What is the degree to which decision making is concentrated at the top of the organization?

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Chapter 16: Foundations of organization structure

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Summary

Organizational structure defines how job tasks are formally divided, grouped, and coordinated. Work specialization, departmentalization, chain of command, span of control, centralization and decentralization, and formalization are components which determine organizational structure.

Work specialization or division of labour is the degree to which activities in the organization are subdivided into separate jobs. Work specialization creates efficiency and productivity, but can also result in boredom, fatigue, stress, low productivity, poor quality, increased absenteeism, and high turnover. The trend towards specialization has been altered by the realization that productivity may be increased by enlarging the scope of job activities.

Departmentalization is the basis by which jobs are grouped together. Organizations may be departmentalized by function, product, geography, process, or customer. Functional departmentalization groups activities by the functions performed, such as engineering, accounting, or personnel. Organizations using product departmentalization have separate departments or divisions devoted to a product or product line. Many sales and retail operations are departmentalized by geography or territory. In process departmentalization, each department specializes in a specific phase of the production process. Finally, customer departmentalization organizes along customer markets. Many large organizations use all of the forms of departmentalization.

The chain of command is an unbroken line of authority that extends from the top of the organization to the lowest level and clarifies who reports to whom. The concept of chain of command is related to the concepts of authority and unity-of-command. Authority refers to the right of a manager to give orders and expect them to be obeyed. The unity-of-command principle states that a person should have only one supervisor to whom he or she is directly responsible.

Span of control refers to the number of employees that can be directed by one manager. Narrow spans of control allow for close control, while wider spans of control reduce costs, speed up decision making, increase flexibility, and empower employees. The ideal span of control will depend upon the situation.

Centralization is the degree to which decision making is concentrated at a single point in the organization. In a centralized organization, top management makes the key decisions with little or no input from lower-level personnel. In contrast, decentralized organizations allow lower-level personnel or provide input or actually make decisions. The recent trend has been towards decentralization.

Finally, formalization refers to the degree to which jobs within the organization are standardized. If a job is highly formalized, individual employees have a minimum amount of discretion over what is to be done, when it is to be done, or how it is to be done. The degree of formalization can vary widely between organizations and within organizations.

Common organizational designs include simple structure, the bureaucracy, and the matrix structure. Simple structures, characterized by a low degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization are typically used in small businesses. The simple structure is fast, flexible, and inexpensive to maintain and accountability is clear. However, as the organization grows, the simple structure becomes inefficient. Its low formalization and high centralization result in slow decision-making.

Over time, businesses have the tendency to evolve into bureaucracy, whose characteristics include highly routine operating tasks, very formalized rules, tasks that are grouped into functional departments, centralized authority, and narrow spans of control. The primary advantage of the bureaucracy is its ability to perform standardized activities in a highly efficient manner. In spite of these strengths, functional unit goals may eventually override the overall goals of the organization and programmed decisions may eventually become ineffective.

The matrix structure, used in advertising agencies, aerospace firms, universities, and laboratories combines two forms of departmentalization: functional and product. The direct and frequent contact between different specialties can make for better communication and flexibility which are often lost in the multiple layers of bureaucracy. However, the matrix structure violates the unity-of-command concept by creating a dual chain of command. Matrix structures facilitate coordination when the organization has many complex and interdependent activities. In addition, matrix structures facilitate the efficient allocation of specialists. The major disadvantages of the matrix structure are confusion, propensity for power struggles, and stress on individuals.

New design options that attempt to dissolve many of the layers of management associated with both the matrix and bureaucracy include the virtual organization and the boundaryless organization. In a virtual organization, the majority of functions are outsourced. Virtual organizations are highly centralized, with little or no departmentalization. In this arrangement projects can be regrouped and functions can be reconstituted with ease. The major advantage to the virtual organization is its flexibility. At the same time, however, it reduces management’s control over key parts of its business.

The boundaryless organization attempts to flatten organizational hierarchy by using cross-hierarchical teams, participative decision-making, combined with both extranets and intranets. Vertical and horizontal boundaries are collapsed to create increased flexibility; external boundaries are eliminated to create more options for organizational alliances. The boundaryless organization seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams.

Organizational structures may be classified as mechanistic or organic. The mechanistic model has extensive departmentalization, high formalization, a limited information network, and little participation by low-level members in decision making. At the other end of the scale, an organic organization uses flat, cross-hierarchal and cross-functional teams, has low formalization, posses a comprehensive information network, and involves high participation in decision making.

The structure an organization chooses depends on its strategy. Common strategies include innovation, cost minimization, and imitation. Innovators are most likely to prefer the flexibility of an organic model, while those that choose a cost minimization strategy are more suited to the mechanistic structure. Imitators combine the two structures.

Organization size also influences structure. As organizations increase in size, they tend to become more mechanistic, although size affects structure at a decreasing rate. Once an organization has around 2,000 employees, it’s already fairly mechanistic and additional employees have minimal impact.

Technology refers to how a firm converts its inputs to outputs. Technologies may be differentiated by their degree of routines. Routine tasks are associated with taller and more departmentalized structures, while the relationship is not overwhelmingly strong. The degree of routineness is positively correlated with high formalization or centralization when formalization is low.

Structure is also affected by environment, which is comprised of capacity, volatility, and complexity. Capacity refers to the degree to which an environment can support growth; volatility refers to environmental instability, and complexity refers to the degree of heterogeneity and concentration among environmental elements. Taken together, these three components contribute to environmental uncertainty. In scarce, dynamic, and complex environments, a more organic structure is preferable. The more abundant, stable, and simple the environment, the more a mechanistic structure will be preferred.

Finally, there are individual differences in employee preferences for structure. Generally, work specialization contributes to higher employee productivity, but at the price of reduced job satisfaction. Negative behavioural outcomes from high specialization are most likely to surface in professional jobs occupied by individuals with high needs for personal growth and diversity. There is no evidence to support a relationship between span of control and employee performance, in spite of the intellectual or emotional appeal. There is a fairly strong relationship between decentralization and job satisfaction, particularly for employees with low self-esteem.

What is degree to which decision making is concentrated at?

What is the degree to which decision making is concentrated at the top of the organization's hierarchy with the senior management team?

What organization decision making authority is concentrated at the top level of management?

What describes the degree to which decision making is concentrated at a single point in the Organisation?