Roger N. Nagel Senior Fellow & Wagner Professor Lehigh University

Organizational Behavior and Organizational Change Organizational Structure

CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 Topics This Presentation What Is Organizational Structure? e l e v e n t h e d i t i o n Common Organization Designs o r g a n i z a t i o n a l b e h a v i o r

stephen p. robbins

“Organizational“Organizational behavior” behavior” EleventhEleventh Edition Edition ByBy Steve Steve Robbins Robbins ISBNISBN 0-13-191435-9 0-13-191435-9 ReferenceReference Book Book 2

Organizational Structure KeyKey Elements: Elements: How job tasks are formally ••WorkWork specialization specialization divided, grouped, and • Departmentalization coordinated. • Departmentalization ••ChainChain of of command command ••SpanSpan of of control control ••CentralizationCentralization and and decentralizationdecentralization ••FormalizationFormalization

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The Key Question The Answer Is Provided By

1. To what degree are articles Work specialization subdivided into separate jobs? 2. On what basis will jobs be grouped Departmentalization together? 3. To whom do individuals and groups Chain of command report?

E X H I B I T 15–1 E X H I B I T 15–1 Page 453 Page 453 4

4. How many individuals can a manager Span of control efficiently and effectively direct? 5. Where does decision-making Centralization authority lie? and decentralization

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

E X H I B I T 15–1 E X H I B I T 15–1 Page 453 Page 453 5

CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 What Is Organizational Structure? Departmentalization The basis by which jobs are grouped together. GroupingGrouping Activities Activities By: By: ••FunctionFunction ••ProductProduct ••GeographyGeography ••ProcessProcess ••CustomerCustomer

CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 What Is Organizational Structure? Authority The rights inherent in a managerial position to give orders and to expect the orders to be obeyed.

Chain of Command The unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom.

Unity of Command A subordinate should have only one superior to whom he or she is directly responsible. 7

Concept:Concept: WiderWider spans spans of of management management increase increase organizational organizational efficiency.efficiency.

NarrowNarrow Span Span Drawbacks: Drawbacks: ••ExpenseExpense of of additional additional layers layers of of management. management. ••IncreasedIncreased complexity complexity of of vertical vertical communication. communication. ••EncouragementEncouragement of of overly overly tight tight supervision supervision and and discouragement of employee autonomy. discouragement of employee autonomy. 8

E X H I B I T 15–3 E X H I B I T 15–3 page 457 page 457 9

Centralization The degree to which decision making is concentrated at a single point in the organization.

Decentralization The degree to which decision making is spread throughout the organization.

Formalization The degree to which jobs within the organization are standardized. 10

CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 Common Organization Designs Simple Structure A structure characterized by a low degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization. AA Simple Simple Structure: Structure: JackJack Gold’s Gold’s Men’s Men’s Store Store

E X H I B I T 15–5 E X H I B I T 15–5 Page 460 12 Page 460

CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 Common Organization Designs Bureaucracy A structure of highly operating routine 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.

Strengths Weaknesses ¾ Functional ¾ Subunit conflicts with economies of scale organizational goals ¾ Minimum duplication ¾ Obsessive concern of personnel and with rules and equipment regulations ¾ Enhanced ¾ Lack of employee communication discretion to deal ¾ Centralized decision with problems making 14

CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 Common Organization Designs Matrix Structure A structure that creates dual lines of authority and combines functional and product departmentalization.

KeyKey Elements: Elements: ++GainsGains the the advantages advantages of of functional functional and and product product departmentalizationdepartmentalization while while avoiding avoiding their their weaknesses. weaknesses. ++FacilitatesFacilitates coordination coordination of of complex complex and and interdependentinterdependent activities. activities. ––BreaksBreaks down down unity-of-command unity-of-command concept. concept. 15

(Director)

(Dean) Employee

E X H I B I T 15–6 E X H I B I T 15–6 CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 New Design Options Team Structure The use of teams as the central device to coordinate work activities.

Characteristics:Characteristics: ••BreaksBreaks down down departmental departmental barriers. barriers. ••DecentralizesDecentralizes decision decision making making to to the the team team level. level. ••RequiresRequires employees employees to to be be generalists generalists as as well well as as specialists.specialists. ••CreatesCreates a a “flexible “flexible bureaucracy.” bureaucracy.”

Virtual Organization A small, core organization that outsources its major business functions. Highly centralized with little or no departmentalization.

Concepts:Concepts: Advantage:Advantage: Provides Provides maximum maximum flexibility flexibility while while concentratingconcentrating on on what what the the organization organization does does best. best. Disadvantage:Disadvantage: Reduced Reduced control control over over key key parts parts of of thethe business. business. 18

Then E-Business •Digitization •Virtual ORG

Third

First Second Logistics E-procurement 19 •Access •Transaction CSE & Enterprise Systems Center Diagram Source General Electric •TransactionLehigh University The Intelligent Supply Chain Roger N. Nagel•Digitization© 2006 Common Goals Partner Collaboration Innovation

This is achieved through the integration of information with the people, cultural and organizational issues that could otherwise

prevent the network from being Source smart. Cisco ¾ The transition from one level to Virtual Organization the next requires a major paradigm shift that should not Phase Transition be taken for granted. Collaboration Network Phase Transition

Innovation Network20

CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 A dynamic set of companies ¾ That come together for a time Virtual based and opportunity driven goal Organization ¾ Relationships vary from formal to informal, ¾ They need to practice working together to learn to communicate, share information, and IP etc. ¾ Moderate interaction ¾Limited scope of activities ¾Limited collaboration ¾Many fail over trust issues

CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 Provide value in many Virtual ways: Organization ¾ Global convenience –One World ¾ Standards – Rosetta Net ¾ Virtual resources – Pabst

¾ Finding compatible partners – Solid works Manufacturing Network

¾ Franchise (Node) Charisma –

Ritz Carlton 22

CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 A set of companies who Collaboration share a short and long Network term roadmap or vision and focus significant resources on value Supply Chain Vs. producing Intensive Supply Chain interaction ¾ Committed and involved in the goals and success of all collaborators Process Vs. Process ¾ Extensive Information Sharing ¾ Integrated Infrastructure facilitates both people and Product Vs. Product information networking 23

CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 Collaboration CanCan redefineredefine anan industryindustry and provide Network value in many ways: ¾Distributed location & authority - CNN ¾Swarm effect – VISA ¾Network & Node Charisma - 24

Standards Rosetta Net Virtual Global Alliance One World Organization Franchise Holiday Inn, Hertz

Collaboration Hub DuPont Collaboration Node & Network Charisma Cisco Network Swarm Effect Visa, Master Card

Network Economy Li & Fong Innovation Dynamic Teams Agile Web of PA Network Virtual Reality Acheron’s Call

Act smart in terms of how the individual members coordinate, collaborate, innovate and organize themselves 25

E X H I B I T 15–7 E X H I B I T 15–7 CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 New Design Options Boundaryless Organization An organization that seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams.

T-formT-form Concepts: Concepts: EliminateEliminate vertical vertical (hierarchical) (hierarchical) and and horizontal horizontal (departmental)(departmental) internal internal boundaries. boundaries. BreakdownBreakdown external external barriers barriers to to customers customers and and suppliers.suppliers. 27

CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 Why Do Structures Differ? Mechanistic Model A structure characterized by extensive departmentalization, high formalization, a limited information network, and centralization.

CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 Why Do Structures Differ? Organic Model A structure that is flat, uses cross-hierarchical and cross-functional teams, has low formalization, possesses a comprehensive information network, and relies on participative decision making.

E X H I B I T 15–8 E X H I B I T 15–8 CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 Why Do Structures Differ? – Strategy Innovation Strategy A strategy that emphasizes the introduction of major new products and services.

Cost-minimization Strategy A strategy that emphasizes tight cost controls, avoidance of unnecessary innovation or marketing expenses, and price cutting.

Imitation Strategy A strategy that seeks to move into new products or new markets only after their viability has already

been proven. 31

Strategy Structural Option

Innovation Organic: A loose structure; low specialization, low formalization, decentralized

Cost minimization Mechanistic: Tight control; extensive work specialization, high formalization, high centralization

Imitation Mechanistic and organic: Mix of loose with tight properties; tight controls over current activities and looser controls for new undertakings 32

E X H I B I T 15–9 E X H I B I T 15–9 CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 Why Do Structures Differ? – Size Size How the size of an organization affects its structure. As an organization grows larger, it becomes more mechanistic.

CharacteristicsCharacteristics of of large large organizations: organizations: ••MoreMore specialization specialization ••MoreMore vertical vertical levels levels ••MoreMore rules rules and and regulations regulations

Technology How an organization transfers its inputs into outputs.

CharacteristicsCharacteristics of of routineness routineness (standardized (standardized or or customized)customized) in in activities: activities: ••RoutineRoutine technologies technologies are are associated associated with with tall, tall, departmentalizeddepartmentalized structures structures and and formalization formalization in in organizations.organizations. ••RoutineRoutine technologies technologies lead lead to to centralization centralization when when formalizationformalization is is low. low. ••NonroutineNonroutine technologies technologies are are associated associated with with delegated delegated decisiondecision authority. authority. 34

CSE & Enterprise Systems Center Lehigh University Roger N. Nagel © 2006 Why Do Structures Differ? – Environment Environment Institutions or forces outside the organization that potentially affect the organization’s performance.

KeyKey Dimensions- Dimensions- ••Capacity:Capacity: the the degree degree to to which which an an environment environment can can supportsupport growth. growth. ••Volatility:Volatility: the the degree degree of of in instabilitystability in in the the environment. environment. ••Complexity:Complexity: the the degree degree of of heterogeneity heterogeneity and and concentration among environmental elements. concentration among environmental elements. 35

Volatility

Capacity

Complexity

Characteristics of Why Bureaucracy Survives Bureaucracies ¾ Large size prevails. ¾ Specialization ¾ Environmental turbulence can be largely managed. ¾ Formalization ¾ Standardization achieved ¾ Departmentalization through hiring people who ¾ Centralization have undergone extensive ¾ Narrow spans of control educational training. ¾ Adherence to a chain of ¾ Technology maintains command. control.

ResearchResearch Findings: Findings: ••WorkWork specialization specialization contributes contributes to to higher higher employee employee productivity,productivity, but but it it reduces reduces job job satisfaction. satisfaction. ••TheThe benefits benefits of of specialization specialization have have decreased decreased rapidly rapidly as as employeesemployees seek seek more more intrinsically intrinsically rewarding rewarding jobs. jobs. ••TheThe effect effect of of span span of of cont controlrol on on employee employee performance performance is is contingentcontingent upon upon individual individual differences differences and and abilities, abilities, task task structures,structures, and and other other organizational organizational factors. factors. ••ParticipativeParticipative decision decision making making in in decentralized decentralized organizationsorganizations is is positively positively related related to to job job satisfaction. satisfaction. 38

Implicit Models of Organizational Structure Perceptions that people hold regarding structural variables formed by observing things around them in an unscientific fashion. 39

Roger N. Nagel Wagner Professor and Senior Fellow CSE Department & The Enterprise Systems Center at Lehigh University 200 West Packer Avenue Bethlehem, Pennsylvania, 18015 (610) 758-4086, (610) 868-0402 [fax] [email protected]