RSM 100Y1
RSM 100Y1 Chapter 7 What is Organizational Structure? Organizational Structure: The specification of the jobs to be done within a business and how those jobs relate to one another. Determinants of Organizational Structure 1. Organization’s Purpose 2. Organization’s Mission 3. Organization’s Strategy 4. Organization’s Size 5. Organization’s Technology 6. Changes in Environmental Circumstances Chain of Command Organization Charts: Illustrates the company’s structure and show employees where they fit into the firm’s operations.
Solid lines show the Chain of Command: The reporting relationships within the company.
The Building Blocks of Organizational Structure Specialization: Determining who will do what Departmentalization: Determining how people performing certain tasks can best be grouped together. 1. Specialization Job specialization: The process of identifying the specific jobs that need to be done and designating the people who will perform them. As an organization grows, job specialization may need to occur. At the early stages of a small business, an individual may perform all jobs. However, as the business expands, more people need to be hired and given specific jobs to perform. If job specialization is carried too far, jobs become boring and people get bored. 2. Departmentalization Departmentalization: The process of grouping jobs into logical units. Control and coordination are narrowed and top managers are able to see how various units are performing. Firms can treat a department as a Profit center: a separate company unit responsible for its own costs and profits. 1. Functional Departmentalization: Departmentalize according to functions or activities. E.g. Production, marketing, sales, HR, etc. 2. Customer Departmentalization Departmentalize according to types of customers likely to buy a given product. 3. Product Departmentalization Dividing an organization according to the specific product or service being created. 4. Geographic Departmentalization Departmentalize according to the area of the country or world supplied. 5. Process Departmentalization Departmentalize according to the production process used to create the good or service.
Establishing the Decision-Making Hierarchy A three step process is required for the development of this hierarchy. 1. Assigning Tasks Determining who makes decisions and specifying how they should be made. Who is SUPPOSED to do what and who is ENTITLED to do what. Responsibility: The duty to perform an assigned task. Authority: The power to make the decisions necessary to complete the task. 2. Performing Tasks Implementing the decisions. Delegation: Assignment of a task, responsibility or authority by a manager to a subordinate. Accountability: Liability of subordinates for accomplishing tasks assigned by managers. 1. Fear of Delegating Managers fear that the subordinate will never do it as well as the manager can, that the subordinates will be better than the manager, that they want to control everything, that they fail to do long-term planning because of their day-to-day operating style, that they do not know enough about the industry trends and that they are too involved in day-to-day operations. Managers must: a. Decide on the nature of the work to be done b. Match the job with the skills of subordinates c. Make sure the person chosen understands the objectives he or she is supposed to achieve d. Make sure subordinates have the time and training necessary to do the task 3. Distributing Authority Determining whether the organization is to be centralized or decentralized. 1. Centralized Organizations Top management retains most decision-making rights for themselves. 2. Decentralized Organizations Lower and Mid-level managers are allowed to make significant decisions. This is to make a company more responsive to its environment. 3. Tall and Flat Organizations Flat: Few layers of management Tall: Many layers of management
4. Span of Control The number of people managed by one manager. FLAT organizations have WIDE span of control. TALL organizations have narrow span of control. Downsizing: The planned reduction in the scope of an organization’s activity. 5. Three Forms of Authority a. Line Authority Authority that flows up and down the chain of command b. Staff Authority Based on technical expertise and involved advising line managers about decisions. c. Committee and Team Authority Authority granted to committees or work teams that play central roles in the firm’s daily operations.
Basic Organizational Structure There are four main forms of structure Functional Structure: The various units in the organization are formed based on the functions that must be carried out to reach organizational goals. They make use of the departmentalization by function. Divisional Structure: Divides the organization into several divisions, each of which operates as a semiautonomous unit and profit center. Project Organization: Involves forming a team of specialists of the different functional areas of the organization to work on one specific project. Matrix Organization is a variation of project structure in which the project manager and the regular line managers share authority. International Organization: Organizational structures that are designed to help a company succeed in international markets. International departments, international divisions or an integrated global organization are all variations of the international organizational structure. Organizational Design for the 21 Century a. Boundaryless Organization Traditional boundaries and structures are minimized or eliminated altogether. b. Team Organization Relies almost exclusively on project-type teams, with little or no underlying functional hierarchy. c. Virtual Organization A company with little or no formal structure, which exists only in response to its own needs. d. Learning Organization This organization works to integrate continuous improvement with continuous employee learning and development.
The Informal Organization Informal Organization: The everyday social interactions among employees that transcend formal jobs and job interrelationships. Informal Groups Groups that get together during breaks, lunch or after work to discuss work-related or non-work-related subjects. This may be beneficial to the firm if the group supports the organization. This may be negative to the firm if the group counters the organization’s interests. This may be neutral if what they do is unrelated to work. Organizational Grapevine The informal communication network that runs through the entire organization. This is “office gossip”. Managers can use this to their advantage to know what the employees think of a certain idea or the entire work experience. However, it cannot always be trusted as the information may be inaccurate.
Solid lines show the Chain of Command: The reporting relationships within the company.
The Building Blocks of Organizational Structure Specialization: Determining who will do what Departmentalization: Determining how people performing certain tasks can best be grouped together. 1. Specialization Job specialization: The process of identifying the specific jobs that need to be done and designating the people who will perform them. As an organization grows, job specialization may need to occur. At the early stages of a small business, an individual may perform all jobs. However, as the business expands, more people need to be hired and given specific jobs to perform. If job specialization is carried too far, jobs become boring and people get bored. 2. Departmentalization Departmentalization: The process of grouping jobs into logical units. Control and coordination are narrowed and top managers are able to see how various units are performing. Firms can treat a department as a Profit center: a separate company unit responsible for its own costs and profits. 1. Functional Departmentalization: Departmentalize according to functions or activities. E.g. Production, marketing, sales, HR, etc. 2. Customer Departmentalization Departmentalize according to types of customers likely to buy a given product. 3. Product Departmentalization Dividing an organization according to the specific product or service being created. 4. Geographic Departmentalization Departmentalize according to the area of the country or world supplied. 5. Process Departmentalization Departmentalize according to the production process used to create the good or service.
Establishing the Decision-Making Hierarchy A three step process is required for the development of this hierarchy. 1. Assigning Tasks Determining who makes decisions and specifying how they should be made. Who is SUPPOSED to do what and who is ENTITLED to do what. Responsibility: The duty to perform an assigned task. Authority: The power to make the decisions necessary to complete the task. 2. Performing Tasks Implementing the decisions. Delegation: Assignment of a task, responsibility or authority by a manager to a subordinate. Accountability: Liability of subordinates for accomplishing tasks assigned by managers. 1. Fear of Delegating Managers fear that the subordinate will never do it as well as the manager can, that the subordinates will be better than the manager, that they want to control everything, that they fail to do long-term planning because of their day-to-day operating style, that they do not know enough about the industry trends and that they are too involved in day-to-day operations. Managers must: a. Decide on the nature of the work to be done b. Match the job with the skills of subordinates c. Make sure the person chosen understands the objectives he or she is supposed to achieve d. Make sure subordinates have the time and training necessary to do the task 3. Distributing Authority Determining whether the organization is to be centralized or decentralized. 1. Centralized Organizations Top management retains most decision-making rights for themselves. 2. Decentralized Organizations Lower and Mid-level managers are allowed to make significant decisions. This is to make a company more responsive to its environment. 3. Tall and Flat Organizations Flat: Few layers of management Tall: Many layers of management
4. Span of Control The number of people managed by one manager. FLAT organizations have WIDE span of control. TALL organizations have narrow span of control. Downsizing: The planned reduction in the scope of an organization’s activity. 5. Three Forms of Authority a. Line Authority Authority that flows up and down the chain of command b. Staff Authority Based on technical expertise and involved advising line managers about decisions. c. Committee and Team Authority Authority granted to committees or work teams that play central roles in the firm’s daily operations.
Basic Organizational Structure There are four main forms of structure Functional Structure: The various units in the organization are formed based on the functions that must be carried out to reach organizational goals. They make use of the departmentalization by function. Divisional Structure: Divides the organization into several divisions, each of which operates as a semiautonomous unit and profit center. Project Organization: Involves forming a team of specialists of the different functional areas of the organization to work on one specific project. Matrix Organization is a variation of project structure in which the project manager and the regular line managers share authority. International Organization: Organizational structures that are designed to help a company succeed in international markets. International departments, international divisions or an integrated global organization are all variations of the international organizational structure. Organizational Design for the 21 Century a. Boundaryless Organization Traditional boundaries and structures are minimized or eliminated altogether. b. Team Organization Relies almost exclusively on project-type teams, with little or no underlying functional hierarchy. c. Virtual Organization A company with little or no formal structure, which exists only in response to its own needs. d. Learning Organization This organization works to integrate continuous improvement with continuous employee learning and development.
The Informal Organization Informal Organization: The everyday social interactions among employees that transcend formal jobs and job interrelationships. Informal Groups Groups that get together during breaks, lunch or after work to discuss work-related or non-work-related subjects. This may be beneficial to the firm if the group supports the organization. This may be negative to the firm if the group counters the organization’s interests. This may be neutral if what they do is unrelated to work. Organizational Grapevine The informal communication network that runs through the entire organization. This is “office gossip”. Managers can use this to their advantage to know what the employees think of a certain idea or the entire work experience. However, it cannot always be trusted as the information may be inaccurate.
