Designing Organizational Structure: Authority

1
Designing Organizational Structure Authority
Control

• Chapter 5

2
What would cause an organization to want to
vertically differentiate?

• Division of labor specialization cause
  motivation coordination problems. Why?
• Then it becomes difficult to measure individual
  contribution allocate rewards.

3
Vertical Differentiation

• How?
• 1. Increase the number of managers
• 2. Increase the levels of hierarchy
• How does this increase control?
• Direct face-to-face supervision which
• Allows managers to monitor performance
• Motivates employees
• Allows managers to lead by example
• Increases opportunities for on-the-job learning
• Makes it easier to allocate resources rewards
  based on contributions.

4
Research shows..

• 1,000 members 4 layers hierarchy
• 3,000 members 7 layers
• 10,000-100,000 members 9-10 layers
• ? Less layers means organization is flat more
  means organization is tall.

5
Problems with Tall Hierarchies

• Communication
• Distorted or manipulated. Why?
• Slowed decision-making
• Breakdown in control (top to bottom)
• The problem?
• Motivation
• As the number of levels of hierarchy increases,
  the relative difference in authority possessed by
  managers at each level decreases
• A tall organizations managers have less
  authority responsibility
• Easier to pass the buck
• Less motivational to subordinates.

6
Continued

• Bureaucratic costs
• Employing managers is expensive (average mid
  level manager costs 300,000/yr)
• As organization grows? of levels of hierarchy
  increases? BC increase D/M slows
• Leads to downsizing restructuring. Why?
• Parkinsons Law
• Work expands to fill time available.

7
What is the ideal number of levels?

• Principle of Minimum Chain of Command
• Minimum necessary to achieve goals
• Keep as flat as possible
• Only choose tall hierarchy when close supervision
  control over subordinates is needed
• Value added by manager must outweigh the costs
• ----How can we avoid becoming too tall?

8
Span of Control

• What determines SOC?
• 1. Ability of manager to supervise higher
  numbers of subordinates n(n-1)/2
• 2. Complexity of subordinates tasks
• 3. Interrelatedness of subordinates tasks
• ?Organizations design structures (decide on SOC
  number of hierarchal levels) that enable them to
  maintain control.
• Whats control?
• This determines the shape of an organization.
• When SOC too wide?
• When SOC too narrow?

9
How to maintain control as organization grows w/o
becoming too tall?

• Horizontal differentiation
• Split into specialized subunits (functions,
  departments, divisions) each has its own
  hierarchy
• Advantage ?
• Disadvantage ?
• Decentralize authority
• Requires less direct supervision monitoring
• Organization can remain flat/flexible (respond to
  environmental changes).

10
Continued

• 3. Increase span of control
• 4. Standardization of work activities
• How do we standardize?
• Detailed rules, policies, SOPs (formalization)
• Heavy socialization to learn norms/values
• Substitution for direct supervision (makes work
  activities predictable)
• Managers can delegate more responsibility
• Reduces need for managers
• SOC can then be increased.

11
Maturation of Organizations

• ? Growth ?
• Organic Mechanistic
• ? Downsize ?
• Organizations continually redesign structure to
  remain competitive!

12
Bureaucracy

• Tasks decision-making authority are distributed
  in a way to maximize effectiveness.
• Advantages
• Very efficient (member interactions controlled)
• Roles/responsibilities clearly defined
• Members held accountable because they are
  required to follow strict rules chain of
  command
• Rules, SOPs reduce transaction costs
• Separates person from position (most competent
  wins).

13
Bureaucracy

• Disadvantages
• Organization becomes very tall centralized
• Decision-making slows
• BC increase (Parkinsons Law)
• Increased reliance on rules, policies making
  organization less responsive to customers/SHs
  needs
• Obeying authority rules becomes more important
  than creating value for the org.

14
Keep in Mind

• Anytime we redesign the formal organizational
  structure, we disrupt the informal organization
  (informal lines of communication, social
  networks, group dynamics, established norms)
  which can ultimately reduce productivity!!

15
How does IT influence structure?

• Decentralization of authority (empowered workers
  have access to knowledge information)
• Increased use of teams
• Self-managed teams
• Cross-functional teams
• Temporary (contingent) workers to keep costs down
• 20 of US workforce today
• Software to monitor subordinates work (requires
  less direct supervision)
• Flatter organization.

16
The Challenge of Designing Organizations

• Managers need to use the right blend of both
  organic mechanistic structures to take
  advantage of the best aspects of both types of
  structures.