Chapter 9: Organization
Organization architecture The totality of a firm’s organization, including formal
organization structure, control systems, incentive systems, organizational culture, and
Organization structure: The location of decision- making responsibilities in the firm, the
formal division of the organization into subunits, and the establishment of integrating
mechanisms to coordinate the activities of subunits.
Controls: Metrics used to measure the performance of subunits and to judge how well
managers are running those subunits.
Incentives: Devices used to encourage desired employee behaviour.
Organizational Culture: Values and assumptions that are shared among
the employees of an organization.
People: The employees of an organization; the strategy used to recruit, compensate,
motivate, and retain those individuals; and the type of people they are in terms of their
skills, values, and orientation. DESIGNING STRUCTURE: VERTICLE DIFFERENTIATION.
Vertical differentiation: The location of decision- making responsibilities within a
Horizontal differentiation: The formal division of the organization into subunits.
Integrating mechanisms: Mechanisms for coordinating subunits.
CENTRALIZATION AND DECENTRALIZATION
Centralization: The concentration of decision-making authority at a high level in a
Arguments for Centralization 1. Centralization can facilitate coordination
2. Centralization can help ensure that decisions are consistent with the
3. Centralization can avoid duplication of activities by various subunits with
4. By concentrating power and authority in one individual or management
ream, centralization can give top level managers the means to bring
about needed major organizational changes.
Decentralization: Vesting decision-making authority in lower-level managers or other
Arguments for decentralization
1. Top management can become overburdened when decision making
authority is centralized.
2. Motivational research favours decentialization
3. Decentralization permits greater flexibility—more rapid response to
environ- mental changes
4. Can result in better descisions, because decisions are made by people
who work on the job.
5. Decentralization can increase control. It can establish relatively
autonomous, self-contained subunits within an organization.
An autonomous subunit has all the resources and decision-
making power required