer, Harley-Davidson and Trader Joe’s are all examples of |

|companies that inspire fanatical loyalty in their customers.” Another company that would definitely be on such a list is In-N-Out Burger. The |

|popular burger places, located primarily in California, have many fans, including celebrities. Part of the allure is the company’s food. Just |

|four items: hamburgers, cheeseburgers, the Double-Double (double hamburger patties and double slices of cheese), and fries. And since the |

|company does not use microwaves, heat lamps, or freezers, the food is fresh and delicious. But the food isn’t the only secret to its success. |

|It’s the culture that founders Harry and Esther Snyder instilled in their company. Harry was fond of saying, “Do one thing and do it the best |

|you can.” |

|The owners understand the importance of training and established In-N-Out University to train managers and reinforce the company’s focus on |

|quality, cleanliness, and service. Teams of field specialists go to store locations to motivate and instruct associates. New trainees are |

|videotaped and their performance is critiqued, again with the intent of arming them with the best information and skills. |

|People are valued and Rich, the founder's son, viewed his position in the organizational hierarchy differently than most top level managers. |

|He thought of his job as “the point at the bottom of an inverted triangle. He was there to support everyone in the company.” As a result of |

|having a culture that recognizes the value of people and that treats associates with special care and concern is that In-N-Out has one of the |

|lowest employee turnover rates in the industry. The culture emphasizes quality and the importance of people. |

|Teaching Notes |

|Discuss this case with the students, asking |

|How does the philosophy of the founders affect the culture? |

|What is unique about the organizational structure? |

|Would this be a good place to work? |

INTRODUCTION

1 Organization design is a process in which managers develop or change their organization’s structure.

1. Organization design decisions are typically made by senior managers.

2. Organization design applies to any type of organization.

3. Formulated by management writers in the early 1900s.

4. These principles still provide valuable insights into designing effective and efficient organizations.

2 What Is Work Specialization?

5. Work specialization is dividing work activities into separate jobs tasks.

a) Individuals specialize in doing part of an activity.

b) Work specialization makes efficient use of the diversity of skills that workers hold.

6. Some tasks require highly developed skills; others lower skill levels.

7. Excessive work specialization or human diseconomies, can lead to boredom, fatigue, stress, low productivity, poor quality, increased absenteeism, and high turnover. (See Exhibit 5-1.)

8. Today's view is that specialization is an important organizing mechanism for employee efficiency, but it is important to recognize the economies work specialization can provide as well as its limitations.

3 What Is Departmentalization?

9. Departmentalization is when common work activities are grouped back together so work gets done in a coordinated and integrated way.

10. There are five common forms of departmentalization (see Exhibit 5-2).

11. Functional Groups - employees based on work performed (e.g., engineering, accounting, information systems, human resources)

Product Groups - employees based on major product areas in the corporation (e.g., women’s footwear, men’s footwear, and apparel and accessories)

Customer Groups - employees based on customers’ problems and needs (e.g., wholesale, retail, government)

Geographic Groups - employees based on location served (e.g., North, South, Midwest, East)

Process Groups - employees based on the basis of work or customer flow (e.g., testing, payment)

12. With today's focus on the customer, many companies are using cross-functional teams, which are teams made up of individuals from various departments and that cross traditional departmental lines.

4 What are Authority and Responsibility?

13. The chain of command is the continuous line of authority that extends from upper organizational levels to the lowest and clarifies who reports to whom.

14. An employee who has to report to two or more bosses might have to cope with conflicting demands or priorities.

15. Authority refers to the rights inherent in a managerial position to give orders and expect the orders to be obeyed.

16. Each management position has specific inherent rights that incumbents acquire from the position’s rank or title.

a) Authority is related to one’s position and ignores personal characteristics.

17. When managers delegate authority, they must allocate commensurate responsibility.

a) When employees are given rights, they assume a corresponding obligation to perform and should be held accountable for that performance!

b) Allocating authority without responsibility creates opportunities for abuse.

c) No one should be held responsible for something over which he or she has no authority.

18. What are the different types of authority relationships?

a) The early management writers distinguished between two forms of authority.

1) Line authority entitles a manager to direct the work of an employee.

a) It is the employer-employee authority relationship that extends from top to bottom.

b) See Exhibit 5-3.

c) A line manager has the right to direct the work of employees and make certain decisions without consulting anyone.

2) Sometimes the term “line” is used to differentiate line managers from staff managers.

a) Line emphasizes managers whose organizational function contributes directly to the achievement of organizational objectives (e.g., production and sales).

b) Staff managers have staff authority (e.g., human resources and payroll).

3) A manager’s function is classified as line or staff based on the organization’s objectives.

b) As organizations get larger and more complex, line managers find that they do not have the time, expertise, or resources to get their jobs done effectively.

1) They create staff authority functions to support, assist, advise, and generally reduce some of their informational burdens.

2) Exhibit 5-4 illustrates line and staff authority.

5 What is Unity of Command?

19. The chain of command is the continuous line of authority that extends from upper organizational levels to the lowest and clarifies who reports to whom.

20. An employee who has to report to two or more bosses might have to cope with conflicting demands or priorities.

21. Therefore, the early management writers argued that an employee should have only one superior (Unity of command)

22. If the chain of command had to be violated, early management writers always explicitly designated that there be a clear separation of activities and a supervisor responsible for each.

23. The unity of command concept was logical when organizations were comparatively simple.

24. There are instances today when strict adherence to the unity of command creates a degree of inflexibility that hinders an organization’s performance.

25. How does the contemporary view of authority and responsibility differ from the historical view?

a) The early management writers assumed that the rights inherent in one’s formal position in an organization were the sole source of influence.

b) This might have been true 30 or 60 years ago.

c) It is now recognized that you do not have to be a manager to have power, and that power is not perfectly correlated with one’s level in the organization.

d) Authority is but one element in the larger concept of power.

26. How do authority and power differ?

a) Authority and power are frequently confused.

b) Authority is a right, the legitimacy of which is based on the authority figure’s position in the organization.

1) Authority goes with the job.

c) Power refers to an individual’s capacity to influence decisions.

1) Authority is part of the larger concept of power.

2) Exhibit 5-5 visually depicts the difference.

d) Power is a three-dimensional concept.

1) It includes not only the functional and hierarchical dimensions but also centrality.

2) While authority is defined by one’s vertical position in the hierarchy, power is made up of both one’s vertical position and one’s distance from the organization’s power core, or center.

e) Think of the cone in Exhibit 5-5 as an organization.

1) The closer you are to the power core, the more influence you have on decisions.

2) The existence of a power core is the only difference between A and B in Exhibit 5-5.

f) The cone analogy explicitly acknowledges two facts:

1) The higher one moves in an organization (an increase in authority), the closer one moves to the power core.

2) It is not necessary to have authority in order to wield power because one can move horizontally inward toward the power core without moving up.

a) Example, administrative assistants, “powerful” as gatekeepers with little authority.

3) Low-ranking employees with contacts in high places might be close to the power core.

4) So, too, are employees with scarce and important skills.

a) The lowly production engineer with twenty years of experience might be the only one in the firm who knows the inner workings of all the old production machinery.

g) Power can come from different areas.

1) John French and Bertram Raven have identified five sources, or bases, of power.

a) See Exhibit 5-6.

b) Coercive power -based on fear; Reward power - based on the ability to distribute something that others value; Legitimate power - based on one’s position in the formal hierarchy; Expert power - based on one’s expertise, special skill, or knowledge; Referent power -based on identification with a person who has desirable resources.

6 What is Span of Control?

27. How many employees can a manager efficiently and effectively direct?

28. This question received a great deal of attention from early management writers.

29. There was no consensus on a specific number but early writers favored small spans of less than six to maintain close control.

30. Level in the organization is a contingency variable.

a) Top managers need a smaller span than do middle managers, and middle managers require a smaller span than do supervisors.

31. There is some change in theories about effective spans of control.

32. Many organizations are increasing their spans of control.

33. The span of control is increasingly being determined by contingency variables.

a) The more training and experience employees have, the less direct supervision needed.

2 Other contingency variables should also be considered; similarity of employee tasks, the task complexity, the physical proximity of employees, the degree of standardization, the sophistication of the organization’s management information system, the strength of the organization’s value system, the preferred managing style of the manager, etc.

Developing Your Power Base Skill

About the Skill

One of the more difficult aspects of power is acquiring it. What can one do to develop power?

Steps in practicing the skill

1. Respect others.

2. Build power relationships.

3. Develop associations.

4. Control important information.

5. Gain seniority.

6. Build power in stages.

Practicing the Skill

Scenario

Margaret is a supervisor in the Internet sales division of a large clothing retailer. She has let it be known that she is devoted to the firm and plans to build her career there. Margaret is hard working and reliable, has volunteered for extra projects, taken in-house development courses, and joined a committee dedicated to improving employee safety on the job. She undertook an assignment to research ergonomic office furniture for the head of the department and gave up several lunch hours to consult with the head of human resources about her report. Margaret filed the report late, but she excused herself by explaining that her assistant lost several pages that she had to redraft over the weekend. The report was well received and several of Margaret’s colleagues think she should be promoted when the next opening arises.

1. Evaluate Margaret’s skill in building a power base.

2. What actions has she taken that are helpful to her in reaching her goal?

3. Is there anything she should have done differently?

Teaching tips

1. Have students apply the criteria listed under “Steps in practicing the skill.” Conduct as a discussion rather than as a written exercise.

2. Be prepared for students to complain that there isn’t enough information regarding how she built a power base to evaluate her skill.

3. Brainstorm with students what things she should do, specifically in this type of business, to build a power base.

1 How Do Centralization and Decentralization Differ?

2 Centralization is a function of how much decision-making authority is pushed down to lower levels in the organization.

3 Centralization-decentralization is a degree phenomenon.

4 By that, we mean that no organization is completely centralized or completely decentralized.

5 Early management writers felt that centralization in an organization depended on the situation.

b) Their objective was the optimum and efficient use of employees.

c) Traditional organizations were structured in a pyramid, with power and authority concentrated near the top of the organization.

d) Given this structure, historically, centralized decisions were the most prominent.

34. Organizations today are more complex and are responding to dynamic changes.

a) Many managers believe that decisions need to be made by those closest to the problem.

35. Today, managers often choose the amount of centralization or decentralization that will allow them to best implement their decisions and achieve organizational goals.

6 One of the central themes of empowering employees was to delegate to them the authority to make decisions on those things that affect their work.

a) That’s the issue of decentralization at work.

b) It doesn’t imply that senior management no longer makes decisions!

7 What is Formalization?

36. Formalization is refers to how standardized an organization’s jobs are and the extent to which employee behavior is guided by rules and procedures.

37. Early management writers expected organizations to be fairly formalized, as formalization went hand-in-hand with bureaucratic-style organizations.

8 Today, organizations rely less on strict rules and standardization to guide and regulate employee behavior.

Teaching Notes _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

WHAT CONTINGENCY VARIABLES AFFECT STRUCTURAL CHOICE?

1 Introduction

38. The most appropriate structure to use will depend on contingency factors.

39. The more popular contingency variables are strategy, size, technology, and environment.

2 How Is a Mechanistic Organization Different from an Organic Organization?

40. Exhibit 5-7 describes two organizational forms.

41. The mechanistic organization (or bureaucracy) was the natural result of combining the six elements of structure.

a) The chain-of-command principle ensured the existence of a formal hierarchy of authority.

b) Keeping the span of control small created tall, impersonal structures.

1) Top management increasingly imposed rules and regulations.

c) The high degree of work specialization created simple, routine, and standardized jobs.

d) Departmentalization increased impersonality and the need for multiple layers of management.

42. The organic form is a highly adaptive form that is a direct contrast to the mechanistic one.

a) The organic organization’s loose structure allows it to change rapidly as needs require.

1) Employees tend to be professionals who are technically proficient and trained to handle diverse problems.

2) They need very few formal rules and little direct supervision.

b) The organic organization is low in centralization.

43. When each of these two models is appropriate depends on several contingency variables.

3 How Does Strategy Affect Structure?

44. An organization’s structure should facilitate goal achievement.

a) Strategy and structure should be closely linked.

b) Example, if the organization focuses on providing certain services—police protection in a community—its structure will be one that promotes standardized and efficient services.

c) Example, if an organization is attempting to employ a growth strategy by entering into global markets, it will need a structure that is flexible, fluid, and readily adaptable to the environment.

45. Accordingly, organizational structure should follow strategy. If management makes a significant change in strategy, it needs to modify its structure as well.

46. The first important research on the strategy-structure relationship was Alfred Chandler’s study of close to 100 large U.S. companies.

47. After tracing the development of these organizations over fifty years and compiling extensive case histories, Chandler concluded that changes in corporate strategy precede and lead to changes in an organization’s structure.

a) Organizations usually begin with a single product or line.

b) The simplicity of the strategy requires only a simple form of structure to execute it.

c) Decisions can be centralized and complexity and formalization will be low.

d) As organizations grow, their strategies become more ambitious and elaborate.

48. Research has generally confirmed the strategy-structure relationship.

a) Organizations pursuing a differentiation strategy must innovate to survive.

1) An organic organization matches best with this strategy because it is flexible and maximizes adaptability.

b) A cost-leadership strategy seeks stability and efficiency.

1) Stability and efficiency help to produce low-cost goods and services and can best be achieved with a mechanistic organization.

4 How Does Size Affect Structure?

49. There is historical evidence that an organization’s size significantly affects its structure.

50. Large organizations—employing 2,000 or more employees—tend to have more work specialization, horizontal and vertical differentiation, and rules and regulations than do small organizations.

51. The relationship is not linear; the impact of size becomes less important as an organization expands.

a) Example, once an organization has around 2,000 employees, it is already fairly mechanistic—an additional 500 employees will not have much effect.

b) Adding 500 employees to an organization that has only 300 members is likely to result in a shift toward a more mechanistic structure.

5 How Does Technology Affect Structure?

52. Every organization uses some form of technology to convert its inputs into outputs.

53. To attain its objectives, the organization uses equipment, materials, knowledge, and experienced individuals and puts them together into certain types and patterns of activities.

a) Example, workers at Whirlpool build washers, dryers, and other home appliances on a standardized assembly line.

b) Example, employees at Kinko’s produce custom jobs for individual customers.

c) Example, employees at Bayer AG in Pakistan work on a continuous flow production line for manufacturing its pharmaceuticals.

|From the Past to the Present |

|Joan Woodward (British scholar) found that distinct relationships exist between size of production runs and the structure of the firm. The |

|effectiveness of organizations was related to “fit” between technology and structure. Most studies focused on the processes or methods that |

|transform inputs into outputs and how they differ by their degree of routine. |

|Three categories, representing three distinct technologies, had increasing levels of complexity and sophistication. Unit production described|

|the production of items in units or small batches. Mass production described large batch manufacturing. The most technically complex group, |

|process production, included continuous-process production. The more routine the technology, the more standardized and mechanistic the |

|structure can be. Organizations with more non-routine technology are more likely to have organic structures. See Exhibit 5-8. |

6 How Does Environment Affect Structure?

54. Mechanistic organizations are most effective in stable environments.

55. Organic organizations are best matched with dynamic and uncertain environments.

56. The environment-structure relationship is why so many managers have restructured their organizations to be lean, fast, and flexible.

57. Global competition, accelerated product innovation, knowledge management, and increased demands from customers for higher quality and faster deliveries are examples of dynamic environmental forces.

58. Mechanistic organizations tend to be ill-equipped to respond to rapid environmental change.

Teaching Notes _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

WHAT ARE SOME COMMON ORGANIZATIONAL DESIGNS?

1 The main designs are simple, functional and divisional.

2 See Exhibit 5-9.

3 What Is a Simple Structure?

59. Most organizations start as an entrepreneurial venture with a simple structure.

60. There is low departmentalization, wide spans of control, authority centralized in a single person, and little formalization.

61. The simple structure is most widely used in smaller businesses.

62. The strengths of the simple structure are that it is fast, flexible, and inexpensive to maintain, and accountability is clear.

63. Major weaknesses.

a) It is effective only in small organizations.

b) It becomes increasingly inadequate as an organization grows; its few policies or rules to guide operations and its high centralization result in information overload at the top.

c) As size increases, decision making becomes slower and can eventually stop.

d) It is risky since everything depends on one person.

4 What is the functional structure?

64. Many organizations do not remain simple structures because structural contingency factors dictate it.

65. As the number of employees rises, informal work rules of the simple structure give way to more formal rules.

66. Rules and regulations are implemented; departments are created, and levels of management are added to coordinate the activities of departmental people.

67. At this point, a bureaucracy is formed.

68. Two of the most popular bureaucratic design options are called the functional and divisional structures.

69. Why do companies implement functional structures?

a) The functional structure merely expands the functional orientation.

b) The strength of the functional structure lies in work specialization.

1) Economies of scale, minimizes duplication of personnel and equipment, makes employees comfortable and satisfied.

c) The weakness of the functional structure is that the organization frequently loses sight of its best interests in the pursuit of functional goals.

5 What is the divisional structure?

d) An organization design made up of self-contained units or divisions.

e) Health care giant Johnson & Johnson, for example, has three divisions: pharmaceuticals, medical devices and diagnostics, and consumer products.

f) The chief advantage of the divisional structure is that it focuses on results.

1) Division managers have full responsibility for a product or service.

2) It also frees the headquarters from concern with day-to-day operating details.

g) The major disadvantage is duplication of activities and resources.

1) The duplication of functions increases the organization’s costs and reduces efficiency.

1 Contemporary Organizational Designs

70. Team structure is when the entire organization consists of work groups or teams.

71. Team members have the authority to make decisions that affect them, because there is no rigid chain of command.

72. Companies such as Amazon, Boeing, Hewlett-Packard, Louis Vuitton, Motorola, and Xerox extensively use employee teams to improve productivity.

73. In these teams, Employees must be trained to work on teams, receive cross-functional skills training, and be compensated accordingly.

74. The matrix structure assigns specialists from different functional departments to work on projects led by a project manager.

a) Exhibit 5-11 illustrates the matrix structure of a firm.

75. The unique characteristic of the matrix is that employees in this structure have at least two bosses, a dual chain of command: their functional departmental manager and their product or project managers.

a) Project managers have authority over the functional members who are part of that manager’s team.

76. Authority is shared between the two managers.

a) Typically, the project manager is given authority over project employees relative to the project’s goals.

b) Decisions such as promotions, salary recommendations, and annual reviews remain the functional manager’s responsibility.

77. To work effectively, project and functional managers must communicate and coordinate.

78. The primary strength of the matrix is that it can facilitate coordination of a multiple set of complex and interdependent projects while still retaining the economies that result from keeping functional specialists grouped together.

79. The major disadvantages of the matrix are in the confusion it creates and its propensity to foster power struggles.

80. Project structure - is when employees continuously work on projects.

a) Tends to be more flexible

b) The major advantage of that is that employees can be deployed rapidly to respond to environmental changes.

c) The two major disadvantages of the project structure are the complexity of assigning people to projects and the inevitable task and personality conflicts that arise.

2 What is a Boundaryless Organization?

81. A boundaryless organization, coined by former GE CEO, Jack Welch, is not defined or limited by boundaries or categories imposed by traditional structures,.

82. It blurs the historical boundaries surrounding an organization by increasing its interdependence with its environment.

83. There are two types of boundaries: (1) internal—the horizontal ones imposed by work specialization and departmentalization and the vertical ones that separate employees into organizational levels and hierarchies; and (2) external—the boundaries that separate the organization from its customers, suppliers, and other stakeholders.

84. A virtual organization consists of a small core of full-time employees and outside specialists temporarily hired as needed to work on projects.

85. A network organization - is one that uses its own employees to do some work activities and networks of outside suppliers to provide other needed product components or work processes. Also called a modular organization by manufacturing firms.

|Technology and the Manager’s Job |

|Technology's Impact on Organizational Design |

|Mobile communication and technology has allowed organizations to stay connected. Hand-held devices, cellular phones, webcams, etc. allow |

|employees to work virtually. Information technology continues to grow and become an integral part of the way business is conducted. One |

|challenge is security. Software and other disabling devices has helped in this arena and many companies are developing creative applications |

|for their workforce. |

|Teaching Notes: |

|What technology has changed in your lifetime? |

|What might be available in the future? |

3 What are Today's Organizational Design Challenges?

86. Choosing a design that will best support and facilitate employees doing their work efficiently and effectively, creates challenges.

87. A major structural design challenge for managers is finding a way to keep widely dispersed and mobile employees connected to the organization.

88. Global differences affect organizational design. Researchers have concluded that the structures and strategies of organizations worldwide are similar, “while the behavior within them is maintaining its cultural uniqueness.”

89. Building a learning organization is a mindset in which the learning organization has developed the capacity to continuously adapt and change because all members take an active role in identifying and resolving work-related issues.

90. Employees are practicing knowledge management.

a) Continually acquiring and sharing new knowledge.

b) Willing to apply that knowledge in making decisions or performing their work.

91. According to some organizational design theorists, an organization’s ability to learn and to apply that learning may be the only sustainable source of competitive advantage.

See Exhibit 5-12 for characteristics of a learning organization.

a) Members share information and collaborate on work activities throughout the entire organization.

b) Minimize or eliminate existing structural and physical boundaries.

1) Employees are free to work together and to collaborate.

2) Teams tend to be an important feature of the structural design.

3) Managers serve as facilitators, supporters, and advocates.

c) For a learning organization to "learn" information is shared openly, in a timely manner, and as accurately as possible.

d) Leadership creates a shared vision for the organization’s future and keeps organizational members working toward that vision.

1) Leaders should support and encourage the collaborative environment.

e) A learning organization’s culture is one in which everyone agrees on a shared vision and everyone recognizes the inherent interrelationships among the organization’s processes, activities, functions, and external environment.

f) There is a strong sense of community, caring for each other, and trust.

1) Employees feel free to openly communicate, share, experiment, and learn without fear of criticism or punishment.

g) Organizational culture is an important aspect of being a learning organization. A learning organization’s culture is one in which everyone agrees on a shared vision and everyone recognizes the inherent interrelationships among the organization’s processes, activities, f functions, and external environment.

|Right or Wrong? |

|The “miracle on the Hudson.” was the ditching of US Airways Flight 1549 in the Hudson River a short time after take-off due to engine failure.|

|The passengers who “suffered real losses and injuries” are being denied compensation. Although luggage and other personal belongings that have|

|been found have been returned to passengers, the insurance company is playing hardball on non-recovered items because airline liability |

|insurance looks for negligence on the part of an airline and “if there’s no negligence, then there’s no liability, and no obligation to pay |

|claims.” |

|What do you think? |

|It is legal , but is it being ethical? |

|Are there other alternatives that might be more ethical? |

Teaching Notes ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

WHAT IS ORGANIZATION CULTURE AND WHY IS IT IMPORTANT?

1 What Is an Organization Culture?

92. An organization's personality or system of shared meaning.

93. Organizations have cultures that govern how their members should behave.

94. In every organization, stories, rituals, material symbols, and language evolve over time and are "the way things are done around here".

95. Culture is perception, descriptive and shared.

2 How Can Culture Be Assessed?

96. Currently there is no definitive method for measuring an organization's culture.

97. Cultures can be analyzed by assessing how an organization rates on ten characteristics.

a) See Exhibit 5-13.

b) These seven characteristics are relatively stable and permanent over time.

3 Where Does an Organization’s Culture Come from?

98. An organization’s culture usually reflects the vision or mission of the organization’s founders.

a) The founders also have biases on how to carry out the idea.

b) They are unconstrained by previous customs or ideologies.

c) The small size of most new organizations also helps the founders impose their vision.

99. An organization’s culture results from the interaction between:

a) the founders’ biases and assumptions, and

b) what the first employees learn subsequently from their own experiences.

c) Example, the founder of IBM, Thomas Watson, established a culture based on “pursuing excellence, providing the best customer service, and respect for employees.”

d) Some 75 years later, in an effort to revitalize the ailing IBM, CEO Louis Gerstner enhanced that culture with his strong “customer-oriented sensibility” recognizing the urgency the marketplace places on having their expectations met.

100. Corporate rituals are repetitive sequences of activities that express and reinforce the important values and goals of the organization.

101. Material symbols or artifacts also help in creating an organization’s personality.

102. Language is used as a way to identify and unite members of a culture.

4 How Does Culture Influence Structure?

103. An organization’s culture may have an effect on an organization’s structure, depending on how strong, or weak, the culture is.

104. In organizations that have a strong culture, the organization’s culture actually can substitute for the rules and regulations.

a) Strong cultures can create predictability, orderliness, and consistency without the need for written documentation.

b) The stronger an organization’s culture, the less need for concern with formal rules and regulations.

REVIEW AND APPLICATIONS

CHAPTER SUMMARY

1. Describe six key elements in organizational design. The first element, work specialization, refers to dividing work activities into separate job tasks. The second, departmentalization, is how jobs are grouped together, which can be one of five types: functional, product, customer, geographic, or process. The third— authority, responsibility, and power—all have to do with getting work done in an organization. Authority refers to the rights inherent in a managerial position to give orders and expect those orders to be obeyed. Responsibility refers to the obligation to perform when authority has been delegated. Power is the capacity of an individual to influence decisions and is not the same as authority. The fourth, span of control, refers to the number of employees a manager can efficiently and effectively manage. The fifth, centralization and decentralization, deals with where the majority of decisions are made—at upper organizational levels or pushed down to lower-level managers. The sixth, formalization, describes how standardized an organization’s jobs are and the extent to which employees’ behavior is guided by rules and procedures.

2. Identify the contingency factors that favor the mechanistic model or the organic model. A mechanistic organizational design is quite bureaucratic whereas an organic organizational design is more fluid and flexible. The strategy-determines structure factor says that as organizational strategies move from single product to product diversification, the structure will move from organic to mechanistic. As an organization’s size increases, so does the need for a more mechanistic structure. The more non-routine the technology, the more organic a structure should be. Finally, stable environments are better matched with mechanistic structures, but dynamic ones fit better with organic structures.

3. Compare and contrast traditional and contemporary organizational designs. Traditional structural designs include simple, functional, and divisional. A simple structure is one with low departmentalization, wide spans of control, authority centralized in a single person, and little formalization. A functional structure is one that groups similar or related occupational specialties together. A divisional structure is one made up of separate business units or divisions. Contemporary structural designs include team-based structures (the entire organization is made up of work teams); matrix and project structures (where employees work on projects for short periods of time or continuously); and boundaryless organizations (where the structural design is free of imposed boundaries). A boundaryless organization can either be a virtual or a network organization.

4. Discuss the characteristics and importance of organizational culture. Organizational culture refers to the shared values, principles, traditions, and ways of doing things that influence the way organizational members act. Cultures are assessed using seven dimensions: attention to detail, outcome orientation, people orientation, team orientation, aggressiveness, stability, and innovation and risk taking. The culture comes from the founders but is learned by employees through stories, rituals, material symbols, and language. Strong cultures—those in which the key values are deeply held and widely shared—have more of an impact on how organizations are structured and on the way work is done.

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To check your understanding of outcomes 5.1 – 5.4, go to and try the chapter questions.

UNDERSTANDING THE CHAPTER

1. Describe what is meant by the term organizational design.

Answer: Once decisions regarding corporate strategies are made, an effective structure must be implemented to facilitate the attainment of those goals. When managers develop or change the organization’s structure, they are engaging in organization design. Organization design decisions are typically made by senior managers. Organization design applies to any type of organization.

2. Can an organization’s structure be changed quickly? Why or why not? Should it be changed quickly? Why or why not?

Answer: No, it takes time and a lot of planning and communication. Cultures usually evolve based initially on the founder's values. Whether or not it should be changed quickly is dependent upon the competition, its efficiency and success and its financial viability. A boundaryless organization provides the flexibility and fluid structure that facilitates quick movements to capitalize on opportunities. An organic structure versus a bureaucracy could adapt more quickly to changes.

3. “An organization can have no structure.” Do you agree or disagree with this statement? Explain.

Answer: A boundaryless or virtual organization is not without structure, structure is minimized but not eliminated. There is always some degree of reporting relations, some type of division of labor, some need for the management of processes, etc. Boundaryless organizations are not merely flatter organizations. They attempt to eliminate vertical, horizontal, and inter-organizational barriers.

4. With the availability of information technology that allows employees to work anywhere, anytime, is organizing still an important managerial function? Why or why not?

Answer: Woodward’s study of technology and organizational structure said that appropriate organizational design depends on the organization's technology. This involves organizational skills. These skills may be even more essential in a virtual environment made possible by technology. Technology has changed the way work is done, but the managers must change their styles to accommodate.

5. Researchers are now saying that efforts to simplify work tasks actually have negative results for both companies and their employees. Do you agree? Why or why not?

Answer: Student responses may vary based on their respective opinion. Simplifying tasks may result in monotony and boredom, even turnover. The 21st century workforce is smarter, more independent, better educated and more trustworthy employees, so they will demand more challenging work. They will work with more individual authority and less direct supervision.

6. Classrooms have cultures. Describe your class culture using Exhibit 5-13. How does it affect your instructor? How does it affect you?

Answer: Student responses will vary based on the class.

7. Draw an organization chart of an organization with which you’re familiar (where you work, a student organization to which you belong, your college or university, etc.). Be very careful in showing the departments (or groups) and especially be careful to get the chain of command correct. Be prepared to share your chart with the class.

Answer: Student answers will depend on the organization that they choose.

8. Pick two organizations that you interact with frequently (as an employee or as a customer) and assess their culture according to the cultural dimensions shown in Exhibit 5-13.

Answer: Student answers will vary.

UNDERSTAND YOURSELF

What Type of Organization Structure Do I Prefer?

In what type of structure—mechanistic or organic—will you be most comfortable working? Mechanistic structures are characterized by extensive departmentalization, high formalization, a limited information network, and centralization. In contrast organic structures are flat, use cross-hierarchical and cross-functional teams, have low formalization, possess a comprehensive information network, and rely on participative decision making.

INSTRUMENT Respond to each of the 15 statements by using one of the following numbers:

1 = Strongly disagree

2 = Disagree somewhat

3 = Undecided

4 = Agree somewhat

5 = Strongly agree

I prefer to work in an organization where:

|1. Goals are defined by those at higher levels. |1 2 3 4 5 |

|2. Clear job descriptions exist for every job. |1 2 3 4 5 |

|3. Top management makes important decisions. |1 2 3 4 5 |

|4. Promotions and pay increases are based as much on length of service as on level of performance. |1 2 3 4 5 |

|5. Clear lines of authority and responsibility are established. |1 2 3 4 5 |

|6. My career is pretty well planned out for me. |1 2 3 4 5 |

|7. I have a great deal of job security. |1 2 3 4 5 |

|8. I can specialize. |1 2 3 4 5 |

|9. My boss is readily available. |1 2 3 4 5 |

|10. Organization rules and regulations are clearly specified. |1 2 3 4 5 |

|11. Information rigidly follows the chain of command. |1 2 3 4 5 |

|12. There is a minimal number of new tasks for me to learn. |1 2 3 4 5 |

|13. Work groups incur little turnover in members. |1 2 3 4 5 |

|14. People accept authority of a leader’s position. |1 2 3 4 5 |

|15. I am part of a group whose training and skills are similar to mine. |1 2 3 4 5 |

SCORING KEY To calculate your score, add up your responses to all 15 items.

ANALYSIS AND INTERPRETATION Scores above 60 suggest that you prefer a mechanistic design. Scores below 45 indicate a preference for an organic design. Scores between 45 and 60 suggest no clear preference.

Since the trend in recent years has been toward more organic designs, you’re likely to find a good organizational match if you score low on this instrument. But there are few, if any, pure organic structures. So very low scores may also mean that you’re likely to be frustrated by what you perceive as overly rigid structures of rules, regulations, and boss-centered leadership. In general, however, low scores indicate that you prefer small, innovative, flexible, team-oriented organizations. And high scores indicate a preference for stable, rule oriented, more bureaucratic organizations.

Overview

The instrument evaluates whether a person prefers a mechanistic or organic organizational structure, i.e., bureaucracy versus adhocracy. In general, we are evolving towards organizations that resemble an adhocracy more than a bureaucracy. Organizations are flatter, team-oriented, virtual, boundaryless, learning, or whatever new term is used to apply to the more open and flexible organizational structures of today. One might assume that Xers and Nexters would lean toward the adhocracy, so it would be interesting to compare the results across generations.

Teaching Notes

The students of the previous generations have been raised in a time when the dominant form of organizational structure was the bureaucracy (many would argue that it is still is the dominant form today). Discontinuous change and a turbulent environment have forced organizations to seek other structures to meet new competition and employee demands. It would be interesting to have the students compare what their grandparents, parents, themselves, and their younger siblings think about work.

Exercises

1. Form Preferences. Have the students visit both a mechanistic organization and an organic organization. Then have them discuss their impressions and where they would prefer to work and why.

Learning Objective(s): To illustrate the operational differences between mechanistic and organic organizations.

Preparation/Time Allotment: Give them a couple of weeks to visit the organizations and have them do a short presentation to the class. They could also do this in small groups.

Advantages/Disadvantages/Potential Problems: They may not know what type of structure an organization is prior to visiting. They may find that parts of the organization are organic, and parts of the organization are mechanistic. This is common, and makes for an interesting class discussion.

You could also set up a tour for the entire class at a couple of local organizations. Local power plants and factories are generally mechanistic, while software firms and art studios are generally more organic. Have them report their impressions in the class period following the tour.

2. Movie-ocracy. You could assign a movie such as Handmaid’s Tale, Brazil, The Castle, Gattica, or one you are familiar with that looks at the impact of bureaucracy on people’s lives. Have the class discuss their impressions of bureaucracy based on the movie.

Learning Objective(s): To show the impact of bureaucracy on people’s lives through familiar movies.

Preparation/Time Allotment: If you plan to show the movie in class, allow the length of the movie plus 20 minutes to discuss it afterwards. You could spread this out over several class periods. If the movie is assigned as homework, you will only need 20 minutes for class discussion.

Advantages/Disadvantages/Potential Problems: Movies are good in that students really can see how the organization influences individuals. Make sure you pick a movie that really illustrates this. You could also tie the movie into several other management concepts also, such as power, leadership style etc. This makes for a rich management discussion.

|FYIA: (For Your Immediate Action) |

|Ontario Electronics Ltd. |

|To: Claude Fortier, Special Assistant to the President |

|From: Ian Campbell, President |

|Subject: Learning Organizations |

|Summary: It is important for organizations to be responsive to customer and marketplace needs. One of the approaches she discussed for doing |

|this was becoming a learning organization. I came away from this talk convinced that our company’s future may well depend on how well we’re |

|able to “learn.” |

|I’d like you to find some current information on learning organizations. |

|What would be good sources for this? |

|What material supports learning organizations? ( ex: Peter Senge's research) |

CASE APPLICATION

|Case Application |

|Unconventional Design |

|Summary: Danish company Bang & Olufsen (B&O) is known globally for its high-end audio and video. CEO Kalle Hvidt Nielsen says, “Our mission is |

|to make complex technology very simple to use.” B&O uses contract designers, not organizational design employees, to create the company’s |

|products. And these designers have been empowered to veto any product they don’t like. Lewis and his team of six designers, who all are external |

|freelancers, don’t ever meet. |

|The design process isn’t really a process. Giving such power to individuals who aren’t employees would frighten most managers. However, it works |

|well for B&O. This “business-by-genius model depends on the instincts of a handful of quirky and creative individuals and the ability of |

|executives to manage them.” |

|Discussion Questions |

|Describe and evaluate what B&O is doing. |

|Answer: They are using a very fluid, dynamic organizational structure to create the company's products. Empowering the external freelancers has |

|provided a creative and successful approach, operating in a virtual environment. The team environment is operating very efficiently. |

|What structural implications—good and bad—does this approach have? (Think in terms of the six organizational design elements.) |

|Answer: The students can respond according to the design elements. The first element, work specialization, refers to dividing work activities |

|into separate job tasks. The second, departmentalization, is how jobs are grouped together, which can be one of five types: functional, product, |

|customer, geographic, or process. The third— authority, responsibility, and power—all have to do with getting work done in an organization. |

|Authority refers to the rights inherent in a managerial position to give orders and expect those orders to be obeyed. Responsibility refers to |

|the obligation to perform when authority has been delegated. Power is the capacity of an individual to influence decisions and is not the same as|

|authority. The fourth, span of control, refers to the number of employees a manager can efficiently and effectively manage. The fifth, |

|centralization and decentralization, deals with where the majority of decisions are made—at upper organizational levels or pushed down to |

|lower-level managers. The sixth, formalization, describes how standardized an organization’s jobs are and the extent to which employees’ behavior|

|is guided by rules and procedures. They use a project structure with external vendors, with the advantage of empowerment and the disadvantage of |

|no clear chain of command. |

|Do you think this arrangement would work for other types of organizations? Why or why not? |

|Answer: It would depend on the industry, the structure, the senior leadership and the culture. Companies cannot just replicate a successful model|

|into their structure, since there are too many variables. |

|The B&O design approach depends on “the ability of executives to manage” the designers. What abilities would managers need in managing in this |

|type of organizational design? |

|Answer: Managers would need to have good delegation, organization and communication skills for this structure to be effective. Not all managers |

|are trusting and able to empower their subordinates or vendors like this example shows. |

|What role do you think organizational structure plays in an organization’s strategic capabilities, especially in innovation efforts? |

|Answer: Similar to the 3M example regarding Post-It notes, a creative culture can result in very successful products and services. An |

|organization's ability to adapt quickly to change is a competitive advantage and a strategic imperative. |

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