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Organizational Behavior: Solutions for Management

Paul D. Sweeney, University of Central Florida
Dean B. McFarlin, University of Dayton

Structuring Companies for Effective Competition

Chapter Outline

Structure and Organizational Effectiveness

* Organizational structure and effectiveness are affected by the way managers and employees utilize the building blocks skills, such as self-insight.

Why Structure Matters

* Organizational structure: refers to how a company is put together. It also reflects some of the underlying ways people interact with one another in and across jobs or departments.

Organizational structure seems to serve a number of purposes:
- * People choose a particular pattern or design because they think it is going to work.
- * Organizational structure provides some constancy in the way the firm treats people and frees up the time that might otherwise be spent hashing out territories or interpersonal issues.
- * It provides a way to interpret power relationships.

Structural Options for Dividing Up Tasks

* Organizations have several options available for dividing up jobs such as assigning related tasks to the same unit or dispersing critical business functions across units to better serve the customer.

Functional Structure:
1. Firms with functional structures design their operations so that departments are defined by the activity or function they perform.
2. Functional structures are the most traditional structure.
3. Advantages to functional structure:
  - * Efficient grouping reduces the need for duplicate skills and resources.
  - * Increases the ability of people in one area to coordinate and cooperate.
4. Disadvantages to functional structure:
  - * It can promote strong identification with one department sometimes at the expense of the goals and benefit of the larger company.
Product-Based Structures:
1. In product-based structures, effort is put into reducing the functional empires and placing all jobs needed to produce and sell a product within the same group.
2. Advantages to product-based structure:
  - * Fosters a more collective approach to business.
  - * The product-based unit has a lot of control over operations and is not dependent on another, separate functional area to get things done.
  - * Division members are more likely to be focused on the few products or services they make or conduct.
3. Disadvantages to product-based structure:
  - * There may be some or considerable duplication of effort.
  - * This structure has a focus on a single product line.
Customer-Focused and Other Structures:
1. 1. Customer-based structures: may overlap with product structures.
2. 2. Advantages of customer-based structures:
  - * Clearer focus on the real customer
  - * Compatible with the increasing service orientation of the U.S. economy.
3. 3. Disadvantages of customer-based structures:
  - * Costs can be high
  - * Divisions may have a considerable amount of overlap.
4. 4. Other options for dividing up the work include:
  - * Geographic-based structures.
D. The Hybrid Approach: Matrix Alternatives:
1. A hybrid approach is referred to as the matrix structure and represents a way to incorporate all the pluses and minuses of the other structures.
2. Typically, matrix structures involve crossing a functional structure with a product-based design.
3. Under this system, one employee reports to two bosses, a function manager and a project manager.
4. Advantages of a matrix structure:
  - * They are particularly suited to complex product development.
  - * The interaction between experts can facilitate the creative process.
  - * Little duplication of resources.
  - * This design makes very good use of resources.
5. Matrix structures seem to be more common in industries where technologies and markets change rapidly.
6. Disadvantages to matrix structures:
  - * Having employees effectively report to two bosses can be stressful and frustrating.
  - * Power imbalances can arise between the functional managers and the matrix/project managers.

The Chain of Command: Dividing Up Power
Power is the ability to request and expect people to do something.
1. A. Vertical Differentiation:
  1. Tall Versus Flat Structures:
    - * Power distribution refers to how the company may be vertically differentiated.
    - * In general, the larger the number of employees, the taller the organizational structure.
    - * A more traditional structure, at least for U.S. firms, is the tall structure with many grades and managerial levels.
    - * Tall structures allow a firm and middle managers in particular to maintain a clear handle on employees.
    - * Taller structures allow for more options for moving up in the firm compared to flatter structures with fewer managerial slots available.
    - * Flatter structures are less expensive and the fewer managerial levels can mean quicker decision-making.
  2. Span of Control:
    - * One major effect of having fewer managers around is that those who remain are responsible for a larger set of employees.
    - * Span of control refers to the number of employees who report to any one manager.
    - * Increasing a manager's span of control can reduce efficiency.
    - * The best span of control seems to depend upon a number of characteristics about your business.
2. B. The Balance Between Centralization and Decentralization:
  - * The distinction between centralization and decentralization is arguably the most important factor for understanding how power is distributed in an organization.
  - * Centralization is the degree to which power is concentrated in only a few people.
  - * Decentralization disperses power among many people, usually via a flatter structure.
  - * A number of conditions may favor centralized over decentralized structure:
  - * If the firm is fast changing it should favor a decentralized structure.
  - * Examination of corporate examples such as General Electric, Johnson & Johnson, and McDonald's.
  1. 1. Delegation Challenges:
    - * Delegation is the assignment of tasks and responsibility or control for those jobs to others.
    - * Delegation is really decentralization in practice.
    - * Perhaps the biggest plus is the fact that true delegation provides lower level management with the opportunities to develop their skills and expertise.
    - * Signs of delegation problems include:
    - * Taking work home all the time.
    - * Constant pressure and anxiousness about being behind.
    - * Rushing but failure to meet deadlines.
    - * Negative feedback from customers.
  2. 2. The Who, Where, and What of Delegation:
    - * It is suggested by some leaders such as Andy Grove, that tasks you know well are the ones that should most likely be delegated.
    - * Performance appraisals are an example of tasks that should not be delegated even though some organizations do delegate this area with success.
    - * Delegation must involve following up to make sure things are going well.
    - * Ideas for improving delegation effectiveness:
    - * Delegate, but do not dump.
    - * Give employees a long leash and clarify their decision control.
    - * If possible, delegate a whole task.
    - * Check objectives without being a pest.
    - * Keep the focus on the big picture.
3. C. Formalization: Going by the Book:
  - * Formalization basically refers to the number of rules, policies, and procedures that exist throughout the organization.
  - * It is a way to control events and people.
  - * However, it may have its biggest effect on individuals.
  1. Bureaucracies:
    - * An extremely formal organization is also known as a bureaucracy.
    - * They tend to go hand-in-hand with some of the less desirable aspects of other structural dimensions, such as centralization of decision-making.
    - * For companies to possess an elaborate set of rules is not always a negative, such as described by the McDonald's example.
    - * Consistency.
Making the Right Choices About Structure
Organizational size, changing technology, and industry/environmental variables can have an important effect on the choice of structure.
1. Organizational size:
  - * Research shows that as size increases:
  - * Functional specialization rises
  - * Companies become more formal and bureaucratic
  - * Firms become taller
  - * Tasks become more specialized, even within functional areas
  - * Power becomes more decentralized
2. B. The Impact of Changing Technologies and Environments:
  1. 1. Technology:
    - * The impact of technology and the environment on structure is very complex.
    - * Technology can generate various types of interdependence among people and tasks in a firm.
    - * In interactions where technology is less common, there seems to be a tendency for less formal or centralized structures to emerge and vice versa.
  2. 2. Turbulent or Stable Conditions:
    - * Technology is only one example of the many environments, both predictable and unstable, faced by organizations.
    - * Environmental aspects include:
    - * Cultural differences
  3. Mechanistic Structures:
    - * A mechanistic structure is one in which people perform specialized jobs, the flow of information comes largely from above, and there is a good deal of formality in how things get done.
    - * Firms of this type resemble a well-oiled machine.
  4. 4. Organic Structures:
    1. * In an organic structure, jobs are less specialized and are more broadly defined.
    2. * Power is more decentralized
    3. * Fewer rules and regulations
    4. * Popular in high-technology industries
  5. 5. A Point of Comparison:
    - * Research reveals that one type of alternative structure is not necessarily superior to the other.
3. C. More Organic Options:
  - * There are several alternatives available for firms that seek less formal and more flexible approaches to their design.
  - * It is undeniable that the organic structure is by far the most popular option in U.S. businesses today.
  - * This may be due to the unstable nature of many businesses and the impact of the information age.
  - * Organic approaches need not involve turning the whole firm around.

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