Designing Organizational Structure : Authority and Control

1. Designing Organizational Structure: Authority and Control

2. Learning objectives • Hierarchy of authority: why and how • Number of levels and span of control • Structural features (e.g., horizontal differentiation, centralization, standardization, the informal organization ) as substitutes for/complements to direct, personal control. • Weber’s principles of bureaucracy • The contemporary flattening of organizations

3. Hierarchy: why • The hierarchy emerges/expands as the organization experiences problems in coordinating and motivating employees effectively. • Division of labor and specialization make it hard to determine how well an individual performs and what s/he contributes. • Difficult to assess individual contributions to organizational performance when employees’ work calls for cooperation.

4. Hierarchy: How • To deal with coordination and motivation problems, the organization can: • Increase the number of managers it uses (at any given level) to monitor, evaluate, and reward employees. • Increase the number of levels in its managerial hierarchy.

5. Levels: Tall vs. flat

6. Growth in hierarchy relative to size of the organization • Increase in the size of the managerial component is less than proportional to the increase in the size of the organization as it grows: 1000 members  4 levels 3000 members  7 levels 10,000+ members  9-10 levels

9. How tall is too tall? • Problems with tall hierarchies: • Communication problems • Motivation problems • Bureaucratic costs

10. How many managers are too many managers? • Parkinson’s Law Problem: The number of managers and hierarchies are based on two principles: • A manager wants to multiply subordinates, not rivals. • Managers make work for one another.

11. The minimum chain of command • An organization should choose the minimum number of hierarchical levels consistent with its goals and the environment in which it operates.

13. Spans of control • If the span is too wide, the manager loses control over subordinates and cannot hold them accountable for their actions. • The appropriate span depends on the complexity and interrelatedness of the subordinates’ tasks: • Complex and dissimilar tasks – small span of control. • Routine and similar tasks (e.g., mass production) – large span of control.

14. Relationships = n(n-1)/2

17. Decentralization • The problem: As the hierarchy becomes taller and the number of managers increases, communication and coordination problems grow. • A solution: Decentralize, delegating the authority to make significant decisions throughout the hierarchy.

18. Management by objectives • A system of evaluating subordinates on their ability to achieve specific organizational goals or performance standards and to meet operating budgets. #1 Establish specific goals and objectives at each level of the organization. #2 Managers and their subordinates/teams together determine the subordinates’ goals. #3 Managers and their subordinates/teams periodically review the subordinates’ progress toward meeting goals.

19. Standardization • Managers can gain control over employees by standardizing their behavior to make their actions predictable. • The use of standardization reduces the need: • For personal control by managers • To add levels in the hierarchy • To narrow the span of control • Socialization, revisited.

20. The informal organization • Decision making and coordination frequently take place outside the formally designed channels as people interact. • Rules and norms sometimes emerge from the interaction of people and not from the formal rules blueprint. • Managers need to consider the informal structure when they make changes as it may disrupt informal norms that work. • Informal organization can actually enhance organizational performance.

21. Learning objectives • Hierarchy of authority: why and how • Number of levels and span of control • Structural features (e.g., horizontal differentiation, centralization, standardization, the informal organization) as substitutes for/ complements to direct, personal control. • Weber’s principles of bureaucracy • The contemporary flattening of organizations

22. Weber’s Principles of Bureaucracy • Bureaucracy: A form of organizational structure in which people can be held accountable for their actions because they are required to act in accordance with rules and standard operating procedures.

23. The Principles (in brief) • Authority is vested in role/position. • Roles are held based on technical competence. • Clear specification of task responsibility, decision authority, and relationships to other roles. (Minimize role conflict and role ambiguity.) • Recognizable chain of command. • Control by rules, standard operating procedures, and norms. • Formalization and documentation.

24. Benefits of bureaucracy • Favors efficient control of the interactions between organizational members. • Organizational roles are clearly spelled out, creating the foundation for accountability. • Written rules reduce the costs of enforcing acceptable behavior and evaluating employee performance.

25. Drawbacks of bureaucracy • Managers fail to properly control the expansion of the organizational hierarchy. • Organizational members come to rely too much on rules and standard operating procedures (SOPs) to make decisions. • Such overreliance makes them unresponsive to the needs of customers and other stakeholders.

27. Contrasting industrial and post-industrial (“information age”) business… “make & sell”“sense & respond” forecasts & planning, market intelligence (variation periodic reporting & change), real-time cycles performance measures standardized products customization, rapid product changes, build-to-order mass marketing targeted marketing mass manufacturing flexible manufacturing • “arms-length” close inter-firm coordination, • contracting greater outsourcing  • ‘virtual corporations’ • command-&-controlknowledge work, empowerment, • management lateral networking & self-managing • & cross-functional teams IT in the “back room” pervasive IT enablement