Lecture 5 Flashcards
Definition organizational structure
The way tasks are formally divided, grouped, and coordinated.
What are the components of organizational structure?
- Work specialization
- Departmentalization
- Chain of command
- Span of control
- (De)centralization
- Formalization
Work specialization
A component of organizational structure.
What tasks do you do?
Describes the degree to which tasks in an organization are subdivided into separate jobs completed by different individuals.
Departmentalization
A component of organizational structure.
Who do you work with?
The basis by which jobs are grouped together.
The basis by which jobs are grouped together
Function
- people with the same functional background
Process
- what happens when you are undergoing surgery: every different moment in that process you will deal with different people to help you
Geographic
- different locations in which they provide products and services
Product
- organized with people who work the same product line
Customer
- people attributed to different customers
Chain of command
A component of organizational structure.
Who do you report to?
An unbroken line of formal authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom.
The higher the chain of command, the more management players there are.
Span of control
A component of organizational structure.
How many people do you manage?
The number of subordinates a supervisor has.
How wide the organization is.
In a flat organization one person is responsible for more people.
(De)centralization
A component of organizational structure.
Who decides?
The degree to which decision making is concentrated at a single point in the organization.
When decisions need to be made, is it by one person or multiple persons?
Formalization
A component of organizational structure.
How many rules are there?
Refers to the degree to which jobs within the organization are standardized.
High formalization
- Detailed job description
- Low autonomy
- E.g., McDonald’s
Low formalization
- Nonprogrammed job behaviours
- High autonomy
- E.g., any startup
Typology of 6 common structures
The discussed design components make 6 common structures.
- Simple
- Functional
- Divisional
- Matrix
- Team/project
- Network
Which common structures are quite common but also a bit outdated in some ways?
- Simple
- Functional
- Divisional
These are traditional ways of clustering organizational structures.
Which structures are more common nowadays?
- Matrix
- Team/project
- Network
Simple structure
There is simply the CEO with several employees. All the employees report to the CEO.
- Low specialization
- Low departmentalization (no seperate departments)
- Short chain of command
- Wide span of control
- Centralized authority
- Low formalization
The advantages and risks of a simple structure
Advantage
- This can be quite useful, especially in smaller organizations (e.g., a startup)
- The organizations are streamlined; everyone knows what to do.
Risk
- The CEO drops out. So, there are some drawback too.
Functional structure
- High specialization
- High departmentalization
- Short chain of command
- Wide span of control
There are several departments underneath the CEO.
Employees are grouped together on the basis of their functional background.
A very common structure.
Advantages and risks of a functional structure
Advantages:
- People get more specialized within the teams which can be useful for the final product.
- People get promotions within certain teams.
Risk:
- People start working alongsides each other; they might not be aware of what the other departments are doing. Bad communication.
Divisional structure
- Medium-high specialization
- High departmentalization
- Low formalization
There is an additional layer where there is still departmentalization, but it is clustered around certain products.
Product X, as well as product Y and Z all have their own R&D department, production department, marketing, sales etc.
It is quite common.
Advantages and risks of a divisional structure
Advantages:
- A lot of dedication for the product.
- Highly expertised in their product.
- Common goal.
Risks:
- If they are all researching the same stuff but for different products, they are wasting time. There might be overlap.
- Money, it is very expensive.
Matrix structure
The middle ground between the functional and divisional structure. It combines the best of both worlds.
- Medium-high specialization
- High departmentalization
- Short chain of command
Functional structure allows for the pooling and sharing of specialized resources, but has no clear responsibilities.
Divisional structure provides clear responsibilities for all activities, but with duplication of costs.
Employees are reporting to both the manager of a product as well as the manager of their department (e.g., marketing). They are doing both at the same time.
T-shaped professionals.
Risks of the matrix structure
- You are stretching people too much.
- Maybe the product manager wants one thing and the departmental manager something else. There can be conflict where the employees are trapped in between.
T-shaped professional
In the width they have cross domain skills & attitudes.
In their length they have deep expertise.
Team-project structure
It is similar to the matrix structure, but employees don’t report to a project manager, only to their departmental manager.
They work in teams and get together in terms of expertise, but they have a lot of freedom to work as a (self steering) team. This way they can think about new products, things that are not yet in the organizational structure.
Consultants, some organizations come with a certain issue, or there is an immediate issue that needs to be solved. The organization can ask everyone from a department to come together to think about a solution.
For who does team/project structure work very well?
Agile working and scrum teams.
Mostly based in the tech centre.
- E.g., people think about new software
Network structure
Large organizations that are typically operating in multiple countries.
There is one broker organization that oversees various subsidiaries.
- E.g., designer organization; producer organization, supplier organization, distributor organization
E.g., booking.com (has a supplier organization for hotels); amazon.com
Advantages and risks of a network structure
Advantages
- The broker organization is quite flexible about who to work with and which supplies to get.
- Operates in an independent way.
- Espcially helpful if you have new products and want to sell worldwide and be flexible.
Risks
- Hard to manage sometimes.
- You don’t have the accountability to suppliers. The broker organizations cannot manage all the individual smaller organizations.
Antecedents of structure
Why do the organizational structures exist?
It is a response to:
- Environment
- Size
- Strategy
Environment drives structure
It is important to consider if the organization fits the environment.
You can classify the environmental pressures in how complex vs simple they are and how stable vs unstable.
The more parameters an organization has to respond to, the more uncertain.
Complex vs simple organization
If something is complex there are a lot of factors (e.g., booking.com).
If a company has a clear idea of what they want to do and is a small organization with one supplier, one product etc. it’s a very simple structure.
Unstable vs stable organization
If an organization has a new solution for something, it might change all of a sudden, this makes it unstable.
Something is stable if there is always the same demand in a way, they can always count on having customers (e.g., the food industry).
Simple and stable structure
High formalization
High centralization
Few departments
No boundary spanning
E.g., food (stable, but might customer needs might change)
Simple and unstable organization
Low formalization
Low centralization
Few departments
Much boundary spanning
E.g, clothing (changing trends, their structure needs to adapt quickly)
Complex and stable organization
High formalization
High centralization
Many departments
Some boundary spanning
E.g., university (stable environment with clear rules and processes)
Complex and unstable organization
Low formalization
Low centralization
Many departments
Extensive boundary spanning
A lot of uncertainty
E.g., financial markets (always chaning and uncertain, so the companies need a very flexible and quick structure to handle changes)
Strategy drives structure
When you look at an organization, see how it is organized and see if it really matches the structure.
If your strategy is to come up with a new product, you want a more horizontal structure. It’s about learning new things, it’s less structured.
If you really want to maintain the status quo, you go to a more hierarchical structure.
Vertical organization
Control
Efficiency
Stability
Reliability
Horizontal organization
Coordination
Learning
Innovation
Flexibility
Dominant structural approach
From a more vertical organization to a more horizontal organization with every step
- Functional structure
- Functional with cross-functional teams, integrators
- Divisional structure
- Matrix structure
- Team structure
- Network structure
Size drives structure
When organizations grow…
- …more management layers are needed.
- …more departmentalization is needed.
- …more formalization is needed.
- …more specialization is needed.
These things are needed to keep the organization going.
Environment, size and strategy of a simple structure
Environment: vulnerable to change; requires stable and simple environment.
Size: small
Srategy: optimize / maintain quaity single product.
Environment, size and strategy of a functional structure
Environment: requires stable and certain environment
Size: medium
Strategy: efficiency and quality control (routine; technological interdependence within functions)
Environment, size and strategy of a divisional structure
Environment: requires somewhat stable environment but can handle complexity
Size: large
Strategy: product specialization and innovation (technological interdependence between functions)
Environment, size and strategy of a matrix structure
Environment: highly adaptive to change, instability and deals with high complexity; handles broad range of products, large number of markets
Size: large
Strategy: dual focus; unique customer demands + high technical specialization and sophistication (quick tchnological evolvement)
Environment, size and strategy of a team structure
Environment: highly adaptive, customer-driven. Meant to disrupt, innovate, change the product; problem-solving.
Size: medium to large
Strategy:
- High team self-directedness, scrum teams with high autonomy to provoke and innovate.
- Minimize multi-management, maximize quick decision-maing.
- High technological interdependence and specialization in temporary teams (demand-driven).
Environment, size and strategy of a network structure
Environment: very unstable and highly complex. Has the capacity to disrupt the entire system / environment / market.
Size: very large, global
Strategy: bring together the best of the best; profit strategy. Outsourcing different demands; get technology where it is most novel.
How does work specialization set the stage for culture?
Determines how interdependent employees are and thereby how much work is teamwork.
How does departmentalization set the stage for culture?
Determines which employees work together (team composition).
- If you have different departments, do you only get similar people together, yes or no?
- Think about diversity and inclusion related to very departmentalized organizations vs very loosely departmentalized organizations.
How do chain of command, span of control, centralization and formalization set the stage for culture?
Determines how much control employees have over their work in general and in shaping their culture specificly (team autonomy and efficacy).
- E.g., in large organizations it is much harder to have bottom-up change. It is easier to speak out if there is a smaller chain of command.
Top-down culture change
You can only have top-down change through changing the organizational structure.
And if there is room for feedback and input on how to change, it is bottom-up as well.
Structure determines
Which organizational unit’s culture is most important.
Whether culture is formed top-down, bottom-up, or both.
