Case 16:1

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Chapter Sixteen: Organizational Structure and Design

Chapter Synopsis

This chapter presents an overview of how one goes about designing an organizational structure, touching on the topics of division of labor, delegation of authority, departmentalization, and span of control. From there, it delves into the nature of the structure itself, including formalization, centralization, and complexity.

Three organizational design models are also presented and discussed: mechanistic, organic, and matrix.

Following this is a discussion of multinational structures, virtual organizations, and boundaryless organizations.

Learning Objectives

After completing this chapter, students should be able to:
• Identify the choices that must be made in designing an organizational structure. • Define what is meant by the term division of labor. • Discuss the role of delegation of authority in design decisions. • Describe several forms of departmentalization.

• Identify the major advantages of matrix organizational design. • Explain the importance of span of control.
• Define three important dimensions of structure.
• Compare mechanistic and organic organizational design. • Discuss multinational organizational structure and design issues. • Explain the meaning of the term virtual organization.

Key Terms

organizational design—A specific organizational structure that results from managers’ decisions and actions.

division of labor—The process of dividing work into relatively specialized jobs to achieve advantages of specialization.

delegation of authority—The process by which authority is distributed downward in an organization.

departmentalization—The manner in which an organization is structurally divided. Some of the more publicized divisions are by function, territory, product, customer, and project.

matrix model of organizational design—An organizational design that superimposes a product- or project-based design on an existing function based design.

span of control—The number of subordinates reporting to a superior. The span is a factor that affects the shape and height of an organizational structure.

formalization—A dimension of organizational structure that refers to the extent to which rules, procedures, and other guides to action are written and enforced.

centralization—A dimension of organizational structure that refers to the extent to which authority to make decisions is retained in top management.

complexity—A dimension of organizational structure that refers to the number of different jobs and/or units within an organization.

horizontal differentiation—The number of different units existing at the same level in an organization. The greater the horizontal differentiation, the more complex is the organization.

vertical differentiation—The number of authority levels in an organization. The more authority levels an organization has, the more complex is the organization.

mechanistic model of organizational design—The type of organizational design that emphasizes the importance of production and efficiency. It is highly formalized, centralized, and complex.

scalar chain—The graded chain of authority created through the delegation process.

organic model of organizational design—The organizational design that emphasizes the importance of adaptability and development. It is relatively informal, decentralized, and simple.

self-managed team—Groups of employees that complete an entire piece of work while having considerable autonomy over the way in which they accomplish their work.

virtual organization—A collection of geographically distributed, functionally and/or culturally diverse aggregations of individuals that are linked by electronic forms of communication.

boundaryless organization—A firm in which chains of command are eliminated, spans of control are unlimited, and rigid...
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