Will you be able to complete the full course?

Organizational Design and Change 10 Learning Objectives After reading this chapter and studying the materials, you should be able to:• Identify the basic elements of the or ganizing pr ocess.

• Recognize and implement the primary elements of or ganizational structur e.

• Structure an or ganization in the manner that best suits efficient and eff ective oper ations.

• Discuss ho w t o r espond t o or ganization changes and r edesign. Skarie20/iStock/Thinkstock 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. The Nature of Organizational Structure Section 10.1 10.1 The Nature of Organizational Structure A gr eat deal of the subject matt er associat ed with or ganizational beha vior concentr ates on indi viduals and gr oups. F or a compan y t o succeed, ho wever, compan y leaders must also addr ess lar ger issues. A compan y should be structur ed in a manner that f acilitates the type of oper ations in volved. This chapt er first e xamines the basics of the or ganizing managerial func - tion and organizational design and then explores newer design options.

The sec ond se ction of this chapt er off ers v arious e xplanations r egarding the r easons com - panies ar e structur ed in diff erent w ays and not es the causes of or ganizational structur e. An e xample of this type of change is pr ovided in the OB in Action box r egarding IT C Holdings Corp.

The chapt er continues with an anal ysis of the impact of or ganizational structur e on indi vidual w orkers and the r oles the y pla y. Finall y, the chapt er concludes with a discussion about the nature of organizational change and redesign. OB in Action: ITC Holdings Corporation Based in No vi, Michig an, IT C Holdings Corpor ation (NY SE: IT C) is the nation ’s lar gest independent electric tr ansmission compan y. The compan y’s primary business includes in vestments in electric tr ansmission grids. K ey or ganizational goals ar e t o “impr ove r eliability, e xpand access t o mar kets, lo wer the o verall cost of deli vered ener gy and allo w new gener ating r esources t o int ercon- nect t o its tr ansmission s ystems” (IT C Holdings Corpor a- tion, 2017).

Four major parts of the IT C oper ations ar e IT C T ransmis- sion, Michig an Electric T ransmission Compan y, IT C Mid - west, and IT C Gr eat Plains. These subsidiaries allo w IT C t o o wn and oper ate hig h-voltage tr ansmission f acilities in seven states in the Midwest and upper Midwest.

Recently, the compan y’s t op management t eam dir ected the r eorganization of its str ucture t o adapt t o an e volv- ing en vironment. Joseph L. W elch, chairman, pr esident and C EO of IT C, announced, “In r ecognition of the r obust tr ansmission de velopment landscape, this r eorganization off ers additional fle xibility t o ensur e w e ha ve dedicat ed r esources a vailable t o tak e ad vantage of de velopment oppor tunities without detr acting f ocus fr om our cor e oper ating entities” (ITC Holdings Corporation, 2017).

The primary ar eas in volved in the r eorganization w ere in the business cent ers associat ed with (1) IT C’s f our r egu- lated companies, or its original cor e, (2) U .S. R egulated Grid De velopment, (3) Int ernational and Merchant Development, and (4) Information Technology.(continued) Swyz/iStock/Thinkstock For many companies, it is necessary to continuously assess the efficiency of operations with environmental changes—both global and domestic—in mind.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. The Nature of Organizational Structure Section 10.1 OB in Action: ITC Holdings Corporation (continued) The U .S. R egulated Grid De velopment sect or w as enhanced t o help IT C gr ow and e xpand thr ough new in vestments in r egulated electric tr ansmission infr astructure acr oss the Unit ed Stat es. This includes eff orts t o e xpand in ar eas w here significant tr ansmission s ystem impr ove- ments are needed.

The Int ernational and Mer chant De velopment cent er w as designed t o f ocus on dri ving the compan y’s gr owth and e xpansion int ernationally and dom estically thr ough mer chant and other commer cial de velopment opportunities. The final ar ea, Inf ormation T echnology, w as emphasized in the reorganization due to heightened concerns regarding cyber security.

In t oday’s mor e sophisticat ed t echnological en vironment, man y or ganizations ha ve identi - fied the need t o cr eate or r edesign structur es w hich assist in managing new inno vations and changes in the en vironment. In this case, Joseph L. W elch concluded, “[The r eorganization] also le verages the bench str ength of the compan y’s leadershi p t eam as w e continue t o chart a course for continued operational excellence, growth, and sustainability.” Reflection and Application Questions 1. Do you think creating “silos” of separate operating divisions would work in every type of company? Why or why not?

2. What types of challenges might ITC face using the redesigned structure when entering countries with different power systems, such as France, which uses direct rather than alt ernating current in its grid?

3. Should this company be directed by a strong, centralized form of authority with all decisions made at the top, or should decisions be delegated to managers at lower ranks thr oughout the organization? Organizations, Organizing, and Organizational Structure Before considering the methods b y w hich companies can be construct ed, a distinction should be made betw een the t erms “or ganization,” “or ganizational structur e,” and “or ganizing.” An or ganization, accor ding t o Barnar d (1938/1968), is a s ystem of consciousl y coor dinated acti vities or f orces of tw o or mor e persons. T able 10.1 summarizes the defining char acteris- tics of an organization.

Note that T able 10.1 does not specify “making pr ofit” as an or ganizational char acteristic. Man y or ganizations do not set pr ofit goals. Ther e ar e thr ee types of or ganizations: pr ofit seeking, nonpr ofit, and go vernmental. All thr ee r eceive or gener ate r evenues, but onl y the first gr oup att empts to make profits from those revenues.

Organizational structure is the manner in w hich or ganizational task s ar e f ormally di vided, gr ouped, and coor dinated. Or ganizing is a managerial pr ocess w hich in volves the deplo yment of or ganizational r esources designed t o achie ve str ategic objecti ves. Or ganizing includes the di vision of lab or, the cr eation of departments, and the establishment of f ormal lines of author - ity (Gomez-Mejia, Balkin, & Cardy, 2005).

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. The Nature of Organizational Structure Section 10.1 The standar d elements in volved in or ganizing include job design, departmentalization, and the cr eation of lines of authority and r esponsibility, as described in the upcoming sections. In esse nce, or ganizing is the pr ocess of designing or ganizational structur e along with other components of organizational operations.

Table 10.1: Defining characteristics of organizations Characteristic Description Two or more people Organizations consist of a minimum of two persons but may have thousands Social setting Regular interactions take place Division of labor Jobs or tasks are divided among employees Hierarchy of authority Managers supervise employees Coordination of activities Standard management functions take place Common purpose or goal A shared outcome is defined Job Design Managers and members of the human r esource department typicall y complet e the pr ocess of job design. As Chapt er 5 not ed, the st eps in volved in job design include job anal ysis, job description, and job specification. T able 10.2 outlines the basics of job design (Mathis & Jack- son, 2011). The table describes methods that can be used f or each aspect of job design. A job ana lysis, f or e xample, can be conduct ed thr ough the pr ocesses of e xperimentation, com - parison, and r eflective planning. Experimentation is assigning task s t o jobs in v arious w ays on a trial basis t o see w hich ar e most efficient and eff ective. A job specification identifies the primary selection criteria that will be used in the hiring process.

Table 10.2: Elements of job design Job analysis methodsExample(s) Experimentation Trying different methods of doing a job to find the manner that is most efficient (a time and motion study) Comparison Consulting the Dictionary of Occupational Titles (DOT) Making contacts with other companies Reflective planning Considering job components and specifying tasks Job Description Providing a company manual or handbook Including a description on the company web site Job specification education experience special skills needed personality characteristics legal requirements High school diploma or college degree Number of years, specific type of experience Physical strength, math, computer software, public speaking Out going, self-starter, motivated Equal Employment Opportunity statement \251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. The Nature of Organizational Structure Section 10.1 One of the primary t opics associat ed with job design, w ork specialization or division of labor, describes the degr ee t o w hich acti vities in an or ganization ar e subdi vided int o sepa - rate jobs (Vit ez, 2011). In manuf acturing and other industries, w orkers oft en perf orm hig hly specialized, r outine, r epeated task s. The benefits of such an appr oach include gr eater ease of tr aining and r eplacing w orkers, as w ell as hig her pr oductivity le vels (R osen, 1983; Smith, 1776).

Henry F ord w as among the first t o tak e ad vantage of specialization of labor in the ear ly 1900s.

His assembly line revolutionized the production process for automobiles.

Several pr oblems ar e assoc iated with r epetitive task s, including the s ymptoms of emplo yee dissatisf action (Clegg, 1983 ). Companies using di vision of labor ar e mor e lik ely t o e xperience a w orkforce char acterized b y hig her le vels of absent eeism, tar diness, turno ver, accidents, grie vances, v andalism, and self-destructi ve acts (alcohol and substance abuse). Consequentl y, or ganizational leaders emplo y hig h le vels of specialization of labor onl y in car efully chosen cir cumstances and/or use pr ograms such as job r otation, job enlar gement, and job enrich- ment to help maintain worker morale.

Departmentalization Departmentalization is placing jobs int o logical gr oups (departments). Departmentalization in volves constructing departments or di visions in w hich similar jobs ar e locat ed t ogether, such as accounting, mar keting, or pr oduction. Departments can e xhibit simple functional designs or mor e comple x arr angements. T able 10.3 summarizes the v arious types of depart - mentalization and where each is most likely to be found (Daft, 2008).

Table 10.3: Types of departmentalization Departmentalization by Found in FunctionSmall, single product/service firms Product Growing, few-product companies Process Firms with complex operating processes Customer Firms selling the same product to diverse customers Geographic region Branch banking, retail chains, franchise operations Strategic business unit Conglomerates Matrix High-tech firms, multinational companies Departmentalization by Function Departmentalization b y function best suits small companies that off er one main good or ser- vice. F or e xample, a small local new spaper’s functional departments w ould include sales (cir- culation, ad vertising), production (the cont ent and the ph ysical new spaper), accounting, and human r esources. Figur e 10.1 pr esents a simplified or ganization chart f or a local new spaper using the functional appr oach. The t op-level manager in the compan y maintains contr ol and w orks with indi vidual depar tment managers w ho ar e r esponsible f or specific occupations or task s (Mintzberg, 1979). \251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. The Nature of Organizational Structure Section 10.1 Figure 10.1: Departmentalization by function in a local newspaper In many small companies, departments perform specific functions and activities. Departmentalization by Product Multiproduct firms oft en tak e ad vantage of departmentalization b y pr oduct. Figur e 10.2 pr o- vides an e xample. Johnson & Johnson di vides its oper ations along pr oduct lines, including A cuvue ®, Band-Aid ®, Tylenol ®, and Neutr ogena ®. In the 1900s, managers at Gener al Mot ors and DuP ont di scovered that gr owth and e xpansion of pr oduct lines r equired a structur al f orm designed t o f acilitate the special needs of indi vidual pr oducts (Allen, 1958). Departmentaliza- tion by product meets these needs and demands (Ronson, Hinings, & Greenwood, 1980). Figure 10.2: Departmentalization by product A company that offers many products may assign employees to departments based on those pr oducts.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. The Nature of Organizational Structure Section 10.1 Departmentalization by Process Complex oper ations can be w ell serv ed b y the pr ocess f orm of departmentalization ( Jackson & Mor gan, 1982). As an e xample, Alcoa Inc. oper ates a tubing plant in one of its aluminum manuf acturing oper ations. The fi ve major departments at the plant ar e casting, pr ess, tubing, finishing, and pr oduct inspection (including packing and shipping goods). Each st ep in the pr ocess r equires unique job skills, y et these acti vities need t o be coor dinated seamlessl y as the w ork flo ws fr om one de partment or pr ocess t o the ne xt. Figur e 10.3 displa ys a pr ocess f orm of departmentalization for Alcoa.

Figure 10.3: Departmentalization by process Complex organizations may departmentalize according to the processes individual units perform. Departmentalization by Customer When companies off er the same pr oduct t o di vergent cust omers, departmentalization b y cust omer allo ws f or specialization based on cust omer diff erences (K oonz & O’Donnell, 1976).

Micr osoft has established departments f or indi vidual cust omers, small businesses, lar ge corpor ations, and softw are de velopers. Dell C omputers has thr ee distinct gr oups of cust omers: other businesses (industrial sales), the go vernment, and indi vidual consumers. As Figur e 10.4 sho ws, the oper ation can be designed t o accommodat e those cust omers. This f orm of structur e optimizes service t o each gr oup of cust omers. In the case of Dell, indi vidual cust omers pur chase online or at the r etail st ore. Businesses mak e pur chases at tr ade sho ws or thr ough a pur chasing department . Go vernments cr eate specific pur chasing pr ocedures that must be f ollowed. The thr ee gr oups also ha ve diff erent service needs, such as repair contracts.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. The Nature of Organizational Structure Section 10.1 10.4: Departmentalization by customer Departmentalization based on customers is common in companies that offer the same product to di vergent market channels or clients.

Departmentalization by Geographic Area Geographic ar ea departmentalization is also kno wn as par allel departmentalization (see Figur e 10.5). The compan y is di vided b y t erritories or r egions, and departments ar e kno wn b y t erms such as “district ,” “zone, ” or “ar ea.” In these or ganizations, the le vels in the or gani- zational hier archy contain managers doing the same things in diff erent places, such as bank br anches or f ast-food locati ons. This type of structur e mak es it possible t o tailor managerial eff orts t o t erritorial diff erences. F or e xample, a Kmart r etail st ore in T exas sells some it ems during the wint er months that ar e diff erent fr om those sold in Michig an; ho wever, the depart - mental names r emain the same. A f ood chain such as Har dee’s ma y off er r egion-specific menu it ems based on area tastes, but the same basic plans and tactics are used in all stores.

Figure 10.5: Departmentalization by geographic area In departmentalization by geographic area, the company may be divided into districts or zones, and a t eam performs the same functions in each district.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. The Nature of Organizational Structure Section 10.1 Departmentalization by Strategic Business Units Large, multipr oduct cong lomerate corpor ations ma y cr eate str ategic business units. Lar ge departments consist of clust ers of acti vities that ar e typicall y held t ogether b y a c ommon thread, such as a pr oduct type or type of cust omer serv ed. A str ategic business unit will be anal yzed as a “compan y within the compan y” (London South East , 2011). Man y major corpo- r ations align str ategic business units b y pr oducts, cust omers, geogr aphic r egion, manuf actur- ing methods, or other common elements identified by top level managers.

Figure 10.6: Departmentalization by strategic business units Strategic business units are found most often in large conglomerate corporations. Each unit is united b y a common thread or goal.

Strategic business units permit the t op management t eam t o allo w unit managers discr etion in establishing goals and conducting oper ations. Efficiencies r esult fr om limiting duplication of acti vities, such as human r esources, accounting, and other staff functions. One department can serve the entire organization across all strategic business units. Departmentalization by Matrix Matrix organizations are sometimes kno wn as t wo-boss systems, because each emplo yee ans wers t o a functional ar ea supervisor as w ell as a pr oduct manager (see Figur e 10.7). Matrix or ganizations cr eate cir cumstances in w hich maximum fle xibility and adaptability in oper ations ar e possible. The structur e w as oft en used b y firms selling pr oducts t o go v- ernmental agencies, most notabl y N ASA, during the past century . A functional manager can assign specialists t o pr oducts demanding the gr eatest amount of att ention at an y gi ven time. Consequentl y, some w orkers ar e ask ed t o adjust t o change and accept some r ole ambiguity as part of the daily routine. The tasks they work on tend to vary (Davis & Lawrence, 1978).

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. The Nature of Organizational Structure Section 10.1 Figure 10.7: Departmentalization by matrix In departmentalization by matrix, each employee reports to both a product manager (shown here in the left column) and a functional area manager (shown on the top row).

A matrix or ganization can cr eate unnecessary competition betw een pr oduct managers, because each manager will r equest the best functional specialists. Con versely, it can also f acil- itate bett er communication thr oughout the or ganization, due t o r egular int eractions betw een functional and product managers (Burns & Wholey, 1993).

One w ay t o adapt the matrix or ganization is t o design the compan y b y pr oduct and b y country . Pr oducts must oft en be adapt ed w hen mo ved int o new ar eas, due t o diff erences in electrical s ystems (A C v ersus DC) and in measur ements such as ounces v ersus gr ams. Pr oduct manag- ers ar e ask ed t o identify national diff erences and help adapt pr oduction s ystems, mar keting pr ograms, and other activities to the new circumstances, as displayed in Figure 10.8.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. The Nature of Organizational Structure Section 10.1 Figure 10.8: International departmentalization by matrix International departmentalization by matrix is similar to typical matrix organizations, except that inst ead of a manager for each functional area, there is a manager for each country.

In summary , or ganizations ar e structur ed in v arious w ays. If jobs ar e designed based on the pr oduct and t echnologies in volved, then departments can be construct ed in w ays that best mat ch the or ganization’s oper ations. Lines of authority and r esponsibility can then be dr awn t o best facilitate organizational operations.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Dimensions of Organizational Structure Section 10.2 Comprehension Exercise 1. A system of consciously coordinated activities or forces of two or more persons is a(n) a. institution.

b. organizing process.

c. organizational structure.

d. bureaucracy.

2. Which type of departmentalization matches small, single-product firms?

a. function b. product c. geographic area d. process 3. Which form of departmentalization divides the organization by function and product?

a. parallel departmentalization b. strategic business units c. matrix d. multidimensional Answers: 1) c 2) a 3) c 10.2 Dimensions of Organizational Structure The thir d and final st ep of or ganizing, f ollowing job design and departmentalization, in volves completion of the compan y’s structur e b y establishing lines of authority and r esponsibility. The v ertical lines on an or ganization chart depict authority/r esponsibility r elationships. A supervisor holds authority, w hich is the rig ht t o dir ect with permission t o act o ver lo wer- level emplo yees. The “rig ht t o dir ect” implies the rig ht t o manage compan y acti vities or , in mor e common t erms, t ell people w hat t o do. “P ermission t o act” r eflects the decision-making aspect of authority, or the right to decide what to do.

Three types of authority f ound in t oday’s business or ganizations ar e line authority , staff authority , and functional aut hority. Line authority is dir ect, f ormal authority . It ma y be view ed b y f ollowing the lines pr esented in an or ganization chart . Or ganization charts ar e cr eated t o depict and summarize authority/responsibility relationships.

Staff authority consists of the rig ht t o ad vise, or gi ve ad vice. A dvisory authority r ests in posi- tions such as accounting, leg al, and human r esources, w here emplo yees r outinely counsel other members of the or ganization about t echnical mat ters. An accountant ma y possess line authority b y serving as a de partment manager and also carry staff authority in the rig ht t o ad vise others about tax laws, costs of operations, and other topics.

Functional authority is the rig ht t o dir ect but not t o discipline. F unctional authority emer ges w hen an indi vidual has been assigned a leadership r ole in a task f orce, pr oject t eam, or com - mittee.

The leader dir ects acti vities and r elies on the pr ofessionalism of others in the gr oup t o complet e v arious assignments. F unctional authority continues t o gr ow in use, as man y of t oday’s tasks and projects require sets of individuals to complete them.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Dimensions of Organizational Structure Section 10.2 Employee r esponsibility , or ac countability, sug - gests the oblig ation t o carry out task s as assigned b y the supervisor . Each indi vidual in a compan y is r esponsible t o the manager at the ne xt le vel up in the or ganization’s hier archy. The concept of parit y of authority and responsibility proposes that ther e should be equal le vels of authority and r esponsibil- ity in each position (F ayol, 1916). An yone w ho has authority , such as a department , middle, or t op le vel manager , should be held accountable f or ho w that authority is used. An yone he ld r esponsible f or w ork out comes should ha ve sufficient authority t o get the job done.

Beyond designating authority and r esponsibil- ity r elationships, other elements of or ganization structur e also deserv e att ention. When an or gani- zational design has been complet ed, k ey elements ar e in place:

• chain of command/hierarchy of authority • vertical and horizontal dimensions • line and staff • span of control • standardization and formalization • centralization and decentralization • mechanistic and organic dimensions Chain of Command/Hierarchy of Authority An unb roken line of authority that connects t op mana gement t o the lo west-ranking le vels of an or ganization is the chain of command, or hier archy of authority . It indicat es a dir ect, f ormal command structur e. The command structur e includes gi ving, r eceiving, and f ollowing or ders as well as identifying communication channels (Miller & O’Leary, 1989).

The concepts of chain of command and hier archy of aut hority incorpor ate authority/r espon- sibility r elationships with the principle of unity of command. As originall y described b y Henri F ayol in 1916 (T rewatha, Newport , & Johnson, 1993), unity of c ommand dictates that each emplo yee should be r esponsible t o a sing le manager: that person ’s immediat e supervisor . Unity of command is not complet e until all superviso rs shar e and w ork t oward the same or ganizational objecti ves. Of not e, the matrix f orm of departmentalization dir ectly violat es the principle of unity of command, as each functional specialist ans wers t o both a function and a product manager.

Vertical and Horizontal Dimensions Relationships betw een emplo yees as depict ed on an or ganization chart e xhibit v ertical and horizontal dimensions. The v ertical dimension indicates up ward and do wnward channels of Scar1984/iStock/Thinkstock Balanced roles require an equilibrium between responsibilities and authority.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Dimensions of Organizational Structure Section 10.2 communication, decision-m aking, and dir ection of acti vities. The v ertical dimension r eflects the chain of command. F ayol’s scalar principle suggests that this dimension should not be violat ed as an or ganization conducts acti vities. The ide a that managers should “go thr ough pr oper channels” b y f ollowing the v ertical chain of command r esonates str ongly in man y or ganizations, including military units and police f orces, w here authority/r esponsibility r ela- tionships must be carefully maintained.

The horiz ontal dimension of or ganizational structur e pr ovides the basis of di viding w ork int o specific jobs and task s. The jobs ar e then placed int o units. The horizontal dimension denot es the type of departmentalization employed by the organization.

Line and Staff In the or ganizational management lit erature, the t erms “line” and “staff ” ar e emplo yed t o describe types of authority as w ell as diff erences in job types. A line occupation or depart - ment has a dir ect connection t o the pr oduction pr ocess. Line positions include mat erials pur - chasing and handling, pr oduction, in ventory contr ol, and shipping. Line managers gi ve dir ect or ders r elated t o pr oduction oper ations. S taff positions pr ovide support t o or ganizational oper ations. The y ar e not dir ectly part of the pr oduction s ystem. Staff jobs include accounting, quality contr ol, inf ormation t echnology, administr ative assistant , and janit orial positions. A t times, the w ord “staff ” ma y be used in diff erent w ays within a compan y, such as w hen a man - ager refers to “my staff,” which might include individuals who are actually line employees. The concepts of line and staff tie int o the f orm of departmentalization that is in place. The tw o types of occupations ar e part of the horizontal dimensi on of an or ganization’s structur e. The t erms lea ve r oom f or some ambiguity . It is possible t o ar gue that inspection and quality con - trol sho uld be consider ed as line occupations—part of pr oduction—rather than as staff occu - pations char ged with measuring and ensuring pr oduction quality . When a cr oss-functional t eam consisting of pr oduction w orkers, accountants, quality contr ol emplo yees, and a human r esource employee is formed, the line-staff distinction loses meaning.

Span of Control The number of emplo yees r eporting dir ectly t o a super visor indicat es the supervisor’s span of control, or span of management. As sho wn in Figur e 10.9, supervisor A has a span of con - trol of f our emplo yees. Supervisor B’s span of management consists of six emplo yees. As orig- inall y pr oposed (F ayol, 1916 ), the concept of span of contr ol w as described as trying t o iden- tify the ideal number for each supervisor. Obviously, no one exact number can be specified.

The lit erature r egarding t eams and gr oups suggests the ideal size t o be betw een fi ve and nine emplo yees. A small span allo ws f or closer int erpersonal r elationships betw een supervi- sors and their emplo yees, since supervisors can gi ve them mor e indi vidual att ention. A t the same time, smaller spans or a hig her supervisor-t o-worker r atio gener ates gr eater numbers of supervisors, and ther efore incr eased pa yroll costs. Mor e r ecent tr ends t oward emplo yee empo werment indicat e the usefulness of hig her spans of contr ol, or f ewer supervisors and mor e workers holding higher levels of authority and discretion.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Dimensions of Organizational Structure Section 10.2 Figure 10.9: Span of control A smaller span of control allows for closer interpersonal relationships between manager and emplo yees, while a larger span of control may mean that employees on that team will have more aut onomy.

Standardization and Formalization Standardization and f ormalization off er methods t o contr ol oper ations using or ganizational design (Child, 1972). Standar dization refers t o the cr eation of a significant number of jobs that ar e e xactly the same. F or e xample, a lar ge, multistat e bank compan y mig ht utilize stan - dardization thr ough job title s such as t eller, aut o loan officer , mort gage officer , cust omer ser- vice r epresentative (business-t o-business), and cr edit car d manager . Each indi vidual br anch w ould employ the same job titles.

Formalization outlines the rules and pr ocedures emplo yees f ollow. T o help bank managers in the home office maintain contr ol o ver oper ations, all t ellers conduct business in e xactly the same w ay; loan rules f or aut omobiles and mort gages ar e consist ent thr oughout the oper a- tion, and each bank maintains the same levels of reserves as required by law.

Standardization and f ormalization ma y be f ound in a wide v ariety of or ganizations that con - duct sim ilar oper ations in se veral locations. This includes br anch banking, r etail chains, and fr anchising situations. The “pools” of acti vities that ar e lar gely the same lead t o eff ective chan - nels of communication and greater degrees of control (Thompson, 1967).

Centralization and Decentralization The chain of command will be str ongly influenced b y the degr ee of centr alization and decen- tr alization pr esent within the or ganization. A hig hly-centralized firm ’s t op managers main - tain str ong contr ol o ver dec ision-making and hold substantial amounts of po wer as a r esult. C entralization r elies hea vily on the chain of command t o dir ect or ganizational acti vities. Centr alized or ganizations ar e mor e tig htly contr olled than decentr alized firms (Huber , Miller , & Glick, 1990).

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Dimensions of Organizational Structure Section 10.2 In mor e r ecent times, emplo yee empo werment has led t o man y or ganizations shifting t o decentr alized oper ations. In such companies, superviso rs at lo wer r anks hold gr eater degr ees of auth ority thr ough pr ocesses of deleg ation. With dec entralization, managers at lo wer r anks mak e mor e important decisions on behalf of the or ganization (Baack, 1991; Baack & C ullen, 1994). As an e xample, Sears and J.C. P enney r etail st ores allo w st ore managers t o or der in ventory, the idea being that these managers ar e most a ware of local conditions and the actions of near by competit ors. In a decentr alized compan y, the chain of command r emains intact; ho wever, lo wer-level managers become mor e than or der f ollowers, inst ead sharing in the direction of the company.

Mechanistic and Organic Dimensions Another k ey element of or ganizational design dictat es compan y fle xibility and adaptability . Mechanistic or ganizations ar e char acterized b y hig h use of rules and pr ocedures, a gr eater number of le vels in the or ganization, f ormal r elationships betw een w orkers, and, as a r esult, a less fle xible method of oper ation. Or ganization charts in mechanistic or ganizations t end t o be tall and thin, with man y r anks and r elatively f ew people at each r ank. Job descriptions f or indi vidual positions tend to be carefully spelled out, reflecting high levels of formalization.

Organic structures emplo y f ew rules and procedures, ha ve a small number of or ganizational le vels and r anks, allo w f or inf ormal r elationships among w orkers and supervisors, and ar e much mor e fle xible and adaptable as a r esult. Or ganic structur es ar e short and squat , with f ew r anks and man y people in each r ank. Job descriptions and actual duties perf ormed t end t o be less pr ecisely specified, as emplo yees w ork on se veral task s and utilize a gr eater num - ber of skills (Morand, 1995).

Mechanistic structur e t ends t o be f ound in companies with mor e standar dized pr oducts and pr oduction methods. The structur e mat ches e xternal en vironments that ar e mor e stable and e xhibit gr eater certainty . An or ganic structur e will be pr esent in a compan y that r equires fle x- ibility and adaptability , such as an ad vertising agency or other firm that r elies on cr eativity and inno vation. Oft en the en vironment surr ounding the or ganization is less stable and mor e uncertain (Burns & Stalk er, 1961). Mechanistic/or ganic should not be view ed as an either/or choice.

Man y organizations exhibit elements of both. An argument can be made, for e xample, that the U .S. military has become mor e or ganic o ver the past thr ee decades due t o shifts in the natur e of thr eats t o the country as w ell as other en vironmental changes, but it still r etains certain mechanistic elements.

New Design Options The tur bulent w orld of business opportunities pr esented b y emer ging t echnologies has led t o tw o new types of or ganizational design: virtual or ganizations and boundary less or ganiza- tions.

Both tak e ad vantage of the Int ernet and other digital t echnologies t o conduct business oper ations using adapted forms of organizational structure.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Dimensions of Organizational Structure Section 10.2 The Virtual Organization Ahuja and Car ley (1998) define a vir- tual or ganization as a geogr aphically distribut ed or ganization w hose mem - bers ar e bound b y a long-t erm com - mon int erest or goal, and w ho com - municate and coor dinate their w ork thr ough inf ormation t echnology. Vir- tual or ganizations w ork acr oss space, time, and or ganizational boundaries with link s str engthened b y w ebs of communication (Lipnack & Stamps, 1997).

Oft en, virtual or ganizations emplo y small numbers of w orkers and outsour ce most business functions, commonl y including manuf acturing, distribution, and mar keting, w hich ar e f acilitated b y the Int ernet (C ascio, 2000). The char acteristics of a virtual or ganization include the following (Burn, Marshall, & Barnett, 2002):

• Adaptable, flexible, and responsive to the external environment • Effective utilization of resources • Formation of business alliances with varying degrees of permanence • Dispersion of component parts • Opportunistic behaviors; embracing change and uncertainty • Low levels of bureaucracy • High infusion of information technology to support business practices and knowl- edge work Virtual or ganizations t end t o be centr alized with little or no departmentalization. Centr al con - trol allo ws use of both f ormal and inf ormal communication t o coor dinate compan y acti vities. Ex amples of partiall y or mor e complet ely virtual or ganizational designs can be f ound at Ama - zon.com, Nik e, Cisco S ystems, the Newman ’s Own compan y, and man y major motion pictur e studios, including MGM, W arner Br others, and 20th Century F ox (Bat es, 1998; Gertner , 2003). The Boundaryless Organization The boundary less or ganization f orm seek s t o eliminat e the v ertical and horizontal boundar - ies betw een a compan y and its cust omers and suppliers. F urther, a boundary less or ganization ma y try t o eliminat e the chain of command and r eplace departments with self-managed t eams, w hich means a tr aditional or ganizational chart is no longer useful. Spans of contr ol in this f ormat become limitless (Lucas, 1996). Gener al Electric w as among the first t o mo ve t oward a boundary less form of structure under the direction of Jack Welch (Industry Week, 1994).

Internally, boundary less or ganizations r ely on emplo yee empo werment and oft en use cr oss- functional pr oject t eams r ather than departments. The concepts of r educing int ernal commu - nication barriers and changing specialists int o gener alists serv e the purpose of making the or ganization mor e adaptable to new challenges. Emplo yees derive satisfaction fr om working on various projects while enjoying interactions with coworkers and supervisors. Jupiterimages/Polka Dot/Thinkstoc There are pros and cons to structuring an organization virtually. A pro may include low to no cost for facilities, while a con may be the inability to work with a group in one common space.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Determinants of Organizational Design Section 10.3 External boundaries ar e r educed thr ough alliances with suppliers, cust omers, and r egulators. Oft en, collabor ations betw een members of diff erent or ganizations tak e place w hen a pr oj- ect serv es the needs of both or ganizations. Inf ormation t echnology assists in making these connections possible (F ulk & DeSanctis, 1995). Pri vate comput er-linked netw orks permit companies t o shar e inf ormation, such as w hen Pr octer & Gamble and Le vi Str auss link with W almart to monitor inventory levels so that stores can be efficiently resupplied as needed.

In summary , or ganizational design becomes complet e w hen lines of authority and r esponsi- bility ha ve been dr awn. Then, the v arious elements of structur e can be specified. R ecent tr ends ha ve incorporated the influence of information technology on organizational arrangements. Comprehension Exercise 1. Which dictates that each employee should be responsible to a single manager?

a. line authority b. staff authority c. scalar d. unity of command 2. Which process involves the creation of a significant number of jobs that are exactly the same?

a. unity of command b. scalar c. standardization d. routinization Answers: 1) d 2) c 10.3 Determinants of Organizational Design Organizations ar ound the w orld e xhibit v arious v ersions of or ganizational design. Compan y leaders deplo y the structur al elements f eatured in the pr evious section in a v ariety of w ays. In this section, w e f ocus att ention on the v arious f orces that influence or ganizational design choices.

T able 10.4 summarizes the primary r esearch eff orts and theories pr esent in this anal ysis.

Table 10.4: Determinants of organizational structure Cause or factor Author/researcher Rationality Max Weber Company strategies Alfred Chandler Organizational size Peter Blau; Aston Group Company technology James D. Thompson; Joan Woodward External environment Emery & Trist; Burns & Stalker \251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Determinants of Organizational Design Section 10.3 Max Weber: Rationality Max W eber (1958) describe d or ganizations in t erms of thr ee primary sour ces of po wer: tr a- ditional, charismatic, and leg al/rational. In a tr aditional or ganization, po wer originat es fr om inherit ed sour ces; an e xample is kings and serf s in f eudal societies. An y person in a position of authority can be tr aced thr ough his or her lineage. In a charismatic or ganization, such as a r eligious or ganization, v olunteer or ganization, or political party , the leader’s personality pr ovides power and becomes the basis of his or her authority.

The leg al/rational sour ce of po wer is an emplo yment contr act. A w orker agr ees t o submit t o the author ity of his or her supervisor in e xchange f or w ages and benefits. Using the leg al/ rational fr amework, W eber describes an ideal or ganization as r esembling a manuf acturing business oper ating in the time of the Industr ial R evolution. A ccording t o W eber, bur eaucracy r epresents the ideal type of r ational or ganization. The char acteristics of a bur eaucracy include:

• Impersonal and formal conduct • Employment and promotion based on technical competence and performance • Systematic specialization of labor and specification of responsibilities • Well-ordered system of rules and procedures that regulate the conduct of work • Hierarchy of position such that each position is controlled by a higher one (hierarchy of authority) • Complete separation of property and affairs of the organization from the personal pr operty and affairs of the incumbents In essence, a bur eaucratic or ganization e xhibits mechanistic and centr alized dimensions of structur e. The bur eaucracy model has been criticized f or being infle xible and ignoring changes in the en vironment. Others view this f orm of structur e as not suit ed t o modern w ork- ers because it pr omotes conf ormity, int erferes with communication, and stifles inno vation (Bennis, 1966).

Alfred Chandler: Strategy and Structure In 1962 , Alfr ed Chandler pr oposed a r elationship in w hich an or ganization’s structur e f ollows compan y str ategies. Chandler’s anal ysis is gr ounded in hist orical r esearch. His w ork suggests that or ganizational structur e ma y be a matt er of managerial design, w hich e volves o ver time and as int ernal and e xternal or ganizational conditions change. An in-depth r eview of the case hist ories of 50 major U .S. companies, including Gener al Mot ors, Standar d Oil of New Jerse y (no w Exx on), and DuP ont, r evealed f our stages of structur al de velopment or e volution that w ere consistently present (see Table 10.5).

Table 10.5: Strategy and structure Stage 1Most firms begin with a single product and a c entralized, functional form of structure.

Stage 2 Successful firms tend to grow by adding products and services, the str ategy known as pr od- uct diversification.

Stage 3 The demands of the new products and services become so great that the company becomes inefficient , and eventually a crisis develops.

Stage 4 To resolve the crisis, company leaders adopt new forms of structure that are product-based and decentralized.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Determinants of Organizational Design Section 10.3 The functional f orm of structur e w orks w ell with a sing le pr oduct. The str ategy of pr oduct di versification occurs onl y aft er companies ha ve gr own t o gr eat size b y pr oducing a sing le pr oduct f or w orldwide distribution. As companies di versify, ho wever, pr oblems of coor dina- tion arise betw een the pr oducts. The f ourth stage indicat es a change in structur e as a r esponse in which leaders organize a company in ways that best suit the company’s new reality. The structur al changes that r esult fr om a pr oduct di versification str ategy include gr eater use of standar dization and f ormalization, incr eases in the number of managerial le vels (mor e r anks in the or ganization), and a lo wer administr ative int ensity le vel, w hich means that a smaller numb er of managers o versee a lar ger number of emplo yees. Richar d R umelt (1974) further r efined this appr oach b y noting the connection betw een str ategy, structur e, and sub - sequent economic perf ormance. These findings r emain applicable t o t oday’s or ganizations. F or instance, w hen Amazon.com mo ved fr om being an or der fulfillment compan y int o the pr oduction and sale of a pr oduct (the Kindle), its structur e w as r econfigured t o meet the chal - lenges associat ed with a new f orm of business acti vity. Companies that pursue e xpansion int o other countries also tend to reorganize to meet the changing circumstances.

Size and Decentralization Several major studies of the natur e of or ganizational des ign t ook place in the same time fr ame: the lat e 1950s and ear ly 1960s. Among their findings w as a connection betw een the size of an or ganization and its corr esponding structur e. P eter Blau and a British set of r esearchers labeled the Aston Group were the first to make this discovery.

Peter Blau’s Views of Size and Structure Peter Blau’s r esearch r evealed a r elationship betw een the size of an or ganization and the degr ee of dece ntralization. In a stud y of emplo yment sec urity agencies in the Unit ed Stat es, the or ganization’s int ernal cond ition (size) appear ed t o e xert a f ar gr eater impact on its structur e than the e xternal en vironment (Blau & Schoenherr , 1971). Smaller or ganizations ar e lik ely t o r emain centr alized, because manag- ers ar e a ware of all acti vities and kno w each emplo yee, w hich permits the manager to make most decisions.

As it gr ows, the compan y begins t o add specialists and new departments. The sheer v olume of decisions t o be made rises. The t op manager becomes less able t o dir ect e verything, w hich means deleg ation begins t o tak e pl ace. A t the same time, the t op manage r w ants t o r etain a degr ee of contr ol, w hich leads t o stan dardization, f ormalization, and mechanization/comput erization, or a r eliance on comput ers and t echnol- ogy t o maintain oper ations (Blau & Schoenherr , 1971). Monkeybusinessimages/iStock/Thinkstock Blau’s research confirms that smaller organizations are more easily centralized, due to management’s ability to keep track of operations.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Determinants of Organizational Design Section 10.3 As an e xample, consider the diff erences betw een managing a small f amily r estaurant and a T arget supers tore. In the r estaurant, the manager kno ws all the emplo yees and e very aspect of the business, so he or she can mak e e very decision. A t the T arget superst ore, the manager ma y not e ven kno w the names of all emplo yees. F urther, T arget emplo ys specialists in man y ar eas, including sporting goods, electr onics, jew elry, men ’s and w omen’s clothing, and others. The T arget st ore manager should allo w specialists t o mak e decisions thr ough deleg ation or decentr alization. A t the same time, T arget emplo ys indi viduals with titles such as “st ocker” and “ca shier” (standar dization) and the rules f or r otating in ventory on the shel ves and cus - tomer check out pr ocedures ar e the same f or e very st ocker and cashier (f ormalization). T ar- get uses comput ers t o tr ack sales, in ventory, and other statistics (mechanization), w hereas the small f amily r estaurant ma y k eep tr ack of in ventory manuall y. The dri ving f orce in these tw o circumstances would be organizational size.

The Aston Group Studies A group of r esearchers fr om Eng land conduct ed studies r egarding w hat the y det ermined t o be the primary or key variables in an organization’s structure. Seven variables were studied:

1. origin and history 2. ownership and control 3. organizational size 4. charter 5. technology 6. location 7. dependence Of these, the most po werfully pr edictive of subsequent structur e w as or ganizational size, w hich had a str ong association with specialization, standar dization, f ormalization, and cen - tralization (Pugh et al., 1969; Hickson, Pugh, & Pheysey, 1969). The Ast on studies utilized a r esearch f ormat that w as diff erent fr om Blau’s w ork, including int erviews and a di verse sample, as opposed t o quantitati vely based counts of it ems and a homogenous sample. The r esults add cr edibility t o the conclusion that size does ha ve an impact on organization design in many instances.

Technology and Structure Within the same time fr ame as the Blau and Ast on gr oup studies, tw o perspecti ves suggest ed a r elationship betw een t echnology and or ganizational structur e. One w as a theor etical anal y- sis proposed by James D. Thompson. The second involved research led by Joan Woodward.

James D. Thompson’s Theoretical Approach James D . Thom pson (1967) de veloped a view of or ganizational structur e that begins with the understanding that or ganizations ar e open s ystems that int eract with the lar ger en viron- ment.

This interaction f osters greater uncertainty. Within that cont ext, a compan y structur es oper ations ar ound its cor e t echnology (or mediating technology), w hich is the or ganization’s primary producing activity.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Determinants of Organizational Design Section 10.3 In an or ganizational s ystem, such as the one displa yed in Figur e 10.10, inputs ar e r egulated b y the buff ers (departments) that lead them int o the t echnical cor e. Outputs ar e mo ved int o the e xternal en vironment thr ough v arious departmental acti vities. Management de velops departments (the buff ers or departments sho wn in Figur e 10.10) t o pr otect and f acilitate the cor e t echnology w hile mo ving the flo w of goods thr ough the or ganization and int o the e xternal environment.

Figure 10.10: Thompson’s model of technology and structure When a new threat emerges, a company may respond by creating a new buffer (or new department) t o address the threat.

When a thr eat emer ges in the e xternal en vironment, such as a dr amatic rise in prices f or r aw mat erials, a natur al disast er, a t errorist action, neg ative publicity , or a new competing t ech- nology, compan y leaders t end t o r espond b y cr eating a new buff er or department t o def end ag ainst the thr eat. F or instance, w hen s wine flu thr eatened the U .S. por k industry thr ough irr ational w orries that one mig ht cat ch the flu b y eating por k, one r esponse w as t o cr eate a special task f orce t o alla y the f ears. Man y inf ormation t echnology departments ha ve speciall y assigned units to defend against virus attacks, bombs, and other malware.

Joan Woodward’s Research Joan W oodward (1965) and her associat es eng aged in a major r esearch pr oject in the Unit ed Kingdom in the 1950s. The purpose w as t o seek out causes of structur e in eff ective or ganiza- tions.

These eff orts identifie d a consist ent patt ern in w hich the t echnology of a firm could be mat ched to its structure, as displayed in Table 10.6.

Table 10.6: Matching technology with structure Type of technologyType of structure Unit, small-batch production Small number of hierarchical levels; small span of control Large-batch, mass production Medium number of hierarchical levels; highest span of control Continuous process production Highest number of hierarchical levels; smallest span of control \251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Determinants of Organizational Design Section 10.3 Unit, or small batch, t echnology occurs w hen units ar e made one b y one (r epairing a car; tai - loring a suit; special print or ders; specialty g lass pr oducts) or in small lots or bat ches, such as the amount of marinar a sauce pr epared f or dail y use in an Italian r estaurant. As the or ganiza- tion mo ves fr om unit or small-bat ch pr oduction t o mass pr oduction, the number of special - ties incr eases, leading t o hig her numbers of managerial le vels and incr easing spans of contr ol.

In lar ge-batch or mass production, assembl y-line oper ations cr eate standar dized pr oducts. Car efully f ollowing rules and pr ocedures incr eases effi ciency. Man y pr oduction f acilities ar e mechanistic in structur al design, utilizing gr eater spans of contr ol and the hig hest number of hier archical (horizontal) levels.

Continuous process production includes particular business types that pr oduce without int er- ruption, such as chemical pr oducers, some utilities, pharmaceuticals, and distilleries. In these or ganizations, t echnical comple xities r equire specialist emplo yees and managers t o supervise them, creating the highest number of levels in the hierarchy but the lowest spans of control.

The most important finding of W oodward’s studies w as that eff ective or ganizations t ended t o best mat ch the patt ern f ound in each cat egory of t echnology. In other w ords, successful firms mat ched organizational structures with specific technological circumstances.

The External Environment Another theor etical perspe ctive r egarding the primary cause of or ganizational design con - siders the or ganization’s en vironment as the dri ving f actor. F . E. Emery and E. L. T rist (1965) anal yzed the o verall e xternal en vironment in t erms of its le vel of d ynamism, leading them t o posit that ther e ar e f our types of en vironments: static, r outine, d ynamic, and tur bulent. En vi- ronments v ary in t erms of the amount of change and the comple xity of kno wledge necessary t o oper ate successfull y in that cont ext. The r esultant typology of en vironments is displa yed in Table 10.7.

Table 10.7: Typology of environments Type of environment Description Placid, randomized Little change; simple knowledge environment Placid, clustered Little change; complex knowledge environment Disturbed, reactive Greater change; simple knowledge environment Turbulent field High change; complex knowledge environment T. Burns and G. M. Stalk er (1961) had pr eviously identified w hat the y belie ved t o be the ideal f orm of or ganizational structur e f or each en vironment. Placid and r andomized en vironments (unchanging, simple-kno wledge en vironments) such as the soft-drink industry and con - tainer manuf acturers, with little change and r elatively little new kno wledge needed, fit with a bur eaucratic and mechanistic structure.

Placid and clu stered en vironments (unchanging, comple x kno wledge en vironments), such as comput er oper ating s ystem designers and w eb sear ch pr ograms (Micr osoft; Goog le), ar e best \251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Determinants of Organizational Design Section 10.3 served b y a mechanistic bu t decentr alized structur e designed t o deal with a series of v ari- ables that might change.

Disturbed and r eactive en vironments (changing, simple-kno wledge en vironments), such as f ast-food chains and entr epreneurial firms, may find an or ganic but centr alized structur e the most ideal.

Turbulent fields (hig hly changing, comple x kno wledge en vironments), including t oday’s hig h-tech, digital or ganizations, best r espond t o or ganic, decentr alized structur es, possibl y including the boundaryless design.

Additional r esponses t o the e xternal en vironment w ere described b y James D . Thompson. Buff ering tak es the f orm of st ockpiling mat erials and in ventories, so the y can be r eleased as demand rises and f alls. S moothing in volves trying t o al ter demand b y influencing it thr ough price (off-seas on discounts ) or b y off ering a second pr oduct that will sell w hen the first pr oduct goes thr ough a slack period. F orecasting is the att empt t o pr otect the or ganization’s t echnical cor e b y pr edicting changes and alt erations, gi ving managers time t o adapt t o them. R ationing means allocating resources based on priorities.

At the manage rial le vel, r eacting t o en vironmental cir cumstances in volves understanding and adapting t o the political, so cial, economic, t echnological, and competiti ve opportunities and thr eats that emer ge. When compan y leaders e xpect f ewer en vironmental challenges, centr al- ization and mor e mechanistic structur es seem most ad visable. The mor e tur bulent the en vi- ronment becomes, the mor e lik ely it will be that a firm will mo ve t oward an or ganic, decen- tr alized type of structure.

In summary , compan y structur es e xhibit all the f orms of departmentalization and v arying degr ees of standar dization, f ormalization, centr alization, and decentr alization. Some ar e mechanistic w hile others ar e or ganic, w hich will influence spans of contr ol along with the v ertical and horizontal dim ensions of each compan y or or ganization. These theories help e xplain why various companies and organizations adapt the types of structures that they do. Comprehension Exercise 1. Which is not a characteristic of a bureaucracy?

a. organic structure b. impersonal and formal interactions c. division of labor d. a well-ordered system of rules and procedures 2. Which authors suggested a link between organizational size and structure?

a. Alfred Chandler and Max Weber b. Peter Blau and the Aston group c. James D. Thompson and Joan Woodward d. F.

E. Emery and E. L. Trist Answers: 1) a 2) b \251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Organizational Change and Redesign Section 10.4 10.4 Organizational Change and Redesign For man y y ears, the w orld of business has e xperienced an incr easing r ate of change. Al vin T offler (1970) pr edicted the tr end se veral decades ago. T offler also not ed that people e xhibit a natur al t endency t o r esist change. In this section, the impact of change on emplo yees and managers, particularly as it relates to organizational design, will be discussed.

Change in Organizations A variety of f orces can cause or ganizational leaders t o mak e changes. These can be view ed in tw o w ays. The first in volves e xamination of planned v ersus unplanned change. The second r efers to actual factors that drive changes.

Planned versus Unplanned Change When a compan y alt ers its course in an int entional and goal-orient ed f ashion, it institut es planned change.

There have been many examples of planned changes in the business w orld o ver the past f ew decades, including r etail st ores that ha ve mo ved fr om brick -and-mortar onl y t o adding e-commer ce w ebsites; str ategic decision s of all types, including acquisitions, di vestments, and co-mar keting pr o- grams in w hich tw o firms join t o cr eate and sell a specific pr oduct (e.g., Ameri- can Expr ess and Starw ood Pr eferred Guest hot el cr edit car ds), as w ell as r e- organizing decisions. F or e xample, not long ago A T&T ® reorganized int o thr ee g lobal companies, eliminat ed 40,000 plus jobs, and mo ved int o new mar kets using digital technologies. Planned change can be di vided int o tw o types. A first-or der change ma y be char acterized as a lo wer-magnitude shift in dir ection. T ypically, this type of change in volves no major changes in the or ganization, but r ather alt erations designed t o he lp the compan y oper ate mor e smoothl y.

F or e xample, in r ecent y ears man y firms ha ve disco vered that cr eating apps f or mobile t echnologies helped cr eate v alue be yond w hat w as gener ated b y de veloping and maintaining a website. In contr ast, a sec ond order change consists of multidimensional, r adical, discontinuous new acti vities and str ategies. Some curr ent t erminology r efers t o such an appr oach as r eengineer- ing the entir e or ganization. Oft en doing so in volves mo ving a way fr om pr evious assumptions about w hat w orks best . The U .S. aut omotive industry has witnessed such dr amatic changes in methods of oper ation, espec ially f ollowing the 2008 r ecession. Entir e methods of conducting business were changed during those years. Astrid860/iStock/Thinkstock All companies undergo changes. While many changes are planned and scaled, others can be spontaneous and unpredictable.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Organizational Change and Redesign Section 10.4 Unplanned change tak es place in a mor e spontaneous f ashion. The primary f orce dri ving unplanned change occurs w hen an or ganization must r eact t o an unf oreseen e vent, w hich can be e xternally or int ernally gener ated. Ext ernally, a v ariety of f orces such as those not ed in the ne xt section cr eate the need t o r espond, including, f or instance, a r ecession or natur al e vent (e.g., a t ornado destr oys a manuf acturing oper ation). Int ernally, the sudden death or departur e of a CEO can lead to a major turn of events within the company.

Factors That Lead to Change Numerous f orces and f actors lead t o change. One appr oach is t o di vide them int o those w hich ar e primaril y e xternal, those that ar e int ernal in natur e, and those that can be either or both int ernal and external. Table 10.8 summarizes these elements.

Table 10.8: Factors leading to change External factorsExample Political trends Election results; new legislation Economic shifts Dramatic growth; recession Social trends Shifting national mores and cultural factors Competitive actions Entry of new competition; exit of existing competitor; new f orms of competition (new products) Internal factors Example Company growth and success New locations; new markets; new products that are widely accept ed Company crisis Death or departure of CEO; natural disaster Perceived opportunity New employees with new ideas; opportunities found in mar- ket analysis (SWOT) Potentially either internal or external Example Technology New technology developed or acquired by organization, or imposed by competitive actions As the table indicat es, managers ar e constantl y on the look out f or tr ends and changes that mig ht aff ect their or ganizations. An y of these f orces can lead t o a planned or an unplanned change of first or second order.

Resistance to Change One w ell-known d ynamic of or ganizations is that people t end t o r esist change. A v ariety of e xplanations can be gi ven f or the un willingness t o accept new ideas and pr ocesses. A t times, the r esistance ma y be based on w ell-thought-out r ationale; in others, it r esults fr om less logi - cal but still understandable instincts (K otter & Schlesinger , 1979). P eople r esist change at w ork for the following reasons:

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Organizational Change and Redesign Section 10.4 • Self-interest • Disagreement with the diagnosis • Misunderstanding of management’s intentions/distrust • Personality characteristics and reasoning processes Self-interest ta kes se veral f orms. An emplo yee can r easonably assume that a pr oposed change mig ht de value his or her skills. This mig ht, in turn, actuall y lead t o t ermination or a new and less desir able job assignment . F urther, a manager mig ht view a change as leading t o a loss of personal po wer and influence. And finall y, another ma y see a change as br eaking a w ell- established habit and causing unnecessary work.

As an e xample of self-int erest, consider w hat mig ht happen w hen a new t echnology becomes a vailable that will mak e the pr oduction pr ocess or some other w ork-related acti vity mor e efficient , such as centr alized or dering phone bank s and online or dering of f ood f or pizza chains, r ather than ha ving each oper ator field inbound calls separ ately. Despit e the impr ove- ment on effici ency, emplo yees ma y belie ve that implementing it will cost them their jobs or limit opportunities t o r eceive pa y r aises and benefits. The same t echnology ma y thr eaten the status of the supervisor w ho o versees that gr oup of w orkers. W ork habits could change, and those in the or ganization ma y belie ve the y will be f orced t o w ork o vertime t o implement the new technology and work out the bugs in the system.

Further, the concept of sunk costs suggests that a per son’s in vestment in a compan y es ca- lates o ver time, as pension funds accumulat e and the person ’s allo wed v acation time rises, along with their chances of being pr omoted or enjo ying the benefits of seniority . These in vest- ments, or sunk costs that cannot be tak en int o an y other compan y or emplo yment situation ma y, in turn, dri ve r esistance t o change as the emplo yee seek s t o maintain the status quo (P atti, 1974).

Disagreement with the diagnosis occurs w hen w orkers belie ve management has made an err or in decid ing a change is necessary or needed. In the medical w orld, some doct ors ha ve been criticized f or o ver-prescribing t ests bef ore completing a diagnosis of a patient . In the eff ort t o str eamline the pr ocess, t op management mig ht implement pr otocols f or w hen such t ests (e.g., MRIs, CA T scans, angiogr ams, et c.) should be used and w hen the y should not . In r esponse, the physicians may argue that it is “better to be safe than sorry.” Misunderstanding or distrust of management’s intentions can be a r ational or an irr ational r esponse t o a pr oposed or enact ed change. The sentiment of “What ar e the y r eally up t o?” ma y r ally emplo yees t o r esist some changes. As has been not ed pr eviously in this t ext, emplo yees at W ells F argo, w ho w ere subject ed t o unr easonable goals f or signing up new accounts with curr ent customers, may distrust any new managerial effort or program for years to come.

Personality characteristics and reasoning processes tak e se veral f orms. A t times, people con - sider so me inf ormation per tinent t o a change w hile ignoring other f acts, a pr ocess kno wn as “selecti ve per ception.” P eople t end t o dismiss count er-evidence w hen the y ha ve alr eady made up thei r minds . F urther, sim ple f ear of the unkno wn can pla y a r ole in r esistance t o change, as w ell as a lo wer t olerance t o change. In simple t erms, some emplo yees will ha ve a har der time adapting to changes than others.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Organizational Change and Redesign Section 10.4 Overcoming Resistance to Change What becomes clear t o anal ysts is the simple f act that change is ine vitable. Managers can e xpect t o be in volved in making changes at some point in their car eers. T o achie ve the best possible r esults, se veral appr oaches ma y be tak en. Each emphasizes diff erent f actors. The manager should choose the method that best matches the situation at hand. Lewin’s Three-Step Change Model Successful change in or ganizations tak es place, accor ding t o K urt Lewin (1951), w hen thr ee st eps occur. Th e first , unfr eezing, r equires a change agent t o addr ess individual r esistance, as w ell as pr essures f or gr oup conf ormity. A change agent is the indi vidual w ho leads an or ga- nizational change. The tactics displayed in Table 10.9 can aid in the unfreezing process.

Table 10.9: Overcoming resistance to change StrategyExample Education and communication Explain the necessity for change and answer questions.

Participation and involvement Engage workers in making the change.

Facilitation and support Carefully plan the change and carry out the plan.

Negotiation and agreement Adopt a bargaining approach.

Manipulation and cooptation Adopt a political approach.

Explicit and implicit coercion Use managerial power.

Source: Adapted from John P. Kotter & Leonard A. Schlesinger (1979, March–April). Choosing strategies for change. Harvard Business Review, 111.

Note that managers choose fr om these str ategies based on the natur e of the change. The mor e substantial the degree of change the larger the number of tactics that should be employed.

Movement, the second st ep, considers the status quo and w here the compan y must go. Dri ving f orces within this stage help dir ect beha vior t oward the new end. R estraining f orces seek t o maintain the status quo. Ma nagers try t o incr ease dri ving f orces w hile r educing r estraining f orces. Persuasion tactics are valuable allies in this stage.

The thir d st ep is called r efreezing, and it seek s t o mak e the change permanent . R einforce- ments or r ewards can serv e as r efreezing agents. Mana gers that r ole model the new method of operation also provide impetus to accept the new reality.

Kotter’s Eight-Step Plan A second appr oach, de veloped b y John K otter, builds on Lewin ’s thr ee-step model and adds detail (Kotter, 1996). According to Kotter, change involves 1. Establishing a sense of urgency and a compelling reason to make the change 2. Forming a power coalition to lead the change \251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Organizational Change and Redesign Section 10.4 3. Creating a new vision with supporting strategies 4. Communicating the vision to all employees 5. Empowering others to act on the vision, including encouraging risk taking and creativity 6. Planning for and rewarding short-term “wins” that move toward the new vision 7. Consolidating improvements, reassessing changes, and making adjustments 8. Reinforcing the changes by showing the relationship to organization success No mat ter w hich appr oach is used, managers should r emember that change is oft en an unset - tling pr ocess. Indi vidual emplo yees will lik ely be uncomf ortable f or a time. Consider the cir- cumstances pr esent in the t elevision industry , as described in the OB in Action bo x r egarding the impact of the internet on traditionally strong companies.

OB in Action: How The Internet has Changed Television Today’s tr aditional-age students ma y not r ecall the impact new t echnologies ha ve had on the t elevision industry . In the not so distant past , major pr edictions w ere made r egarding the implementation of a new s ystem of pr ogramming deli very—cable t elevision. Pr eviously, net - work t elevision oper ated as a near oligopol y, with the major pla yers (NBC, ABC, and CBS) dom- inating the mar ket. The influx of new channels and pr ograms cr eated unpr ecedented thr eats t o what had previously been a stable industry.

As time passed , the industry e volved ag ain, as the first V CR and Beta methods became a vail- able.

F or the first time, view ers could r ecord pr ograms and then f ast-forward thr ough com - mercials.

Not surprising ly, ad vertisers, the companies that deli vered r evenues t o indi vidual stations and networks, worried that their messages were simply being ignored.

The digital age compounded the challenges tr aditional netw orks f aced. First , pr ogram- ming methods shift ed fr om tr aditional analog t o the hig h definition (HD) f ormat, leading t o changes in ho w sho ws w ere filmed or r ecorded, as w ell as the de vices people used t o w atch the programs.

Now, the int ernet and digital age ar e once ag ain changing the natur e of the industry . Stan- dar d int eractions betw een netw orks and cont ent pr oducers ha ve been alt ered b y the entry of str eaming t echnologies. F or the first time, new pla yers ha ve made it possible f or view ers t o w atch pr eviously-shown pr ograms in inno vative new w ays. Hulu w as among the leaders in this app roach. Mor e r ecently, pr oviders including Hulu but also Netflix, HBO , and others entice view ers with r adically diff erent pr ograms less encumber ed b y censorship and tr aditional net - work standards, with programming delivered by streaming technologies.

Further, consumers of all types no w demand pr ogramming t o r emote de vices as w ell as stan - dard t elevision sets. These possibilities ha ve opened new r evenue str eams (char ging f or pr o- gramming pr eviously deli vered fr ee of char ge) but also alt ered ad vertiser view s about ho w t o spend funding t o r each pot ential cust omers. In addition, the entry of new competit ors further dilut es and segments markets, making it more difficult to reach large audiences.(continued) \251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Organizational Change and Redesign Section 10.4 OB in Action: How The Internet has Changed Television (continued) In the f ace of this new w orld of ent ertainment, the tr aditional t elevision industry continues t o strugg le t o find w ays t o adapt and r espond. Time will t ell w hether their eff orts will succeed, or w hether w hat w ere the standar d-bearers of pr ogramming will continue t o e xist in an y manner r esembling their current forms.

Reflection and Application Questions 1. Identify the sources of change in this environment.

2. As a television executive, what types of resistance to change might you expect as you try t o adapt to this new world of programming delivery? How would you respond?

3. Can you apply these same factors to the motion picture industry? If so, how would companies in that realm need to respond? As a manager , the eig ht-step K otter appr oach mig ht seem particular ly applicable t o netw ork t elevision and e ven t o leaders of cable channels (such as ESPN , CNN , or Comed y Centr al). The quickl y mo ving w orld of digital cont ent deli very should mak e it e vident that a sense of ur gency is needed. P ower coalitions mig ht e volve among those w ho best understand the new t echnologies and ho w t o app ly them. An y new vision w ould ha ve t o r econceptualize t elevision pr ogramming int o some br oader f orm of “ent ertainment deli very.” That vision w ould need t o permeat e the compan y and entice risk -taking and cr eativity as a r esponse. Short t erm “wins” w ould need t o be identified, including an y e vidence that the or ganization managed t o “hold its gr ound” ag ainst this new w ave of competition. Ov er time, new methods of cont ent pr epa- ration and deli very w ould become mor e str ongly establ ished and w ould be r einforced b y an y statistics indicting success.

Action Research The action r esearch appr oach t o o vercoming r esistance t o change in volves a compan y s ys- tematically collecting data and inf ormation t o f ormulate a planned change (Shani & P as- more, 1985). Using this methodology , a k ey indi vidual, the change agent , seek s t o identify the type of pr oblem encount ered b y the or ganization t o pr escribe the best type of change t o implement . The appr oach concentr ates on the cor rect identification of the pr oblems, r ather than simpl y implementing past solutions f avored b y t op management . The method also att empts t o in volve a wide gr oup of emplo yees in the entir e pr ocess, ther eby r educing r esistance t o change thr ough participation. The standar d action r esearch pr ogram consists of the following steps:

• Diagnosis—usually to be started by an outside person (change agent) who gathers inf ormation about organizational problems and concerns through methods such as int erviews, reviews of records, and group meetings to discuss issues.

• Analysis—the outside person distills what has been collected and synthesizes it into a coherent problem statement along with recommendations for actions.

• Feedback—the pr oblems t o be sol ved ar e widel y shar ed with or ganizational employ- ees to prepare and finalize the action plan.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Organizational Change and Redesign Section 10.4 • Action—the program commences led by employees and the outside person or change agent.

• Evaluation—the outside person or change agent reviews results in light of the origi- nal data and information collected to determine whether the action plan achieved its int ended results.

The act ion r esearch method has been widel y accept ed in academic communities and in f act has resulted in a journal with the method’s name. The Role of Change Agent Jack W elch, f amous CEO of Gener al Electric, once comment ed that people should “change bef ore [the y] ha ve t o.” W elch and man y others ha ve been dri ving f orces that allo wed or ga- nizations t o adapt , gr ow, e volve, and change t o cope with int ernal issues as w ell as e xternal thr eats and challenges.

A change agent can be an insider or someone fr om outside the or ganization w ho has been emplo yed t o do so. Change agents ar e not orious f or e voking neg ative emotions fr om emplo y- ees w ho seek t o r esist change and maintain the status quo. When an or ganization seek s t o under go a change, several questions help guide the selection of a change agent:

• How dramatic is this change?

• Do we have sufficient information to make the change, or is more investigation r equired?

• How important is employee acceptance of this change?

• Does this change affect the entire organization or a smaller part of it?

• What are the long-term implications of this change?

These types of questions will lead t o a choice betw een an int ernal or e xternal change agent . Less dr amatic alt erations will oft en be deleg ated t o an int ernal manager . When the landscape of the entir e compan y is at issue, man y times the person chosen t o dri ve the change will come fr om the outside. These ar e not ir on-clad rules. Oft en, the selection boils do wn t o obser- v ations of pot ential change agents, including their personalities. A t times a mor e d ynamic and inspiring f orce ma y be the prime r equisite. A t others, a perso n w ho can “calm the w aters” and ease emplo yees int o the tr ansition ma y be of greater value.

Positive Change and Appreciative Inquiry It ma y seem as thoug h an y appr oach t o change begins with some type of neg ative stat ement along the lines of “W e ha ve a pr oblem” or “W e ar e doing something wr ong.” Inst ead, the positi ve appr oach tak es a diff erent per spective, LoveTheWind/iStock/Thinkstock A company can adopt a positive change attitude that will mobilize changes based on the organization’s mission, before abrupt and unexpected circum- stances force a reorientation.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Organizational Change and Redesign Section 10.4 commencing with a r estatement of w hat the or ganization does w ell or does rig ht. The appr e- ciative inquiry method insists on identifying w hat is positi ve within the or ganization and building on that in w ays that emphasize the ongoing vision and mission (C ooperrider, Whitne y, & Stavros, J. 2005). T o r eplace neg ative e valuations, criticisms, and ongoing att empts at diagnosis, the or gani- zation, thr ough its leaders and change agent , eng ages in acti vities labeled with t erms such as disc over, dr eam, design and destin y. The pr ocess is based on the or ganization’s positi ve change cor e, or the dri ving idea that change should pr oceed fr om a positi ve r ather than neg a- tive appr oach, and link s the ener gy of that cor e dir ectly t o an y new change agenda. The goal becomes t o incit e changes ne ver thoug ht possible that will be suddenl y and democr atically put into action (Thomas, 2016).

Impact of Change on Managers With the e xception of the W eberian bur eaucracy, near ly e very theory or finding described in the ear lier section r egarding f actors that influence or ganizational design also e xplains changes in or ganizational structur e. Chandler’s model not es that change fr om a sing le-product com - pany t o multiple pr oducts will be accompanied b y a change in structur e. Blau’s w ork not es that gr owing firms t end t o mo ve fr om centr alization t o decentr alization, along with incr eas- ing use of standar dization, f ormalization, and mechanization. The Ast on gr oup r evealed a similar patt ern. James D . Tho mpson’s theor etical model accounts f or changes in structur e due t o en vironmental thr eats. W oodward not es the gr owth fr om small-bat ch t o lar ge-batch pr o- duction, assist ed b y changes in the managerial hier archy and spans of contr ol. En vironmental models suggest the necessity for change when environmental conditions shift.

What, then, is the impact of change on the manager’s r ole? Changes or modification t o an or ganization’s structure can create a series of outcomes. Among them are the following:

• the number and types of decisions made at all ranks • the amount of authority held at all levels • the number of tasks performed by entry-level employees • the formality of relationships • role clarity and role ambiguity • perceived chances for advancement Decision Making Organizational design f eatures, including standar dization, f ormalization, centr alization/ decentralization, and mech anistic/organic dimensions, e xhibit a major impact on the w ays in w hich or ganizational designs emer ge in companies. In a hig hly-centralized or ganization, decisions made at the t op of the hier archy will be implement ed at lo wer le vels, turning lo wer- ranking supervisors int o or der f ollowers. As an or ganization changes and becomes mor e decentr alized, lo wer-level managers mak e mor e decisio ns, and the decisions ar e less r outine and more specialized.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Organizational Change and Redesign Section 10.4 Authority The mechanistic/or ganic and centr alized/decentralized aspects of design e xert the gr eat- est impact on the distribution of authority . Lo wer-ranking managers hold r educed le vels of authority in centr alized or ganizations. Deleg ation incr eases authority held at lo wer r anks in decentr alized, or ganic firms . An or ganization that mo ves fr om mechanistic t o or ganic or vice v ersa will experience shifts in the nature and delegation of authority.

Tasks Division of labor dir ectly aff ects the number of task s perf ormed at lo wer and entry le vels. In mechanistic and bur eaucratic or ganizations, di vision of labor dir ects managers t o cr eate r outine, r epeated task s f or first-line emplo yees. As a compan y mo ves t o a mor e or ganic f orm of structur e, indi vidual emplo yees will find jobs t o be less r outine and contain mor e task s. Managers will need to adapt to directing activities in these new circumstances.

Formality of Relationships Standardization, formalization, centr alization, and mechanistic dimensions r ely mor e on for- mal r elationships betw een emplo yees, especiall y those of diff ering r ank. A change t o gr eater decentr alization and a mor e or ganic structur e will lead t o incr eased int eractions betw een r anks and a likely decline in formality between employees and with supervisors.

Role Clarity/Ambiguity Role clarity occurs w hen an emplo yee has a clear understanding of his or her job and r espon- sibilities. Incr eased r ole cla rity can be associat ed with r educed le vels of str ess and gr eater satisf action with the job, because the emplo yee has an unambiguous sense of dir ection. Stan- dar dization, f ormalization, centr alization, bur eaucracy, and a mechanistic design contribut e t o incr eased r ole clarity . R ole ambiguity rises in other cir cumstances and designs, such as in companies with more organic and decentralized forms of organizational structure.

Perceived Chances for Advancement Organizational hier archies with gr eater numbers of le vels (v ertical) and lo wer spans of con - trol (horizontal) off er the best possibility of r eceiving a pr omotion. Mor e openings ar e lik ely t o occur , and less competition fr om members of the same department will be pr esent. In essence, a mechanistic or ganizational hier archy cr eates incr eased per ceptions that a person ma y obtain a promotion.

In summary , changes in structur e aff ect both managers and r ank-and-file emplo yees. Jobs ar e alt ered as ar e the r elationships betw een managers and subor dinates. A d ynamic or ganization should anticipat e changes in plans, oper ations, or ganizational structur e, jobs, and managerial acti vities.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Summary and Resources Chapter Summary An or ganization is a s ystem of consciousl y coor dinated acti vities or f orces. Or ganizations con - sist of tw o or mor e people in a social setting, with di vision of labor , a hier archy of author - ity, coo rdination of acti vities, and a common purpose or goal. Or ganizations can be pr ofit- seeking, nonprofit, or governmental.

Organizing in volves the deplo yment of or ganizational r esources designed t o achie ve str ate- gic objecti ves and includes the di vision of labor , the cr eation of departments, the establish - ment of f ormal lines of auth ority, and the use of mechanisms of coor dination. The thr ee st eps of or ganization include job design, departmentalization, and completion of the compan y’s structur e by drawing lines of authority and responsibility.

Departmentalization tak es place b y constructing departments or di visions in w hich simi- lar jobs ar e locat ed t ogether. F orms of departmentalization include departmentalization b y function, pr oduct, pr ocess, cust omers, geogr aphic ar eas, str ategic business units, and the matrix form.

Organizing in volves completion of the compan y’s structur e b y establishing lines of authority and r esponsibility. Thr ee types of authority ar e line authority , staff authority , and functional authority . R esponsibility or accountability is the oblig ation t o carry out task s as assigned b y the supervisor . The concept of parity of authority and r esponsibility pr oposes that ther e should be equal le vels of authority and r esponsibility in each position. When an or ganiza- tional design has been complet ed, se veral k ey elements ar e in place, including the chain of command/hier archy of authority as well as vertical and horizontal dimensions of structure.

The chain of command will be str ongly influenced b y the degr ee of centr alization and decen- tr alization pr esent within the or ganization. Or ganizational design also dictat es compan y fle x- ibility and adaptability through the use of mechanistic or organic structural forms. Comprehension Exercise 1. Which is not part of Lewin’s three-step change model?

a. analyzing b. unfreezing c. movement d. refreezing 2. Which may create increased role ambiguity?

a. standardization b. formalization c. a mechanistic organizational structure d. an organic organizational structure Answers: 1) a 2) d \251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Emerging t echnologies ha ve led t o tw o new types of or ganizational design. Virtual or ganiza- tions ar e geogr aphically dis tributed, with members bound b y a long-t erm common int erest or goal , communicating and coor dinating their w ork thr ough inf ormation t echnology. The boundary less or ganization seek s t o eliminat e int ernal barriers and hier archy along with the v ertical and horizontal boundaries between a company and its customers and suppliers.

The w orld of business has e xperienced an incr easing r ate of change. Still, indi vidual emplo y- ees r esist change f or numer ous r easons, including self-int erest, lack of understanding, lack of trust , disagreement about the need for a change, and a low tolerance for change. Managers can r espond t o r esistance thr ough tactics including education, communication, participation, in volvement, f acilitation, support , manipulation, cooptation, and coer cion. Lewin ’s thr ee-step model in volves unfr eezing, mo ving, and r efreezing emplo yee opinion and beha vior. K otter’s eig ht-step appr oach elabor ates on the same pr ocess. The action r esearch appr oach in volves a compan y s ystematically collecting data and inf ormation t o f ormulate a planned change. The positi ve appr oach or appr eciative inquiry builds on things the or ganiza- tion does well rather than being a negative, problem-oriented method.

Organizational structur e and changes in or ganizational structur e influence a series of out - comes.

These impact the natur e of a manager’s job. Among out comes influenced b y or ganiza- tional design are the number and types of decisions made at all r anks; the amount of author- ity held at all le vels; the number of task s perf ormed b y entry -level emplo yees; f ormality of r elationships; role clarity and role ambiguity; and perceived chances for advancement. CASE STUDY: Battling the Giants Home Stat e Ba nk serv es a r elatively small number of cust omers in the Mid west. The bank has f our locations spr ead thr oughout one lar ger t own (the county seat) and thr ee smaller near by communities. Home Sta te pr ovides the same basic banking services as the giants, such as Bank of America, including home and aut o loans, business loans, some insur ance and tr avel services, and cust omary bankin g acti vities—checking (including online banking), sa vings, and saf e deposit boxes.

Home Stat e Ban k f aces thr ee primary competit ors. The first , kno wn b y management as the “Big Bo ys,” includes the major national banking corpor ations that enjo y the ad vantages of scale. A t the same time, H ome Stat e has count ered with personalized service and an emphasis on k eep- ing local mone y in t own in its ad vertising and pr omotions. Home Stat e’s managers belie ve the y also hold the ad vantage of kno wing ho w t o w ork with local businesses without the rigid rules the Big Bo ys had t o f ollow. The second competit or enjo ys cost ad vantages. Cr edit unions off er f ewer services than Home Stat e Bank but do pa y hig her int erest on accounts and char ge lo wer int erest on loans. The cr edit unions ar e not as con venient f or cust omers in t erms of locations and aut omatic t eller machines. Finall y, online banking r epresents the new est f orm of competition.

With mor e indi viduals conducting near ly all tr ansactions with car ds and Int ernet access, especia lly with new mobile t echnologies, Home Stat e Bank’s leadership per ceives a pot ential strong new threat to its retail customer base.(continued) \251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources CASE STUDY: Battling the Giants (continued) The or ganizational structur e f or Home Stat e Bank has r emained the same f or se veral decades. The compan y has been di vided int o thr ee major di visions: r etail, business cust omers, and spe - cial services. R etail includes the lending acti vities and r outine bank accounts. Business cus - tomers ar e serv ed with checking accounts, loans, and f acilitation of tr ansaction pr actices such as lett ers of cr edit. Special serv ices, such as insur ance and tr avel, ar e managed separ ately and ar e offered to both individuals and businesses.

The bank’s CEO r ecently hir ed a new vice pr esident of oper ations w ho w as gi ven the char ge t o “shak e things up ” and “k eep us competiti ve.” The indi vidual had e xperience in one of the Big Bo ys but wished t o mo ve back t o his original homet own. His challenge w ould be t o balance the needs for innovative new technologies with hometown pride and traditional service.

Case Questions 1. What form of departmentalization does Home State Bank utilize?

2. Do you believe Home State Bank would be better served by a centralized or a decentral- ized form of structure? Defend your choice.

3. Should Home State Bank employ a mechanistic or organic type of structure?

4. How would the or ganizational structure of Home Stat e Bank likely be diff erent from that of the Big Boys?

5. Describe the impact of a change in structure on Home State Bank’s employees, should the company reorganize in some new way. Review Questions Define the terms “organization,” “organizational structure,” and “organizing.” An or ganization is a s ystem of consciousl y coor dinated acti vities or f orces of tw o or mor e persons.

Or ganizational structur e is the manner in w hich or ganizational task s ar e f ormally di vided, gr ouped, and coor dinated. Or ganizing is a managerial pr ocess w hich in volves the deplo yment of organizational resources designed to achieve strategic objectives.

What are the three steps of the organizing process?

The standar d elements in volved in or ganizing include job design, departmentalization, and the creation of lines of authority and responsibility.

Name the primary forms of departmentalization.

Departmentalization tak es place b y constructing departments or di visions in w hich simi- lar jobs ar e locat ed t ogether. F orms of departmentalization include departmentalization b y function, pr oduct, pr ocess, cust omers, geogr aphic ar eas, str ategic business units, and the matrix form.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Define authority and responsibility and then name the three types of authority.

Authority is the rig ht t o dir ect with permission t o act o ver lo wer le vel emplo yees. The “rig ht t o dir ect” implies the rig ht t o manage compan y acti vities, or in mor e common t erms, t ell peo - ple w hat t o do. “P ermission t o act” r eflects the decision-making aspect of authority , or the rig ht t o decide w hat t o do. Emplo yee r esponsibility, or ac countability, suggests the oblig ation t o carry out task s as assigned b y the supervisor . The thr ee types of authority f ound in t oday’s business organizations are line authority, staff authority, and functional authority.

What are the key elements of organizational design?

When an or ganizational des ign has been complet ed, the k ey elements in place ar e the chain of command/hier archy of authority , v ertical and horizo ntal dimensions, line and staff dimen- sions, span of contr ol, standar dization and f ormalization, centr alization and decentr alization, and mechanistic and organic dimensions.

Describe a virtual organization and a boundaryless organization.

A virtual or ganization is a geogr aphically distribut ed or ganization w hose members ar e bound b y a long-t erm common int erest or goal, and w ho communicat e and coor dinate their w ork thr ough inf ormation t echnology. The boundary less or ganization f orm seek s t o eliminat e the v ertical and horizontal boundaries betw een a compan y and its cust omers and suppliers. F ur- ther, a boundary less or ganization should try t o eliminat e the chain of command and r eplace departments with self-managed teams.

What are the five main causes or determinants of organizational structure?

The fi ve det erminants ar e r ationality, or ganizational siz e, str ategies, t echnology, and the or ga- nization’s environment.

What factors cause individual employees to resist change?

Employees r esist change f or a v ariety of mor e or less logical r easons. Among the mor e com - mon r ationales ar e emplo yee self-int erest, lack of understanding, lack of trust in manage- ment , differing assessments of the need for change, and a low tolerance for change.

Explain the three-step model of organizational change.

Successful change in or ganizations tak es place w hen thr ee st eps occur . The first , unfr eezing, r equires a change agent t o deal with r esistance b y addr essing indi vidual r esistance, as w ell as pr essures f or gr oup conf ormity. Mo vement, the second st ep, considers the status quo and w here the company must go. Refreezing seeks to make the change permanent.

What managerial factors are affected by a change in an organization’s structure?

Organizational structur e and changes in or ganizational structur e cr eate a series of out comes. Among them ar e the number and types of decisions made at all r anks, the amount of author - ity held at all le vels, the number of task s perf ormed b y entry -level emplo yees, the f ormality of r elationships, role clarity and role ambiguity, and perceived chances for advancement.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources Analytical Exercises 1. Two forms of matrix organizations include those divided by products and functions and those divided by products and countries. Would a matrix organization divided in other ways be feasible? Discuss the following possibilities: • pr oduct and process • product and customer • product and geographic region • customer and geographic region 2. In the opening case, ITC Holdings was restructured in dramatic ways to accommo- date more effective management of operations. Which form of authority structure w ould best fit the redesigned structure?

3. Identify what you believe would be the most ideal form of chain of command/hier- archy of authority, vertical and horizontal dimensions, line and staff, span of control, standar dization and formalization, centralization or decentralization, and mechanis- tic or organic structure for the following situations: • major league baseball team that owns three minor league teams • Winn-Dixie grocery stores • Geico Insurance • local newspaper in a town of 250,000 citizens • Amazon.com 4. Of the five main determinants of organizational structure—rationality, company str ategies, organizational size, company technology, and the external environment— which would have the greatest impact on the following organizations? • video game company (manufactures gaming hardware and creates games) • local restaurant chain with three locations • local independent insurance agency selling policies for multiple national companies • golf equipment manufacturer 5. Changes in organizational structure and organizational design affect the number and types of decisions made at all ranks, the amount of authority held at all levels, the number of tasks performed by entry-level employees, formality of relationships, role clarity and role ambiguity, and perceived chances for advancement. Describe these f actors in the following situations: • impact on an entry-level employee with high needs for achievement combined with high needs for autonomy • impact on an entry-level employee with an external locus of control and high needs for affiliation • impact on a company experiencing declining sales and layoffs • impact on a growing company adding employees Key Terms authority The right to direct with permis- sion to act over lower-level employees.

bureaucracy A mechanistic and cen- tralized form of organizational structure (W eber’s rational ideal type). centralization  The degree of organization- wide delegation of authority that relies hea vily on the chain of command to direct or ganizational activities.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. Summary and Resources change agent The individual who leads an or ganizational change.

decentralization  Organization-wide del- egation of authority that allows managers at lo wer ranks to make more important deci- sions on behalf of the organization.

departmentalization  Placing jobs into logical groups (departments).

first-order change A lower-magnitude shift in direction in an organization.

formalization  A set of rules and proce- dures that employees follow.

matrix organizations Also called t wo- boss systems; organizations in which each emplo yee answers to a functional area supervisor as well as a product manager.

mechanistic An organizational structure char acterized by high use of rules and pro- cedures, a greater number of levels in the or ganization, formal relationships between w orkers, and a less flexible method of oper ation.

organic An organizational structure char- acterized by low use of rules and proce- dures, a small number of organizational lev- els and ranks, informal relationships among w orkers, and a more flexible and adaptable method of operation.

organization A system of consciously coor dinated activities or forces of two or mor e persons.

organizational structure The manner in which organizational tasks are formally di vided, grouped, and coordinated. organizing A managerial process which in volves the deployment of organizational r esources designed to achieve strategic objecti ves; includes the division of labor, the cr eation of departments, and the establish- ment of formal lines of authority.

planned change  A change that occurs w hen a company alters its course in an int entional and goal-oriented fashion.

responsibility  Also known as ac count- ability; the obligation to carry out tasks as assigned by the supervisor.

second order change A change that includes a set of multidimensional, radical, discontinuous new activities and strategies.

span of control Also known as span of manag ement; the number of employees r eporting directly to a supervisor.

standardization  The creation of a significant number of jobs that are exactly the same.

unplanned change  Change that takes place in a spontaneous fashion.

unity of command The idea that each emplo yee should be responsible to a single manager (that person’s immediate super- visor) and all supervisors share and work t oward the same organizational objectives.

work specialization  Division of labor, or the degree to which activities in an organi- zation are subdivided into separate jobs.

\251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. \251 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.