Basic Organizational Design Essay Example

organizational design involves developing or changing the structure of an organization. This process includes decisions on work specialization, departmentalization, chain of command, span of control, centralization/decentralization, and formalization. While work specialization is considered important by most managers today, it is not seen as a constant source of productivity increase. Exhibit 10-2 demonstrates the negative effects of division of labor on individuals such as boredom, fatigue, stress, low productivity, poor quality, increased absenteeism, and high turnover. Ultimately, these human diseconomies outweigh the economic benefits of work specialization.

Departmentalization, the process of arranging work tasks to achieve organizational goals, can be done in five major ways: functional, product, geographical, process, and customer departmentalization (see Exhibit 10-3). Functional departmentalization groups jobs by their functions, while product departmentalization groups jobs by product line. Geographical departmentalization groups jobs based on geographic region, while process departmentalization groups jobs based on product or customer flow. Customer departmentalization groups jobs based on specific customers with common needs.

Some popular trends in departmentalization include the continued popularity of customer departmentalization, which allows for better monitoring of customer needs and responsiveness to changes in those needs. Cross-functional teams, composed of individuals from different functional specialties, are also being used alongside traditional departmental arrangements.The chain of command is the hierarchical structure that outlines who reports to whom, from higher levels of the organization to lower levels.

There are three important concepts related to the chain of command: authority, responsibility, and unity of command. Authority refers to the rights held by managers to give instructions and expect compliance.

Chester Barnard proposed the acceptance theory of authority, which states that authority is derived from subordinates' willingness to accept it.

According to Barnard, subordinates will only accept orders if certain conditions are met: they must understand the order, believe it aligns with the organization's purpose, and does not contradict their personal beliefs. Additionally, they must be capable of carrying out the task as directed.

Line authority refers to a manager's ability to direct an employee's work throughout the organization based on the chain of command. On the other hand, staff authority exists to provide support, assistance, advice, and help reduce informational burdens.

Exhibit 10-5 demonstrates line and staff authority, which shows the responsibility of performing assigned duties. The principle of unity of command states that each person should report to only one manager. D.

The concept of span of control is crucial as it determines the number of employees that a manager can efficiently and effectively manage within an organization. This concept also impacts the levels and managers within the organization (See Exhibit 10-6 for an example). Various contingency factors determine the "ideal" span of control, including the skills and abilities of managers and employees, the characteristics of the work being performed, similarity and complexity of tasks, physical proximity of subordinates, existence of standardized procedures, sophistication of the organization's information system, strength of the organizational culture, and the preferred management style. It is notable that recent trends lean towards wider spans of control.

The concepts of centralization and decentralization involve decision-making within organizations. Centralization concentrates decision-making power at higher levels, while decentralization involves giving lower-level employees the authority to participate in decision-making.

The current trend is towards decentralizing decision making to increase organizational flexibility and responsiveness. Employee empowerment involves giving employees more authority to make decisions. Several factors, such as

formalization, influence the degree of centralization or decentralization in an organization (see Exhibit 10-7). Formalization refers to how standardized jobs are within the organization and the extent to which employee behavior is guided by rules and procedures.

The level of discretion and output consistency in an organization depends on its level of formalization. Highly formalized organizations have little employee discretion and a uniform output. They have explicit job descriptions, numerous organizational rules, and well-defined procedures. In contrast, less-formalized organizations allow employees more freedom and discretion in their work approach. Formalization encourages unstructured job behaviors and eliminates the need for employees to consider alternatives.

The level of formalization can differ significantly among organizations, including within the same organization. Organizations have unique structures, even those of similar size. A. There are two models of organizational design.

Exhibit 10-8 depicts the difference between a mechanistic organization and an organic organization. A mechanistic organization is known for being rigid and tightly controlled, with high specialization, rigid departmentalization, narrow spans of control, high formalization, a limited information network, and minimal participation of lower-level employees in decision making. On the other hand, an organic organization is highly adaptive and flexible, with few specialized tasks, minimal formalization, and less direct supervision of employees.

Each design is favored under different circumstances, and it depends on contingency variables. These contingency variables include the organization's strategy and structure. The organizational design is influenced by the organization's strategy, which was initially studied by Alfred Chandler in terms of its relationship with structure.

The author's discovery that structure follows strategy implies that organizations must adjust their structure to align with their strategies. Existing strategy/structure frameworks typically emphasize three dimensions of strategy: Innovation

requires the adaptable and information-sharing nature of an organic organization. Cost minimization necessitates the efficient, stable, and tightly controlled aspects of a mechanistic organization. Imitation incorporates elements from both mechanistic and organic organizations. Historical evidence strongly suggests that an organization's size greatly impacts its structure.

The size of an organization often results in increased specialization, departmentalization, centralization, and formalization. However, the relationship between size and structure is not always straightforward. The structure of an organization is also influenced by the technology it uses to convert inputs into outputs. According to Joan Woodward's research on structure and technology, organizations adapt their structures based on their specific technological needs. Woodward identified three different technologies with varying levels of complexity and sophistication.

Unit production is the production of items in small batches or units, while mass production involves producing items in large batches. Process production, on the other hand, refers to the continuous production of items. Woodward's study revealed significant connections between these technologies, organizational structure, and organizational effectiveness. Exhibit 10-9 summarizes these findings.

Andrea Jung, the first female CEO of Avon, has been the longest-serving female CEO in the Fortune 500 for ten years. She highly values organizational design and its importance in driving her multinational company's success. This responsibility is especially challenging due to the fact that 70 percent of Avon's sales are derived from emerging markets.

Ms. Jung has taken difficult actions to reorganize, refocus, and redefine the company’s strategies. She has also developed an organizational design to ensure the company's continued success as the leading provider of women’s beauty products. Additionally, environmental uncertainty is an influential factor that can impact organizational structure. To deal

with environmental uncertainty, adjustments can be made to the organization’s structure.

The organization needs to be flexible and responsive in uncertain environments, leading to various organizational designs. Exhibit 10-8 provides a summary of the strengths and weaknesses of these designs. A simple structure, characterized by low departmentalization, wide spans of control, centralized authority, and minimal formalization, offers flexibility, speed, clear accountability, and cost-effectiveness.

The main drawback of a simple structure is that it works best in small organizations. As a company grows, its structure becomes more specialized and formalized. When certain factors favor a bureaucratic or mechanistic design, one of two options is typically implemented: a functional structure, which groups similar or related occupational specialties together.

The text suggests that a divisional structure is an organizational structure consisting of separate, semi-autonomous units or divisions. It is recommended by Cindy Brewer, Customer Contact Channel Manager at Sears Holdings Corporation in Loves Park, IL, that Eli Lilly ; Company should implement more flexible structures such as divisional and organic structures. Additionally, a mechanistic structure could also be incorporated to accelerate certain aspects of the drug approval process. One of Cindy's final recommendations is to establish cross-functional teams across all business units to share best practices and enhance the product development process. This recommendation recognizes the significance of team collaboration in decision-making and fostering a climate of learning and innovation.

The current perspective suggests that the chain of command serves as a crucial organizational tool, though it can create complications. The concepts of authority, responsibility, and unity of command were traditionally regarded as vital for maintaining control within organizations. However, in today's organizations, these notions are seen as less significant. Likewise, the

traditional belief was that managers should directly supervise no more than five to six individuals. Yet the modern viewpoint is that the span of control varies based on the manager and employees' skills and abilities, as well as the specific situational characteristics.

Can an organization alter its structure quickly? What are the reasons for and against such speedy changes? The swiftness in implementing structural changes varies based on the organization's size. Generally, smaller organizations can undergo restructuring more rapidly than larger ones due to their limited number of employees involved in the process.

Large organizations frequently alter their structure to adapt to evolving environmental conditions and strategies. Mechanistic and organic organizations serve as contrasting models. Mechanistic structures are highly suited for mass production technologies. Conversely, the greater the uncertainty in an organization's environment, the more crucial an organic design becomes for maintaining flexibility.

6. Compare and contrast the three traditional organizational designs. A simple structure is characterized by low departmentalization, wide spans of control, a single person with centralized authority, and minimal formalization. On the other hand, a functional structure brings together similar or related occupational specialties.

A divisional structure consists of separate business units or divisions. Even with the presence of advanced information technology that allows work to be done remotely and at any time, organizing remains an important managerial task. This is because there is a requirement to divide, group, and coordinate the necessary tasks. Moreover, recent studies indicate that efforts to simplify job responsibilities have adverse effects on both companies and their staff.

The text discusses the consequences of simplified jobs on employee morale and output, as well as the high costs for businesses in terms of

absenteeism and turnover. It also mentions BP's campaign to enhance their reputation after the oil spill, where they acquired domain names related to the spill. The ethical concerns surrounding this action are questioned, particularly regarding how it may impact stakeholders and whether BP's intentions were to inform or control access to information.

BP has the ability to manipulate information, allowing them to influence events or prevent others from using domain names to disseminate negative information about their actions. The enormous scale of this disaster affected various stakeholders, including fishermen, rig workers, hotel owners, management, and employees. The role of a manager is to accomplish tasks through their subordinates, which necessitates trust and empowerment. This article presents five behaviors for successful delegation.

Students are required to read the scenario and write a paper explaining how they would handle the situation. Ann in the scenario is already following some of the given guidelines by clarifying the assignment and involving Ricky. When Ricky meets with Bill, he should follow his Boss's guidance and recommendations. His first step should be to clarify the assignment and specify what Bill can include in the manual. It would be beneficial for Ricky and Bill to gather input from other employees regarding the policy manual, as it will be used by everyone in the organization. Lastly, Ricky should establish a feedback channel for Bill to ask questions and for Ricky to monitor Bill's progress.

Organize students into groups of three or four and have each group select a familiar organization, such as their workplace, a student organization they belong to, or their college or university. Instruct students to create an organizational chart for this chosen

organization, accurately depicting its departments or groups and ensuring the correct chain of command. Students should be ready to present their chart to the entire class.

If this is done outside of class as an assignment, it may be a good idea to have students use Microsoft PowerPoint to prepare the chart. PowerPoint has an option to draw organizational charts in the Smartart menu.

Your Turn to be a Manager

Find three different examples of organizational charts. In a report, describe each of them. Try to decipher the organization’s use of organizational design elements, especially departmentalization, chain of command, centralization–decentralization, and formalization.

Survey at least 10 different managers about how many employees they supervise.

Additionally, inquire about their perception of whether they can manage a larger number of employees or if they already believe the number of employees they supervise is too high. Afterward, represent your survey findings graphically and compose a report elucidating your discoveries. From there, derive conclusions regarding the span of control. Finally, construct an organizational chart depicting an organization you are familiar with (such as your workplace, a student organization you belong to, or your college/university).

It is crucial to exercise caution when displaying departments (or groups), particularly regarding the correct chain of command. Venturing beyond a company's core competence to pursue other lines of business can potentially result in financial difficulties. Students should observe how Charles Schwab remains dedicated to its primary business, which involves facilitating stock trades for investors who independently make financial decisions. Furthermore, Schwab prioritizes excellent customer service.

The example of Cheryl Pasquale demonstrates how she utilizes the company's information system to closely monitor her sales representatives and ensure they are meeting customer needs.

The conservative culture at Schwab, which avoids hype and excessive risks, would influence the design of its organizational structure. This would result in a simple structure with low departmentalization, wide spans of control, centralized authority, and little formalization. Such a structure is fast, flexible, inexpensive to maintain, and establishes clear lines of accountability. Schwab's strong emphasis on customer feedback also has structural implications, both positive and negative. It suggests a flexible structure that can adapt to meet customer demands. This allows employees to allocate more time and effort towards enhancing customer relationships and potentially making exceptions to improve customer satisfaction. However, building robust customer relationships requires considerable investment of time and money.

Schwab's dedication to customer attention may result in a reduction in efficiency necessary to maintain low stock transaction costs. Would this approach be effective for other organizations? It may not be suitable for firms operating with narrow profit margins. For instance, manufacturing firms during the maturity phase of an industry prioritize minimizing production expenses. Similarly, in process-oriented organizations, this approach may not be ideal.

Describe and assess Pfizer's novel structure.

At Pfizer, Jordan Cohen has developed a network organization. This structure, known as a boundaryless organization, allows employees to focus on the crucial aspects of their job that are directly related to the company's core competencies. Other tasks are then outsourced to external organizations.

What is the impact of this approach on the six organizational design elements? Does this arrangement work for other types of organizations? Why or why not? Pfizer's use of the network organization design has helped mitigate the effects of recent layoffs resulting from a nearly $4 billion annual budget reduction. As

reported by Fast Company, some project costs have been reduced by 100% through this strategy. Although successful for Pfizer, it may not be feasible for companies that have not faced significant personnel cuts or have high personnel costs. How does organizational structure contribute to an organization's efficiency and effectiveness? Please elaborate.

The organization's structure is crucial in ensuring the seamless functioning of the company, its responsiveness to both internal and external stakeholders, and its ability to adapt to market changes. Having fewer management layers promotes innovation, which is an important aspect of a company's survival and success. Students have already gained an understanding that a company's effectiveness as a learning organization is closely tied to its ability to foster innovation.