Organization Structure

Complexity, Formalization & Centralization Module-1

What is Structure?
The degree of complexity, formalization and centralization in the organization. Complexity is the degree of vertical, horizontal and spatial differentiation in an organization Formalization is the degree to which jobs within the organization are standardized. Centralization is the degree to which decision making in concentrated at a single point in the organization

Complexity
HD is the # of different positions and different subunits in the organization. Vert. Diff: number of job positions between top and those involved with the output; measured in other ways, such as number of hierarchical levels the greater the number and diversity of occupations, the greater the complexity. Complexity means more difficulty to achieve coordination and control. Complexity tends to be associated with increase in internal conflict. In addition, an increase in complexity tends to lead toward an increase in administrative intensity (ratio of administrative personnel to total personnel)

FORMALIZATION
FORMALIZATION _ rules defining the jobs; extent of written procedures and standardization. If an organization has a lot of written procedures, it is considered to be highly formalized. Another term for this is "procedural specificity" and Standard Operating Procedures. Organizations with a lot of SOP's are considered to be highly formalized. Why do we need Formalization? It is a means of control - it is a way to ensure that employees behave in the "correct" way in a given situation. BUT: Formal can lead to suboptimization (following rules for their own sake _ especially if you are going to be evaluated on rules you comply with _ cause its hard to evaluate on other criteria). for highly professionalized groups, formalization is not good _ it can lead to alienation. Why? Because it is a duplication of an existing authority system.

CENTRALIZATION
CENTRALIZATION: relates to the number of groups participating in dm; the fewer the number of groups, the greater the centralization. In a college, the decision who to hire for a position is decentralization but the decision on whether to hire or centralized. Here's a tough question: How centralized should an organization be?. It depends - there are advantages and disadvantages associated with high levels. Benefits: More coordination and control; more consistent policies throughout the org; work processes are standardardized Disadvantages: less flexibility, greater rigidity

Classical View of Structure

Division of Labour Specialization; breaking jobs down into simple and repetitions tasks Unity of Command a subordinate should have only one superior to whom he or she is directly responsible. Responsibility - an obligation to perform Line Authority authority to direct the work of a subordinate

 Chain of Command the superior-subordinate authority chain that extends from the top of the organization to the lowest echelon Staff Authority positions that support, assist and advise line managers Span of Control the number of subordinates a manger can efficiently and effectively divert Departmentation: grouping of activities on some common basis

Elements of Organizational Structure

Departmentalization

Span of Control

Elements of Organizational Structure

Formalization

Centralization

Span of Control
Number of people directly reporting to the next level
Assumes coordination through direct supervision

Wider span of control possible when:

Other coordinating mechanisms present Routine tasks Low employee interdependence

Tall vs Flat Structures

As companies grow, they:
Build taller hierarchy Widen span, or both

Problems with tall hierarchies

Overhead costs Worse upward information Focus power around managers, so staff less empowered

Issues with Tall vs Flatter Structures

Firms moving toward flatter structures (delayering) because taller hierarchies have:
Higher mgt overhead costs Less information flow Less staff empowerment

But also problems with flatter hierarchies

Undermines management functions Increases workload and stress Restricts management career development

Centralization and Decentralization

Centralization
Formal decision making authority is held by a few people, usually at the top

Decision making authority is dispersed throughout the organization

Decentralization

Formalization
The degree to which organizations standardize behavior through rules, procedures, formal training, and related mechanisms. Formalization increases as firms get older, larger, and more regulated Problems with formalization
Reduces organizational flexibility Discourages organizational learning/creativity Reduces work efficiency Increases job dissatisfaction and work stress

Departmentalization
Specifies how employees and their activities are grouped together Three functions of departmentalization
1. Establishes chain of command 2. Creates common mental models, measures of performance, etc

3. Encourages coordination through informal communication

Functional Organizational Structure

Organizes employees around specific knowledge or other resources (e.g., marketing, production)

CEO

Finance

Production

Marketing

Evaluating Functional Structures

Benefits
Economy of scale Supports professional identity and career paths Easier supervision

Limitations
More emphasis on subunit than organizational goals Higher dysfunctional conflict Poorer coordination -- requires more controls

Divisional Structure
Organizes employees around outputs, clients, or geographic areas
CEO

Healthcare

Lighting Products

Consumer Lifestyle

Divisional Structure
Different forms of divisional structure
Geographic structure Product structure Client structure

Best form depends on environmental diversity or uncertainty Movement away from geographic form
Less need for local representation Reduced geographic variation More global clients

Evaluating Divisional Structures

Benefits
Building block structure -- accommodates growth Focuses on markets/products/clients

Limitations
Duplication, inefficient use of resources Specializations are dispersed--silos of knowledge Politics/conflict when two forms of equal value

Team-Based Structure
Self-directed work teams Teams organized around work processes Typically organic structure
Wide span of control many employees work without close supervision Decentralized with moderate/little formalization

Usually found within divisionalized structure

Evaluating Team-Based Structures

Benefits
Responsive, flexible Lower admin costs Quicker, more informed decisions

Limitations
Interpersonal training costs Slower during team development Role ambiguity increases stress Problems with supervisor role changes Duplication of resources

Matrix Structure (Project-based)

Employees ( ) are temporarily assigned to a specific project team and have a permanent functional unit
CEO
Game1 Project Leader Game2 Project Leader Game3 Project Leader

Art Dept Leader

Software Dept Leader

Audio Dept Leader

Evaluating Matrix Structures

Benefits
Uses resources and expertise effectively Improves communication, flexibility, innovation Focuses specialists on clients and products Supports knowledge sharing within specialty Solution when two divisions have equal importance

Limitations
Increases goal conflict and ambiguity Two bosses dilutes accountability More conflict, organizational politics, and stress

Network Organizational Structure

Product development partner (U.S.A.)

Callcenter partner (Philippines)

Alliance of firms creating a product or service

Core Firm
Package design partner (UK)
Assembly partner (Mexico)

Supporting firms beehived around a hub Accounting partner or core firm (U.S.A.)

Evaluating Network Structures

Benefits
Highly flexible Potentially better use of skills and technology Not saddled with same resources for all products

Limitations
Exposed to market forces Less control over subcontractors than in-house