Organizational Structure

and Design
Basic Concepts
Organizational Structure: The formal
configuration between individuals and
groups with respect to the allocation of
tasks, responsibilities, and authorities
within organizations.
Organizational Chart: A diagram
representing the connections between the
various departments within an
organization: a graphic representation of
organizational design.
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Sample Organizational Chart

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Structure Concepts I
Hierarchy of Authority: A configuration of
the reporting relationships within
organizations; that is, who reports to
whom.
Division of Labor: The process of dividing
the many tasks performed within an
organization into specialized jobs.
Span of Control: The number of
subordinates in an organization who are
supervised by an individual manager.

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Modern Trends: Delayering

As today’s organizations restructure, the middle layers of

organizational hierarchies tend to get removed. The result is a
flatter organizational structure, which puts managers closer to the
issues about which they have to make decisions.
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Division of Labor

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Tall vs. Flat Organizations

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Structure Concepts II
Line Positions: Positions in organizations in
which people can make decisions related to
doing its basic work.
Staff Positions: Positions in organizations in
which people make recommendations to others
but who are not themselves involved in making
decisions concerning the organization’s day-to-
day operations.
Decentralization: The extent to which authority
and decision making are spread throughout all
levels of an organization rather than being
reserved exclusively for top management
(centralization).
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Decentralization

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Departmentalization
The process of breaking up organizations into
coherent units.
Functional Organization: The type of
departmentalization based on the activities or
functions performed (e.g., sales, finance).
Product Organization: The type of
departmentalization based on the products (or
product lines) produced.
Matrix Organization: The type of
departmentalization in which a product or project
form is superimposed on a functional form.
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Functional Organization

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Product Organization

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Matrix Organization

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Organizational Design
 The process of coordinating the
structural elements of an
organization in the most appropriate
manner.
 Approaches include
– Classical and Neoclassical Approaches
– The Contingency Approach
– Mintzberg’s Framework
– The Boundaryless Organization

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Classical vs. Neoclassical Theory
Classical Organizational Theory: The approach that
assumes that there is a single best way to design
organizations.
– This approach assumes that managers need to have close
control over their subordinates and calls for designing
organizations with tall hierarchies and a narrow span of
control.
Neoclassical Organizational Theory: An attempt to
improve on the classical organizational theory that argues
that not only economic effectiveness, but also employee
satisfaction, should be goals of an industrial organization.
– This approach assumes that managers do not have to
carefully monitor their subordinates and calls for designing
organizations with flat hierarchies and a wide span of control.

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Classical vs. Neoclassical Theory

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The Contingency Approach
 The contemporary approach that recognizes that
no one approach to organizational design is best,
but that the best design is the one that best fits
with the existing environmental conditions.
 Mechanistic Organization: An internal
organizational structure in which people perform
specialized jobs, many rigid rules are imposed,
and authority is vested in a few top-ranking
officials.
 Organic Organization: An internal organizational
structure in which jobs tend to be very general,
there are few rules, and decisions can be made
by lower-level employees.
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Mechanistic vs. Organic Designs

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Design Effectiveness

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Mintzberg’s Framework
 Mintzberg claims that
organizations are
composed of five basic
elements, or groups of
individuals, any of which
may predominate in an
organization.
 The element that
predominates will
determine the most
effective design in that
situation.
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Mintzberg: Five Basic Elements
Operating Core: Employees who perform the basic
work related to an organization’s product or
service.
Strategic Apex: Top-level executives responsible
for running an entire organization.
Middle Line: Managers who transfer information
between higher and lower levels of the
organizational hierarchy.
Technostructure: Organizational specialists
responsible for standardizing various aspects of an
organization’s activities.
Support Staff: Individuals who provide indirect
support services to an organization.
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Mintzberg: Organizational Designs I

Simple Structure: An organization characterized as

being small and informal, with a single powerful
individual, often the founding entrepreneur, who is
in charge of everything.
Machine Bureaucracy: An organizational form in
which work is highly specialized, decision making
is concentrated at the top, and the work
environment is not prone to change (e.g., a
government office).
Professional Bureaucracy: Organizations (e.g.,
hospitals and universities) in which there are lots of
rules to follow, but employees are highly skilled and
free to make decisions on their own.

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Mintzberg: Organizational Designs II

Divisional Structure: The form used by many

large organizations, in which separate
autonomous units are created to deal with entire
product lines, freeing top management to focus
on large-scale, strategic decisions.
Adhocracy: A highly informal, organic
organization in which specialists work in teams,
coordinating with each other on various projects
(e.g., many software development companies).

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Mintzberg: A Summary

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Boundaryless Organization
An organization in which chains of command are
eliminated, spans of control are unlimited, and rigid
departments give way to empowered teams.
Modular Organization: An organization that
surrounds itself by a network of other organizations
to which it regularly outsources noncore functions.
Virtual Organization: A highly flexible, temporary
organization formed by a group of companies that
join forces to exploit a specific opportunity.
Affiliate Networks: Satellite organizations affiliated
with core companies that have helped them
develop.
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Boundaryless Organization

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Modular Organization

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Virtual Organization

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Interorganizational Designs
Organizational designs in which two or more
organizations come together.
Conglomerates: A form of organizational
diversification in which an organization
(usually a very large, multinational one) adds
an entirely unrelated business or product to
its organizational design.
Strategic Alliance: A type of
interorganizational design in which two or
more separate companies combine forces to
develop and operate a specific business.

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Strategic Alliances
 Mutual Service Consortia: A type of strategic
alliance in which two similar companies from the
same or similar industries pool their resources to
receive a benefit that would be too difficult or
expensive for either to obtain alone.
 Value-Chain Partnerships: Strategic alliances
between companies in different industries that
have complementary capabilities.
 Joint Ventures: Strategic alliances in which
several companies work together to fulfill
opportunities that require the capabilities of one
another.
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Continuum of Alliances

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