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Chapter 11
Organizational Design
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1
Learning Objectives
• Describe the two fundamentals of organizing.
• Explain the five aspects of an organization’s
vertical design.
• Describe four types of horizontal design.
• Describe two methods of integration.
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Fundamentals of Organizing
• The organization chart is a diagram that illustrates the
reporting lines between units and people within the
organization.
• The organization chart conveys four kinds of
information:
– The boxes represent different units.
– The titles in each box show the work performed by that
person.
– Reporting relationships are shown by the lines connecting
superiors and subordinates.
– Levels of the organization are indicated by the number of
vertical layers in the chart
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Organization Chart for Home Depot
(adapted from Figure 11.1)
Chairman of
Board and CEO
Executive
Vice President,
Chief Financial
Officer
Executive
Vice President,
Marketing
Vice President,
Investor
Relations
Executive
Vice President,
International
Technology
Executive
Vice President,
Legal
Executive
Vice President,
Human
Resources
Senior
Vice President,
Real Estate
President,
Mexico
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Executive
Vice President,
Operations
Executive
Vice President,
Merchandising
Senior
Vice President,
Operations
Senior
Vice President,
Customer
Service
President,
Atlantic
President,
Western
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Fundamental Concepts of Organizing
• Differentiation means that the organization is
composed of units that work on specialized task using
different work methods and requiring employees with
unique competencies.
– Division of labor means that the work of the organization is
divided into smaller tasks.
– Specialization is the process of identifying particular tasks
and assigning them to departments, teams, or divisions.
• Integration means that the various units must be put
back together so that work is coordinated.
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Five Elements of Vertical Design
•
•
Hierarchy is a pyramid showing
relationships among levels.
Span of control refers to the number of
employees directly reporting to a person.
–
Factors influencing span of control include:
1. The competence of both the manager
and the employee.
2. The similarity or dissimilarity of tasks
being supervised.
3. The incidence of new problems in the
manager’s department.
4. The extent of clear operating standards
and rules.
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Five Elements of Vertical Design (cont.)
•
Authority, Responsibility, and Accountability
– Authority is the right to make a decision.
– Responsibility is an employee’s duty to perform
the assigned task.
– Accountability is the manager’s expectation that
the employee will accept credit or blame for his
work.
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Five Elements of Vertical Design (cont.)
• Delegation is the process of giving authority to a
person (or group or team) to make decisions and act in
certain situations.
• Practices useful in effective delegation include:
–
–
–
–
–
–
Establish goals and standard
Ensure clarity
Involvement
Expect completed work
Provide training
Timely feedback
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Five Elements of Vertical Design (cont.)
• Centralization and Decentralization
– Centralization is the concentration of authority at the
top of an organization or department.
– Decentralization is the delegation of authority to lower
level employees or departments.
• Key factors affecting decision to centralization or
decentralization.
–
–
–
–
–
Cost of decisions
Uniformity of policy
Competency levels
Control mechanisms
Environmental influences
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Horizontal Organizational Design
•
•
•
•
Functional Design
Product Design
Geographical Design
Network Design
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Functional Design
• Function design means grouping managers
and employees according to their areas of
expertise and the resources they use to
perform their jobs.
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Functional Design (cont.)
Potential Benefits
Potential Pitfalls
• Supports skill specialization
• Reduces duplication of
resources & increases
coordination
• Enhances career development
& training within functional
area
• Allows superiors and
subordinates to share common
expertise
• Promotes high-quality technical
decision making
• Inadequate communication
• Conflicts over product priorities
• Difficulties with interunit
coordination
• Focus on departmental rather
than organizational issues and
goals
• Develops managers who are
experts in a narrow field
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Harley-Davidson Organization Chart
(adapted from Figure 11.2)
CEO
General
Counsel
Controller
Owners Groups
(HOGS)
Manufacturing
Strategic
Planning
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Merchandise
Engineering
Human
Resources
13
Product Design
• Product design means that all functions that
contribute to a product are organized under
one manager.
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Product Design (cont.)
Potential Benefits
Potential Pitfalls
• Permits fast changes in a
product line
• Allows greater product line
visibility
• Fosters a concern for customer
demand
• Clearly defines responsibilities
for each product line
• Develops managers who can
think across functional lines
• Not allowing efficient
utilization of skills and
resources
• Not fostering coordination of
activities across product
• Encourages politics and
conflicts in resource allocation
across product lines
• Limits career mobility for
personnel outside their own
product lines
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General Dynamics Organization Chart
(adapted from Figure 11.3)
Chairman & Chief
Executive Officer
Information
Systems &
Technology
Land
Systems
Combat
Systems
Armament
Systems
Marine
Systems
Aerospace
Ordnance &
Tactical
Systems
Bath
Iron
Works
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Aviation
Services
Electric
Boat
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Geographical Design
• Geographical design organizes activities
around location.
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Geographical Design (cont.)
Potential Benefits
Potential Pitfalls
• Has facilities and the equipment
used for production and/or
distribution all in one place,
saving time and costs
• Able to develop expertise in
solving problems unique to one
location
• Gaining an understanding of
customers’ problems and
desires
• Getting production closer to
raw materials and suppliers
• Duplication of functions, to
varying degrees, at each
regional or individual unit
location
• Conflict between each
location's goals and the
organization's goals
• Adds levels of management and
extensive use of rules and
regulations to coordinate and
ensure uniformity of quality
among locations
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Starbucks Organization Chart
(adapted from Figure 11.4)
CEO
President
Executive VP,
Legal
Executive VP,
Executive VP,
Executive VP,
Supply Chain & Coffee
Partner Resources
Chief Financial Officer
Senior VP,
Coffee
President,
Japan
President, Europe,
Middle East, Africa
President,
North America
VP,
Southwest
VP,
South Central
VP,
Northwest
President,
International
United Kingdom
Australia
Thailand
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Network Design
• Network design subcontracts some or many
of its operations to other firms and
coordinates them to accomplish specific
goals.
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Network Design (cont.)
Potential Benefits
Potential Pitfalls
• Ability to gain special
knowledge and skills of others
without having to hire
employees
• Brings together people with
different insights
• Allows managers the flexibility
to work with a wide variety of
different suppliers, customers,
and other organizations
• Other organizations may fail to
live up to established deadlines
• Managers must constantly
monitor the quality of work
provided by other organizations
• Employees in the outsourced
organization may not commit to
the same values and sense of
time urgency to which
employees in the networked
organization are committed
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DreamWorks SKG Network Design
(adapted from Figure 11.5)
Legal
Computer
Hardware/
Software
Marketing
Makeup
Artists
Costume
Designers
Spielberg
(Films)
Katzenberg
(Animation)
Talent
Scouts
Future
Games
Technicians
Agents
Actors
Geffen
(Music)
Media
Relations
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Organic Versus Mechanistic Organizations
(adapted from Table 11.1)
Organic
Mechanistic
•
•
•
•
Tasks are highly specialized.
Tasks tend to remain rigidly defined
unless changed by top management.
•
Specific roles are prescribed for each
employee.
Hierarchical structure of control,
authority, and communication.
Communication and decision making
are primarily vertical, top-town.
•
•
•
•
Tasks tend to be interdependent.
Tasks are continually adjusted and
redefined through interaction and as
situations change.
Generalized roles are accepted.
Network structure of control,
authority, and communication.
Communication and decision making
are both vertical and horizontal,
depending on information and
expertise reside.
Communication emphasizes the form
of mutual influence and advice
among all levels.
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•
•
•
Communication emphasizes
directions and decisions issued by
superiors.
23
Integration through Technology
• Technology interdependence is the degree of
coordination required between individuals and
units to transform information and raw
materials into goods and services.
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Three Types of Technological Interdependence
(adapted from Figure 11.6)
Input
Output
Output
Sequential interdependence
Input Output
Input
Input
Input Output
Input
Pooled interdependence
Input Output
Reciprocal interdependence
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