Textbook Notes - Chapter 14

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10 Nov 2010
MGTB27 / 01 Week 12
- Flight Centre has adopted an organizational structure into hunter-gatherer groups
- This proved to be effective since it led to quality decision making as well as performance
What is Organizational Structure?
are put together or organized to accomplish work
- Organizational structure is the manner in which an organization divides its labour into
specific tasks and achieves coordination among these tasks
- E.g. a university divides its labour: some members teach, some run the graduate program,
some handle registration. Within the registrar subunit, there is a director, secretaries, clerks,
and so on who all perform different tasks
The Division and Coordination of Labour
- Labour must be divided since individuals have physical and intellectual limitations
- There are two basic dimensions to the division of labour: vertical and horizontal
Vertical Division of Labour
- The vertical division of labour is concerned primarily with apportioning authority for
planning and decision making (who gets to tell who what to do)
- E.g. in a manufacturing firm: president, manager, supervisor
- Organizations can differ greatly in the extent to which labour is divided vertically (Army has
18 levels of command while Wal-Mart has 5 levels)
- Separate departments or units can also vary in how labour is divided vertically
- Autonomy and Control
o Domain of decision making and authority is reduced as the number of levels in the
hierarchy increases (managers have less authority over matters)
o A flatter hierarchy pushes authority lower and allows people further down to make
more decisions
- Communication
o As labour is divided vertically, timely communication and coordination can become
harder to achieve (there is more filtering, acts as barrier to communication)
- The proper degree of such division will vary across organizations as to how labour should
be divided in order to make communication and coordination most effective
Horizontal Division of Labour
- Horizontal division of labour groups the basic tasks that must be performed into jobs and
then into departments so that the organization can achieve its goals
- Organizations differ in the extent to which they divide labour horizontally as well
- In a small business, owner may perform all the tasks (e.g. deliver service/keeping the books)
- As business grows, horizontal division is likely where there are different groups of
employees assigned to perform each tasks (suggest some specialization of workforce)
- Key themes that underlie the horizontal division of labour:
- Job Design
o Horizontal division of labour is closely tied to job design, examples:
Form an ABC Department in which all workers do ABC work
x Provides for enriched jobs where workers can coordinate their work
x Reduces need for supervision and allows for self-managed teams
Chapter 14 ± Organizational Structure (pg. 460 ± 487)
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MGTB27 / 02 Week 12
x Impossible if tasks are complex (e.g. requires engineering, accounting
and legal skills) and design may require highly trained workers
Form ABC Department where workers specialize in A work, B work, C work
x Involves increased horizontal division of labour where each worker
specializes in tasks and coordination of work is more critical
Form a separate A Department, B Department, and C Department
x Offers greatest horizontal division of labour where tasks are
performed in separate departments
x Provides for great control and accountability for the separate tasks
o Horizontal division of labour strongly affects job design, has profound implications
for the degree of coordination necessary, and implications for the vertical division of
labour where control over work processes should logically reside
- Differentiation
o As organizations engage in increased horizontal division of labour, they usually
become more differentiated (the tendency for managers in separate units, functions,
or departments to differ in terms of goals, time spans, and interpersonal styles)
o Under high differentiation, various organizational units tend to be more autonomous
o When tending to their own domains and problems, the managers often develop
product/service (e.g. Marketing manager are more external and are oriented towards
the marketplace while R&D managers are more oriented towards excellence)
o Differentiation is found in horizontal division of labour where there is a need for
- The assignment of jobs to departments (a.k.a. units, group, section) is called
departmentation and it represents one of the core aspects of the horizontal division of labour
- There are several methods of departmentation
- Functional Departmentation
o Functional departmentation is when employees with closely related skills and
o Employees are grouped according to the kind of resources they contribute to
o Advantages
Efficiency, makes sure they are neither overloaded or underloaded with work
Does not need duplication of support factors (e.g. laboratory space, software)
Communication within departments are enhanced (speaks same language)
Everyone has the same career ladders and training opportunities
Performance is easier to measure if they are located in the same department
o Disadvantages
A high degree of differentiation would lead to poor coordination, slow
response to organizational problems, and may lead to open conflict
o Works best in small to medium-sized firms that offer relatively few product lines or
services. Can also take shape as product departmentation for larger firms (e.g. P&G)
- Product Departmentation
o Product departmentation is when departments are formed on the basis of a
particular product, product line, or service
o Each department can operate fairly autonomously since they each have their own set
of functional specialists dedicated to that department (e.g. marketing, production)
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MGTB27 / 03 Week 12
o Advantages
Better coordination among the functional specialists on particular product
line (fewer barriers to communication and focuses on one product)
Flexibility since product lines can be added or deleted without great
implications for the rest of the organization
Can be evaluated as profit centre where they have control over cost& revenue
Customers are able to identify who made product (e.g. software group, not
Ajax Consulting) and as able to respond to customers in a timely way
o Disadvantages
Development might suffer if there is not enough professionals working in the
same place at the same time
Economies of scale may be threatened and inefficiencies might occur if
relatively autonomous product-oriented departments are not coordinated
(e.g. R&D personnel and consumer products division may work on a similar
- Matrix Departmentation
o Matrix departmentation is when employees remain members of a functional
department (e.g. marketing) while also reporting to a product or project manager
o E.g. cross-functional teams when designing cars draw members from various
functions (styling, engineering) and when design is done, they go back department
o Advantages
Provides a degree of balance between the abstract demands of the product or
project and the people who actually do the work (better outcome)
Flexibility where people can be moved around to various projects/products
Better communication among the representative from various functional area
o Disadvantages
No guarantee that product managers will agree with functional managers
Employees may experience role conflict since they have to report to two
managers (their functional manager and their product or project manager)
May be difficult to implement cross-culturally (e.g. difficult to implement
matrix in China due to discomfort with the vague reporting relationships)
- Other Forms of Departmentation
o Other forms of departmentation, geographic & customer departmentation are similar
to product departmentation
o Geographic departmentation, relatively self-contained units deliver an
Shortens communication channels, allows organizations to cater to regional
tastes, and gives appearance of local control to clients and customers
E.g. national retailers, insurance companies, and oil companies
o Customer departmentation, relatively self-contained units deliver an
Goal is provide better service to each customer group through specialization
E.g. banks have commercial lending divisions separate from customer loans
o Advantages and disadvantages of geographic and customer departmentation is
identical to those for product departmentation
o Hybrid departmentation is a structure based on some mixture of functional,
product, geographic, or customer departmentation (since not all organizations
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