Elements of Organizational Structure Discussion Paper
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Elements of Organizational Structure Discussion Paper
Organizational structure has four elements that apply to every organization. This section introduces three of them: span of control, centralization, and formalization. The fourth element—departmentalization—is presented in the next section.
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concurrent engineering
The organization of employees from several departments into a temporary team for the purpose of developing a product or service.
span of control
The number of people directly reporting to the next level in the hierarchy.
Span of Control
Span of control (also called span of management) refers to the number of people directly reporting to the next level in the hierarchy. A narrow span of control exists when very few people report directly to a manager, whereas a wide span exists when a manager has many direct reports.16 A century ago, French engineer and management
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scholar Henri Fayol strongly recommended a relatively narrow span of control, typically no more than 20 employees per supervisor and 6 supervisors per manager. Fayol championed formal hierarchy as the primary coordinating mechanism, so he believed that supervisors should closely monitor and coach employees. His views were similar to those of Napoleon, who declared that 5 reporting officers is the maximum span of control for more senior leaders. These prescriptions were based on the belief that managers simply could not monitor and control any more subordinates closely enough.17
Today, we know better. The best-performing manufacturing plants currently have an average of 38 production employees per supervisor (see Exhibit 13.2).18 What’s the secret here? Did Fayol, Napoleon, and others miscalculate the optimal span of control? The answer is that those sympathetic to hierarchical control believed that employees should perform the physical tasks, whereas supervisors and other management personnel should make the decisions and monitor employees to make sure they performed their tasks. In contrast, the best-performing manufacturing operations today rely on self-directed teams, so direct supervision (formal hierarchy) is supplemented with other coordinating mechanisms. Self-directed teams coordinate mainly through informal communication and various forms of standardization (i.e., training and processes), so formal hierarchy plays more of a supporting role.
Many firms that employ doctors, lawyers, and other professionals also have a wider span of control because these staff members coordinate their work mainly through standardized skills. For example, more than two dozen people report directly to Cindy Zollinger, cofounder and president of the Boston-based litigation-consulting firm Cornerstone Research. Zollinger explains that this large number of direct reports is possible because she leads professional staff who don’t require close supervision. “They largely run themselves,” Zollinger explains. “I help them in dealing with obstacles they face, or in making the most of opportunities that they find.”19
A second factor influencing the best span of control is whether employees perform routine tasks. A wider span of control is possible when employees perform routine jobs, because there is less frequent need for direction or advice from supervisors. A narrow span of control is necessary when employees perform novel or complex tasks, because these employees tend to require more supervisory decisions and coaching. This principle is
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Napoleon (Max. mgt.: Oregon (Actual: Fayol (Max. mgt.: Urwick (Max. mgt.: Seattle (Actual: Saratoga Institute (Survey: Multnomah County (Actual: Texas State (Law: Iowa State (Actual: Iowa State (Goal: U.S. Gov’t (Goal: Fayol (Max. nonmgt .: Fedex (Actual: Tom Peters (Min.: Best U.S. plants (Survey: Figures represent the average number of direct reports per manager. “Max.” figures represent the maximum spans of control recommended by Napoleon Bonaparte, Henri Fayol , and Lindall Urwick . “Min.” figure represents the minimum span of control recommended by Tom Peters. “Goal” figures represent span of control targets that the U.S. government and the State of Iowa have tried to achieve. The State of Texas figure represents the span of control mandated by law. The Saratoga Institute figure is the average span of control among U.S. companies surveyed. The Best U.S. Plants figure is the average span of control in U.S. manufacturing facilities identified by Industry Week magazine as the most effective. “Actual” figures are spans of control in the city of Seattle, State of Oregon, Multnomah County (including Portland, Oregon), State of Iowa, and Fedex Corporation in the years indicated.
EXHIBIT 13.2
Recommended, Actual, and Enforced Spans of Control20
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illustrated in a survey of property and casualty insurers. The average span of control in commercial policy processing departments is around 15 employees per supervisor, whereas the span of control is 6.1 in claims service and 5.5 in commercial underwriting. Staff members in the latter two departments perform more technical work, so they have more novel and complex tasks, which requires more supervisor involvement. Commercial policy processing is like production work. Tasks are routine and have few exceptions, so managers have less coordinating to do with each employee.21
A third influence on span of control is the degree of interdependence among employees within the department or team.22 Generally, a narrow span of control is necessary when employees perform highly interdependent work with others. More supervision is required for highly interdependent jobs because employees tend to experience more conflict, which requires more of a manager’s time to resolve. Also, employees are less clear on their personal work performance in highly interdependent tasks, so supervisors spend more time providing coaching and feedback.
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Tall Versus Flat Structures Span of control is interconnected with organizational size (number of employees) and the number of layers in the organizational hierarchy. Consider two companies with the same number of employees. If Company A has a wider span of control (more direct reports per manager) than Company B, then Company A necessarily has fewer layers of management (i.e., a flatter structure). The reason for this relationship is that a company with a wider span of control has more employees per supervisor, more supervisors for each middle manager, and so on. This larger number of direct reports, compared with a company with a narrower span of control, is possible only by removing layers of management.
The interconnection of span of control, organizational size (number of employees), and number of management layers has important implications for companies. As organizations employ more people, they must widen the span of control, build a taller hierarchy, or both. Most companies end up building taller structures, because they rely on direct supervision to some extent as a coordinating mechanism and there are limits to how many people each manager can coordinate.
Unfortunately, building a taller hierarchy (more layers of management) creates problems. One concern is that taller structures have higher overhead costs because they have more managers per employee. This means there are more people administering the company and fewer actually making the product or supplying the service. A second problem is that senior managers in tall structures tend to receive lower-quality and less timely information. People tend to filter, distort, and simplify information before it is passed to higher levels in the hierarchy, because they are motivated to frame the information in a positive light or to summarize it more efficiently. In contrast, information receives less manipulation in flat hierarchies and is often received much more quickly than in tall hierarchies. A third issue with tall hierarchies is that they tend to undermine employee empowerment and engagement. Hierarchies are power structures, so more levels of hierarchy tend to reduce the power distributed to people at the bottom of that hierarchy. Indeed, the size of the hierarchy itself tends to focus power around managers rather than employees.23
KenGen, Kenya’s leading electricity generation company, had more than 15 layers of hierarchy a few years ago. Today, the company’s 1,500 employees are organized in a hierarchy with only 6 layers: the chief executive, executive directors, senior managers, chief officers, frontline management, and nonmanagement staff. “This flatter structure has reduced bureaucracy and it has also improved teamwork,” explains KenGen executive Simon Ngure.24
Debating Point
SHOULD ORGANIZATIONS CUT
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Business leaders face the ongoing challenge of preventing their organization from ballooning into a fat bureaucracy with too many layers of middle managers. Indeed, it has become a mantra for incoming CEOs to state gallantly they will “delayer” or “flatten” the corporate hierarchy, usually as part of a larger mandate to “empower” the workforce.
As we describe in this chapter, there are several valid arguments for minimizing the corporate hierarchy, particularly by cutting back middle management. As companies employ more managers, they increase overhead costs and have a lower percentage of people actually generating revenue by making products or providing services. A taller hierarchy also undermines effective communication between frontline staff—who receive valuable knowledge about the external environment—and the top executive team. Middle managers have a tendency to distort, simplify, and filter information as it passes from them to higher authorities in the company. A third reason for cutting back middle management is that managers absorb organizational power. As companies add more layers, they remove more power that might have been assigned directly to frontline employees. In other words, tall hierarchies potentially undermine employee empowerment.
These concerns seem logical, but slashing the hierarchy can have several unexpected consequences that outweigh any benefits. In fact, a growing chorus of management experts warn about several negative long-term consequences of cutting out too much middle management.25
Critics of delayering point out that all companies need managers to translate corporate strategy into coherent daily operations.
“Middle managers are the link between your mission and execution,” advises a senior hospital executive. “They turn our strategy into action and get everyone on the same page.”26 Furthermore, managers are needed to make quick decisions, coach employees, and help resolve conflicts. These valuable functions are under-served when the span of control becomes too wide.
Delayering increases the number of direct reports per manager and thus significantly increases management workload and corresponding levels of stress. Managers partly reduce the workload by learning to give subordinates more autonomy rather than micromanaging them. However, this role adjustment itself is stressful (same responsibility, less authority or control). Companies often increase the span of control beyond the point at which many managers are capable of coaching or leading their direct reports.
A third concern is that delayering results in fewer managerial jobs, so companies have less maneuverability to develop managerial skills. Promotions are also riskier because they involve a larger jump in responsibility in flatter, compared with taller, hierarchies. Furthermore, having fewer promotion opportunities means that managers experience more career plateauing, which reduces their motivation and loyalty. Chopping back managerial career structures also sends a signal that managers are no longer valued. “Delayering has had an adverse effect on morale, productivity and performance,” argues a senior government executive. “Disenfranchising middle management creates negative perceptions and lower commitment to the organization with consequent reluctance to accept responsibility.”27
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These problems have prompted leaders to “delayer”—remove one or more levels in the organizational hierarchy.28 For instance, Chrysler Corp. CEO Sergio Marchionne recently warned that the automaker needs to have a flatter corporate structure to improve innovation, responsiveness, and customer service. “We need to be able to respond quickly, whether it’s to customer complaints or consumer needs. Any new idea condemned to struggle upward through multiple levels of rigidly hierarchical, risk averse management is an idea that won’t see daylight until dusk—until it’s too late.” BASF’s European Seal Sands plant came to the same conclusion several years ago; it was dramatically restructured around self-directed teams, cutting the hierarchy from seven to just two layers of management.29
CENTRALIZATION AND DECENTRALIZATION
For many years, Barrick Gold Corporation concentrated decision making at its global headquarters even though it was becoming the world’s largest gold producer with far-flung operations around the world. “Barrick had always been run on this command-and-control model, a centrist approach that saw all the decision making made in Toronto,” says Barrick’s late CEO Greg Wilkins. “That worked while the company was small and operating only in North America. But all of a sudden we are in four continents and seven countries and it becomes pretty clear that you just can’t do it any more.” The solution that Wilkins and his
FORMALIZATION
Formalization is the degree to which organizations standardize behavior through rules, procedures, formal training, and related mechanisms.34 In other words, companies become more formalized as they increasingly rely on various forms of standardization to coordinate work. The opening story to this chapter described how Christian Merritt has introduced some formalization through workflow charts that guide employees through the steps for various work activities. McDonalds Restaurants and most other efficient fast-food chains typically have a high degree of formalization because they rely on standardization of work processes as a coordinating mechanism. Employees have precisely defined roles, right down to how much mustard should be dispensed, how many pickles should be applied, and how long each hamburger should be cooked.
Older companies tend to become more formalized because work activities become rou-tinized, making them easier to document into standardized practices. Larger companies also tend to have more formalization because direct supervision and informal communication among employees do not operate as easily when large numbers of people are involved. External influences, such as government safety legislation and strict accounting rules, also encourage formalization.
Formalization may increase efficiency and compliance, but it can also create problems.35 Rules and procedures reduce organizational flexibility, so employees follow prescribed behaviors even when the situation clearly calls for a customized response. High levels of formalization tend to undermine organizational learning and creativity. Some work rules become so convoluted that organizational efficiency would decline if they were actually followed as prescribed. Formalization is also a source of job dissatisfaction and work stress. Finally, rules and procedures have been known to take on a life of their own in some organizations. They become the focus of attention, rather than the organization’s ultimate objectives of producing a product or service and serving its dominant stakeholders.
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MECHANISTIC VERSUS ORGANIC STRUCTURES
We discussed span of control, centralization, and formalization together because they cluster around two broader organizational forms: mechanistic and organic structures (see Exhibit 13.3).36 A mechanistic structure is characterized by a narrow span of control and high degree of formalization and centralization. Mechanistic structures have many rules and procedures, limited decision making at lower levels, tall hierarchies of people in specialized roles, and vertical rather than horizontal communication flows. Tasks are rigidly defined and are altered only when sanctioned by higher authorities.
Companies with an organic structure have the opposite characteristics. They operate with a wide span of control, decentralized decision making, and little formalization. Tasks are fluid, adjusting to new situations and organizational needs. Connections 13.1 illustrates how TAXI, a top-ranked creative agency, relies on an organic structure to remain nimble.
As a general rule, mechanistic structures operate better in stable environments because they rely on efficiency and routine behaviors, whereas organic structures work better in rapidly
EXHIBIT 13.3
RUBRIC
QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points: Student failed to submit the final paper. 20 points out of 50: The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. 40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. 50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). Zero points: Student failed to include citations and/or references. Or the student failed to submit a final paper. 5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. 10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. 15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points: Student failed to submit the final paper. 5 points out of 20: The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors 10 points out 20: The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. Structure of the Paper (worth 10% of total points) Zero points: Student failed to submit the final paper. 3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. 5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements. The student also significantly writes too large or too short of and paper 7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper. GET THIS PROJECT NOW BY CLICKING ON THIS LINK TO PLACE THE ORDER
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