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Ch03 Fundamentals of Organization Structure.doc

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Joel Marcus

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Chapter 3: Fundamentals of Organization Structure Organization Structure • 3 components: 1. Organization structure designates formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers and supervisors 2. Organization structure identifies the grouping together of individuals into departments and of departments into the total organization 3. Organization structure includes the design of systems to ensure effective communication, coordination, and integration of efforts across departments Information-Processing Perspective on Structure Peter Senge (Learning Org.) Vertical Information Linkages • Communication and coordination activities connecting the top and bottom of an organization • Organizations may use any variety of structural devices to achieve vertical linkage, such as: o Hierarchical referral  If a problem arises that employees don’t know how to solve, it can be referred up to the next level in the hierarchy  When it’s solved, the answer is passed back to lower levels o Rules and plans  To the extent that problems and decisions are repetitious, a rule or procedure can be established so employees know how to respond without communicating directly with their manager  Rules provide a standard info source enabling employees to be coordinated without actually communicating about every task o Vertical information systems  The periodic reports, written info, and computer-based communication distributed to managers  Makes communication up and down more efficient Horizontal Information Linkages • The amount of communication and coordination that occurs horizontally across organizational departments • The following devices are structural alternatives that can improve horizontal coordination and information flow o Information systems  Computerized info systems can enable managers or frontline workers throughout the organization to routinely exchange information about problems, opportunities, activities, or decisions  Some organizations also encourage employees to use the company’s info systems to build relationships all across the organization, aiming to support and enhance ongoing horizontal coordination across projects and geographical boundaries o Direct contact  One way to promote direct contact is to create a special liaison role  A liaison role is the function of a person located in one department who is responsible for communicating and achieving coordination with another department) o Task forces  When linkage involves several departments, a more complex device such as a task force is required  A task forceis a temporary committee composed of representatives from each organizational unit affected by a problem  Effective for temporary issues o Full-time integrator  The creation of a full-time position or department solely for the purpose of coordination  Does not report to one of the functional departments being coordinated, they are outside of the departments and has the responsibly for coordinating several departments  Can also be responsible for an innovation or change project, such as coordinating design, financing, and marketing of a new product  Project manager location in the structure: o Teams  Permanent task forces and are often used in conjunction with a full-time integrator  When activities among departments require strong coordination over a long period of time, a cross-functional team is often the solution  Special project teams may be used when organizations have a large-scale project, a major innovation, or a new product line  A virtual team is made up of organizationally or geographically dispersed members who are linked through advanced info and communications technologies. Members frequently use the Internet and collaborative software to work together, rather than meeting face-to-face • Ladder of Mechanisms for Horizontal Linkage and Coordination: Organization Design Alternatives Required Work Activities • Departments are created to perform tasks considered strategically important to the company • For example, in a typical manufacturing company, work activities fall into a range of functions that help the organization accomplish its goals, such as a HR department to recruit and train employees, a purchasing department to obtain supplies and raw materials, a production department to build products, a sales department to sell products, and so forth Reporting Relationships • Once required work activities and departments are defined, the next question is how these activities and departments should fit together in the organizational hierarchy • Reporting relationships (chain of command) are represented by vertical lines on an organizational chart • The chain of command should be an unbroken line of authority that links all the persons in an organization and shows who reports to whom Departmental Grouping Options • Departmental grouping affects employees because they share a common supervisor and common resources, are jointly responsible for performance, and tend to identify and collaborate with one another • Functional grouping places together employees who perform similar functions or work processes or who bring similar knowledge and skills to bear • Divisional grouping means people are organized according to what the organization produces (i.e. product division 1, product division 2, product division 3) • Multifocused (matrix) grouping means an organization embraces two structural grouping alternatives simultaneously • Horizontal grouping means employees are organized around core work processes, the end-to-end work, information, and material flows that provide value directly to consumers • Virtual network grouping is the most recent approach to departmental groupings. The organization is a loosely connected cluster of separate components – departments are separate organizations that are electronically connected for the sharing of info and completion of tasks Functional, Divisional, Geographic, and Other Designs Functional Structure • The grouping of activities by a common function from the bottom to top of the organization Strengths Weaknesses • Allows economies of scale within • Slow response time to environment functional departments changes • Enables in-depth knowledge and skill • May cause decisions to pile on top, development hierarchy overload • Enables organization to accomplish • Leads to poor horizontal coordination functional goals among departments • Is best with only one or a few products• Results in less innovation • Involves restricted view of organizational goals Functional Structure with Horizontal Linkages • Organizations compensate for the vertical functional hierarchy by installing horizontal linkages • Managers improve horizontal coordination by using info systems, direct contact between departments, full-time integrators, task forces, or teams • For example, a horizontal linkage using teams would look like this: Divisional Structure • The structuring of the organization according to individual products, services, product groups, major projects, or profit centres C E O P r o d u c t P r o d u c t P r o d u c t D i v i s i o n 1 D i v i s i o n 2 D i v i s i o n 3 Strengths Weaknesses • Suited to fast change in unstable environment • Eliminates economies of scale in functional • Leads to customer satisfaction because product departments responsibility and contact points are clear • Leads to poor coordination across product lines • Involves high coordination across functions • Eliminates in-depth competence and technical • Allows units to adapt to differences in specialization products, regions, and customers • Makes integration and standardization across • Best in large organizations with several product lines difficult products • Decentralizes decision making Geographical Structure • Each geographic unit includes all functions required to produce and market products or services in that region, frequently used by large nonprofit organizations • For multinational corporations, self-contained units are
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