[Music] Designing and redesigning the organization in response to internal and external changes is a key managerial function. Let's take a look at organizational design in structure. Organizational design is the process of selecting and managing aspects of organizational structure and culture to enable the organization to achieve its goals. One of the most important outcomes of organizational design is organizational structure or the formal systems of task power and reporting relationships. Organizational structure is the core of what coordinates, controls, and motivates employees to cooperate towards the attainment of organizational goals. When the organizational structure is aligned with organizational needs, it results in greater organizational efficiencies and less conflict. Organizational structures influence employee behavior by enabling or restricting communication, teamwork, and cooperation, as well as intergroup relationships. Imagine the difference between working in an organization comprised of independent work teams given the authority to make their own decisions compared to a highly centralized bureaucratic organization in which decisions are made solely by the CEO. Your autonomy, influence, and work variety would differ greatly in each organization. Each type of structure can

be effective depending on the nature of the organization and its environment, but each creates very different patterns of communication and levels of individual responsibilities. An organizational chart is a diagram of the chain of command and reporting relationships in an organization. An organizational chart, like the one shown here, illustrates the chain of command and reporting relationships in your company. Higher levels in the organization chart supervise and are responsible for the activities and performance of the levels beneath them. It is a common mistake to believe that a person's location in the organizational chart reflects their importance to the company and its performance. What usually matters most is what each person contributes, and people at all levels of the organization can make meaningful contributions. An organization chart is a diagram of the chain of command and reporting relationships in a company. As organizations grow, they often create multiple organizational charts for each major division or functional area. In addition to illustrating the chain of command, organizational charts show the division of labor, which reflects the degree to which employees specialize or perform a variety of tasks as

generalists dividing work into specialized jobs increases work efficiency. Specialized employees can learn their jobs faster and with less training, and because their jobs are focused, they waste little time changing tasks. Division of labor also makes it easier to assess job candidates for specific talents needed to do the job. Because specialists are experts, they often have greater autonomy and decision-making authority, which increases the firm's ability to respond quickly to environmental changes. On the downside, employees tend to be more isolated when division of labor is high. This can make it difficult for different divisions in the company to understand each other's priorities and needs. It can increase the potential for conflict. The increased specialization of employees in each division also decreases organizational flexibility. The number of people reporting directly to an individual is the person's span of control. Some experts call this span of management. Clearly, narrow spans of control are more costly, but they also provide closer supervision and more coaching. Narrower spans of control are necessary for novel and complex tasks. Wider spans of control give subordinates greater autonomy and

responsibility for self-management is best for routine production-type work. There is no consensus on the ideal span of control, although having more than nine direct reports is often considered too many to effectively manage. Wider spans of control are possible when technology, such as assembly line or computerized call center management technology, substitutes for close supervision, when subordinates need less direction and control, and when jobs are being supervised are similar. When an organization creates a hierarchy, it outlines supervision relationships by giving some employees authority over others. Hierarchy establishes the tallness or flatness of the organizational chart. Although hierarchy can facilitate the coordination of different departments, organizations clearly should not have more hierarchical levels than are necessary. Not having enough levels can also create problems when work activities require control and coordination. Middle management layers can facilitate work processes. Hierarchy can give too much power to too few people at the top of an organization, which can increase the risk of unethical behavior. Because hierarchy creates clear chains of command, it also can relate information and communication among employees to better complete and fast-changing global markets.

places organizations are increasingly restructuring to reduce their hierarchy and approve speed and efficiency. Formalization reflects the extent to which organizational rules, procedures, and communications are written down. In a highly formalized firm, little flexibility exists in making decisions, and both procedures and rewards follow explicit rules. Formalization is not necessary for high performance because formalization increases job and role clarity. It can increase employee commitment. Without role clarity, dissatisfaction, anxiety, and lower performance can result if employees perceive that organizational rewards are consistently allocated based on formal rules and procedures. Their confidence that they are being compensated appropriately is increased. Centralization organizations concentrate power and decision-making authority at higher levels of the organization. The two subcomponents of centralization are participation in decision-making and hierarchy of authority. Centralization creates clear lines of communication and responsibility, and the implementation of decisions tends to be straightforward. Centralization is best in non-complex, stable environments. In decentralized organizations, the authority for decision-making affecting an organization is distributed. Decentralization organizations tend to have flatter structures than centralized.

organizations because employees' greater autonomy decreases the need for middle management. Flatter structures promote innovation and increase the speed of decision-making and could save money as a result of fewer management layers. Decentralization is best when organizations perform non-routine tasks in complex environments because it empowers managers closest to the environment to make decisions and quickly implement them. Organizational structure has a significant impact on the culture, effectiveness, and performance of an organization. Mechanistic organizations are rigid traditional bureaucracies with centralized power and hierarchical communications. Job descriptions are uniform, and formal rules and regulations guide decision-making. More mechanistic organizations may minimize costs but fit best with a relatively stable or slow-changing environment. When new opportunities present themselves, mechanistic organizations usually move too slowly to capitalize on them. In contrast, organic organizations are flexible, decentralized organizations with unclear lines of authority. They have decentralized power, open communication channels, and focus on adaptability in helping employees accomplish their goals. Organic organizations benefit from faster awareness of response to market and competitive changes, better customer service, and faster decision-making.

organic forms like teams and other flatter structures have typically been associated with increased job satisfaction, attractive commitment, and learning. Note that mechanistic and organic structures represent ends of a continuum, not a dichotomy. No organization is perfectly organic or completely mechanistic; firms usually display some characteristics of both forms along a mechanistic-organic continuum. An organizational structure defines how activities such as task allocation, coordination, and supervision are directed toward the achievement of organizational aims. The most appropriate structure for an organization depends on many things. Let's discuss each influencer in more detail. One of the most important factors influencing the appropriateness of different organizational structures is the business strategy. Simple designs are appropriate for simple strategies, and more complex designs are necessary when strategies require more complex processes and interactions. Matching organizational structure to the business strategy leads to higher firm performance. Another important factor is the company's external environment. Rapidly changing environments require more flexible structures to deal effectively with the constant changes. This usually means that authority needs to be decentralized in some way to

process relevant information and adjust to the changing environment. A third factor influencing organizational structure is the nature of the organization's talent. An organization size also influences its structure. Smaller organizations tend to be less bureaucratic than larger firms. Larger organizations tend to have greater specialization and departmentalization, greater hierarchy, and more rules than do small firms. Larger firms also benefit from lower costs due to economies of scale. The larger an organization and its subunits, the taller the hierarchy, the greater the centralization, and the more bureaucracy it operates, and the greater the chances of conflict between managers and employees. A fourth important factor influencing organizational structure is the organization's expectations of how employees should behave and what attitudes it wants to encourage or suppress. The decision is based in part on company values. If employees are to be encouraged to make decisions and work collaboratively, a decentralized and flat structure is appropriate. A fifth factor influencing organizational structure is the organization's technology or primary production system. As organizations change their strategies and adapt to the changing environment, they often modify

and change their structures to support the changes. An organizational structure defines how activities such as task allocation, coordination, and supervision are directed toward the achievement of organizational aims. As they grow, organizations must decide how to carve employees into subunits. This usually means grouping people in a way that somehow relates to the tasks they perform. Here are six common bases for grouping employees: 

1. Employee knowledge and skills: Employees are grouped by what they know. For example, pharmaceutical organizations have departments like oncology and genetics. 

2. By business function: Employees are grouped by business function. For example, many organizations have departments of Human Resources, marketing, and research and development. 

3. Employees are grouped based on the activities they do. For example, a realtor may have different retail store and online departments reflecting two different sales processes. 

4. Output: Employees are grouped based on the products or services they work on. 

5. Client: Employees are grouped based on the types of clients they serve. 

6. Location: Employees are grouped based on the geographical areas they serve. 

Now let's discuss some of the structures that arise from these different groupings. A functional structure groups people with the same

skills or who use similar tools or work processes together into departments. For example, a marketing department is staffed solely with marketing professionals. A division is a collection of functions organized around a particular geographic area, a geographic structure, product or service, a product structure, or market, a market structure. Divisional structures are common among organizations with many products or services, geographical areas, and customers. When employees report to both a project or a product team and a functional manager, they're working in a matrix structure. Employees represent their function in their work team, which allows the team to house all of the skills and expertise it needs to perform effectively and make good decisions. Project managers coordinate the different functional contributions to the project and are held accountable for the team's performance. Organizations with a team-based structure create horizontal or vertical teams that can define part or all of the organization. Unlike matrix teams, in a team-based structure, performance team members form different functions and are permanently assigned to the project or product team and do not report to a second functional manager. In organizations with a lattice

structure cross-functional and cross-level sub-teams are formed and dissolved as necessary to complete specific projects or tasks. This structure is common in consulting organizations. A network organization is a collection of autonomous units or firms that act as a single larger entity using social mechanisms for coordination and control. Because network organizations contract out any function that can be done better or more cheaply by outside firms, like marketing or payroll, managers spend a lot of time coordinating and controlling the network of contractors and strategic alliances. Organizational structure provides the context in which employees, teams, and the organization perform. Communities of practice are groups of people who share expertise and interest in a joint enterprise, informally binding them together. Examples include consultants who specialize in designing train systems or environmental engineers willing to share their knowledge and insights with other environmental engineers. A community of practice may or may not meet regularly or even in person and can be located in a single company or span companies altogether. The people involved in the community of practice share their knowledge and experiences in open, creative ways and can create new

solutions and approaches to problems. Managers cannot create effective communities of practice, only the conditions necessary for them to exist. A command-and-control management style is unlikely to foster successful communities of practice. Successful managers cultivate communities by identifying and bringing the right people together, building trust, and providing an appropriate infrastructure. The heart of the community of practice is the web of relationships among community members. As a manager, how can you create the conditions that enable communities of practice to flourish? Here are some expert tips: start with a clear area of business need, build communities of practice that help the company work more effectively, start small, test ideas, and try several formats to see what employees like and what works best, recruit management involvement; if lower-level employees see their bosses actively participating in the community, they're more likely to participate as well, use technology that supports the community's needs and the community members are able to use and are comfortable using; some training using wikis, portals, and other technologies may be necessary, respect and build in formal employee initiatives already underway; employees may have already created a

type of community of practice to help them do their jobs better. Determine what's already in place and working, and build on it. Employees will already be somewhat familiar with the community's processes and practices, and more willing to use it. Celebrate conditions and build on small successes. Building a community of practice takes time and requires employees to behave in new ways. Highlight on the company's internet or on the company's newsletter ways the community has solved business problems and recognize employees who have meaningfully contributed. A reason many companies invest in communities of practice is the ability of those communities to transfer knowledge among people. [Music]

Organizational Design and Structure

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