What is organizational structure?
How an organization arranges people and activities in the interest of meeting its goals
- division of labor
- vertical and horizontal coordination
- reporting relationship
- locus of decision making
- patters of information flow
Why is structure important?
- structure affects performance
- structure affects people
- structure tells us about the organization
- structure increases the likelihood of an IPO
How does differentiation appear in structure?
Horizontal: Division of work into units at the hierarchical level
Vertical: Division of work by authority
How does integration appear in structure?
Integration is the coordination across levels and between units
- formalization (rules, policies)
- information systems (reports, computer-based communication)
- chain of command
- centralization of decision making authority
- standardization
What is the fundamental principle of organizational design?
The more differentiation there is, the greater the need for integration
How does structure affect performance?
- how effectively information and knowledge can flow
- how flexible and adaptable an organization is
- level of efficiency and control
- speed and quality of decision making
How does structure affect people?
- quality of communication and coordination
- can intensify or mitigate politics and conflict
- affects employee attitudes and stress
What does structure tell us about an organization?
- goals and priorities
- organizational performance
- sources of problems
How does structure affect the likelihood of an IPO?
Having a clear organizational “blueprint” increases the likelihood of an IPO
What is holacracy?
An organization without hierarchy
What are the dimensions of structure?
- specialization
- chain of command
- span of control
- centralization
- formalization
What is specialization?
Process of dividing up the many tasks within an organization
What are the pros and cons of high degree of specialization?
Pros:
- efficient
- employees develop expertise/skills
Cons:
- boring and demotivating
- may reduce adaptability to change
What is the chain of command?
The configuration of reporting relationships within an organization. It determines formal authority: legitimate right to make decisions, issue orders, allocate resources and responsibility.
What is the span of control?
Number of employees that report to a given supervisor
- narrow span: tall hierarchy
- wide span: flat hierarchy
What is centralization?
The extent to which decision-making authority is concentrated (a few individuals vs spread out)
What are the benefits of centralized authority structures?
- less need for coordination and less potential for conflict
- decisions are made by individuals who understand the “big picture”
What are the benefits of decentralized authority structures?
- decisions are made by people closest to the problems
- less burden on top managers to make every decision
- provides employees with a sense of voice, feeling of responsibility (intrinsic motivation)
What is formalization?
The extent to which an organization relies on rules and procedures
What are the pros and cons of high degree of formalization?
Pros:
- can increase efficiency with routine tasks
- can reduce employee error
Cons:
- reduces flexibility/adaptability
- can reduce efficiency with more complex tasks
- may be impossible to write rules for everything
What are signs of high formalization?
- For almost any situation that arises, there are specific documented procedures to follow in dealing with it
- Rules and procedures are usually documented in written form (‘standard operating procedures’)
- Job descriptions are very specific and documented in written form
What does and doesn’t an organizational chart tell us?
It does tell us:
- Specialization
- Chain of command
- Span of control
It doesn’t tell us:
- Degree of centralization
- Degree of formalization
What are the four types of organizational charts?
- Functional
- Divisional
- Hybrid
- Matrix/Combos
What are the strengths and weaknesses of a functional structure?
Strengths
- Efficient
- Cultivates specialization
- Good for companies with stable environments, few products/services, small to medium size
Weaknesses
- poor inter-function coordination
- slow
- clunky in large sizes
- overly centralized
