Management of Organizational Structure
Division of Labor Narrow division of labor Wider division of labor
High Centralization of decision- De-centralization of decision-
Centralization making making
Span of Narrow: Much Hierarchy, many Wide: Little hierarchy, few
Control/Hierarchical of administration levels of administration
High formalization of work Low formalization of work
Formalization procedures (rules, and regulation, procedures (rules and
standardization) regulations, standardization)
• Wide division of labour: Organization provides jobs enrichment which allow employees
work with more challenging and meaningful work, i.e., increasing variety of work they
perform and freedom in performing the work.
In-Class Case – Land’s End:
o Term-based work – each group member contributes their own expertise to help
design and market their goods.
o Before, people worked in narrowly defined jobs – quality assurance personal,
inventory control, advertising, copyrighter, marketing personnel. Now they put
these people together in teams – they have widened the division of labor.
o Bring together people of different backgrounds/expertise for greater knowledge
sharing improving awareness of consumer needs.
• De-centralization of decision-making: To make organizations more efficient and
speedier in decision-making ability, they allowing lower levels who are close to
consumers involve in decision making process. Cross-functional Team and self-managing
work teams – the work teams are given the power to manage themselves and make
decisions without the approval of formal management.
In-Class Case – Land’s End:
o People working together in teams – and they are taking responsibility for the
designing and production of the products, i.e., decentralization decision making.
o Bring decision authority about the product to those closed to the consumers – that
would benefit consumers, i.e., better services for consumers.
• Little hierarchy, few levels of administration: Flatter and wider span of control could
cut costs and speed up the communication or decision-making process because it spreads
decision-making authority down to the lower level of organization.
In-Class Case – Land’s End:
o Flattering the hierarchy – i.e., reduced the number of levels of administration
o Team-based work means that they also don’t need to be governed by many levels
of authority above them.
1 o Reduced time it take products to market/consumers
• Low formalization of work procedures: In order to adapt to the changing external
environment (competitors, consumers, technological changes etc.), The workers are less
restricted with fewer rules and regulations; standardization of jobs have been cutting
down to be more creative and innovation.
In-Class Case – Land’s End:
o Basic rules for designing certain products.
o But the team can approach the design and marketing this product in any way
o Contribution from team members are not heavily governed by rules
o Give member freedom to be creative.
o Innovation for the marketplace
• Narrow division of labour: In order to maximize worker efficiency and productivity,
jobs are divided u into simplest and repetitive tasks.
• High Centralization of decision-making (Top-down approach): The important
decisions are made by the top of the organizational hierarchy – top manager. Lower level
employees have little or no involvement in decision-making.
• Much hierarchy or many levels of administration: Taller and narrower span of control
improves a manager’s ability to manage, but it is costly (more layer of management =
more expanse) and more time consuming in communication.
• High formalization of work procedures: There are clear rules and regulations
regarding how the work should be performed. Most work standardized work which is
very much rule-directed. The employees know exactly what is expected of them and how
they should perform their jobs.
• Advantages: Predictability and reliability – rules and standardized jobs ensure workers
are doing what the boss wants. Better Control – the formal hierarchy ensures that how the
work is conducted is clearly controlled.
• Disadvantages: Because of environment changes (increasing competitors, demands for
better products, improved customers services, shorter production time for market and
consumers), job specialization, the narrow division of labour, standardization rules, etc.
are not suitable to a changing environment.
2 What determines Organizational Structure
• Organic when the goal or mission is to be innovative because fewer rules and
decentralized decision making encourage flexibility and adaptiveness to environment
o In-Class Case – Land’s End: Innovation – Organic, i.e., the structure is such that
employees can easily adapt and are motivated to generate products to meet
changing consumer tastes.
• Mechanistic when the organizational goal focus on cost and efficiency because
narrowly division of labor provides simplest and best way to perform job to increase
productivity, high formalization also bring efficiency in organization. The formal
hierarchy ensures that how the work is conducted is clearly controlled.
2. Organization Size
• Tend to be Organic for a small organization because fewer employees mean that we
don’t need much control on employees. Also, it might not be necessary to standardize to
ensure efficiency and productivity.
• Tend to be Mechanistic for large organization because of the need of control, i.e., when
we have masses of employees, their performance must be directed by rules and regulation
to ensure performance. It is also beneficial to standardize or routinize the work to avoid
errors and improve productivity and reduce cost.
• Better suited with Organic when facing non-routine technology such as creativity and
innovation because innovation requires less rules and regulations to govern activity.
• More compatible with Mechanistic when facing routine technology (standardized and
mass production operation) because it can easily standardized work for employees.
• Organic is suitable when organizations that exist in an unpredictable or dynamic
environment because they must be prepared for the continuous change. Organic
structure is more flexible to adapt to change in dynamic environment because it could
quick response to the less predictable environment and provide the just-in-time product or
service which is the demand of the consumer.
• Mechanistic is suitable when organizations operating in stable and unchanging
environmental because they don’t need to change the standardized job, rule and
• The fundamental rethinking and radical redesigning of business processes to
achieve dramatic improvement in measures of performance.
• Fundamental rethinking of the organization’s structure and function: How do we improve
quality of our product/service?
• Radical redesign of organization processes and structure:
• Combine several jobs into one – reduce processing time Focus on process of job –
allowing individual employee to involve in more whole job rather than simplest and
• Work can be performed efficiently with fewer employees.
• Re-engineering means cutting the size of workforce, and often involve flatting the
• Outsourcing – involves hiring external organizations to conduct work in certain
functions of the company while the organization retains its core functions, i.e., let other
expert company in a certain areas does our jobs that we do not have expertise. It will be
for efficiency and help to cut down the cost.
• Networking – engages in co-operative relationship with external environments -
suppliers, distributors or competitors. Benefits: information sharing – ensure better
products and services, shorter production time and improve their efficiency and flexibility
in meeting new consumer needs.
• Shed non-core function – sheds some of their non-core functions and outsource these to
affiliated organizations. E.g., if our core competency is not IT, it is much to gained from
partnering with other IT company, rather than creating our won IT departments.
• The cost saving are significant. E.g. IT or payroll outsourcing
• It’s easier to start a business in cooperate with other organization since we don’t need to
• It’s a fast way to develop and market new products since relying on the expertise of
partners reduce time and investment.
• Fast and flexible – resource can be quickly arranged and rearranged to meet changing
demands of best serve customers.
• Loss of control – no standardization work, flatting hierarchy, and less rules and
regulations means harder to control. Too dependant to external source also leads to lack
• Lack of employee loyalty – Less commitment to organizational goals since employee
are committed only to the task they are hired for.
• Sacrifice Competitive learning opportunities – An unimportant function that we
outsourced may become important in future, but when if this function outsourced, it
4 means that we are losing skills that we need for future competitiveness because the
internal organization lost the experience or learning in doing jobs.
• Globalization – A process involving the integration of world market and economics.
o Cross-border transaction among people, assets, goods and services.
o Growth in direct foreign investment in regions across the world.
o Increasing economic interdependence between nations – generating one world
economic system or a global economy.
• Pull Factors – The reasons a business would gain from entering the international context.
o Potential for Sales Growth – expand markets because domestic market is too small
for increasing sales.
o Obtaining Needed Resources –Obtaining needed resource. Importing lower cost raw
materials. Cheaper labor costs. Domestic resource is unavailable or too costly.
• Push Factors – The forces that act upon all businesses to create an environment where
competing successfully means competing globally.
o The Force of Competition – Force to compete with a foreign competitor –
competitors obtain cheaper or better products or services. First mover advantage – go
global first strong position in world markets.
o Shift toward Democracy – Democracy create new market opportunity.
o Reduction in Trade barriers – Reduction in trade and investment restrictions – free
trade agreement or areas.
o Improvement in Technology – Easier for cross-border transaction and
transportation, Easier to transfer information, products, service, capital and human
resource around the world. Internet, Email, teleconferencing, faxing, etc. help
managing and controlling organization.
• Channels of Global Business Activity:
o Exporting and Importing
o Licensing and Franchising Arrangements
o Direct Investment in Foreign Operations
o Joint Venture – Strategic Alliances – two or more companies from different countries
come together to produce a product or service.
o Mergers and Acquisitions
o Establishment of Subsidiaries
5 • Multinational Corporation – global businesses:
o They operate directly in some form of international activity in at least two different
o They generate products/services through affiliate in several countries
o They are usually very large: Maybe globally integrated – e.g. decision making at
HQ/home country. Maybe multi-domestic – e.g. decision making in host country
Benefits & Threats of MNC’s/TNC’s
Economic development – e.g. employment No allegiance to host country
Brings management expertise Mobile profits
Introduces new technology & relevant training Power held in home country, e.g. R & D
Develops trade Difficult to control
Unites cultures & nations
Supports global co-operation
o Encourages economic development
o Offers management expertise
o Introduces new technologies
o Provides financial support to underdeveloped region of the world
o Creates employment
o Encourages international trade through a company’s access to different market: it is
relatively easy to produce goods in one country and distribute them in another
country through a subsidiary or foreign affiliate.
o Brings different countries closer together
o Facilitates global co-operation and worldwide economic development.
o MNCs do not have any particular allegiance or commitment to their host country.
o Profits made by an MNC do not necessarily remain within the host country but may
be transferred out to other locations depending on where the MNC feels the funds are
o Decision making and other key functions of MNCs may be highly centralized in the
home country, so that even though other operations are performed in the host country,