Case Studies

Summary

The organizational structure is the framework that enables employees to work together productively. It allows adequate management to be provided for each group. Because of the organizational structure, employees know where to report and whom to ask for help. Often a company exhibits the formal organizational structure on an organizational chart. This is a diagram that traditionally shows boxes to indicate functions, with connecting lines to indicate relationships. Before designing an organizational structure, management must first decide upon the optimum level of work specialization.

The organizational relationships can also be called the chain of command. This shows flow of authority, accountability, and responsibility. Authority is the power granted by the job description to make decisions, take actions, and allocate resources. Accountability is the duty to inform and update supervisors. Responsibility is the obligation to perform the job requirements and meet objectives.

Organizational tasks are broken into separate jobs to this degree. There are two common chain of command systems: line organizations, and line-and-staff organizations. If there is one clear chain of command with a clear line of authority from top to bottom it is a line organization. This is the simplest. If there are functional groups like Human Resources and Consulting that support all departments, and the non-functional groups have the clear chain of command, then this is a line-and-staff organization.

In a typical chart showing a line organization you will usually see the executive positions at the top of the organizational chart with span of management responsibility decreasing down the page. Small organizations normally have very simple organizational charts. Each person in the company is represented by a separate box. These charts may also indicate a function, like accounting, but do not clarify that the whole accounting department consists of one clerk. In the diagram below, there is the CEO who also takes the role of sales, and two employees.

Larger organizations hide detail by grouping positions and teams, rather than showing individual jobs, based on work specialization. In this way, a very complicated organizational structure can appear simplistic to the casual viewer.

The manager’s supervisory responsibility is the span of control. If there are few levels of hierarchy, and managers have many employees to supervise, then this is a flat organization. If the organizational structure has many layers, often including departments, regions, areas, and divisions, each manager has few employees to supervise, and the employees are highly specialized, this is a tall organization. If work specialization is too narrowly defined, the employees become bored and production decreases. If work specialization is not defined narrowly enough, then production can decrease.

Decision-making is either centralized or decentralized. When decision-making is reserved for the top layers of the organization it is centralized. Strong authority should be concentrated at the top when a maintained focus on immediate goals is important. If managers delegate responsibility, allowing employees to make decisions, they are operating in a decentralized environment. Employees who are highly skilled generally require less supervision than others.

There is another organizational structure that cannot be found on an organizational chart. It is called the informal organization. This is the network of interactions in the company. Alliances and rivalries are often evidence of this structure.

 Vertical organizations are traditional organizational hierarchies. Most companies choose this form of organization. Bureaucracies are typical vertical structures, also called tall organizations. In vertical organizations, silos of information often develop. It is difficult to encourage communication among these areas. Traditionally the FBI, CIA, INS, and Border Patrol have been information silos – rarely sharing relevant information among departments. President Bush created the Homeland Security Agency to give these departments a common parent in hopes of facilitating communication between them. It is too early to evaluate whether this action will produce desired results or only create a larger bureaucracy. Grouping in a vertical organization is organized by logical groups and subsets of those groups. This is also called departmentalization. There are four common types of departmentalization: function, division, matrix, and network.

Departmentalization by function is highly centralized and specialized. A company that groups by function will have departments like Human Resources, Accounting, and R&D. Large companies are finding the disadvantages outweigh the advantages for them, so they are moving away from this departmentalization type to better compete with smaller companies.

Advantages of departmentalization by function:

• Uses resources efficiently

• Develops in-depth skills

• Unifies top management’s direction

Disadvantages of departmentalization by function:

• Increases communication barriers among departments

• Slows response to changes

• Reduces effectiveness of planning for markets and products

• Overemphasizes work specialization and narrowed focus

• Reduces awareness of overall company goals

If a company has groups based on customer type, product, major steps in a production process, or location, they are using departmentalization by division. These divisions contain all of the resources needed to meet their goals. For example, they will have support personnel that focus only on one division’s support needs.

Advantages of departmentalization by division:

• React quickly to change

• Deliver better service to customers

• Top managers can focus on problem areas

Disadvantages of departmentalization by division:

• Duplicated resources and functions increase company costs

• Emphasizes division goals over company-wide goals

• Increases competition between divisions

Departmentalization by matrix brings a group of functional specialists together who share responsibility to achieve a goal. This group of specialists is considered a project team. This type of departmentalization allows a company to share resources among functions. Matrix departmentalization helps big companies function like little companies. Consistent communication is essential. Disadvantages can be divided authority between department managers and team leaders that can lead to power struggles.

Departmentalization by network incorporates the use of workers outside of the company. Giving tasks to external companies is considered outsourcing. This creates a virtual organization, or a group that is linked by electronic communication like email and EDI. The biggest advantage is flexibility. A disadvantage could include the use of proprietary information outside of the company. Companies should ensure that copyrights and confidentiality agreements are in place.

The objective of horizontal organizations is to create and deliver something of value to the customer. Horizontal organizations are the most customer-centric of all organizations. The biggest benefit of horizontal organizations is increased flow of information and communication between departments.

Section Outline

I.        Work Specialization

II.      Chain of command

A.      Span of management

B.      Centralization versus decentralization

III.    Vertical Organizations

A.      Departmentalization by function

B.      Departmentalization by division

C.      Departmentalization by matrix

D.      Departmentalization by network

IV.    Horizontal organization