Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

Chapter Ten

Managing Organizational Structure and Culture

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Organizational Structure

  • Organizational Architecture
  • The organizational structure, control systems, culture, and human resource management systems that together determine how
    efficiently and
    effectively
    organizational
    resources are used.

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The four functions of managers include organizing, control, leading and planning. To organize and control managers must create an organizational architecture that makes the best use of resources to produce the goods and services customers desire. Organizational architecture is the combination of organizational structure, culture, control systems, and human resource management systems that together determine how efficiently and effectively organizational resources are used.

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Designing Organizational Structure

  • Organizing
  • The process by which managers establish working relationships among employees to achieve goals.
  • Organizational Structure
  • Formal system of task and reporting relationships showing how workers use resources.

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One role managers must undertake is that of organizing. Organizing is the process managers use to establish the structure of working relationships among employees. The organizational structure is the formal system of task and reporting relationships that coordinates and motivates organizational members, so that they work together to achieve organizational goals. It is imperative that management develop an organizational structure that develops a firm’s competitive advantage rather than one that acts as an impediment.

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Factors Affecting Organizational Structure

Figure 10.1

Managers must develop organizational structures to fit the factors or circumstances that are affecting the company and causing the most organizational uncertainty. There is no one best way to design an organization but four factors are important determinants of the type of organizational structure managers select: the nature of the organizational environment, the type of strategy the organization pursues, the technology the organization uses and the characteristics of the organization’s human resources. For example, if an organization is operating in an ever changing environment the organizational structure must be flexible with decentralized authority in order to respond quickly to the changing environment.

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Job Design

  • Job Design
  • The process by which managers decide how to divide tasks into specific jobs.
  • The appropriate division of labor results in an effective and efficient workforce.

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All organizational design begins with job design. Job design is the process by which managers decide how to divide tasks into specific jobs. Managers must analyze the range of tasks to be performed and then create jobs that best allow the organization to meet the needs of customers. Job simplification is the process of reducing the number of tasks that each worker performs. While the process of job simplification may sound appealing managers must refrain from too much job simplification since studies have shown this lessens employee motivation. The opposite of job simplification involves job enlargement or job enrichment. Managers often use job enlargement or job enrichment in an effort to increase worker motivation.

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Job Design

  • Job Simplification
  • The process of reducing the tasks each worker performs.
  • Job Enlargement
  • Increasing the number of different tasks in a given job by changing the division of labor
  • Job Enrichment
  • Increasing the degree of responsibility a worker has over a job

Fredrick Herzberg argued against job simplification and proposed the way to achieve motivated and satisfied employees was through job enlargement and job enrichment. Job enlargement is the process of increasing the number of different tasks in a given job by increasing the number of tasks employed or making the job “larger”. Job enrichment is increasing the degree of responsibility a worker has over a job by, for example, empowering the workers to find better ways of doing the job; encouraging workers to develop new skills; allowing workers to decide how to do the work and allowing employees to measure their own performance. The goal is to increase the responsibility thus increase employee interest in the quality of the goods they make or the service they provide.

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Grouping Jobs into Functions

  • Functional Structure
  • An organizational structure composed of all the departments that an organization requires to produce its goods or services.

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A function is a group of people, working together, who possess similar skills or the same knowledge, tools or techniques to perform their jobs. A functional structure is an organizational structure composed of all the departments that an organization requires to produce its goods or services. The big advantage to this approach is that employees within each functional area become more specialized and can perform at a higher level. One disadvantage to this structure is that as the organization grows the functional structure can impede communication and coordination among functional areas.

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Divisional Structures

  • Divisional Structure
  • Managers create a series of business units to produce a specific kind of product for a specific kind of customer
  • Product, market, geographic

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The divisional structure is an organizational structure composed of separate business units within which are included the functions that work together to produce a specific product for a specific customer. Each division is a collection of departments or functions that work together to produce the product. One advantage to this approach is that if it is implemented correctly, the divisional structure creates more manageable units within the organization. If a manager organizes divisions according to the type of good or service they provide, they adopt a product structure. Another type of divisional structure is based on geography or a geographic structure. The final type of divisional structure is based on the type of customer they focus on and is referred to as a market structure.

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Matrix Design Structure

  • Matrix Structure
  • An organizational structure that simultaneously groups people and resources by function and product.
  • The structure is very flexible and can respond rapidly to the need for change.
  • Each employee has two bosses

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One organizational structure that is particularly effective for organizations operating in a dynamic market environment is the matrix design structure. This organizational structure groups people and resources together by function and by product. The result is a complex network of reporting relationships among product teams and functions creating a highly adaptable organization. One problem with this structure is that each employee has two bosses – a functional manager and a product manager creating a situation in which the employee must attempt to satisfy both.

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Product Team Design Structure

  • Product Team Structure
  • Does away with dual reporting relationships and two-boss managers
  • Functional employees are permanently assigned to a cross-functional team that is empowered to bring a new or redesigned product to work

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One issue with the matrix organization is the dual reporting relationships created by this complex organizational structure. In an effort to avoid this issue managers can use a product team structure. The product team structure differs from the matrix approach in that it eliminates the problems associated with dual reporting relationships and two-boss employees. Also, the product team structure permanently assigns functional employees thus empowering them to redesign a product or bring a new product to market.

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Hybrid Structures

  • Hybrid Structure
  • The structure of a large organization that has many divisions and simultaneously uses many different organizational structures

Figure 10.7

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Managers can select the best structure for a particular division. In this type of hybrid structure one division may use a functional structure while another division may have a geographic structure. The ability to break a large organization into smaller units makes it easier to manage. When an organization elects to use a hybrid structure they allow the members of the organization to employ many different types of organizational structures simultaneously. Figure 10.7 in your textbook provides an excellent example of a hybrid organizational structure.