Organization Structure

Operations Management

Fundamental of Organizing

The organization chart depicts the position in the firm and the way they are arranged. The chart provides a picture of the reporting structure (who reports to whom) and the various activities that are carried out by different individuals.

1. The boxes represent different work.
2. The titles in the boxes show the work performed by each unit.
3. Reporting and authority relationships are indicated by solid lines showing superior– subordinate connections.
4. Levels of management are indicated by the number of horizontal layers in the chart. All persons or units that are at the same rank and report to the same person are on one level.

Fundamental of Organizing

Two fundamental concepts around which organizations are structured are differentiation and integration.

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Fundamental of Organizing

Differentiation

Several related concepts underlie the idea of structural differentiation. For example, differentiation is created through division of labor and job specialization.

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Division of labor

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Means the work of the organization is subdivided into smaller tasks.

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Job specialization

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Refers to the fact that different people or groups often perform specific of the larger task.

Fundamental of Organizing

Integration

As organizations differentiate their structures, managers must simultaneously consider issues of integration. All the specialized tasks in an organization cannot be performed completely independently.

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Integration and its related concept, coordination, refer to the procedures that link the various parts of the organization to achieve the organization’s overall mission.

Vertical Structure

The Vertical Structure

Authority in Organizations

At the most fundamental level, the functioning of every organization depends on the use of authority, the legitimate right to make decisions and to tell other people what to do.

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Traditionally, authority resides in position rather than in people.

The Vertical Structure

However, authority in an organization is not always position-dependent. People with particular expertise, experience, or personal qualities may have considerable informal authority.

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Effective managers are aware of informal authority as a factor that can help or hinder their achievement of the organization’s goals

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The Vertical Structure

The formal authority structure of the organization from the top down:

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• Board of Directors.
• Chief Executive Officer.
• Top Management Team.

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The Vertical Structure

Hierarchical Levels

Hierarchy is known as the authority levels of the organizational pyramid. The CEO occupies the top position and the senior member of the top management.

The top managerial level also includes presidents and vice-presidents. They are the strategic managers in charge of the entire organization.

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The Vertical Structure

The key responsibilities at this top level include corporate governance a term describing the oversight of the firm by its executive staff and board of directors.

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Into the organizations also exists the subunits that are divisions of an organization.

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The Vertical Structure

Span of control

The number of subordinates who report directly to an executive or supervisor is called the span of control.

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The span of control can be too narrow or too wide. The optimal span of control maximizes effectiveness because it is:

1. Narrow enough to permit managers to maintain control over subordinates; but,
2. Not so narrow that it leads to overcontrol and an excessive number of managers who oversee a small number of subordinates.

The Vertical Structure

The optimal span of control depends on several factors. The span should be wider when:

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If the opposite condition exist, a narrow span of control may be more appropriate.

1. The work is clearly defined and unambiguous.
2. Subordinates are highly trained and have access to information.
3. The manager is highly capable and supportive.
4. Jobs are similar and performance measures are comparable.
5. Subordinates prefer autonomy to close supervisory control.

The Vertical Structure

Delegation

Delegation is the assignment of authority and responsibility to a subordinate at a lower level.

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It often requires the subordinate to report back to his or her boss about how effectively the assignment was carried out.

The Vertical Structure

When delegating work, it is helpful to keep in mind the important distinctions among the concepts of authority, responsibility, and accountability.

Authority. The legitimate right to make decisions and to tell other people what to do.

Responsibility. Means that a person is assigned a task that he or she is supposed to carry out.

Accountability. Means that the subordinate’s manager has the right to expect the subordinate to perform the job and the right to take corrective action if the subordinate fails to do so.

The Vertical Structure

Decentralization

The delegation of responsibility and authority decentralizes decision making.

• In a centralized organization, important decisions usually are made at the top.
• In decentralized organizations, more decisions are made at lower levels.

Ideally, decision making occurs at the level of the people who are most directly affected and have the most intimate knowledge about the problem.

Horizontal Structure

The Horizontal Structure

As the tasks of organizations become increasingly complex, the organization inevitably must be subdivided—that is, departmentalized —into smaller units or �departments.

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One of the first places this can be seen �is in the distinction between line and staff �departments.

The Horizontal Structure

Line departments are those that have responsibility for the principal activities of the firm.

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Line units deal directly with the organization’s primary goods or services; they make things, sell things, or provide customer service.

Staff departments are those that provide specialized or professional skills that support line departments.

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They include research, legal, accounting, public relations and human resource departments.

The Horizontal Structure

The functional organization

In a functional organization, jobs (and departments) are specialized and grouped according to business functions and the skills they require:

Production, marketing, human resources, research and development, finance, accounting, and so forth.

The Horizontal Structure

The traditional functional approach to departmentalization has a number of potential advantages for an organization:

1. Economies of scale can be realized. When people with similar skills are grouped, more efficient equipment can be purchased, and discounts for large purchases can be used.
2. Monitoring of the environment is more effective. Each functional group is more closely attuned to developments in its own field and therefore can adapt more readily.
3. Performance standards are better maintained. People with similar training and interests may develop a shared concern for performance in their jobs.
4. People have greater opportunity for specialized training and in-depth skill development.
5. Technical specialists are relatively free of administrative work.
6. Decision making and lines of communication are simple and clearly understood.

The Horizontal Structure

The divisional organization

Divisional organization As organizations grow and become increasingly diversified, they find that functional departments have difficulty managing a wide variety of products, customers, and geographic regions.

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In this case, organizations may restructure to group all functions into a single division and duplicate each of the functions across all the divisions.

The Horizontal Structure

The divisional organization

The Horizontal Structure

Organizations create a divisional structure in several ways. It can be created around products, customers, or geographic regions.

Product Divisions

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In the product organization, all functions that contribute to a given product are organized under one manager. In the product organization, managers in charge of functions for a particular product report to a product manager.

Customer and Geographics Divisions

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Some companies build divisions around groups of customers or around different geographic areas.

The Horizontal Structure

The Matrix Organization

A matrix organization is a hybrid form of organization in which functional and divisional forms overlap.

Managers and staff personnel report to two bosses—a functional manager and a divisional manager.

The Horizontal Structure

The Network Organization

The Network Organization is a collection of independent, mostly single functions firms that collaborate to produce a good or service.

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A very flexible version is the dynamic network, it is composed of temporary arrangements among members that can be assembled and reassembled to meet changing competitive environment.

The Horizontal Structure

The role of managers shifts in a network from that of command and control to more like that of a broker, that is, a person who assembles and coordinates participants in a network.

Organizational Integration

Organizational Integration

As organizations differentiate their structures, they also need to be concerned about integration and coordination —the way all parts of the organization will work together.

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Often, the more differentiated the organization, the more difficult integration may be.

The Horizontal Structure

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