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All rights reserved.

CHAPTER 9

Designing the
Contemporary
Organization

Pamela S. Lewis
Stephen H. Goodman
Patricia M. Fandt
Slides Prepared by
Zulema Seguel

Learning Objectives

slide 1 of 2

1. Explain why organizational design is important

for organizational success.
2. Identify the three major components of
organizational design.
3. Discuss the four types of organizational
structure and the strategic conditions under
which each might be appropriate.
4. Describe the factors that affect an
organizations need for coordination and
explain how integrating mechanisms can be
used to coordinate organizational activities.
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49

Learning Objectives

slide 2 of 2

5. Explain the concept of locus of decision

making and the advantages and disadvantages
of centralized and decentralized decision
making.
6. Describe organic and mechanistic
organizational systems and discuss the
relationships between these systems and
environmental stability.
7. Describe how organizational design will likely
change in the future.
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49

Organizational Design Defined

A plan for arranging and
coordinating the activities
of an organization for the
purpose of fulfilling its
mission and achieving its
goals.

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49

Components of Organizational Design

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49

Components of Organizational Design

Overall organizational design is defined
by three primary components:
Organizational structure
Integrating mechanisms
Locus of decision making

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49

Organizational Structure
Defines the primary reporting relationships
that exist within an organization.
The chain of command and hierarchy of
responsibility, authority, and accountability
are established through organizational
structure.

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49

Common Forms of Organizational Structure

Functional structure
Divisional structure
Matrix structure
Network structure

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49

Functional Structure
Members of the organization are grouped
according to the particular function that they
perform within the organization.
Appropriate when an organizations greatest
source of complexity comes from the diverse
tasks that must be performed rather than
from its products, geographic markets, or
consumer groups.

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49

Functional Structure: Advantages

Facilitates specialization
Advantages

Cohesive work groups

Improved operational
efficiency

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Functional Structure: Disadvantages

Focus on departmental vs.
organizational issues
Disadvantages

Difficult to develop
generalists needed for toplevel management
Only top-level management
held accountable for
profitability

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Example of a Functional Structure

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Common Forms of Organizational Structure

Functional structure
Divisional structure
Matrix structure
Network structure

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Divisional Structure
Members of the organization are grouped
on the basis of:
Common products
Geographic markets
Customers served

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Types of Divisional Structure

Product divisional
Most appropriate for organizations with relatively
diverse product lines that require specialized efforts to
achieve high product quality.

Geographic divisional
Most appropriate for organizations with limited product
lines that either have wide geographic coverage or
desire to grow through geographic expansion.

Customer divisional
Most appropriate for organizations that have separate
customer groups with very specific and distinct needs.

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Product Divisional
Advantages
Enhanced coordination.
Better assessment of manager performance
and responsibility.
Development of generalist managers.

Disadvantages
Managers may lack expertise to operate in
wide geographic areas.
Duplication of resources.
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Product Divisional Structure

Geographic Divisional
Advantages
Allows for focus on specific
new markets.
Good structure for growth
along geographic lines.
Adaptable to local needs.

Disadvantages
Duplication of product or product/technology
efforts.
Coordination and integration are difficult.
May be difficult to manage diverse product
lines.
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Geographic Divisional Structure

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19 49

Common Forms of Organizational Structure

Functional structure
Divisional structure
Matrix structure
Network structure

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Matrix Structure
A structure in which the tasks of the
organization are grouped along two
organizational dimensions simultaneously.
Examples include:
Product/function
Product/geographic region

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Matrix Structure: Advantages

Can achieve simultaneous
objectives
Advantages

Managers focus on two

organizational dimensions,
resulting in more specific job
skills

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Matrix Structure: Disadvantages

Complex, leading to
difficulties in implementation
Disadvantages

Behavioral difficulties from

two bosses
Time consuming from a
planning/coordination
perspective

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23 49

A Multinational
Matrix
Structure

Common Forms of Organizational Structure

Functional structure
Divisional structure
Matrix structure
Network structure

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25 49

Network Structure
A contemporary
organizational structure
that is founded on a set of
alliances with other
organizations that serve a
wide variety of functions.

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26 49

Types of Network Structure

Internal network
A network structure that relies on internally developed
units to provide services to a core organizational unit.

Stable network
A network structure that utilizes external alliances
selectively as a mechanism for gaining strategic
flexibility.

Dynamic network
A network structure that makes extensive use of
outsourcing through alliances with outside
organizations.

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Network Structure: Advantages

Maximizes the effectiveness
of the core unit
Advantages

Do more with less resources

Flexibility

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Network Structure: Disadvantages

Fragmentation makes it
difficult to develop control
systems
Disadvantages

Success is dependent on
ability to locate sources
Difficult to develop
employee loyalty

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29 49

Sample Network
Structure

Components of Organizational Design

Overall organizational design is defined
by three primary components:
Organizational structure
Integrating mechanisms
Locus of decision making

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31 49

Managing Complexity Through Integration

Interdependence is the degree to which work
groups are interrelated.
Three primary levels of work group
integration:
Pooled interdependence
Sequential interdependence
Reciprocal interdependence

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Pooled Interdependence
Occurs when organizational units have a
common resource but no interrelationship
with one another.
A

B
Headquarters

C
D

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Sequential Interdependence
Occurs when organizational units must
coordinate the flow of information,
resources, and tasks from one unit to
another.
A

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Reciprocal Interdependence
Occurs when
A
information, resources,
and tasks must be
C
passed back and forth
between work groups.
E

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Integrating Mechanisms
Methods for managing the flow of
information, resources, and tasks within the
organization.
Three major categories of integrating
mechanisms are:
General management systems.
Methods of increasing coordination potential.
Methods of reducing the need for
coordination.
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36 49

General Management Systems

Some coordination of work units may be
achieved through the development of general
management systems such as:
The managerial hierarchy
Rules and procedures
Plans and goals

Such mechanisms form the foundation of an

organizations integration system.
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37 49

Increasing Coordination Potential

Two popular mechanisms for increasing
coordination potential both vertically and
horizontally in the organization are information
systems and lateral relationships.
Information systems facilitate the flow of
information up and down the traditional
chain of command and across organizational
units.
Lateral relationships exist across work units
and serve as mechanisms for exchanging
decision-making information.
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38 49

Boundary Spanning Coordination

Lateral relationships that help to integrate and
coordinate the activities of the organization.
Examples include:
Liaisons
Committees
Task forces
Integrating positions
Interfunctional work teams

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Reducing the Need for Coordination

In essence, the organization creates
slack resources that reduce the
interdependence of the work groups.
As a result, the need for integrating
mechanisms is reduced.

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Components of Organizational Design

Overall organizational design is defined
by three primary components:
Organizational structure
Integrating mechanisms
Locus of decision making

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41 49

Locus of Decision Making

Locus of decision making refers to the
degree to which decision making is
centralized versus decentralized.

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Centralized Decision Making

Advantage
Gives top-level management maximum
control.

Disadvantage
Limits the organizations ability to respond
quickly and effectively to changes in the
environment.

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Decentralized Decision Making

Advantage
Organizations can respond to environmental
change more rapidly and effectively because
the decision makers are the people closest to
the situation.

Disadvantage
Top-level managers lose some control.

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44 49

Mechanistic Vs. Organic Systems

Mechanistic Systems
Highly centralized organizations in which
decision-making authority rests with top-level
management.

Organic Systems
Decentralized organizations that push
decision making to the lowest levels of the
organization in an effort to respond more
effectively to environmental change.

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The Impact of Environmental Stability

Stable Environments
Environments that experience little change.

Turbulent Environments
Environments that are characterized by rapid
and significant change.

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46 49

Organizational Design
for a Changing Environment
Adaptive Organization
An organization that eliminates bureaucracy
which limits employee creativity and brings
the decision makers of the organization
closer to the customer.

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47 49

Implications for Leaders:

Organizational Design

slide 1 of 2

Remember that organizational design provides an

important mechanism for achieving the strategic
and operational goals of the organization.
Structure their organizations to cope with their
source of greatest complexity.
Consider ways that partnerships between members
of the organization, as well as alliances with
other organizations, can create synergy and
improve organizational performance.
Utilize advanced information technology to support
dispersed operations, people, and partners.
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48 49

Implications for Leaders:

Organizational Design

slide 2 of 2

Look for ways to increase the integration

potential of the organization or to reduce the
need for integration.
Evaluate the advantages and disadvantages
associated with centralized versus decentralized
decision making, given the specific
circumstances of the organization.
Strive to develop an adaptive and flexible
organization that is effective in a dynamic
business environment.
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