Chapter 6: Organizational Design, Teamwork, and Organizational Change

Organizing: Terms and Definitions

Managers arrange and structure work during an organizing process that results in an organization structure. The purpose of organizing can be summarized as: dividing work into specific jobs; assigning tasks and responsibilities for each job; coordinating those tasks, grouping jobs into units and departments; establishing relationships and formal authority among individuals; and allocating resources.

The organizing function is a mechanism that managers use in order to activate plans. The importance of organizing can be readily seen when managers allocate organizational resources efficiently and effectively by specifying when, where, and how resources are to be used.3 Effective organizing gets rid of the duplication of effort and/or maximizing the utilization of resources. For example, resources can be moved from an unprofitable business unit to a more profitable one.

Organizational structure is a system that consists of rules and policies to outline work roles, responsibilities and reporting relationships, and how they fit within the overall system. A visual representation of an organization structure is an organization chart.

Key Elements In Organizational Design

Organizational design is the process of developing or changing an organization structure. In this section, we will discuss various building blocks or the key elements in organizational design including division of labor, chain of command, span of control, centralization/decentralization, formalization and departmentalization. We will conclude this section with two categories of organizational design – mechanistic and organic design.

Division of labor or work specialization is the degree to which work activities are divided into separate jobs. We can readily see in a production process such as an automobile assembly line where each worker works on only certain parts of a car (and not the whole car). Since workers concentrate on one small aspect of production, this helps them to be more efficient as their skills at performing those tasks tend to increase.

The chain of command is defined as the hierarchy of authority and the reporting relationships from one management level to the next. It clearly shows who is responsible for each task and who has the authority to make decisions.7 The authority flows from upper levels to lower levels such that employees would know who reports to whom.

Authority refers to the right of a person to give instructions, make decisions and allocate resources. In an organization, a manager has the formal authority from his or her position that is accepted by subordinates. The authority flows down the hierarchy such that top managers have more authority than those at the bottom.

There are two forms of authority: line authority and staff authority. Line authority takes the form of the employer- employee relationship that moves from top to bottom according to the chain of command. Staff authority on the other hand, is created to assist, support, and advise the work of line managers. Often when an organization grows larger and becomes more complex, line managers find that they need more expertise in certain areas to perform their required tasks more effectively.

Responsibility refers to the obligation or expectation that all employees have to perform the duties associated with their jobs. Those duties are assigned by managers who have the authority to assign work to employees. Therefore, responsibility is shared by the subordinate (to perform the duties) and his or her manager for the completion of the task.

The most basic method to divide job activities for managers is to follow the sequence of activities:

• Examine objectives,
• Design job activities to reach those objectives,
• Group similar activities to specific jobs, and
• Assign individuals to those jobs.

Delegation occurs when a manager divides work among subordinates and gives them the responsibility and authority to accomplish tasks. A manager is responsible for all work in an area and can only complete the work by delegating part of the work to subordinates. This process continues down the chain of command. In general, the delegation process involves:

• Assign responsibility or the duty to perform certain tasks,
• Give authority to complete those tasks, and
• Create accountability for successful completion of the tasks.

Another issue in designing organization structure is the span of control or span of management which refers to the number of employees directly supervised by a manager. The question is the appropriate number of subordinates each manager can efficiently and effectively manage in the hierarchy.

Another issue to consider when organizing is how much to centralize or decentralize the authority to make decisions. Centralization is when most important decisions are made by managers at the top of the hierarchy. When the decision authority is pushed down to lower levels of the hierarchy, this means decentralization. These two approaches should be thought of as degree and not as an either/or approach.

The best situation is a balance between centralization and decentralization of authority. In general, there are some factors influencing centralization versus decentralization:

• Higher level of environmental dynamism (greater change and uncertainty) is associated with decentralized decision making while a stable environment is associated with centralization
• In time of crisis or risk of failure, authority may be centralized at the top.
• Adaptive organizational culture is more appropriate for decentralization.
• Risk taking and innovation and associated with decentralized authority.

Another key building block of organizations is formalization which refers to the use of written or computerized documents to describe and guide behaviors and activities of employees.

Lastly, another key issue in organizational design is how to group common work activities together so that work gets done in a coordinated fashion. Departmentalization is the basis for grouping of jobs into logical units. Managers group employees into departments, each a unique group of resources to perform certain related tasks.

Organizational Structure

Entrepreneurs and business owners need to address one key decision which is how best to structure their businesses. A small business startup with few employees needs only a simple structure: centralized decision making with the owner(s), low or no departmentalization and wide span of control.35 This allows the owner to have tight control over the firm’s operation and decisions can be made quicker without layers of management.

In a functional structure, activities are grouped according to their similar or related skills, expertise and use of the same resources.

In a functional structure, activities are grouped according to their similar or related skills, expertise and use of the same resources.

A divisional structure is made up of separate divisions according to similarities or demands of product, customers, or geography. Each division has some autonomy; with a divisional manager who is responsible for its performance.

A matrix structure combines advantages of both functional and divisional structures simultaneously in order to be highly responsive to changing external business environments.

An organization can use outsourcing to the extreme to create a virtual network structure where most major functions or business processes are subcontracted to other firms. A small headquarter is used to coordinate those activities.

Another popular new form of structure is based on teams. A team structure emphasizes work groups or project type teams with little or no functional hierarchy and with team authority as its building block. Work activities are divided into projects or units; each with a team that is responsible and accountable for the assigned project.

A large and complex organization in particular often operates with a hybrid structure. A hybrid structure has several business units or divisions and makes use of different forms of structures in order to tailor to an organization’s specific needs as shown in Figure 6.9.

Contingency Factors and Organizational Structure

In general, a functional structure is the result of choosing a mechanistic form on one end of the continuum; the virtual network structure is the choice for the organic form at the opposite end of the continuum. Other types of structures would fall in between the two as shown in Figure 6.10.

Teamwork

Although a team is made up of a group of people, a group is not a team nor is a team just any group working together. An example of common work groups in organizations is a committee to perform specific activities that often recur regularly.

A team is a group of people who interact and coordinate their work together to achieve shared goals. Katzenbach and Smith assert that a team should have a small size and must contain four elements:

• Common commitment and purpose – team members do not perform as individuals but as a powerful unit of collective performance with a purpose they can believe in.
• Performance goals – a common purpose is translated into specific and measurable performance goals which help define work products, facilitates clear communications and maintains focus.
• Complementary skills – a team should develop the right mix of skills or the complementary skills necessary to do the team’s job.
• Mutual accountability – a team must hold itself accountable as a team.

Several types of teams can exist within an organization. Five common classifications: problem-solving teams, self- managed teams, cross-functional teams, virtual teams, and global teams. Note that in practice, a problem-solving team may be global and cross-functional.

• Problem-solving teams
• Self-managed teams
• Cross-functional teams
• Virtual teams
• Global teams

A small team must still have the necessary skills to do the team’s job. These skills include:

• Technical skills in a specific discipline such as finance or market research.
• Problem-solving skills to be able to analyse difficult situations and to craft solutions.
• Interpersonal skills especially the ability to collaborate with others effectively.
• Organizational skills including networking, communicating well with other parts of the firm, ability to navigate political landscape, and to avoid conflict.

Teams generally pass through several developmental stages, therefore, managers should understand this process so that they can facilitate and guide teams to become more productive. The rate that a team moves from one stage to the next depends on the team members, their individual skills, work activities and the type of team leadership. A popular five stage model is stated below:

• The forming stage
• The storming stage
• The norming stage
• The performing stage
• The adjourning stage

Organizational Change

Organizational change is the process by which organizations adopt new ideas or behaviors to increase organizational effectiveness. Almost all organizations have been changing in some way; even those high- performing companies such as Google need to change over time to meet ongoing challenges or to take advantage of opportunities.

Organizations face change from the environment and from within. External forces include changing demographics and characteristics of consumers (e.g. needs, taste, age, etc.), new governmental laws and regulations, global competition, and changing technology, among others. In other words, the changes can be brought on by all environmental sectors: technology, economics, customers, competitors, legal and global environment.

We describe three types of change: technology, structure and people change. Note that these areas are related, which means that when an organization attempts to make changes in one area, it often needs to institute changes in other areas also:

• Technology change
• Structure change
• People change
• Resistance to change
• Managing change

Kolter and Schlesinger provide ways that managers can positively influence organizational change that are stated below:

• Education and communication
• Participation and involvement
• Facilitation and support
• Negotiation and agreement
• Manipulation and co-optation
• Explicit and implicit coercion

OD is a field of research, theory and practice techniques to expand the knowledge and effectiveness of people to accomplish successful organizational change and performance. While human resources development focuses on the personal growth of individual employees, OD focuses on developing the structures, systems and processes within an organization.

There are several OD techniques to promote change that are suitable for different types of change; which can be used at different organizational levels (e.g. individual, group or team, and organization). Some of the popular techniques are the following:

• Team building
• Survey feedback
• Sensitivity training
• Large groups intervention approach