Chapter 10 Basic Organizational Design

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Chapter 10 Basic Organizational Design

Once managers are done planning, then what? This is when managers need to begin to “work the plan.” And the first step in doing that involves designing an appropriate organizational structure. This chapter covers the decisions involved with designing this structure. Focus on the following learning outcomes as you read and study this chapter.

LEARNING OUTCOMES

10.1 Describe six key elements in organizational design.
10.2 Contrast mechanistic and organic structures.
10.3 Discuss the contingency factors that favor either the mechanistic model or the organic model of organizational design. 10.4 Describe traditional organizational designs.

A MANAGER’S DILEMMA

How can we design an organizational structure that will help us accomplish our company’s goals? Should our structure be tall or flat? Traditional or contemporary? Will our chosen design enhance our capacity to continuously learn, adapt, and change in a dynamic global environment? As tomorrow’s managers, many of your students will soon face these questions. In Chapter 10, students learn about various elements of organizational structure, the contingency factors that influence organizational design, and traditional and contemporary design. In addition, they will study design challenges encountered by managers who work in a variety of organizational structures.

“A Manager’s Dilemma” highlights some of the problems in store for Eli Lilly & Company, a major US pharmaceutical company. Eli Lilly & Co. stands to lose $10 billion in annual revenues between now and 2016 as three of its major drug patents expire. As CEO, John Lechleiter’s job is to find foster new drug development to replace the projected loss revenue. While other pharmaceutical companies are seeking a merger route to acquire new drugs, Eli Lilly One has decided to revamp the company’s operational structure into five global business units and create an improved product research and development center. Students should address other organizational design elements Lechleiter might use to ensure that Lilly achieves its goal of speeding up its product development process? From the information presented here, it appears that Eli Lilly’s has adopted a product structure which offers the advantage of being more responsive to changes in the external environment. Eli Lilly may also want to create more teams in their structure as well as take advantage of technology with virtual teams.

CHAPTER OUTLINE

INTRODUCTION
Designing organizational structure involves the process of organizing (the second management function) and plays an important role in the success of a company.

10.1 DEFINING ORGANIZATIONAL STRUCTURE
Managers need to establish structural designs that will best support and allow employees to do their work effectively and efficiently. Several important terms must be defined in order to understand the elements of organizational structure and design: 1. Organizing is arranging and structuring work to accomplish the organization’s goals. This process has several purposes, as shown in Exhibit 10-1. 2. Organizational structure is the formal arrangement of jobs within an organization. 3. Organizational design is developing or changing an organization’s structure. This process involves decisions about six key elements: work specialization, departmentalization, chain of command, span of control, centralization/ decentralization, and formalization. Chapter 10 examines each of these structural elements. A. Work Specialization. Work specialization is dividing work activities into separate job tasks. Most of today’s managers regard work specialization as an important organizing mechanism, but not as a source of ever-increasing productivity. Exhibit 10-2 illustrates the human diseconomies from division of labor—boredom, fatigue, stress, low productivity, poor quality, increased absenteeism, and high turnover— eventually exceed the economic advantages...
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