Reference no: EM133151158

Organization Structure

The first section of this chapter, fundamentals of organizing, talks about differentiation and integration.

Differentiation is about splitting the work of a company into different units that work on different tasks.  Most workplaces are just too complex for one person to be able to do everything, so jobs are divided into specialties with different groups of people handling smaller tasks that contribute to the whole. Companies may have low, intermediate or high degrees of differentiation depending on how complex their operations are. 

Integration is about how companies and managers in particular take the work that has been split up and make sure that there is communication and cooperation between the groups performing different tasks.  It is important that businesses focus as much on integration as they do differentiation, because the business can fail if they don't have an adequate lever of integration to keep the separate units operating as whole towards the companies' goals. 

The second section of chapter 8 is about vertical structure, which relates to the authority in a business and who makes decisions. 

The main decision makers in a business are typically the owner, board of directors, chief executive officer and other top management team members.  These positions are responsible for oversight of the entire operation, including determining the firm's strategic direction and ensuring the company operates in an ethical, socially responsible and legal manner. 

Below the top management can be any number of different levels of management. These are called the company hierarchy.  A newer trend in business is reducing the levels of hierarchy, which saves a company time and money. 

Important issues related to hierarchy are the span of control and delegation. Span of control refers to the number of people that report to a particular person.  The span of control can be too narrow, meaning there are too many managers with only a few people reporting to each one, which leads to micromanaging and inefficiency.  The span of control can also be too wide, meaning that too many people report to one manager, which makes it difficult to control and monitor employees.  The correct span of control will vary depending on the type of work and level of experience of the workers. 

Delegation, distributing tasks to others, is handled in a similar fashion. Managers must determine which tasks can be delegated and to which employees.  They must consider how to delegate responsibility, authority and accountability since ultimately, the manager will still have to answer to his or her superiors for the tasks being performed.  A business may take delegating to an additional level, known as decentralization.  At this level, the company allows decisions to be made by people with the most knowledge about the subject instead of those at the very top. This can be expanded in large companies that may have branches in different parts of the world and may need to differentiate their handling of situations from a cultural standpoint. 

The third section of chapter 8 talks about the horizontal structure of an organization and how as companies grow, they must departmentalize into smaller units. This section talks about how organizations can be structured based on function, division, matrix, and network as well as discusses how each one of these forms has advantages and disadvantages.

In a functional organization, jobs are specialized and grouped together based on their business functions and the skills required to perform them (production, marketing, human resources, research and design, finance, accounting, etc.) This type of structure is common in both large and small companies. Some advantages of functional departmentalization include allowing people to have a greater opportunity for specialized training as well as making environmental monitoring more effective because each functional group is more closely attuned to their field. One of the disadvantages of this structure is that people may begin to care more about their own functions instead of the company as a whole which can lead to fragmentation in the business.

The divisional organization is when a company is departmentalized into groups based on products, customers, or geographic regions in where each division has its own operations, marketing, and finance departments. This structure is most commonly used as a company grows and allows each division to act as its own business. In the product organization, all functions that contribute to a product are organized under one product manager. The advantage of the product approach is that it allows companies to adapt quickly to any change in the environment because it is a more flexible structure. But a downside of this type of structure is that even though managers become generalists in their fields, they may not have enough knowledge on pacific functions. Another approach of the divisional organization is splitting the company into divisions based on their geographic location or the groups of customers that they are serving. An advantage of this type of grouping is that each division can focus on the needs of their customers faster and more efficiently but a downside is that it is expensive to duplicate these divisions across so many regions.

The matrix organization is a hybrid form of both the functional and divisional forms of organization. It is composed of a dual reporting relationship where employees report to two superiors, a functional and a divisional manager. Some pros that come out of the matrix form are that there can be more information shared across functions and there can be greater communication between groups which can help when working on complex assignments where groups have to depend on one another. The downsides of the matrix form are that it can be difficult when having to define accountability also that there really isn't a clear set of responsibilities and people compete for priorities.

Different from the functional, divisional, and matrix structures, which are all variations of the traditional hierarchical organization, network organization is a collection of independent and mostly single function firms that collaborate on a good or service. Instead of working as an organization, it works as a web of relationships among different firms in which organizations each firm is allowed to pursue its own goals as well as work with other members of the network. A very flexible version of the network organization is the dynamic network, which is composed of temporary arrangements that can be assembled and reassembled to fit a changing competitive market. These types of networks are held together through contracts and allow poor-performing firms to be replaced.

The last section of chapter 8 discusses organizational integration.  This is the opposite idea of differentiation, in that ultimately, all the different areas performing different task have to be coordinated to meet the goals of the company's operations.   There are several different ways to accomplish this goal.

Coordination by standardization or formalization means that the company establishes routines and procedures that everyone must follow, regardless of what area they work in.  For example, a company might require everyone to use the same program or form for certain procedures to simplify processes and make them familiar to everyone. 

Coordination by plan is a less structured option that allows individual parts of the company to be more flexible.  Everyone follows a general plan and works independently to meet the deadlines and targets needed by other units to meet the goals of the overall plan. 

Coordination by mutual adjustment is an even simpler approach in which teams simply communicate with each other and have discussions about problems and their solutions.  This method works well when a new problem arises but it would not be efficient to have discussions and meetings every time a decision has to be made. 

One last issue for organizational integration is coordination and communication. Companies must find a way to deal with all the information that passes through a company.  One option is to try to reduce the need for information, by creating slack resources, which help a company to make quick adjustments.  They can also create more self-contained tasks, which means giving individual parts of the company all the resources they need to complete their specific tasks without needing more information or consultation with other groups.  The other option is to increase information processing capability, which means better computer systems and more jobs involving fostering communication between groups. A company might form task forces comprised of different department members to deal with an issue or project managers to handle a particular goal beyond normal daily operations.

Discussion question: More managers mean they are each in charge of less people, while less managers mean cost savings and more efficient communication. Do you think it's better to have more or less layers of management in a business?