Download Learning Objectives (ppt 15-2)

Page 592
Chapter 15 Foundations of Organization Structure
Chapter 15
Foundations of
Organization Structure
(Click on the title while connected to the Internet for Teaching Notes)
LEARNING OBJECTIVES (PPT 15-2)
After studying this chapter, students should be able to:
Identify the six elements of an organization’s structure.
Identify the characteristics of a bureaucracy.
Describe a matrix organization.
Identify the characteristics of a virtual organization.
Show why managers want to create boundaryless organizations.
Demonstrate how organizational structures differ and contrast mechanistic and
organic structural models.
7. Analyze the behavioral implications of different organizational designs.
1.
2.
3.
4.
5.
6.
INSTRUCTOR’S RESOURCES
Text Exercises
 GlOBalization: The Global Organization (p. 489, IM p. 617)
 An Ethical Choice: Downsizing with a Conscience (p. 496, IM p. 618)
 Myth or Science?: Employees Resent Outsourcing (p. 500, IM p. 620)
 Point/CounterPoint: The End of Management (p. 503, IM p. 621)
 Questions for Review (p. 504, IM p. 623)
 Experiential Exercise: Dismantling a Bureaucracy (p. 504, IM p. 626)
 Ethical Dilemma: Directing the Directors (p. 505, IM p. 628)
Text Cases
 Case Incident 1 Creative Deviance: Bucking the Hierarchy? (p. 506, IM p. 630)
 Case Incident 2 Siemen’s Simple Structure—Not (p. 506, IM p. 631)
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 593
Instructor’s Choice (IM p. 634)
This section presents an exercise that is NOT found in the student's textbook.
Instructor's Choice reinforces the text's emphasis through various activities. Some
Instructor's Choice activities are centered around debates, group exercises,
Internet research, and student experiences. Some can be used in-class in their
entirety, while others require some additional work on the student's part. The
course instructor may choose to use these at anytime throughout the class—some
may be more effective as icebreakers, while some may be used to pull together
various concepts covered in the chapter.
WEB
EXERCISES (IM p. 635)
At the end of each chapter of this instructor’s manual, you will find
suggested exercises and ideas for researching the WWW on OB topics. The
exercises “Exploring OB Topics on the Web” are set up so that you can
simply photocopy the pages, distribute them to your class, and make
assignments accordingly. You may want to assign the exercises as an outof-class activity or as lab activities with your class.
SUMMARY AND IMPLICATIONS FOR MANAGERS
The theme of this chapter is that an organization’s internal structure contributes to
explaining and predicting behavior. That is, in addition to individual and group factors,
the structural relationships in which people work has a bearing on employee attitudes and
behavior. What’s the basis for this argument? To the degree that an organization’s
structure reduces ambiguity for employees and clarifies concerns such as “What am I
supposed to do?” “How am I supposed to do it?” “To whom do I report?” and “To whom
do I go if I have a problem?” it shapes their attitudes and facilitates and motivates them to
higher levels of performance. Exhibit 15-10 summarizes what we’ve discussed. There are
a few other take-home messages worth considering:
 Although specialization can bring efficiency, excessive specialization also can
breed dissatisfaction and reduced motivation.
 Formal hierarchies offer advantages like unification of mission and goal while
employees in excessively rigid hierarchies can feel they have no power or
autonomy. As with specialization, the key is striking the right balance.
 Virtual and boundaryless forms are changing the face of many organizations.
Contemporary managers should thoroughly understand their implications and
recognize advantages and potential pitfalls.
 Organizational downsizing can lead to major cost savings and focus organizations
around their core competencies, but it can leave workers dissatisfied and worried
about the future of their jobs.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure

Page 594
When determining an appropriate organizational form, managers will need to
consider scarcity, dynamism, and complexity of the environment and balance the
organic and mechanistic elements appropriate to their organization’s environment.
Chapter 15 begins with a discussion about the restructuring of General Motors Corporation. It details the
financial and operating problems faced by the automaker as it suffered decline because of its
organizational structure. The antiquated structure led to labor agreements that were not sustainable on top
of creating almost impossible conditions for GM to innovate or respond rapidly to environmental threats.
Terry Woychowski, Global Vehicle Program Management vice-president, has begun the process of
redesigning GM’s structure and processes to eliminate the bureaucracy that is believed to have caused the
GM decline.
BRIEF CHAPTER OUTLINE
I. What Is Organizational Structure?
A. Introduction
1. An organizational structure defines how job tasks are formally divided,
grouped, and coordinated.
2. There are six key elements (Exhibit 15-1):
B. Work Specialization
1. Henry Ford became rich and famous by building automobiles on an assembly
line, demonstrating that work can be performed more efficiently by using a
work specialization strategy.
2. By the late 1940s, most manufacturing jobs in industrialized countries were
being done this way. Management saw this as a means to make the most
efficient use of its employees’ skills.
3. Managers also looked for other efficiencies that could be achieved through
work specialization:
4. For much of the first half of this century, managers viewed work
specialization as an unending source of increased productivity. By the 1960s,
there became increasing evidence that a good thing can be carried too far.
5. The human diseconomies from specialization—boredom, fatigue, stress, low
productivity, poor quality, increased absenteeism, and high turnover—more
than offset the economic advantages. (Exhibit 15-2)
6. Most managers today recognize the economies specialization provides in
certain jobs and the problems when it’s carried too far.
C. Departmentalization
1. Grouping jobs together so common tasks can be coordinated is called
departmentalization.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 595
2. One of the most popular ways to group activities is by functions performed.
3. Tasks can also be departmentalized by the type of product or service the
organization produces.
4. Another way to departmentalize is on the basis of geography or territory.
5. Process departmentalization can be used for processing customers as well as
products.
6. A final category of departmentalization is by type of customer.
7. The assumption is that customers in each department have a common set of
problems and needs that can best be met by having specialists for each.
D. Chain of Command
1. The chain-of-command was once a basic cornerstone in the design of
organizations, it is far less important today.
2. The chain of command is "an unbroken line of authority that extends from the
top of the organization to the lowest echelon and clarifies who reports to
whom."
3. Two complementary concepts: authority and unity of command.
a. Authority—"the rights inherent to management to give orders and expect
the orders to be obeyed."
b. The unity-of-command principle helps preserve the concept of an
unbroken line of authority. It states that a person should have only one
superior to whom he/she is directly responsible.
4. Times change, and so do the basic tenets of organizational design. The
concepts of chain of command have less relevance today because of
technology and the trend of empowering employees.
5. A low-level employee today can access information in seconds that 30 years
ago was available only to top managers.
6. Operating employees are empowered to make decisions previously reserved
for management.
7. Add the popularity of self-managed and cross-functional teams and the
creation of new structural designs that include multiple bosses, and you can
see why authority and unity of command hold less relevance.
8. Many organizations still find they can be most productive by enforcing the
chain of command.
E. Span of Control
1. How many employees a manager can efficiently and effectively direct is an
important question.
2. All things being equal, the wider or larger the span, the more efficient the
organization.
3. Exhibit 15–3 illustrates that reducing the number of managers leads to
significant savings.
4. Wider spans are more efficient in terms of cost.
5. However, at some point, wider spans reduce effectiveness.
6. Narrow or small spans have their advocates. By keeping the span of control to
five or six employees, a manager can maintain close control.
7. Narrow spans have three major drawbacks:
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 596
a. First, as already described, they are expensive because they add levels of
management.
b. Second, they make vertical communication in the organization more
complex.
c. Third, narrow spans of control encourage overly tight supervision and
discourage employee autonomy.
8. The trend in recent years has been toward wider spans of control.
F. Centralization and Decentralization
1. Centralization refers to the degree to which decision-making is concentrated at
a single point in the organization.
2. The concept of centralization includes only formal authority—that is, the
rights inherent in a position.
3. An organization characterized by centralization is inherently different
structurally from one that’s decentralized.
4. Research investigating a large number of Finnish organizations demonstrates
that companies with decentralized research and development offices in
multiple locations were better at producing innovation than companies that
centralized all research and development in a single office.
G. Formalization
1. Formalization refers to the degree to which jobs within the organization are
standardized.
2. Low formalization—job behaviors are relatively nonprogrammed, and
employees have a great deal of freedom to exercise discretion in their work.
3. The degree of formalization can vary widely between organizations and
within organizations.
II. Common Organizational Designs
A. The Simple Structure
1. The simple structure is characterized most by what it is not rather than what it
is:
a. It is not elaborated.
b. It has a low degree of departmentalization, wide spans of control,
authority centralized in a single person, and little formalization.
c. The simple structure is a “flat” organization; it usually has only two or
three vertical levels.
d. One individual has the decision-making authority.
2. The simple structure is most widely practiced in small businesses in which the
manager and the owner are one and the same. (See Exhibit 15–4, an
organization chart for a retail men’s store.)
3. The strength of the simple structure lies in its simplicity. It is fast, flexible,
inexpensive to maintain, and accountability is clear.
4. One major weakness is that it is difficult to maintain in anything other than
small organizations.
5. It becomes increasingly inadequate as an organization grows because its low
formalization and high centralization tend to create information overload at
the top.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 597
6. When an organization begins to employ 50–100 people, it is very difficult for
the owner-manager to make all the choices.
7. The simple structure’s other weakness is that it is risky—everything depends
on one person. Illness can literately destroy the information and decision
making center of the company.
B. The Bureaucracy
1. Standardization—the key concept for all bureaucracies.
2. The bureaucracy is characterized by:
a. Highly routine operating tasks achieved through specialization
b. Very formalized rules and regulations
c. Tasks that are grouped into functional departments
d. Centralized authority
e. Narrow spans of control
f. Decision-making that follows the chain of command
3. Its primary strength is in its ability to perform standardized activities in a
highly efficient manner.
4. Weaknesses
a. Specialization creates subunit conflicts; functional unit goals can override
the organization’s goals.
b. Obsessive concern with following the rules.
c. The bureaucracy is efficient only as long as employees confront familiar
problems with programmed decision rules.
C. The Matrix Structure
1. It is used in advertising agencies, aerospace firms, research and development
laboratories, construction companies, hospitals, government agencies,
universities, management consulting firms, and entertainment companies.
2. It combines two forms of departmentalization—functional and product.
3. Product departmentalization facilitates coordination.
4. It provides clear responsibility for all activities related to a product, but with
duplication of activities and costs.
5. The most obvious structural characteristic of the matrix is that it breaks the
unity-of-command concept. (Exhibit 15–5 shows the matrix form as used in a
college of business administration.)
6. Its strength is its ability to facilitate coordination when the organization has a
multiplicity of complex and interdependent activities:
7. The dual lines of authority reduce tendencies of departmental members to
protect their worlds.
8. It facilitates the efficient allocation of specialists.
9. The major disadvantages of the matrix lie in the confusion it creates, its
propensity to foster power struggles, and the stress it places on individuals:
10. Violation of unity-of-command concept increases ambiguity that often leads
to conflict.
11. Confusion and ambiguity also create the seeds of power struggles.
12. Reporting to more than one boss introduces role conflict, and unclear
expectations introduce role ambiguity.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 598
III. New Design Options
A. The Virtual Organization
1. The essence of the virtual organization is that it is typically a small, core
organization that outsources major business functions:
a. Also referred to as modular or network organization
b. It is highly centralized, with little or no departmentalization.
2. Exhibit 15–6 shows a virtual organization in which management outsources
all of the primary functions of the business.
a. The dotted lines in this exhibit represent those relationships typically
maintained under contracts.
b. In essence, managers in virtual structures spend most of their time
coordinating and controlling external relations, typically by way of
computer-network links.
3. The major advantage to the virtual organization is its flexibility.
a. The primary drawback is that it reduces management’s control over key
parts of its business.
4. Virtual organizations’ drawbacks have become increasingly clear as their
popularity has grown.
a. They are in a state of perpetual flux and reorganization, which means
roles, goals, and responsibilities are unclear, setting the stage for political
behavior.
b. Cultural alignment and shared goals can be lost because of the low degree
of interaction among members.
c. Team members who are geographically dispersed and communicate
infrequently find it difficult to share information and knowledge, which
can limit innovation and slow response time.
5. Ironically, some virtual organizations are less adaptable and innovative than
those with well-established communication and collaboration networks.
B. The Boundaryless Organization
1. General Electric’s former chairman, Jack Welch, coined the term
boundaryless organization.
2. The boundaryless organization seeks to eliminate the chain of command, have
limitless spans of control, and replace departments with empowered teams.
3. By removing vertical boundaries, management flattens the hierarchy
and minimizes status and rank.
4. Functional departments create horizontal boundaries.
5. When fully operational, the boundaryless organization also breaks down
geographic barriers.
6. One way to do so is through strategic alliances.
7. And some companies allow customers to perform functions previously done
by management.
8. Finally, telecommuting is blurring organizational boundaries.
C. The Learner Organization: Organizational Downsizing
1. The goal of the new organizational forms we’ve described is to improve
agility by creating a lean, focused, and flexible organization.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 599
2. Downsizing is a systematic effort to make an organization leaner by selling
off business units, closing locations, or reducing staff.
3. Despite the advantages of being a lean organization, the impact of downsizing
on organizational performance has been very controversial.
4. Part of the problem is the effect of downsizing on employee attitudes.
5. In companies that don’t invest much in their employees, downsizing can also
lead to more voluntary turnover so vital human capital is lost.
6. Companies can reduce negative impacts by preparing for the post-downsizing
environment in advance, thus alleviating some employee stress and
strengthening support for the new strategic direction.
7. The following are some effective strategies for downsizing and suggestions
for implementing them.
a. Investment. Companies that downsize to focus on core competencies are
more effective when they invest in high-involvement work practices
afterward.
b. Communication. When employers make efforts to discuss downsizing
with employees early, employees are less worried about the outcomes and
feel the company is taking their perspective into account.
c. Participation. Employees worry less if they can participate in the process
in some way. In some companies, voluntary early retirement programs or
severance packages can help achieve leanness without layoffs.
d. Assistance. Providing severance, extended health care benefits, and job
search assistance demonstrates a company does really care about its
employees and honors their contributions.
8. Companies that make themselves lean can be more agile, efficient, and
productive—but only if they make cuts carefully and help employees through
the process.
IV. Why Do Structures Differ?
A. Introduction
1. The mechanistic model (Exhibit 15-7)—synonymous with the bureaucracy—
has extensive departmentalization, high formalization, a limited information
network (mostly downward), and little participation in decision-making.
2. The organic model (Exhibit 15-7) looks a lot like the boundaryless
organization; it uses cross-hierarchical and cross-functional teams, low
formalization, a comprehensive information network, and high participation in
decision-making.
3. Why are some organizations structured along mechanistic lines while others
are organic?
B. Organizational Strategy
1. An organization’s structure is a means to help management achieve its
objectives.
2. Most current strategy frameworks focus on three strategy dimensions—
innovation, cost minimization, and imitation—and the structural design that
works best with each.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 600
a. An innovation strategy means a strategy for meaningful and unique
innovations. This strategy may appropriately characterize 3M Company.
b. A cost-minimization strategy tightly controls costs, refrains from incurring
unnecessary innovation or marketing expenses, and cuts prices in selling a
basic product. This describes Wal-Mart’s strategy.
c. An imitation strategy tries to capitalize on the best of both minimize risk
and maximize opportunity for profit.
3. Exhibit 15-8 describes the structural option that best matches each strategy.
a. Innovators need the flexibility of the organic structure, whereas cost
minimizers seek the efficiency and stability of the mechanistic structure.
Imitators combine the two structures.
b. They use a mechanistic structure to maintain tight controls and low costs
in their current activities but create organic subunits in which to pursue
new undertakings.
C. Organizational Size
1. There is considerable evidence to support that an organization’s size
significantly affects its structure.
2. Large organizations—employing 2,000 or more people—tend to have more
specialization, more departmentalization, more vertical levels, and more rules
and regulations than do small organizations.
3. The impact of size becomes less important as an organization expands.
D. Technology
1. The term refers to how an organization transfers its inputs into outputs.
a. Every organization has at least one technology for converting financial,
human, and physical resources into products or services.
b. Ford Motor Company predominantly uses an assembly-line process to
make its products.
c. Colleges may use a number of instruction technologies—the ever-popular
formal lecture method, the case analysis method, the experiential exercise
method, the programmed learning method, etc. to educate its students.
2. Numerous studies have examined the technology–structure relationship.
a. What differentiates technologies is their degree of routineness.
i. Routine activities are characterized by automated and standardized
operations.
ii. Nonroutine activities are customized and require frequent revision and
updating.
E. Environment
1. An organization’s environment includes outside institutions or forces that can
affect its performance, such as suppliers, customers, competitors, government
regulatory agencies, and public pressure groups.
2. Dynamic environments create significantly more uncertainty for managers
than do static ones.
3. Any organization’s environment has three dimensions: capacity, volatility,
and complexity.
a. Capacity
i. "The degree to which it can support growth."
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 601
b. Volatility
i. Refers to "the degree of instability in an environment characterized by
a high degree of unpredictable change."
c. Complexity
i. "The degree of heterogeneity and concentration among environmental
elements."
d. In contrast, environments characterized by heterogeneity and dispersion
are called complex.
4. Exhibit 15-9 summarizes our definition of the environment along its three
dimensions.
a. The arrows indicate movement toward higher uncertainty.
b. Thus, organizations that operate in environments characterized as scarce,
dynamic, and complex face the greatest degree of uncertainty because they
have high unpredictability, little room for error, and a diverse set of
elements in the environment to monitor constantly.
5. Given this three-dimensional definition of environment, we can offer some
general conclusions about environmental uncertainty and structural
arrangements.
V. Organizational Designs and Employee Behavior
A. We opened this chapter by implying that an organization’s structure can have
significant effects on its members.
1. A review of the evidence leads to a pretty clear conclusion: you can’t
generalize!
2. Not everyone prefers the freedom and flexibility of organic structures.
3. Some people are most productive and satisfied when work tasks are
standardized and ambiguity minimized—that is, in mechanistic structures.
4. So, any discussion of the effect of organizational design on employee
behavior has to address individual differences.
B. Let’s consider employee preferences for work specialization, span of control, and
centralization.
1. The evidence generally indicates that work specialization contributes to higher
employee productivity—but at the price of reduced job satisfaction.
2. It is probably safe to say no evidence supports a relationship between span of
control and employee satisfaction or performance.
3. We find fairly strong evidence linking centralization and job satisfaction.
C. Our conclusion: to maximize employee performance and satisfaction, managers
must take individual differences, such as experience, personality, and the work
task, into account.
1. We can draw one obvious insight: other things equal, people don’t select
employers randomly.
2. They are attracted to, are selected by, and stay with organizations that suit
their personal characteristics.
3. Job candidates who prefer predictability are likely to seek out and take
employment in mechanistic structures, and those who want autonomy are
more likely to end up in an organic structure.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 602
4. Thus, the effect of structure on employee behavior is undoubtedly reduced
when the selection process facilitates proper matching of individual
characteristics with organizational characteristics.
D. Although research is slim, it does suggest national culture influences the
preference for structure.
1. Organizations that operate with people from high power-distance cultures,
such as Greece, France, and most of Latin America, find their employees are
much more accepting of mechanistic structures than are employees from low
power-distance countries.
2. So consider cultural differences along with individual differences when
predicting how structure will affect employee performance and satisfaction.
VI. Summary and Implications for Managers
A. The theme of this chapter is that an organization’s internal structure contributes to
explaining and predicting behavior.
1. That is, in addition to individual and group factors, the structural relationships
in which people work has a bearing on employee attitudes and behavior.
2. What’s the basis for this argument?
a. To the degree that an organization’s structure reduces ambiguity for
employees and clarifies concerns such as “What am I supposed to do?”
“How am I supposed to do it?” “To whom do I report?” and “To whom do
I go if I have a problem?” it shapes their attitudes and facilitates and
motivates them to higher levels of performance.
3. Exhibit 15-10 summarizes what we’ve discussed. There are a few other takehome messages worth considering:
a. Although specialization can bring efficiency, excessive specialization also
can breed dissatisfaction and reduced motivation.
b. Formal hierarchies offer advantages like unification of mission and goal
while employees in excessively rigid hierarchies can feel they have no
power or autonomy. As with specialization, the key is striking the right
balance.
c. Virtual and boundaryless forms are changing the face of many
organizations. Contemporary managers should thoroughly understand
their implications and recognize advantages and potential pitfalls.
d. Organizational downsizing can lead to major cost savings and focus
organizations around their core competencies, but it can leave workers
dissatisfied and worried about the future of their jobs.
e. When determining an appropriate organizational form, managers will need
to consider scarcity, dynamism, and complexity of the environment and
balance the organic and mechanistic elements appropriate to their
organization’s environment.
EXPANDED CHAPTER OUTLINE
I. What Is Organizational Structure?
A. Introduction
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 603
1. An organizational structure defines how job tasks are formally divided,
grouped, and coordinated.
2. There are six key elements (Exhibit 15-1):
a. Work specialization
b. Departmentalization
c. Chain of command
d. Span of control
e. Centralization and decentralization
f. Formalization
B. Work Specialization
1. Henry Ford became rich and famous by building automobiles on an assembly
line, demonstrating that work can be performed more efficiently by using a
work specialization strategy.
a. Every Ford worker was assigned a specific, repetitive task.
b. By breaking jobs up into small standardized tasks, Ford was able to
produce cars at the rate of one every ten seconds, while using employees
who had relatively limited skills.
c. Work specialization, or division of labor, describes the degree to which
activities in the organization are subdivided into separate jobs.
d. In essence, an entire job is broken into a number of steps, each completed
by a separate individual.
2. By the late 1940s, most manufacturing jobs in industrialized countries were
being done this way. Management saw this as a means to make the most
efficient use of its employees’ skills.
3. Managers also looked for other efficiencies that could be achieved through
work specialization:
a. Employee skills at performing a task successfully increase through
repetition.
b. Training for specialization is more efficient from the organization’s
perspective.
c. It increases efficiency and productivity, encouraging the creation of
special inventions and machinery.
4. For much of the first half of this century, managers viewed work
specialization as an unending source of increased productivity. By the 1960s,
there became increasing evidence that a good thing can be carried too far.
5. The human diseconomies from specialization—boredom, fatigue, stress, low
productivity, poor quality, increased absenteeism, and high turnover—more
than offset the economic advantages. (Exhibit 15-2)
a. In such cases, enlarging the scope of job activities could increase
productivity.
6. Most managers today recognize the economies specialization provides in
certain jobs and the problems when it’s carried too far.
a. High work specialization helps McDonald’s make and sell hamburgers
and fries efficiently and aids medical specialists in most health
maintenance organizations.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 604
b. Amazon’s Mechanical Turk program, TopCoder, and others like it have
facilitated a new trend in microspecialization in which extremely small
pieces of programming, data processing, or evaluation tasks are delegated
to a global network of individuals by a program manager who then
assembles the results.
c. For example, a manager who has a complex but routine computer program
to write might send a request for specific subcomponents of the code to be
written and tested by dozens of subcontracted individuals in the network
(which spans the entire globe), enabling the project to be completed far
more quickly than if a single programmer were writing the parts.
d. This emerging trend suggests there still may be advantages to be had in
specialization.
C. Departmentalization
1. Grouping jobs together so common tasks can be coordinated is called
departmentalization.
2. One of the most popular ways to group activities is by functions performed.
a. For example, a manufacturing manager might organize his/her plant by
separating engineering, accounting, manufacturing, personnel, and
purchasing specialists into common departments.
b. The advantage to this type of grouping is obtaining efficiencies from
putting like specialists together.
3. Tasks can also be departmentalized by the type of product or service the
organization produces.
a. Procter & Gamble recently reorganized along these lines. Each major
product—such as Tide, Pampers, Charmin, and Pringles—will be placed
under the authority of an executive who will have complete global
responsibility for that product.
b. The major advantage to this type of grouping is increased accountability
for product performance under a single manager.
4. Another way to departmentalize is on the basis of geography or territory.
a. The sales function, for instance, may have western, southern, mid-western,
and eastern regions.
5. Process departmentalization can be used for processing customers as well as
products. For example, at the state motor vehicles office you might find:
a. Validation by motor vehicles division
b. Processing by the licensing department
c. Payment collection by the treasury department
6. A final category of departmentalization is by type of customer.
a. Microsoft, for instance, recently reorganized around four customer
markets: consumers, large corporations, software developers, and small
businesses.
7. The assumption is that customers in each department have a common set of
problems and needs that can best be met by having specialists for each.
D. Chain of Command
1. The chain-of-command was once a basic cornerstone in the design of
organizations, it is far less important today.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 605
2. The chain of command is "an unbroken line of authority that extends from the
top of the organization to the lowest echelon and clarifies who reports to
whom."
3. Two complementary concepts: authority and unity of command.
a. Authority—"the rights inherent to management to give orders and expect
the orders to be obeyed."
b. The unity-of-command principle helps preserve the concept of an
unbroken line of authority. It states that a person should have only one
superior to whom he/she is directly responsible.
4. Times change, and so do the basic tenets of organizational design. The
concepts of chain of command have less relevance today because of
technology and the trend of empowering employees.
5. A low-level employee today can access information in seconds that 30 years
ago was available only to top managers.
6. Operating employees are empowered to make decisions previously reserved
for management.
7. Add the popularity of self-managed and cross-functional teams and the
creation of new structural designs that include multiple bosses, and you can
see why authority and unity of command hold less relevance.
8. Many organizations still find they can be most productive by enforcing the
chain of command.
a. Indeed, one survey of more than 1,000 managers found that 59 percent of
them agreed with the statement, “There is an imaginary line in my
company’s organizational chart. Strategy is created by people above this
line, while strategy is executed by people below the line.”
b. However, this same survey found that buy-in to the organization’s strategy
by lower-level employees was inhibited by too much reliance on hierarchy
for decision-making.
E. Span of Control
1. How many employees a manager can efficiently and effectively direct is an
important question.
2. All things being equal, the wider or larger the span, the more efficient the
organization.
3. Exhibit 15–3 illustrates that reducing the number of managers leads to
significant savings.
4. Wider spans are more efficient in terms of cost.
5. However, at some point, wider spans reduce effectiveness.
6. Narrow or small spans have their advocates. By keeping the span of control to
five or six employees, a manager can maintain close control.
7. Narrow spans have three major drawbacks:
a. First, as already described, they are expensive because they add levels of
management.
b. Second, they make vertical communication in the organization more
complex.
c. Third, narrow spans of control encourage overly tight supervision and
discourage employee autonomy.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 606
8. The trend in recent years has been toward wider spans of control.
a. They are consistent with recent efforts by companies to reduce costs, cut
overhead, speed up decision-making, increase flexibility, get closer to
customers, and empower employees.
b. To ensure that performance does not suffer because of these wider spans,
organizations have been investing heavily in employee training.
F. Centralization and Decentralization
1. Centralization refers to the degree to which decision-making is concentrated at
a single point in the organization.
a. In centralized organizations, top managers make all the decisions, and
lower-level managers merely carry out their directives.
b. In organizations at the other extreme, decentralized decision-making is
pushed down to the managers closest to the action.
2. The concept of centralization includes only formal authority—that is, the
rights inherent in a position.
3. An organization characterized by centralization is inherently different
structurally from one that’s decentralized.
a. A decentralized organization can act more quickly to solve problems,
more people provide input into decisions, and employees are less likely to
feel alienated from those who make decisions that affect their work lives.
b. Management efforts to make organizations more flexible and responsive
have produced a recent trend toward decentralized decision making by
lower-level managers, who are closer to the action and typically have
more detailed knowledge about problems than top managers.
c. Sears and JCPenney have given their store managers considerably more
discretion in choosing what merchandise to stock.
i. This allows those stores to compete more effectively against local
merchants.
d. Similarly, when Procter & Gamble empowered small groups of employees
to make many decisions about new-product development independent of
the usual hierarchy, it was able to rapidly increase the proportion of new
products ready for market.
4. Research investigating a large number of Finnish organizations demonstrates
that companies with decentralized research and development offices in
multiple locations were better at producing innovation than companies that
centralized all research and development in a single office.
G. Formalization
1. Formalization refers to the degree to which jobs within the organization are
standardized.
a. A highly formalized job gives the job incumbent a minimum amount of
discretion over what is to be done, when it is to be done, and how he or
she should do it. Employees can be expected always to handle the same
input in exactly the same way.
b. The greater the standardization, the less input the employee has into how
the job is done.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 607
2. Low formalization—job behaviors are relatively nonprogrammed, and
employees have a great deal of freedom to exercise discretion in their work.
3. The degree of formalization can vary widely between organizations and
within organizations.
II. Common Organizational Designs
A. The Simple Structure
1. The simple structure is characterized most by what it is not rather than what it
is:
a. It is not elaborated.
b. It has a low degree of departmentalization, wide spans of control,
authority centralized in a single person, and little formalization.
c. The simple structure is a “flat” organization; it usually has only two or
three vertical levels.
d. One individual has the decision-making authority.
2. The simple structure is most widely practiced in small businesses in which the
manager and the owner are one and the same. (See Exhibit 15–4, an
organization chart for a retail men’s store.)
3. The strength of the simple structure lies in its simplicity. It is fast, flexible,
inexpensive to maintain, and accountability is clear.
4. One major weakness is that it is difficult to maintain in anything other than
small organizations.
5. It becomes increasingly inadequate as an organization grows because its low
formalization and high centralization tend to create information overload at
the top.
6. When an organization begins to employ 50–100 people, it is very difficult for
the owner-manager to make all the choices.
a. If the structure is not changed and made more elaborate, the firm often
loses momentum and can eventually fail.
7. The simple structure’s other weakness is that it is risky—everything depends
on one person. Illness can literately destroy the information and decision
making center of the company.
B. The Bureaucracy
1. Standardization—the key concept for all bureaucracies.
2. The bureaucracy is characterized by:
a. Highly routine operating tasks achieved through specialization
b. Very formalized rules and regulations
c. Tasks that are grouped into functional departments
d. Centralized authority
e. Narrow spans of control
f. Decision-making that follows the chain of command
3. Its primary strength is in its ability to perform standardized activities in a
highly efficient manner.
a. Putting like specialties together in functional departments results in
economies of scale, minimum duplication of personnel and equipment,
etc.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 608
b. Bureaucracies get by nicely with less talented and less costly middle- and
lower-level managers.
4. Weaknesses
a. Specialization creates subunit conflicts; functional unit goals can override
the organization’s goals.
b. Obsessive concern with following the rules.
c. The bureaucracy is efficient only as long as employees confront familiar
problems with programmed decision rules.
C. The Matrix Structure
1. It is used in advertising agencies, aerospace firms, research and development
laboratories, construction companies, hospitals, government agencies,
universities, management consulting firms, and entertainment companies.
2. It combines two forms of departmentalization—functional and product:
a. The strength of functional departmentalization—putting like specialists
together and the pooling and sharing of specialized resources across
products
b. Its major disadvantage is the difficulty of coordinating the tasks.
3. Product departmentalization facilitates coordination.
4. It provides clear responsibility for all activities related to a product, but with
duplication of activities and costs.
5. The most obvious structural characteristic of the matrix is that it breaks the
unity-of-command concept. (Exhibit 15–5 shows the matrix form as used in a
college of business administration.)
6. Its strength is its ability to facilitate coordination when the organization has a
multiplicity of complex and interdependent activities:
7. The dual lines of authority reduce tendencies of departmental members to
protect their worlds.
8. It facilitates the efficient allocation of specialists.
9. The major disadvantages of the matrix lie in the confusion it creates, its
propensity to foster power struggles, and the stress it places on individuals:
10. Violation of unity-of-command concept increases ambiguity that often leads
to conflict.
11. Confusion and ambiguity also create the seeds of power struggles.
12. Reporting to more than one boss introduces role conflict, and unclear
expectations introduce role ambiguity.
III. New Design Options
A. The Virtual Organization
1. The essence of the virtual organization is that it is typically a small, core
organization that outsources major business functions:
a. Also referred to as modular or network organization.
b. It is highly centralized, with little or no departmentalization.
c. The prototype of the virtual structure is today’s movie-making
organization:
i. In Hollywood’s golden era, movies were made by huge, vertically
integrated corporations.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 609
(a) Nowadays, most movies are made by a collection of individuals
and small companies who come together and make films project by
project.
(b) This structural form allows each project to be staffed with the
talent most suited to its demands, rather than having to choose just
from those people the studio employs.
d. Philip Rosedale runs a virtual company called LoveMachine that lets
employees send brief electronic messages to one another to acknowledge a
job well done that can be then used to facilitate company bonuses.
i. The company has no full-time software development staff—instead,
LoveMachine outsources assignments to freelancers who submit bids
for projects like debugging software or designing new features.
ii. Programmers come from around the world, including Russia, India,
Australia, and the United States.
e. Similarly, Newman’s Own, the food products company founded by Paul
Newman, sells hundreds of millions of dollars in food every year yet
employs only 28 people.
i. This is possible because it outsources almost everything:
manufacturing, procurement, shipping, and quality control.
2. Exhibit 15–6 shows a virtual organization in which management outsources
all of the primary functions of the business.
a. The dotted lines in this exhibit represent those relationships typically
maintained under contracts.
b. In essence, managers in virtual structures spend most of their time
coordinating and controlling external relations, typically by way of
computer-network links.
3. The major advantage to the virtual organization is its flexibility.
a. The primary drawback is that it reduces management’s control over key
parts of its business.
4. Virtual organizations’ drawbacks have become increasingly clear as their
popularity has grown.
a. They are in a state of perpetual flux and reorganization, which means
roles, goals, and responsibilities are unclear, setting the stage for political
behavior.
b. Cultural alignment and shared goals can be lost because of the low degree
of interaction among members.
c. Team members who are geographically dispersed and communicate
infrequently find it difficult to share information and knowledge, which
can limit innovation and slow response time.
5. Ironically, some virtual organizations are less adaptable and innovative than
those with well-established communication and collaboration networks.
a. A leadership presence that reinforces the organization’s purpose and
facilitates communication is thus especially valuable.
B. The Boundaryless Organization
1. General Electric’s former chairman, Jack Welch, coined the term
boundaryless organization.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 610
a. Welch wanted to turn his company into a “family grocery store.”
b. He wanted to eliminate vertical and horizontal boundaries and break down
external barriers.
2. The boundaryless organization seeks to eliminate the chain of command, have
limitless spans of control, and replace departments with empowered teams.
3. By removing vertical boundaries, management flattens the hierarchy
and minimizes status and rank.
a. Uses cross-hierarchical teams
b. Uses participative decision-making practices
c. Uses 360-degree performance appraisals
4. Functional departments create horizontal boundaries. The way to reduce these
barriers is to:
a. Replace functional departments with cross-functional teams and organize
around processes.
b. Use lateral transfers and rotate people into and out of different functional
areas.
5. When fully operational, the boundaryless organization also breaks down
geographic barriers.
a. Today, most large U.S. companies see themselves as global corporations;
many, like Coca-Cola and McDonald’s, do as much business overseas as
in the United States, and some struggle to incorporate geographic regions
into their structure.
b. The boundaryless organization provides one solution because it considers
geography more of a tactical, logistical issue than a structural one.
c. In short, the goal is to break down cultural barriers.
6. One way to do so is through strategic alliances.
a. Firms such as NEC Corporation, Boeing, and Apple each have strategic
alliances or joint partnerships with dozens of companies.
b. These alliances blur the distinction between one organization and another
as employees work on joint projects.
7. And some companies allow customers to perform functions previously done
by management.
a. Some AT&T units receive bonuses based on customer evaluations of the
teams that serve them.
8. Finally, telecommuting is blurring organizational boundaries.
a. The security analyst with Merrill Lynch who does her job from her ranch
in Montana or the software designer in Boulder, Colorado, who works for
a San Francisco firm are just two of the millions of workers operating
outside the physical boundaries of their employers’ premises.
C. The Learner Organization: Organizational Downsizing
1. The goal of the new organizational forms we’ve described is to improve
agility by creating a lean, focused, and flexible organization
2. Downsizing is a systematic effort to make an organization leaner by selling
off business units, closing locations, or reducing staff.
a. It has been very controversial because of its potential negative impacts on
employees.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
3.
4.
5.
6.
7.
8.
Page 611
b. The radical shrinking of Chrysler and General Motors in recent years was
a case of downsizing due to loss of market share and changes in consumer
demand.
c. Some companies downsize to focus on their core competencies.
d. Some companies focus on lean management techniques to reduce
bureaucracy and speed decision-making.
Despite the advantages of being a lean organization, the impact of downsizing
on organizational performance has been very controversial.
a. Reducing the size of the workforce has an immediately positive outcome
in the huge reduction in wage costs.
b. Companies downsizing to improve strategic focus often see positive
effects on stock prices after the announcement.
c. On the other hand, among companies that only cut employees but don’t
restructure, profits and stock prices usually decline.
Part of the problem is the effect of downsizing on employee attitudes.
a. Those who remain often feel worried about future layoffs and may be less
committed to the organization.
b. Stress reactions can lead to increased sickness absences, lower
concentration on the job, and lower creativity.
In companies that don’t invest much in their employees, downsizing can also
lead to more voluntary turnover so vital human capital is lost.
a. The result is a company that is more anemic than lean.
Companies can reduce negative impacts by preparing for the post-downsizing
environment in advance, thus alleviating some employee stress and
strengthening support for the new strategic direction.
The following are some effective strategies for downsizing and suggestions
for implementing them.
a. Investment. Companies that downsize to focus on core competencies are
more effective when they invest in high-involvement work practices
afterward.
b. Communication. When employers make efforts to discuss downsizing
with employees early, employees are less worried about the outcomes and
feel the company is taking their perspective into account.
c. Participation. Employees worry less if they can participate in the process
in some way. In some companies, voluntary early retirement programs or
severance packages can help achieve leanness without layoffs.
d. Assistance. Providing severance, extended health care benefits, and job
search assistance demonstrates a company does really care about its
employees and honors their contributions.
Companies that make themselves lean can be more agile, efficient, and
productive—but only if they make cuts carefully and help employees through
the process.
IV. Why Do Structures Differ?
A. Introduction
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 612
1. The mechanistic model (Exhibit 15-7)—synonymous with the bureaucracy—
has extensive departmentalization, high formalization, a limited information
network (mostly downward), and little participation in decision-making.
2. The organic model (Exhibit 15-7) looks a lot like the boundaryless
organization; it uses cross-hierarchical and cross-functional teams, low
formalization, a comprehensive information network, and high participation in
decision-making.
3. Why are some organizations structured along mechanistic lines while others
are organic?
B. Organizational Strategy
1. An organization’s structure is a means to help management achieve its
objectives.
a. Objectives derive from the organization’s overall strategy.
b. Structure should follow strategy.
2. Most current strategy frameworks focus on three strategy dimensions—
innovation, cost minimization, and imitation—and the structural design that
works best with each.
a. An innovation strategy means a strategy for meaningful and unique
innovations. This strategy may appropriately characterize 3M Company.
b. A cost-minimization strategy tightly controls costs, refrains from incurring
unnecessary innovation or marketing expenses, and cuts prices in selling a
basic product. This describes Wal-Mart’s strategy.
c. An imitation strategy tries to capitalize on the best of both minimize risk
and maximize opportunity for profit:
i. It moves into new products or new markets only after viability has
been proven by innovators.
ii. It copies successful ideas of innovators.
iii. Manufactures mass-marketed fashion goods that are rip-offs of
designer styles
3. Exhibit 15-8 describes the structural option that best matches each strategy.
a. Innovators need the flexibility of the organic structure, whereas cost
minimizers seek the efficiency and stability of the mechanistic structure.
Imitators combine the two structures.
b. They use a mechanistic structure to maintain tight controls and low costs
in their current activities but create organic subunits in which to pursue
new undertakings.
C. Organizational Size
1. There is considerable evidence to support that an organization’s size
significantly affects its structure.
2. Large organizations—employing 2,000 or more people—tend to have more
specialization, more departmentalization, more vertical levels, and more rules
and regulations than do small organizations.
3. The impact of size becomes less important as an organization expands.
4. Once an organization has around 2,000 employees, it’s already fairly
mechanistic. An additional 500 employees will not have much impact.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 613
5. However, adding 500 employees to a 300-employee firm is likely to result in a
mechanistic structure.
D. Technology
1. The term refers to how an organization transfers its inputs into outputs.
a. Every organization has at least one technology for converting financial,
human, and physical resources into products or services.
b. Ford Motor Company predominantly uses an assembly-line process to
make its products.
c. Colleges may use a number of instruction technologies—the ever-popular
formal lecture method, the case analysis method, the experiential exercise
method, the programmed learning method, etc. to educate its students.
2. Numerous studies have examined the technology–structure relationship.
a. What differentiates technologies is their degree of routineness.
i. Routine activities are characterized by automated and standardized
operations.
(a) Examples are injection-mold production of plastic knobs,
automated transaction processing of sales transactions, and the
printing and binding of this book.
ii. Nonroutine activities are customized and require frequent revision and
updating.
(a) They include furniture restoring, custom shoemaking, genetic
research, and the writing and editing of this book.
(b) In general, organizations engaged in nonroutine activities tend to
prefer organic structures, while those performing routine activities
prefer mechanistic structures.
E. Environment
1. An organization’s environment includes outside institutions or forces that can
affect its performance, such as suppliers, customers, competitors, government
regulatory agencies, and public pressure groups.
2. Dynamic environments create significantly more uncertainty for managers
than do static ones.
a. To minimize uncertainty, managers may broaden their structure to sense
and respond to threats.
b. For example, most companies, including Pepsi and Southwest Airlines,
have added social networking departments to counter negative information
posted on blogs.
c. Or companies may form strategic alliances, such as when Microsoft and
Yahoo! joined forces to better compete with Google.
3. Any organization’s environment has three dimensions: capacity, volatility,
and complexity.
a. Capacity
i. "The degree to which it can support growth."
ii. Rich and growing environments generate excess resources, which can
buffer times of relative scarcity.
b. Volatility
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 614
i.
Refers to "the degree of instability in an environment characterized by
a high degree of unpredictable change."
ii. The environment is dynamic, making it difficult for management to
predict accurately the probabilities associated with various decision
alternatives.
iii. At the other extreme is a stable environment.
c. Complexity
i. "The degree of heterogeneity and concentration among environmental
elements."
ii. Simple environments are homogeneous and concentrated.
d. In contrast, environments characterized by heterogeneity and dispersion
are called complex.
4. Exhibit 15-9 summarizes our definition of the environment along its three
dimensions.
a. The arrows indicate movement toward higher uncertainty.
b. Thus, organizations that operate in environments characterized as scarce,
dynamic, and complex face the greatest degree of uncertainty because they
have high unpredictability, little room for error, and a diverse set of
elements in the environment to monitor constantly.
5. Given this three-dimensional definition of environment, we can offer some
general conclusions about environmental uncertainty and structural
arrangements.
a. The more scarce, dynamic, and complex the environment, the more
organic a structure should be.
b. The more abundant, stable, and simple the environment, the more the
mechanistic structure will be preferred.
V. Organizational Designs and Employee Behavior
A. We opened this chapter by implying that an organization’s structure can have
significant effects on its members.
1. A review of the evidence leads to a pretty clear conclusion: you can’t
generalize!
2. Not everyone prefers the freedom and flexibility of organic structures.
3. Different factors stand out in different structures as well.
a. In highly formalized, heavily structured, mechanistic organizations, the
level of fairness in formal policies and procedures is a very important
predictor of satisfaction.
b. In more personal, individually adaptive organic organizations, employees
value interpersonal justice more.
4. Some people are most productive and satisfied when work tasks are
standardized and ambiguity minimized—that is, in mechanistic structures.
5. So, any discussion of the effect of organizational design on employee
behavior has to address individual differences.
B. Let’s consider employee preferences for work specialization, span of control, and
centralization.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 615
1. The evidence generally indicates that work specialization contributes to higher
employee productivity—but at the price of reduced job satisfaction.
a. However, work specialization is not an unending source of higher
productivity.
b. Problems start to surface, and productivity begins to suffer, when the
human diseconomies of doing repetitive and narrow tasks overtake the
economies of specialization.
c. As the workforce has become more highly educated and desirous of jobs
that are intrinsically rewarding, we seem to reach the point at which
productivity begins to decline more quickly than in the past.
d. There is still a segment of the workforce that prefers the routine and
repetitiveness of highly specialized jobs.
e. Some individuals want work that makes minimal intellectual demands
and provides the security of routine; for them, high work specialization is
a source of job satisfaction.
f. The question, of course, is whether they represent 2 percent of the
workforce or 52 percent.
g. Given that some self-selection operates in the choice of careers, we might
conclude that negative behavioral outcomes from high specialization are
most likely to surface in professional jobs occupied by individuals with
high needs for personal growth and diversity.
2. It is probably safe to say no evidence supports a relationship between span of
control and employee satisfaction or performance.
a. Although it is intuitively attractive to argue that large spans might lead to
higher employee performance because they provide more distant
supervision and more opportunity for personal initiative, the research fails
to support this notion.
b. Some people like to be left alone; others prefer the security of a boss who
is quickly available at all times.
c. Consistent with several of the contingency theories of leadership discussed
in Chapter 12, we would expect factors such as employees’ experiences
and abilities and the degree of structure in their tasks to explain when wide
or narrow spans of control are likely to contribute to their performance and
job satisfaction.
d. However, some evidence indicates that a manager’s job satisfaction
increases as the number of employees supervised increases.
3. We find fairly strong evidence linking centralization and job satisfaction.
a. In general, less centralized organizations have a greater amount of
autonomy.
b. And autonomy appears positively related to job satisfaction. But, again,
while one employee may value freedom, another may find autonomous
environments frustratingly ambiguous.
C. Our conclusion: to maximize employee performance and satisfaction, managers
must take individual differences, such as experience, personality, and the work
task, into account.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 616
1. We can draw one obvious insight: other things equal, people don’t select
employers randomly.
2. They are attracted to, are selected by, and stay with organizations that suit
their personal characteristics.
3. Job candidates who prefer predictability are likely to seek out and take
employment in mechanistic structures, and those who want autonomy are
more likely to end up in an organic structure.
4. Thus, the effect of structure on employee behavior is undoubtedly reduced
when the selection process facilitates proper matching of individual
characteristics with organizational characteristics.
D. Although research is slim, it does suggest national culture influences the
preference for structure.
1. Organizations that operate with people from high power-distance cultures,
such as Greece, France, and most of Latin America, find their employees are
much more accepting of mechanistic structures than are employees from low
power-distance countries.
2. So consider cultural differences along with individual differences when
predicting how structure will affect employee performance and satisfaction.
VI. Summary and Implications for Managers
A. The theme of this chapter is that an organization’s internal structure contributes to
explaining and predicting behavior.
1. That is, in addition to individual and group factors, the structural relationships
in which people work has a bearing on employee attitudes and behavior.
2. What’s the basis for this argument?
a. To the degree that an organization’s structure reduces ambiguity for
employees and clarifies concerns such as “What am I supposed to do?”
“How am I supposed to do it?” “To whom do I report?” and “To whom do
I go if I have a problem?” it shapes their attitudes and facilitates and
motivates them to higher levels of performance.
3. Exhibit 15-10 summarizes what we’ve discussed. There are a few other takehome messages worth considering:
a. Although specialization can bring efficiency, excessive specialization also
can breed dissatisfaction and reduced motivation.
b. Formal hierarchies offer advantages like unification of mission and goal
while employees in excessively rigid hierarchies can feel they have no
power or autonomy. As with specialization, the key is striking the right
balance.
c. Virtual and boundaryless forms are changing the face of many
organizations. Contemporary managers should thoroughly understand
their implications and recognize advantages and potential pitfalls.
d. Organizational downsizing can lead to major cost savings and focus
organizations around their core competencies, but it can leave workers
dissatisfied and worried about the future of their jobs.
e. When determining an appropriate organizational form, managers will need
to consider scarcity, dynamism, and complexity of the environment and
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 617
balance the organic and mechanistic elements appropriate to their
organization’s environment.
GlOBalization
The Global Organization
This exercise covers Learning Objectives: Analyze the behavioral implications of different organizational
designs; Learning Outcomes: Discuss the factors that influence decisions about organizational structure;
and AACSB Learning Goals: Dynamics of the global economy; Multicultural and diversity understanding;
Reflective thinking skills.
One of the most significant trends in organizational structure is the emergence of truly
global organizations with leadership and development functions located all around the
world.
In organizations that offshore many functions, a central office located in one country
sends business processes to facilities in another country, like a U.S. computer company
(think of Dell or Apple) that designs computers in California, manufactures all the parts
in China, and assembles them in Texas. Such companies are global in the sense that their
operations span multiple nations, but the central culture of the organization is based in a
home country.
In a “stateless” corporation, in contrast, all divisions share a common management
culture, and operations are standardized for all locations. Managers are drawn from a
variety of national backgrounds and placed wherever their functional expertise will be
most valuable. Reckitt Benckiser (maker of Clearasil, Lysol, and Woolite) assigns
managers to a variety of global offices to ensure they get a picture of border spanning
trends that might produce innovations in other countries. As a result, an Italian is running
the UK business, an American the German business, an Indian the Chinese operation, and
a Dutch executive the U.S. business.
Although these international strategies may produce advantages like cost savings and
centralization of decision-making, some observers feel the future is more likely to belong
to truly cosmopolitan organizations that produce and market products and services
particular to each country in which they operate. This strategy gives local offices
maximal control over their own particular areas and takes the greatest advantage of
specialized, local knowledge of markets.
It’s not yet clear whether it’s better to pursue a strategy based on offshoring, stateless
corporations, or cosmopolitan organizations, but it’s likely there is no universal best
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 618
configuration. The best structure is likely to depend heavily on the type of products and
market the company is targeting.
Sources: Based on J. Lampel and A. Bhalla, “Living with Offshoring: The Impact of Offshoring on the
Evolution of Organizational Configurations,” Journal of World Business 46, (2011), pp. 346–358; P.
Gehmawat, “The Cosmopolitan Corporation,” Harvard Business Review (May 2011), pp. 92–99; and B.
Becht, “Building a Company Without Borders,” Harvard Business Review (April 2010), pp. 103–106.
Class Exercise
1. Divide the class into teams of three to five students each.
2. Ask the students to read the essay at
http://www.telstrainternational.com/uploads/files/CIO%20Magazine%20Successf
ul%20Partnering%20in%20Asia.pdf
3. Each team should prepare a presentation to discuss the potential difficulties in the
“stateless” global business as pointed out in the essay.
4. The presentation should include students’ recommendations for overcoming the
difficulties.
Teaching Notes:
This exercise is applicable to face-2-face classes or synchronous online classes such as
BlackBoard 9.1, Breeze, WIMBA, and Second Life Virtual Classrooms. See
http://www.baclass.panam.edu/imob/SecondLife for more information.
An Ethical Choice
Downsizing with a Conscience
This exercise covers Learning Objectives: Analyze the behavioral implications of different organizational
designs; Learning Outcomes: Discuss the factors that influence decisions about organizational structure;
and AACSB Learning Goals: Ethical understanding and reasoning abilities; Reflective thinking skills.
Especially during economic down times, organizations may have to reduce headcount.
The negative effects on those who remain are well documented and include increased
sickness absence, withdrawal from work tasks, intentions to sue the organization, stress,
dissatisfaction, and loss of commitment.
Do employers have a responsibility to help cushion the blow of downsizing? While
ethicists debate how much organizations should help laid-off employees, they generally
agree that firms that can afford to do something probably should. Indeed, this assistance
can work in the organization’s self-interest, by increasing commitment among those who
remain and reducing stress and strain for all. Managing layoffs with an eye to the
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 619
organization’s reputation may also be important for hiring new employees when
economic prospects improve.
Here are some suggestions to minimize the negative impact of downsizing on employees:
1. Managers are often reticent to give out information about future company plans,
but research clearly suggests that ample advance warning about downsizing can
reduce employee distress. Open communication makes it much easier for
employees to plan how they will respond.
2. Deliver the news about layoffs in a compassionate, personal manner. Let
employees know face-to-face they are being let go. This can be hard for managers
who would rather avoid conflict or angry encounters, but most research suggests
employees prefer to find out about a job loss in this manner (as opposed to email).
3. Explore ways to help, such as by providing job search assistance or severance
pay. This might not always be financially feasible, but it’s ethically responsible to
do everything you can to help departing employees land on their feet.
Sources: B. Weinstein, “Downsizing 101” Bloomberg Businessweek (September 12, 2008),
www.businessweek.com ; S. Randall, “Attracting Layoff-Wary Millennials,” Workforce Management
Online (Feburary 2010), www.workforce.com ; and D. K. Datta, J. P. Guthrie, D. Basuil, and A. Pandey,
“Causes and Effects of Employee Downsizing: A Review and Synthesis,” Journal of Management 36, no. 1
(2010), pp. 281–348.
Class Exercise
1. Pair the students for a role-playing exercise.
2. Ask one of the students in the pair to play the part of a company executive and to
read
http://www.businessweek.com/managing/content/sep2008/ca20080912_135498.h
tm
3. He or she should prepare a plan to deliver the news to the other student about
downsizing. The other student is playing Marketing Support Administrator for the
firm.
4. The firm has suffered reduce income from sales during the recession. To reduce
expenses in comparison with the reduced revenue, some downsizing must be
initiated. And, the Marketing Support Administrator is one of 15 employees
across the company that must be released.
Teaching Notes:
This exercise is applicable to face-2-face classes or synchronous online classes such as
BlackBoard 9.1, Breeze, WIMBA, and Second Life Virtual Classrooms. See
http://www.baclass.panam.edu/imob/SecondLife for more information.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 620
Myth or Science?
Employees Resent Outsourcing
This exercise covers Learning Objectives: Analyze the behavioral implications of different organizational
designs; Learning Outcomes: Discuss the factors that influence decisions about organizational structure;
and AACSB Learning Goals: Reflective thinking skills.
Surprisingly, this statement appears to be false.
Two relatively new ways organizations restructure themselves are outsourcing (moving
work to another domestic company) and offshoring (moving work to another country).
For example, a Denver-based company that contracts with a call center vendor in
Cleveland is outsourcing those operations. If the same company decides to contact with a
call center in Bangalore, India, it is offshoring.
Like downsizing, outsourcing and offshoring are restructuring efforts primarily pursued
for cost-saving reasons; some companies might undertake all three. All result in job loss
for the organization. Yet, a recent study of 13,683 U.S. employees (all of whom retained
their jobs) suggests that employees react differently to these three restructuring efforts.
Predictably, where downsizing and offshoring occurred, employees reacted negatively,
reporting significantly lower job satisfaction and organizational commitment than in
matched organizations where they did not occur. Surprisingly, however, this study found
no negative effects of outsourcing on these attitudes.
The authors speculate that employees may view outsourcing less negatively because they
see it as less of a threat to their jobs. Future research is needed to test this explanation.
Sources: C. P. Maertz, J. W. Wiley, C. LeRouge, and M. A. Campion, “Downsizing Effects on Survivors:
Layoffs, Offshoring, and Outsourcing,” Industrial Relations 49, no. 2 (2010), pp. 275–285; and L. H.
Nishii, D. P. Lepak, and B. Schneider, “Employee Attributions of the ‘Why’ of HR Practices: Their Effects
on Employee Attitudes and Behaviors, and Customer Satisfaction,” Personnel Psychology 61,
no. 3 (2008), pp. 503–545.
Class Exercise
1. Divide the class into groups of three to five students each.
2. Have the teams prepare a presentation on what information contributes to
decisions to outsource, offshore, or downsize. For example see the essay at
http://www.flatworldsolutions.com/articles/top-ten-reasons-to-outsource.php
3. Ask the teams to present their findings and ask the remainder of the class to
discuss the reasons that a firm might consider the strongest to motivate a decision.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 621
Teaching Notes:
This exercise is applicable to face-2-face classes or synchronous online classes such as
BlackBoard 9.1, Breeze, WIMBA, and Second Life Virtual Classrooms. See
http://www.baclass.panam.edu/imob/SecondLife for more information.
Point/CounterPoint
The End of Management
This exercise covers Learning Objectives: Analyze the behavioral implications of different organizational
designs; Learning Outcomes: Discuss the factors that influence decisions about organizational structure;
and AACSB Learning Goals: Reflective thinking skills.
Point
Management—at least as we know it—is dying. Formal organizational structures are
giving way to flatter, less bureaucratic, less formal structures. And that’s a good thing.
Today, leaders are celebrated for triumphing over structure rather than for working well
within it. Innovative companies like Apple, Google, Facebook, Twitter, and Groupon
were born and thrive thanks not to a multilayered bureaucracy but to an innovative idea
that was creatively executed by a flexible group of people freely collaborating.
Management in those companies exists to facilitate, rather than control.
Only 100 of today’s Fortune 500 companies existed in 1957. Yet management theory and
practice continue to hew to a 1957 mode of thinking. As one future-minded expert noted,
“The single biggest reason companies fail is that they overinvest in what is, as opposed to
what might be.” How does a traditional, formal, bureaucratic structure foster “what might
be” thinking? It doesn’t.
Inertia can cause even innovative companies to become bureaucratized. Google cofounder Larry Page replaced ex-CEO Eric Schmidt when Page’s “desire to move quickly
on ambitious ideas was stifled by company bureaucracy.” Page and cofounder Sergey
Brin know traditional, bureaucratic structures are Google’s greatest threats.
Some enlightened leaders have learned from their mistakes. Early in his career, says
Cristóbal Conde, president and CEO of IT company SunGard, “I was very commandand-control, very top-down. I felt I was smart, and that my decisions would be better.”
After some of his best people left because they felt constrained, Conde decided to flatten
and loosen the structure. He says: “A C.E.O. needs to focus more on the platform that
enables collaboration . . . By having technologies that allow people to see what others are
doing, share information, collaborate, brag about their successes—that is what flattens the
organization.”
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 622
CounterPoint
There is no “right size fits all” approach to organizational structure. How flat, informal,
and collaborative an organization should be depends on many factors. Let’s consider two
cases.
People lauded how loosely and informally Warren Buffett structured his investment firm,
Berkshire Hathaway. Buffett spends most of his day reading and talking informally “with
highly gifted people whom he trusts and who trust him.” This all sounded wonderful until
it was discovered Buffett’s CFO and heir apparent David Sokol was on the take. Sokol
made $3 million when he successfully lobbied for Berkshire Hathaway to acquire a firm
in which he had secretly acquired a significant stake. His insider maneuvers discovered,
Sokol was forced to resign. Wouldn’t Buffett have known Sokol was compromised if he
supervised more closely or had structures in place to check such “freedom”? It’s hard to
argue with Berkshire Hathaway’s past successes, but they don’t prove the company is
ideally structured.
Berkshire Hathaway is a cautionary example of the perils of a structure that’s too flat and
informal. For the benefits of a formal, complex structure, look no further than Boeing.
Boeing’s 787 “Dreamliner”—built of composite materials and 20 percent more fuel
efficient than comparable passenger planes—is one of the most innovative products in the
history of aviation and the fastest-selling ever. How was the Dreamliner invented and
produced? Through an enormously complex planning, design, engineering, production,
and testing process. To build the Dreamliner, Boeing has contracted with 40 different
suppliers at 135 sites around the world—a feat it could not accomplish without an
organizational structure to support it. Boeing’s organizational structure is quite formal,
complex, and even bureaucratic. The Dreamliner proves innovation does not need to
come from radical organizational structures.
Sources: A. Bryant, “Structure? The Flatter the Better,” New York Times (January 17, 2010), p. BU2; A. R.
Sorkin, “Delegator in Chief,” New York Times (April 24, 2011), p. B4; A. Murray, “The End of
Management,” Wall Street Journal (August 21, 2010), p. W3; and A. Efrati and S. Morrison, “Chief Seeks
More Agile Google,” Wall Street Journal (January 22, 2011), pp. B1, B4.
Class Exercise
1. Create debate teams of three to five students each with half the teams in your
class assigned the Point position and the other half the CounterPoint position.
2. Ask the students to prepare to defend the position represented in the exercise, with
the advice they should seek additional ideas and resources to support their
positions.
3. On a defined day, select a team from each position to debate the conflict.
4. After the debate ask the remaining students to comment for or against the concept
regardless of the position prepared.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 623
Teaching Notes
This exercise is applicable to face-2-face classes or synchronous online classes such as
BlackBoard 9.1, Breeze, WIMBA, and Second Life Virtual Classrooms. See
http://www.baclass.panam.edu/imob/SecondLife for more information.
Questions for Review
1. What are the six key elements that define an organization’s structure?
Answer: The structure is how job tasks are formally divided, grouped, and
coordinated The 6 Key Elements that define an organization’s structure are:
 Work specialization
 Departmentalization
 Chain of command
 Span of control
 Centralization and decentralization
 Formalization
(This exercise covers Learning Objectives: Identify the six elements of an organization’s
structure; Learning Outcomes: Discuss the factors that influence decisions about
organizational structure; and AACSB Learning Goals: Reflective thinking skills.)
2. What is a bureaucracy, and how does it differ from a simple structure?
Answer: Bureaucracy is a complex structure that is comprised of highly operating
routine tasks achieved through specialization, very formalized rules and
regulations, tasks that are grouped into functional departments, centralized
authority, narrow spans of control, and decision making that follows the chain of
command A simple structure is characterized by a low degree of
departmentalization, wide spans of control, authority centralized in a single
person and little formalization. (This exercise covers Learning Objectives: Identify the
characteristics of bureaucracy; Learning Outcomes: Discuss the factors that influence decisions
about organizational structure; and AACSB Learning Goals: Reflective thinking skills.)
3. What is a matrix organization?
Answer: The matrix structure is used in advertising agencies, aerospace firms,
research and development laboratories, construction companies, hospitals,
government agencies, universities, management consulting firms, and
entertainment companies. It combines two forms of departmentalization:
functional and product.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 624
The matrix attempts to gain the strengths of both functional and product
departmentalization, while avoiding their weaknesses. The most obvious
structural characteristic of the matrix is that it breaks the unity-of-command
concept. Employees in the matrix have two bosses—their functional department
managers and their product managers. Therefore, the matrix has a dual chain of
command.
The strength of the matrix lies in its ability to facilitate coordination when the
organization has a multiplicity of complex and interdependent activities. It
facilitates the efficient allocation of specialists. The matrix achieves the
advantages of economies of scale by providing the organization with both the best
resources and an effective way of ensuring their efficient deployment. The major
disadvantages of the matrix lie in the confusion it creates, its propensity to foster
power struggles, and the stress it places on individuals. (This exercise covers Learning
Objectives: Describe a matrix structure; Learning Outcomes: Discuss the factors that influence
decisions about organizational structure; and AACSB Learning Goals: Reflective thinking skills.)
4. What are the characteristics of a virtual organization?
Answer: The Virtual Organization: The essence of the virtual organization is
typically a small, core organization that outsources major business functions. It is
highly centralized, with little or no departmentalization. Virtual organizations
create networks of relationships that allow them to contract out manufacturing,
distribution, marketing, or any other business function where management feels
that others can do it better or more cheaply. The virtual organization stands in
sharp contrast to the typical bureaucracy in that it outsources many generic
functions and concentrates on what it does best. The major advantage to the
virtual organization is its flexibility. The primary drawback is that it reduces
management’s control over key parts of its business. (This exercise covers Learning
Objectives: Identify the characteristics of a virtual organization; Learning Outcomes: Discuss the
factors that influence decisions about organizational structure; and AACSB Learning Goals:
Reflective thinking skills.)
5. How can managers create a boundaryless organization?
Answer: The Boundaryless Organization: The boundaryless organization seeks
to eliminate the chain of command, have limitless spans of control, and replace
departments with empowered teams. Because it relies so heavily on information
technology, some call this structure the T-form (or technology-based)
organization. By removing vertical boundaries, management flattens the hierarchy
and:
 Minimizes status and rank.
 Uses cross-hierarchical teams.
 Uses participative decision-making practices.
 Uses 360-degree performance appraisals.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 625
Functional departments create horizontal boundaries. The way to reduce these
barriers is to replace functional departments with cross-functional teams and to
organize activities around processes. When fully operational, the boundaryless
organization also breaks down barriers to external constituencies (suppliers,
customers, regulators, etc.) and barriers created by geography. The one common
technological thread that makes the boundaryless organization possible is
networked computers. (This exercise covers Learning Objectives: Show why managers want
to create boundaryless organizations; Learning Outcomes: Discuss the factors that influence
decisions about organizational structure; and AACSB Learning Goals: Reflective thinking skills.)
6. Why do organizational structures differ, and what is the difference between a
mechanistic structure and an organic structure?
Answer: There are four reasons why structures differ.
1. Strategy a. Innovation Strategy - A strategy that emphasizes the introduction
of major new products and services. An organic structure may be
best.
b. Cost-minimization Strategy - A strategy that emphasizes tight cost
controls, avoidance of unnecessary innovation or marketing
expenses, and price cutting
c. Imitation Strategy - A strategy that seeks to move into new
products or new markets only after their viability has already been
proven
2. Organizational Size - As organizations grow, they become more
mechanistic, more specialized, with more rules and regulations
3. Technology - How an organization transfers its inputs into outputs The
more routine the activities, the more mechanistic the structure with greater
formalization Custom activities need an organic structure
4. Environment - Institutions or forces outside the organization that
potentially affect the organization’s performance Three key dimensions:
a. capacity,
b. volatility, and
c. complexity.
(This exercise covers Learning Objectives: Demonstrate how organizational structures differ and
contrast mechanistic and organic structural models; Learning Outcomes: Discuss the factors that
influence decisions about organizational structure; and AACSB Learning Goals: Reflective
thinking skills.)
7. What are the behavioral implications of different organizational designs?
Answer: It is impossible to generalize behavioral implications due to individual
differences in the employees People seek and stay at organizations that match
their needs. Some of the research helps to understand some of the behavior such
as:
1. Work specialization contributes to higher employee productivity, but it
reduces job satisfaction.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 626
2. The benefits of specialization have decreased rapidly as employees seek
more intrinsically rewarding jobs.
3. The effect of span of control on employee performance is contingent upon
individual differences and abilities, task structures, and other
organizational factors.
4. Participative decision making in decentralized organizations is positively
related to job satisfaction.
(This exercise covers Learning Objectives: Analyze the behavioral implications of different
organizational designs; Learning Outcomes: Discuss the factors that influence decisions about
organizational structure; and AACSB Learning Goals: Reflective thinking skills.)
8. How does globalization affect organizational structure?
Answer: In terms of culture and organizational structure, many countries follow
the U.S. model. U.S. management may be too individualistic. Culture may affect
employee structure preferences. Cultures with high-power distance may prefer
mechanistic structures. The boundaryless organization may be a solution to
regional differences in global firms. It breaks down cultural barriers, especially in
strategic alliances. Telecommuting also blurs organizational boundaries. (This
exercise covers Learning Objectives: Analyze the behavioral implications of different
organizational designs; Learning Outcomes: Discuss the factors that influence decisions about
organizational structure; and AACSB Learning Goals: Reflective thinking skills)
Experiential Exercise
Dismantling a Bureaucracy
This exercise covers Learning Objectives: Demonstrate how organizational structures differ and contrast
mechanistic and organic structural models; Learning Outcomes: Discuss the factors that influence
decisions about organizational structure; and AACSB Learning Goals: Reflective thinking skills.
Pre-work
In order to understand how to improve an organizational structure, it is important to start
with a clear understanding of how an organization is currently structured. For this
exercise, you will perform research on the college or university you are attending or
another organization that your professor identifies. Using the organization’s Web site,
find out about different administrative units, paying special attention to different noncore
functions like finance, information technology, and human resources.
While doing this research, assemble a list of five features that resemble a bureaucracy
and five features that you think might be successfully managed by an external partner.
Create Groups
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 627
Your instructor will form you into groups of at least four individuals at the start of class.
Assess Bureaucracy
Your initial task will be to share your assessments of the features of the organization that
seem bureaucratic in nature. What are the common functions that tend to be run in a
bureaucratic manner? Try to identify standardized work practices that enhance
coordination and control. In particular, think of systems of rules, regulations,
departments, and offices that have highly specific and specialized roles. Collectively,
your team will take about 15 minutes to accomplish this task.
Dismantle Bureaucracy
To dismantle a bureaucracy, it is important to consider both the advantages and
disadvantages of the current system. Thus, the goal of the second part of the exercise is to
employ techniques related to boundaryless and virtual organizations to reduce
bureaucracy in a debate format, with one person arguing for why changes can be good,
while the other person argues for why changes might be disruptive.
The team will start by dividing into two subgroups and will work in these groups
independently for about 10 minutes. One member will have the responsibility to identify
alternative mechanisms that might be able to replace the current bureaucratic structure
while still keeping all the same functions “in-house” by creating a boundaryless
organization. How can the organizations get the same results but with a different set of
control systems? Another member will identify reasons it might be difficult to transition
from a bureaucracy to the system you advocated in point #2. What are the potential
sources of resistance to change? These two members should work together to arrive at a
consensus for how bureaucracy might be minimized without damaging organizational
productivity and efficiency.
At the same time, the second group of two individuals will work on a different task. One
member will consider how each organization can take on elements of a virtual
organization as a way to become less bureaucratic. Identify elements of the organization
that might be downsized or outsourced. Another member will identify why “going
virtual” might be a bad idea, looking to potential loss of control and poor information
exchange as possible obstacles. These two members will arrive at a consensus for how
the organization can be made as lean as possible without damaging organizational
productivity and efficiency.
Finally, all four members of the team will come together to arrive at a consensus for how
to limit bureaucracy by either (1) using new systems that are consistent with a
boundaryless organization or (2) using elements of a lean, virtual organization to strip off
unnecessary bureaucratic layers. This final combination process should take about 10
minutes.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 628
Debriefing
After each group has come to a consensus for how to limit bureaucracy, the instructor
will lead an all-class discussion in which each group will describe its eventual approach
to minimizing bureaucracy in its organization.
Your instructor will provide additional insight into why it may be difficult to change a
bureaucracy, as well as suggesting areas where bureaucracy can be effectively limited
through either boundarylessness or virtuality.
Ethical Dilemma
Directing the Directors
This exercise covers Learning Objectives: Analyze the behavioral implications of different organizational
designs; Learning Outcomes: Discuss the factors that influence decisions about organizational structure;
and AACSB Learning Goals: Ethical understanding and reasoning abilities; Reflective thinking skills.
One critical structural element of most corporations is the board of directors. In principle,
chief executives report to the directors. In practice, however, boards do not always
function as you might expect. Boards were implicated in many corporate scandals of the
past decade—either because they actively condoned unethical behavior or because they
turned a blind eye to it. Many also blamed lax board oversight for the financial meltdown
and ensuing recession. Business media have called boards “absolutely useless” and “a
sham.”
One of the keys to reforming board behavior is ensuring that boards function
independently of the CEO. The Securities and Exchange Commission (SEC) and the New
York Stock Exchange (NYSE) have set guidelines for the independence of directors—
who should not be otherwise affiliated with, employed by, or connected to the
organization they direct. The more independent the structure and composition of the
board, the better the corporation will be governed, and the more effective it will be.
One example of nonindependence came to light in 2010. In addition to $225,000 in cash
and deferred stock he was paid to function as a member of Citibank’s board,
Robert Joss earned $350,000 in consulting fees for advising the bank on projects “from
time to time.” When asked to comment, Joss replied, “I’m comfortable that I can handle
that.”
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 629
Such examples seem egregious violations of independence in board structures. Yet,
evidence on the link between board independence and firm performance is surprisingly
weak. One recent review concluded, “There is no evidence of systematic relationships
between board composition and corporate financial performance.”
Another structural issue is how the roles of the CEO and chairperson are filled—for
instance, whether these positions are held by different people. Most argue that for the
board to function independently, the roles must be separate, and Bloomberg
Businessweek estimates that 37 percent of the 500 largest U.S. corporations do split
them. Yet here, too, the evidence is weak: it doesn’t appear that corporations with
separate CEOs and chairs perform any better than those where the CEO and chairperson
are one and the same.
Questions
1. Do you think Citibank’s consulting arrangement with Robert Joss was unethical?
Or is it possible to justify the arrangement?
Answer: The student’s answer to this question will depend on his or her ethic.
Those who believe that the “end justifies the means” will see the outcome of
Robert Joss as legitimate (not against he law) and, therefore, OK. Other students
will believe that Joss is taking an unfair advantage of the firm because he realizes
contract work that could be obtained by people outside the firm’s relationship.
This type of detachment, they will reason, offers the firm a more objective view
of the situation and is less likely to be inappropriate expense for the firm.
2. Why do you think board structure doesn’t appear to matter to corporate
performance?
Answer: The answer will depend on a student’s appreciation for the job a board
of directors performs. Realizing the most of the board members are from
companies or industries different from the firm. It is logical that people whose
competencies are not directly related to the firm will have difficulty making
decisions in the best interest of the firm.
3. Do you think the roles of CEO and chairperson of the board of directors should
always be separate? Why or why not?
Answer: The answer to this question will vary since it is an opinion question.
Some students will favor the two positions in the same person because they
perceive that there are many examples of successful companies that have used the
method. Other students will suggest that the two positions should be separate to
provide a system of checks and balances to ensure that decisions are not adversely
affected by limited consideration.
Sources: D. R. Dalton and C. M. Dalton, “Integration of Micro and Macro Studies in Governance Research:
CEO Duality, Board Composition, and Financial Performance,” Journal of Management 37, no. 2 (2011),
pp. 404–411; T. J. Neff and R. Charan, “Separating the CEO and Chairman Roles,” Bloomberg
Businessweek (January 15, 2010), downloaded July 5, 2011, from www.businessweek.com/ ; B. Keoun,
“Citigroup to Pay Director $350,000 for Weeks of Consulting,” Bloomberg News (May 10, 2010),
downloaded July 5, 2011, from www.bloomberg.com/news/ .
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 630
Case Incident 1
Creative Deviance: Bucking the Hierarchy?
This exercise covers Learning Objectives: Demonstrate how organizational structures differ and contrast
mechanistic and organic structural models; Learning Outcomes: Discuss the factors that influence
decisions about organizational structure; and AACSB Learning Goals: Reflective thinking skills.
One of the major functions of an organizational hierarchy is to increase standardization
and control for top managers. Using the chain of command, managers can direct the
activities of subordinates toward a common purpose. If the right person with a creative
vision is in charge of a hierarchy, the results can be phenomenal. Until Steve Job’s
regrettable passing in October of 2011, Apple had used a strongly top-down creative
process in which most major decisions and innovations flow directly through Jobs and
then are delegated to sub-teams as specific assignments to complete.
Then there is creative deviance, in which individuals create extremely successful
products despite being told by senior management to stop working on them. The
electrostatic displays used in more than half of Hewlett-Packard’s instruments, the tape
slitter that was one of the most important process innovations in 3M’s history, and
Nichia’s development of multi-billion-dollar LED bright lighting technology were all
officially rejected by the management hierarchy. In all these cases, an approach like
Apple’s would have shut down some of the most successful products these companies
ever produced. Doing “business as usual” can become such an imperative in a
hierarchical organization that new ideas are seen as threats rather than opportunities for
development.
It’s not immediately apparent why top-down decision making works so well for one
highly creative company like Apple, while hierarchy nearly ruined innovations at several
other organizations. It may be that Apple’s structure is actually quite simple, with
relatively few layers and a great deal of responsibility placed on each individual for his or
her own outcomes. Or it may be that Apple simply had a very unique leader who was
able to rise above the conventional strictures of a CEO to create a culture of constant
innovation.
Questions
1. Do you think it’s possible for an organization to deliberately create an “antihierarchy” to encourage employees to engage in more acts of creative deviance?
What steps might a company take to encourage creative deviance?
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 631
Answer: This answer will depend on the student’s opinion. If they answer that it
is possible, then they are likely basing the answer on the concept of
“decentralization,” which delegates decision-making downward in the
organization. If properly designed, this type of “Grassroots Leadership” allows
firms to respond to environmental changes more quickly and efficiently.
2. What are the dangers of an approach that encourages creative deviance?
Answer: If the structure for a “decentralization” culture is not effective, it can
lead to wasted resources, inappropriate activity, and non-mission activities in the
organization.
3. Why do you think a company like Apple is able to be creative with a strongly
hierarchical structure, whereas other companies find hierarchy limiting?
Answer: A company like Apple has a strong leadership that is creative and
futuristic. Although Steve Jobs is the front for the hierarchical personality, the
truth is that Jobs has a cadre of leaders with similar creativity and innovation
capabilities. Generally, the reason some companies trying the hierarchical,
centralized structure find it doesn’t work is because of the incapability of the
central figure to have the personality and skill to fill the central position. For
example, see Apple Computer company under John Sculley.
4. Do you think Apple’s success has been entirely dependent upon Steve Jobs’ role
as head of the hierarchy? What are the potential liabilities of a company that is so
strongly connected to the decision making of a single individual?
Answer: NO, as we see following Jobs retirement and death, the people who were
in the centralized management hierarchy are no longer under the mask of Jobs as
the center. The new officers and managers have been revealed as the driving force
behind their departmental responsibilities. With Jobs, a unifying presence with a
vision was the glue that held it together. Now there are new glue spots coming
together to guide Apple.
Sources: C. Mainemelis, “Stealing Fire: Creative Deviance in the Evolution of New Ideas,” Academy of
Management Review 35, no. 4 (2010), pp. 558–578; and A. Lashinsky, “Inside Apple,” Fortune (May 23,
2011), pp. 125–134.
Case Incident 2
Siemen’s Simple Structure–Not
This exercise covers Learning Objectives: Analyze the behavioral implications of different organizational
designs; Learning Outcomes: Discuss the factors that influence decisions about organizational structure;
and AACSB Learning Goals: Dynamics of the global economy; Multicultural and diversity understanding;
Reflective thinking skills.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 632
There is perhaps no tougher task for an executive than to restructure a European
organization. Ask former Siemens CEO Klaus Kleinfeld.
Siemens, with 77 billion Euros in revenue in 2008, some 427,000 employees, and
branches in 190 countries, is one of the largest electronics companies in the
world. Although the company has long been respected for its engineering prowess, it’s
also derided for its sluggishness and mechanistic structure. So when Kleinfeld took over
as CEO, he sought to restructure the company along the lines of what Jack Welch did at
General Electric. He has tried to make the structure less bureaucratic so decisions are
made more quickly He spun off underperforming businesses. And he simplified the
company’s structure.
Kleinfeld’s efforts drew angry protests from employee groups, with constant picket lines
outside his corporate offices. One of the challenges of transforming European
organizations is the customary active participation of employees in executive decisions.
Half the seats on the Siemens board of directors are allocated to labor representatives.
Not surprisingly, the labor groups did not react positively to Kleinfeld’s GE-like
restructuring efforts. In his efforts to speed those efforts, labor groups alleged,
Kleinfeld secretly bankrolled a business-friendly workers’ group to try to undermine
Germany’s main industrial union.
Due to this and other allegations, Kleinfeld was forced out in June 2007 and replaced by
Peter Löscher. Löscher has found the same tensions between inertia and the need for
restructuring. Only a month after becoming CEO, Löscher was faced with a decision
whether to spin off the firm’s underperforming 10 billion-Euro auto parts unit, VDO. He
had to weigh the forces for stability, which want to protect worker interests, against U.S.style pressures for financial performance. One of VDO’s possible buyers is a U.S.
company, TRW, the controlling interest of which is held by Blackstone, a U.S. private
equity firm. German labor representatives have derided such private equity firms as
“locusts.” When Löscher decided to sell VDO to German tire giant Continental
Corporation, Continental promptly began to downsize and restructure the unit’s
operations.
Löscher has continued to restructure Siemens. In mid- 2008, he announced elimination of
nearly 17,000 jobs worldwide. He also announced plans to consolidate more business
units and reorganize the company’s operations geographically. “The speed at which
business is changing worldwide has increased considerably, and we’re orienting Siemens
accordingly,” Löscher said.
Since the switch from Kleinfeld to Löscher, Siemens has experienced its ups and downs.
Since 2008, its stock price has fallen 26 percent on the European stock exchange and is
down 31 percent on the New York Stock Exchange. That is better than some competitors,
such as France’s Alcatel- Lucent (down 83 percent) and General Electric (down 69
percent), and worse than others, such as IBM (up 8 percent) and the Swiss/Swedish
conglomerate ABB (down 15 percent).
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 633
Though Löscher’s restructuring efforts have generated far less controversy than
Kleinfeld’s, that doesn’t mean they went over well with all constituents. Of the 2008
job cuts, Werner Neugebauer, regional director for a union representing many Siemens
employees, said, “The planned job cuts are incomprehensible nor acceptable for these
reasons, and in this extent, completely exaggerated.”
When asked by a reporter whether the cuts would be controversial, Löscher retorted, “I
couldn’t care less how it’s portrayed.” He paused a moment, then added, ““Maybe that’s
the wrong term. I do care.”
Questions
1. What do Kleinfeld’s efforts at Siemens tell you about the difficulties of
restructuring organizations?
Answer: Global restructuring is difficult. The guide to global structures at
http://74.125.47.132/search?q=cache:_E0UAS88Wd0J:macy.ba.ttu.edu/Fall%252
006/5371/overview%2520of%2520eight%2520types%2520of%2520structure%2
520for%2520110106.ppt+global+organizational+structures&cd=16&hl=en&ct=cl
nk&gl=us&client=safari suggests criteria that includes organizational and local
cultures into labor relations. These vary widely and must be addressed uniquely to
restructure.
2. Why do you think Löscher’s restructuring decisions have generated less
controversy than did Kleinfeld’s?
Answer: Löscher’s efforts focused on attempts to keep local organizational
culture in place. Kleinfwld’s efforts seemed more formula in implementation and
less sensitive to individuals. Although the results were similar, Löscher’s effort
was probably seen as more appreciative of the worker’s plight.
3. Assume a colleague read this case and concluded “This case proves restructuring
efforts do not improve a company’s financial performance.” How would you
respond to this statement?
Answer: The colleague’s position does recognize long-term outcome of
performance. Any restructuring carries a period of productivity drop because of
the changes implemented. These changes include personnel, job definitions, job
processes, and departmental relationships. All of these can cause drops in
productivity in initial implementation that will improve after the “learning curve”
is completed and new processes and relationships become the norm.
4. Do you think a CEO who decides to restructure or downsize a company takes the
well-being of employees into account? Should he or she do so? Why or why not?
Answer: The answer will depend on student beliefs and opinions. In general most
students will say that consideration of employees is more important. However,
students should see that the CEO’s responsibility is to chare holders. A balance
must be made between employee consideration and shareholder equity. Over
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 634
consideration in either direction can create an unmanageable situation for the
CEO.
Sources: Based on A. Davidson, “Peter Löscher Makes Siemens Less German,” The Sunday Times (June
29, 2008), business.timesonline .co.uk; G. Frey, “Siemens Cutting 17K Jobs Worldwide to Cut Costs,” Fox
News (July 8, 2008), www.foxnews.com; M. Esterl and D. Crawford, “Siemens CEO Put to Early Test,”
Wall Street Journal (July 23, 2007), p. A8; and J. Ewing, “Siemens’ Culture Clash,” BusinessWeek
(January 29, 2007), pp. 42–46.
Instructor’s Choice
Applying the Concepts
This exercise covers Learning Objectives: Analyze the behavioral implications of different organizational
designs; Learning Outcomes: Discuss the factors that influence decisions about organizational structure;
and AACSB Learning Goals: Dynamics of the global economy; Multicultural and diversity understanding;
Reflective thinking skills.
If one were to chart the growth spurts of Volkswagen over the past three decades, the
chart would look like a roller coaster. Plans were for former BMW boss Bernd
Pischetsrieder to fix ailing VW when he came aboard in 2002. However, best-laid plans
often go astray. VW’s share price is down almost 50% and profits fell by 36%. What is
wrong at VW? First, VW has always been able to charge more for its cars because of
quality, innovation, styling, and an implied lifetime guarantee. In recent years, however,
consumers have decided that the company is going to have to come up with more value
for the dollar if loyalty is to be retained. Second, sales in China’s booming market (VW
was one of the first car makers on the scene in this giant economy) have plummeted and
GM has driven VW from its number one ranking. Third, cost-cutting moves have not
worked. Fourth, VW uncharacteristically has labor pains. The CEO has had little luck in
reversing these problems because his consensus management techniques are having little
impact on VW’s change-resistant bureaucracy. Over half of the company’s 100 managers
are not used to making their own decisions. This spells even more trouble for the
company in the year ahead.
a. Using a search engine of your own choosing, investigate Volkswagen’s
performance over the past two years. Write a brief summary of their fortunes and
misfortunes.
b. Visit the Volkswagen Web site at www.vw.com. From information supplied,
characterize the company’s existing structure.
c. Based on what you have observed in “a” and “b” above, suggest a new
organizational structure for the company. Cite any assumptions that you made
when you developed your structure.
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Chapter 15 Foundations of Organization Structure
Page 635
Instructor Discussion
Students will be able to find a wealth of information on VW (particularly negative
information because of their recent performance). A nice summary article appears in
BusinessWeek (see August 9, 2004 “Volkswagen Slips into Reverse” p. 40). Students are
free to pick any organizational form that they believe is best given the existing situation.
However, they should be aware that the current CEO is not having much success with
modern structures as the company seems to be very tradition-bound at present. Students
might also interview a local VW dealer for opinions.
EXPLORING OB TOPICS ON THE
WORLD WIDE WEB
This exercise covers Learning Objectives: Analyze the behavioral implications of different organizational
designs; Learning Outcomes: Discuss the factors that influence decisions about organizational structure;
and AACSB Learning Goals: Reflective thinking skills.
Search Engines are our navigational tool to explore the WWW. Some commonly used
search engines are:
www.goto.com
www.lycos.com
www.google.com
www.hotbot.com
www.excite.com
www.bing.com
1. The chapter discusses span of control and the various advantages and
disadvantages of wide vs. narrow. Let us see how that looks in actual numbers.
First, determine how many hierarchical levels there are in at least three
organizations of varying sizes that you are currently involved with. One could be
the college or university you attend, another where you work, and finally a club or
religious institution you belong to. Or, for one of the choices, select a non-profit
organization you have some interest in. (For example, Red Cross, MDS,
American Cancer Society, etc.). Obtain their hierarchical structure either by
searching the WWW (most annual reports have information on this), calling or
visiting them, or drawing the structure yourself if you are involved in the
organization. Use www.google.com to help you search.
2. What factors influence virtual teams? For a short analysis point to:
http://www.seanet.com/~daveg/articles.htm. Write a short paragraph or two
outlining why you would or would not like working in a virtual environment. Do
you see a time later in your career when you would prefer working in a virtual
team? Why or why not?
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall