Learning Objectives: Designing Organizational Structures

What are the five traditional forms of departmentalization?

Firms typically use traditional, contemporary, or team-based approaches when designing their organizational structure. In the traditional approach, companies first divide the work into separate jobs and tasks. Managers then group related jobs and tasks together into departments.

- Functional. Based on the primary functions performed within an organizational unit.
- Product. Based on the goods or services produced or sold by the organizational unit.
- Process. Based on the production process used by the organizational unit.
- Customer. Based on the primary type of customer served by the organizational unit.
- Geographic. Based on the geographic segmentation of organizational units.
What contemporary organizational structures are companies using?

In recent decades, companies have begun to expand beyond traditional departmentalization methods and use matrix, committee, and team-based structures. Matrix structures combine two types of traditional organizational structures (for example, geographic and functional). Matrix structures bring together people from different functional areas of the organization to work on a special project. As such, matrix organizations are more flexible, but because employees report to two direct supervisors, managing matrix structures can be extremely challenging. Committee structures give authority and responsibility to a group rather than to an individual. Committees are part of a line-and-staff organization and often fulfill only an advisory role. Team-based structures also involve assigning authority and responsibility to groups rather than individuals, but, different from committees, team-based structures give these groups autonomy to carry out their work.

Why are companies using team-based organizational structures?

Work groups share resources and coordinate efforts to help members better perform their individual duties and responsibilities. The performance of the group can be evaluated by adding up the contributions of the individual group members. Work teams require not only coordination but also collaboration; the pooling of knowledge, skills, abilities, and resources in a collective effort to attain a common goal. Four types of work teams are used: problem solving, self-managed, cross-functional, and virtual teams. Companies are using teams to improve individual and group motivation and performance.

What tools do companies use to establish relationships within their organization?

The managerial hierarchy (or the management pyramid) comprises the levels of management within the organization, and the managerial span of control is the number of employees the manager directly supervises. In daily operations, individuals in line positions are directly involved in the processes used to create goods and services. Individuals in staff positions provide the administrative and support services that line employees need to achieve the firm’s goals. Line positions in organizations are typically in areas such as production, marketing, and finance. Staff positions are found in areas such as legal counseling, managerial consulting, public relations, and human resource management.

How can the degree of centralization/decentralization be altered to make an organization more successful?

In a highly centralized structure, top management makes most of the key decisions in the organization with very little input from lower-level employees. Centralization lets top managers develop a broad view of operations and exercise tight financial controls. In a highly decentralized organization, decision-making authority is pushed down the organizational hierarchy, giving lower-level personnel more responsibility and power to make and implement decisions. Decentralization can result in faster decision making and increased innovation and responsiveness to customer preferences.

How do mechanistic and organic organizations differ?

A mechanistic organization is characterized by a relatively high degree of work specialization, rigid departmentalization, many layers of management (particularly middle management), narrow spans of control, centralized decision-making, and a long chain of command. This combination of elements results in a tall organizational structure. In contrast, an organic organization is characterized by a relatively low degree of work specialization, loose departmentalization, few levels of management, wide spans of control, decentralized decision-making, and a short chain of command. This combination of elements results in a flat organizational structure.

How does the informal organization affect the performance of a company?

The informal organization is the network of connections and channels of communication based on the informal relationships of individuals inside the organization. Informal relationships can be between people at the same hierarchical level or between people at different levels and in different departments; the relationships can be based on connections made inside or outside the workplace. Informal organizations give employees more control over their work environment by delivering a continuous stream of company information throughout the organization, thereby helping employees stay informed.

What trends are influencing the way businesses organize?

Re-engineering is a complete redesign of business structures and processes to improve operations. The goal of re-engineering is to redesign business processes to achieve improvements in cost control, product quality, customer service, and speed.

The virtual corporation is a network of independent companies (suppliers, customers, even competitors) linked by information technology to share skills, costs, and access to one another’s markets. This network structure allows companies to come together quickly to exploit rapidly changing opportunities.

Many companies are now using technology to create virtual teams. Team members may be down the hall or across the ocean. Virtual teams mean that travel time and expenses are eliminated, and the best people can be placed on the team regardless of where they live. Sometimes, however, it may be difficult to keep virtual team members focused and motivated.

Outsourcing business functions—both globally and domestically—continues to be a regular business practice for companies large and small. Companies choose to outsource either as a cost-saving measure or to gain access to needed human resource talent and innovation. To be successful, outsourcing must solve a clearly articulated business problem. In addition, managers must use outsourcing providers that fit their company’s actual needs and strive to engage these providers as strategic partners for the long term. A recent phenomenon known as the gig economy has taken on more importance as it pertains to the U.S. labor force and outsourcing. More people are working as freelancers on a per-project basis, either because they can’t get hired as full-time employees or because they prefer to work as self-employed individuals.

Global mergers raise important issues in organizational structure and culture. The ultimate challenge for management is to take two organizations and create a single, successful, cohesive organization.