8 Organizational design

and structure

The organization of ofces follows the principle of hierarchy; that is each lower ofce is
under the control and supervision of a higher one.
Max Weber

In practically all our activities we seem to sufer from the inertia resulting from our great
size. There are so many people involved and it requires such a tremendous efort to put
something into efect that a new idea is likely to be considered insignifcant in comparison
with the efort that it takes to put it across. . . . Sometimes I am almost forced to the con-
clusion that General Motors is so large and its inertia so great that it is impossible for us to
be leaders.
Alfred P. Sloan

Chapter outline
1 Introduction
2 Structure: defnitions and importance
3 Early approaches to organizational design
4 Key elements of organizational structure
5 Types of structure
6 Organizational relationships
7 A continuum of organizational forms
8 Contingency approach to organizational structure
9 Trends and issues in organizational structure
10 Summary

Chapter objectives
By the end of this chapter you will understand:

• the meaning and importance of organizational structure

• the diferent approaches to organizational design
• the diferent elements and range of types of organizational structure
• the contingency approach to organizational structure and its application
• the key issues and trends in organizational structure
140 Organizational design and structure
8.1 Introduction
As introduced in Chapter 1, the study of organizational behaviour involves two key elements: an
understanding of work organizations and the behaviour of individuals and groups within them.
A third element can be added to this: how the design, culture, and functioning of organizations
infuence and afect people and, in turn, how people infuence organizations.
Organizations can be viewed as collections of people brought together to achieve certain goals,
which could include to design things, manufacture them, provide a service, educate people, and
so on. To do this, activities and tasks are divided up among diferent individuals and groups. The
larger the organization, the more complex this diferentiation becomes. There is therefore a need
to coordinate and integrate these various activities. This is what structure does: organizational
structure is the way in which the organization divides up tasks and coordinates the resulting activi-
ties. The structure will determine how activities are grouped together, who does what, and how
staf are coordinated and managed. This chapter looks at the diferent elements of structure, some
key types of structure, and some of the key developments, issues, and trends in organizational
structure.

Refective question
What is meant by the ‘structure’ of an organization?

8.2 Structure: defnitions and importance

Case study: Ceramics Limited

Eli made pottery in the converted garage of her home. She made pots, bowls, and plates.
Each of these involved a number of stages: working the clay, forming the pots, tooling them
when semi-dry, applying the glaze, and then firing the pots in the kiln. Eli did all these tasks
herself.
She started to sell her creations in a local craft shop and at market stalls. Her products
were in demand and sold well, so Eli hired an assistant, Sue, to help out. The tasks were now
divided between them: Sue would work the clay and prepare the glazes, as well as doing
various other odd jobs, and Eli would be responsible for the other stages. Coordination was
easy, as they both worked in the workshop and could easily communicate with each other to
sort out any problems as they occurred.
The arrangement worked well and demand for the products continued to grow. Several
local shops now stocked their pottery. Soon they were swamped with orders. Three assistants
were hired from the local art school, and then two more. A national retail store signed them
up to sell their products across the country and by mail order. Coordination problems started
to occur. Seven people working in the small workshop led to breakages and mistakes, so
Eli found new, larger premises to rent. Eli, as managing director of Ceramics Limited, also
found that she was spending more and more time with customers, so she appointed Sue
production supervisor. The production of pottery was also streamlined, with each employee
focusing on one of the key stages.
Two years later, the company had again outgrown the premises and moved to a new site
on a local business park, with Eli employing 25 staff. The firm had now diversified into other
 Organizational design and structure 141

products, including ceramic tiles and garden pots and ornaments. They opened their first
dedicated shop and also had a thriving Internet sales site. A second premises was rented
to deal with mail-order deliveries. They now employed a variety of people, including a ware-
house operator, a travelling salesperson, and a marketing assistant.

Source: adapted from Mintzberg 1979: 1–2

This case study serves to illustrate a key point concerning organizations: every organized human
activity, from making and selling pottery to educating people in a university, to manufacturing cars,
gives rise to two basic requirements: how to divide up the tasks and how to coordinate the activi-
ties. When Eli frst started her business, this was simple: she did all the tasks herself and coordinated
all the activities. But as the business grew, diferent people started to specialize in diferent tasks: the
design, diferent elements of production, the selling, and so on. Both Eli, as managing director, and
Sue, as supervisor, had to coordinate these activities.

Defnitions

Key term
Organization: ‘a social arrangement for achieving controlled performance in pursuit of
collective goals’ (Buchanan and Huczynski 2010: 8).

Mintzberg (1979: 2) defnes organizational structure as follows:

The structure of an organization can be defned simply as the sum total of the ways in which
it divides its labour into distinct tasks and then achieves co-ordination among them.

This echoes the prior point concerning organized human activity consisting of division of tasks
and coordination of the resulting activities.
Another defnition of structure is as follows:

The formal system of task and reporting relationships that control, co-ordinate and motivate
employees to work together to achieve organizational goals.
(Buchanan and Huczynski 2010: 453)

This tells us more about the purpose of structure – that is, to achieve the goals of the organization – as
well as telling us more about how this might be achieved: by providing managers with a formal system
in which to control, coordinate, and motivate employees.

Key term
Organizational structure: the formal system of dividing up work tasks, coordinating
the resultant activities of employees, and specifying reporting relationships to enable the
achievement of organizational goals.
142 Organizational design and structure
Importance of structure
The importance of structure is summed up in the following two quotes:

Organizations are collections of people brought together for a purpose. To achieve this pur-
pose successfully, people need to be organized within the best possible structure. Decisions on
structure are primary strategic decisions. Structure can make or break an organization.
(Lundy and Cowling 1996: 141)

Good organization structure does not by itself produce good performance. But a poor orga-
nization structure makes good performance impossible, no matter how good the individ-
ual managers may be. To improve organization structure . . . will therefore always improve
performance.
(Drucker 1989: 223)

But what makes a ‘good’ or appropriate structure for any particular organization? This question
will be explored more fully later in this chapter, after a consideration of early approaches and the
key elements of organizational structure.

Refective question
Why is the structure of an organization considered important?

8.3 Early approaches to organizational design

As Buchanan and Huczynski (2010: 489) point out, organizational design refers to the process by
which various dimensions and components of organizational structure are selected and managed so
that organizational goals are met. They also pose, and then answer, the question: why study early
approaches to organizational design? One important theme of this book is that history matters, and
ideas generated in the past still have relevance today. This is not to say that nothing changes, but
many current ideas have their basis in former ones, and many older ideas still have relevance now,
as long as they are suitably modifed to take into account contextual changes.

Bureaucracy
As outlined in Chapter 2, Max Weber was a German sociologist writing in the early part of the
20th century. He was interested in issues of power and authority; from studying societies over his-
tory, he identifed three diferent authority types: traditional, charismatic, and legitimate. Weber
argued that, with the emergence and then dominance of rationalization in modern society (see
the following box), legitimate authority would predominate, with its associated form of structure:
bureaucracy.

Key themes: the Enlightenment and rationality

The German philosopher Immanuel Kant (1724–1804) described the Enlightenment
as ‘man’s release from his self-inflicted immaturity’, meaning that people should use
their reason without seeking direction. Such writers sought to replace superstition,
 Organizational design and structure 143

tyranny, and injustice with reason, tolerance, and legal equality. Such ideas spread
across Europe and beyond during the 18th century, and saw advances in science as
well as a change in how people thought about government and society. Three Eng-
lish philosophers can be seen as formulating key ideas in this context: Francis Bacon
(1561–1626), for his development of the scientific method based on experiment and
observation; John Locke (1632–1704), for his political theory and empiricism (accep-
tance of knowledge based only on direct experience); and Isaac Newton (1642–1727),
for his discoveries and unifying scientific laws. From the middle of the 18th century,
such philosophies and the resulting scientific progress led to the Industrial Revolu-
tion, with new forms of mechanization and transport leading to an age of industry and
manufacturing.
Although Enlightenment ideas were widespread by the second half of the 18th cen-
tury, there was also a backlash in the form of the 19th-century Romantic movement,
which emphasized emotion, imagination, and a love of nature over reason and industrial
progress.

Source: adapted from Hart-Davis 2007

Weber used the term ‘bureaucracy’ to describe a type of organizational structure that was
both impersonal and rational. In such a structure, employees do what their manager asks them
to do, not because they believe the manager has a god-given right, or because of his or her
charisma or divine power, but because they acknowledge the manager’s exercise of power as
legitimate.

Key term
Bureaucracy: a structure that emphasizes specialization, formalization, rules and regulations,
and centralized authority and decision-making.

Bureaucracies have certain characteristics: work specialization, authority hierarchy, employ-

ment and career, recording, rules and procedures, and impersonality and impartiality. The
strengths of such characteristics lie in standardization, through the application of rules and
procedures. This, in turn, gives rise to consistency, fairness, and predictability. It should also be
remembered that, in the early 20th century, when Weber was writing, many of these features,
which we take so much for granted today, were absent; organizations and their management
at that time were often haphazard and inconsistent, with decisions made on the whim of the
manager or owner.
However, it is also the case that, in modern usage, the term ‘bureaucracy’ has attracted nega-
tive connotations, associated with red tape, ofcialdom, and delays in decision-making. It can be
argued that this change in perception of the term has arisen due to the fact that the principles of
bureaucracy, originally designed to maximize efciency, also resulted in inefciencies (Buchanan
and Huczynski 2010). Despite this, it is worth noting that almost all of today’s large organizations
possess many features of bureaucracy and that their continued success demonstrates at least a certain
degree of efciency and efectiveness. The relative positive and negative features of bureaucracy
are set out in Table 8.1.
144 Organizational design and structure
Table 8.1 Possible positive and negative outcomes of bureaucracy

Characteristic Positive consequence Negative consequence

For the individual For the organization

Specialization Efcient, repetitive Over-specialization can Inhibits fexible use of

working result in employees not staf and can thus reduce
recognizing or caring productivity
Authority Clarifes chain of Limits employee input to Decisions made without
hierarchy command decisions input from front-line
employees
Employment Most appropriate person Can restrict psychological Individuals can be
and career appointed growth of individual in promoted to the level of
his or her job their incompetence
Recording Creates an organizational Record-keeping can Recorded precedents
history not reliant on become an end in itself can stife innovation and
individual memory for employees responsiveness
Rules and Employees know what is Can lead to delays; stifes Rules become seen as
procedures expected of them individual initiative and defning minimum levels
creativity of acceptable performance
Impersonality Reduces bias and fosters Can dehumanize; all Can create a climate of
efciency individuals and situations alienation
treated as standard cases
Source: adapted from Buchanan and Huczynski 2010: 492

Classical management theory

Chapter 2 outlined how classical management writers emphasized the formal aspects of work
organization and structure. F.W. Taylor focused on the organization of shop-foor workers, while
Henri Fayol looked at the principles of management more generally. Classical management puts
forward the idea that there is one best way to structure organizations, irrespective of variables such
as size, technology, type of employees, or environment. Such a structure was based on the follow-
ing key principles:

• functional division of work

• hierarchical relationships
• bureaucratic forms of control
• narrow supervisory span
• closely prescribed roles
(Buchanan and Huczynski 2010: 494)

Key term
Classical management: an approach to management that stresses the formal aspects of
organization and structure.

Classical management has been subject to a number of criticisms. These include the notion that
there is ‘one best way’ of organizing a company, as well as stressing formal, mechanistic aspects
of command and control. It has also been argued that classical management approaches underes-
timated the complexity of organizations and the potential for confict within them. While such
criticisms are valid, the approach also needs to be considered in historical context – that is, that
 Organizational design and structure 145
managers of that period were facing issues and problems that had not been faced before in work
organizations, in that large and complex work organizations were a new phenomenon at the time.
Given this relative novelty, it is perhaps unsurprising that writers such as Taylor and Fayol sought
consistency and uniformity in how to manage. They also borrowed from what thinking there was
at the time in terms of organization, thus adapting ideas from the military, as well as from religious
and political organizations.

Refective question
Outline the advantages and disadvantages of a bureaucratic structure.

8.4 Key elements of organizational structure

Buchanan and Huczynski (2010: 454) outline some key elements of structure. These elements
identify what structure is concerned with. They also provide decision points for managers when
thinking about structure.

1 Division of work tasks: to what extent should jobs be narrow and specialized – that is,
made up of a small number of specialist tasks (high specialization) – or broad – that is,
encompassing a wide range of tasks (low specialization)?
2 Hierarchy: should there be many levels in the structure (tall hierarchy) or few levels (fat),
and what are the implications of these for communication, decision-making, and employee
motivation?
3 Span of control: how many subordinates should one manager or supervisor be responsible
for – many (wide span of control) or few (narrow span of control)?
4 Chain of command: to whom should any given employee report in terms of his or her
work responsibilities?
5 Formalization: should formal written rules and regulations be used to cover most aspects
of the organization (high formalization) or should such rules be kept to a minimum (low
formalization)?
6 Centralization: should the majority of the decisions be made by managers at the top
of the organization (centralized) or should decision-making be delegated downwards
(decentralized)?

In any particular situation, managers need to make decisions in each of these categories.
Should work be specialized or broad? Should there be many levels in the hierarchy or few? And
so on. This will depend on the circumstances faced by the organization. For example, a small
start-up frm is likely to adopt a fairly fat informal structure. This issue is explored further in
Section 8.7.
Figure 8.1 shows a tall hierarchical organizational structure – one with many levels and narrow
span of control – and a fatter structure – one with few levels and wide span of control.

Refective question
Outline the relative advantages and disadvantages of a tall and a fat organizational structure.
146 Organizational design and structure

Figure 8.1 Tall and fat organizational structures

8.5 Types of structure

As mentioned, within the structure of a work organization, work tasks need to be divided up and
activities coordinated. Jobs can be grouped together in diferent ways, the chief of which are as
follows:

• By function: in which activities are grouped together according to specialization or expertise

into departments or sections, such as production, sales, HR, marketing, or fnance, as illus-
trated in Figure 8.2.
• By product or service: where diferent specialists are grouped together according to a
particular product group or service (see Figure 8.3). An example would be in a hospital
where medical and support staf are grouped together in diferent units, such as accident
and emergency, orthopaedic, or maternity.
• By geographical location: in which the organization is subdivided and activities grouped
regionally, as in Figure 8.4. Thus, a frm may have a northern, eastern, and southern divi-
sion in the UK, as well as a European branch.
• Mixed structures: with the increasing size and complexity of organizations, many will
demonstrate a combination of these types. Thus, in a divisionalized structure, the orga-
nization is divided up into divisions based on product, service, or geographical region, with
each being operated on a functional basis, but with some strategic elements centralized at
head ofce.
Another example of a mixed structure is the matrix form (see Figure 8.5). Such a
structure usually combines a functional form with a project- or product-based form, which
can result in greater fexibility, though it may also bring coordination problems.

Refective question
Think of an organization with which you are familiar. Which of these classifcations does it
resemble most closely? (For a large, complex organization, you may fnd that it encompasses
two or more of the classifcations.)
 Organizational design and structure 147

Figure 8.2 Functional organization structure

Figure 8.3 Product or service-based structure

Figure 8.4 Geographically based structure

148 Organizational design and structure

Figure 8.5 Matrix structure

Case study: organizational structure

A major confectioner has a strategic objective to design novel and innovative products to
expand its share of the market. The current organizational structure comprises large orga-
nizational lines, each representing one of the discipline areas required to contribute to new
product design, as shown in Figure 8.6.

Figure 8.6 Current structure

 Organizational design and structure 149

As head of R&D, you understand that the current structure has delivered poor productivity
in the past, and teams aligned to specific new products seem to progress slowly and with a
lack of focus on the end goal, which is to develop products for sale. The paradox is that the
people working in the organizational lines illustrated in Figure 8.6, and seconded to product
development teams, are well qualified, experienced, and highly motivated to achieve.
A recent employee survey commissioned to explore the poor productivity highlighted the
following issues:

• A lack of empowerment of product development teams to progress a project. Teams

report that the time taken to get approval from the different lines slowed them down
and required multiple presentations and lobbying of senior people.
• A lack of focus on delivery because of the way project ownership passed from one
line to another, and the constant movements of people in and out of the product
development team.
• A lack of direct accountability for delivery, as people often worked on many different
product development teams, with no clear prioritization of the work.

You know that you have good people in the organization, and believe that it may be the
organizational structure that is holding productivity back. You believe that the organizational
structure illustrated in Figure 8.7 may address the productivity issue.

Q1 What would be your rationale for moving to the new organizational structure illus-
trated inFigure 8.7? How could this improve the productivity of the company?
Q2 What would be the major barriers to its implementation?
Q3 Over time (two to three years), what issues could arise as a result of this organi-
zational change, and how might you deal with them?
Q4 As head of R&D, how would you need to lead differently in order to make this new
organizational structure successful?

Figure 8.7 Proposed structure

150 Organizational design and structure
8.6 Organizational relationships
Individuals within an organization will have diferent formal relationships with one another. In
order to better understand these, it is frst necessary to defne some key terms: authority, responsi-
bility, and accountability (Cole and Kelly 2011: 259).

Key term
Authority: the right to make certain decisions and to exercise control over resources.

Key term
Responsibility: an obligation placed on a person who occupies a certain position in the
organization to perform a task or function.

Key term
Accountability: the ultimate responsibility that a manager has and cannot delegate. While
managers may delegate authority to others, they themselves remain accountable for the
actions of their subordinates.

Line relationships
Within an organization, formal authority is vested in a particular position or managerial post, not
in the individual post holder. Authority is accepted by subordinates because it is seen as legitimate.
In line relationships, authority fows down the hierarchy vertically, following the formal chain
of command – for example, from the managing director to senior managers, from senior managers
to middle managers, and down to managers and supervisors. Thus, this is the direct relationship
between manager and subordinate, with each subordinate directly responsible only to one person,
their line manager.
The line relationship provides a mechanism for coordinating and controlling the work of
employees and links the diferent parts of the organization together. It also provides channels of
communication, both downwards and upwards.

Staf and functional relationships

Staf employees are those who occupy advisory positions and provide line managers with support
and specialist advice. One way to provide this is via an assistant to the line manager, who can then
delegate tasks and activities to the assistant. The assistant can then provide support and advice to
other line managers. Because the assistant is not in a line relationship with these line managers,
they do not constitute a level in the hierarchy. In terms of the organizational chart, they are often
depicted as being of to one side (see Figure 8.8). Such relationships are known as staf relation-
ships. The line managers can choose whether or not to follow the advice given.
A further way to provide support and advice to line managers is via a specialist department, such
as HR or IT. Generally, employees in these support functions will have a staf relationship with
other line managers in that the support and advice can be accepted or not. But in certain areas
 Organizational design and structure 151

Figure 8.8 Organizational chart showing line, staf, and functional relationships

these support functions may be given the authority over certain areas for the whole organization by
senior management – for example, the HR function may have responsibility for health and safety
compliance. The HR manager will then have a functional relationship with line managers.
Although he or she will not have a direct relationship or line authority over these other managers,
he or she will have authority based on his or her functional expertise (see Figure 8.8).

The formal and the informal organization

The line, staf, and functional relationships set out in Figure 8.8 are those of the formal organiza-
tion. They will be set out in writing in job descriptions and other documentation, and will be
depicted in organizational charts. Such charts show the structure and reporting relationships: job
titles, seniority, which post reports to which. The formal organization refers to the planned,
documented processes and relationships, as designed by management, to designate tasks and coor-
dinate activities for the achievement of organizational goals.
Alongside the formal organization, however, there will be an informal one (Figure 8.9). This
arises from the day-to-day and spontaneous relationships among employees as they interact with
each other in the course of carrying out their jobs. Individual employees have psychological and
social needs – for example, for social contact and interaction. They also bring their out-of-work
experiences with them each day, their hopes and fears, triumphs and disappointments. Employees
develop friendships at work, as well as animosities. Informal leaders as well as group norms emerge.
Gossip and grapevines can provide important sources of information. The informal organiza-
tion is not planned by management, nor is it formally documented, yet it has an important infu-
ence on the workings of the organization and the experience of working there. It can work against
the formal organizational goals as set out by management or it can help to achieve these goals; it
can have a negative efect on people’s work lives or it can enhance them. Managers need to under-
stand the workings of both the formal and the informal organization.
152 Organizational design and structure

Figure 8.9 The formal and the informal organization

Source: adapted from Gray and Strake, in Mullins 2010: 612
 Organizational design and structure 153

Refective question
Why is an appreciation of the informal organization important to managers?

8.7 A continuum of organizational forms

Early approaches to organizational design were outlined in Section 8.3. These stressed formality,
standardization, and order. Weber argued that the bureaucratic form of organizational structure
would maximize efciency. This may have been true of the time when Weber was writing, but
since then there have been a number of criticisms of bureaucracy as an ideal structure, as well as
of classical management ideas more generally, particularly in relation to their focus on formality,
standardization, hierarchy, and command and control. What, then, are the alternatives?
Gareth Morgan (1989) outlines a continuum of diferent organizational structures, ranging from
the traditional bureaucratic at one end of the spectrum, through to fexible forms of structure at
the other end. The fexible organic forms are characterized by few rules, little task specialization,
and high levels of individual responsibility, with day-to-day decision-making delegated to lower
levels (see Figure 8.10). Morgan argues that a bureaucracy would, over time, probably evolve from

Figure 8.10 A continuum of organizational structure

Source: adapted from Morgan 1989: 66
154 Organizational design and structure
number 1 in the diagram to number 3, or even perhaps to number 4, but to move to number 5 or
6 would require a major transformation, involving not just structural change but a cultural one as
well (see Chapter 9).
Number 1 in the diagram is Weber’s classic bureaucracy, with a pyramid-shaped hierarchy and
clear lines of responsibility. It is argued that such a structure would suit a very stable environment,
since it emphasizes order and predictability. An organization with such a structure, however, would
not be able to respond quickly to change or to non-routine situations.
In number 2, the bureaucratic structure is augmented by a senior management team that meets
regularly to deal with any non-routine problems or novel issues that arise. This is extended in
number 3 to include lower-level staf in cross-functional teams. This allows for more fexibility
than the traditional bureaucracy, although it retains many elements of the bureaucratic structure.
The matrix structure illustrated in number 4 (see also Section 8.5) gives equal weighting to
projects or customer groups as to functional departments. It brings together teams for particular
projects. An extension of this is number 5, the project or team-based structure. Here the majority
of the key activities are carried out through project teams. Functional departments either do not
exist or are very much in the background. Such an organization would be much better than tradi-
tional forms at responding quickly to change, and would provide an environment where creativity
and ideas could be developed. It would be less suitable, however, if consistency and standardization
were key requirements.
The structure illustrated in number 6 takes fexibility a stage further. The organization consists
of a relatively small core of staf. This part of the organization is then loosely coupled with a num-
ber of others using a variety of relationships, including outsourcing and subcontracting.

Activity
Which of the organizational forms explored would best suit the following organizations?
Clearly justify your choice in each case.

1 A local authority or council

2 An advertising agency
3 A firm that specializes in long-term scientific research and development projects
4 A small creative computer games design and development firm
5 A national health service

Key themes: the virtual organization

The structure depicted in number 6 of the continuum of organizational structures raises
questions as to what constitutes ‘the organization’, or where an organization begins and
ends. The combination of outsourcing and subcontracting of activities with new electronic
communication methods (information communication technologies, or ICTs) gives rise to the
possibility of organizations with very little in terms of physical presence and has led to the
term ‘the virtual organization’.
Writers such as Castells explore such trends, suggesting that a ‘new economy’, in tandem
with new technologies, has important implications for the structuring of organizations. He
characterizes the new economy as being knowledge-based, global, and networked, and
suggests that organizations are affected by similar trends. Networked organizations will be
 Organizational design and structure 155

decentralized and will make use of subcontractors, freelancers, and a variety of other flexible
and non-standard types of workers. In any such organization, a worker will be connected to
the network of that particular organization, but is also likely to be part of other networks and
other organizations.

Source: based on Castells 2001; Mullins 2010

8.8 Contingency approach to organizational structure

The traditional approaches to organizational design, such as those outlined in Section 8.3, empha-
sized a ‘one best way’ to organizational structure and management. In Section 8.7 it was suggested
that organizations can take a variety of forms, and that these will change and develop over time.
In this section, some of the infuences or determinants of organizational structure are explored.

Organization size
Various studies, including those of the Aston programme (Pugh and Hickson 1976), have shown
that larger organizations – for example, those employing more than 2,000 people – tend to have
more specialization, more departmentalization, more vertical levels, and more rules and regula-
tions. In other words, they tend to be more bureaucratic. But as Robbins, Judge, and Campbell
(2010) point out, the trend is not linear; once the organization achieves a certain size, further
increases in size do not have a proportionate increase in formality, probably because they are fairly
bureaucratic already.

Organization strategy
Defnitions of organizational structure include reference to the fact that it involves coordination
of activities to achieve organizational goals. These goals will be determined by the strategy of the
organization, indicating a clear link between strategy and structure. It has therefore been suggested
that if the management of the organization makes signifcant changes to its strategy, this is likely to
have implications for the structure. Robbins, Judge, and Campbell (2010: 442) make reference to
Miles and Snow and other authors on strategic types. A typical approach is to categorize frms in
terms of whether they primarily have an innovation, cost minimization, or imitation strategy, and
then to suggest suitable structural types to match.
An innovation strategy focuses on exploring new opportunities and creating new products
or services. A cost minimization strategy seeks to tightly control costs and keep prices low.
Organizations taking an imitation strategy fall somewhere in between these two. They move
into new products or markets only after the innovator frms have proved them to be viable
(Table 8.2).

Table 8.2 The relationship between strategy and structure

Strategy Suggested structure

Innovation Organic, loose structure: decentralized, low specialization, low formalization

Cost minimization Mechanistic, tight control: centralized, high work specialization, high formalization
Imitation Mechanistic and organic, mix of loose and tight properties: tight control over
established activities, looser controls over new undertakings
Source: adapted from Robbins, Judge, and Campbell 2010: 443
156 Organizational design and structure

Key themes: Alfred Chandler

Chandler was a business historian who observed that the organizational structures of orga-
nizations such as General Motors, Du Pont, and Standard Oil were driven by the changing
demands and pressures of the marketplace. This saw moves from rigid functional organi-
zational forms to more loosely coupled divisional structures. Chandler was influential in the
decentralization of companies in the 1960s and 1970s.
Chandler defined strategy as ‘the determination of the long-term goals and objectives
of an enterprise and the adoption of courses of action and the allocation of resources
necessary for carrying out those goals’ (Crainer and Dearlove 2003: 32). He argued that
organizations, having identified their strategy, could then determine the most appropriate
organizational structure in order to achieve this.
Various authors have questioned Chandler’s view that structure follows strategy. Thus,
Tom Peters has argued that the structure of an organization will determine, over time, the
choice of markets it chooses to attack. Others have suggested that the link between strategy
and structure is more complex than Chandler suggests.
Gary Hamel has offered a more positive view of Chandler’s thesis:

Of course, strategy and structure are inextricably intertwined. Chandler’s point was that
new challenges give rise to new structures. The challenges of size and complexity,
coupled with advances in communications and techniques of management control, pro-
duced divisionalization and decentralization. These same forces, several generations
on, are now driving us towards new structural solutions – the federated organization,
the multi-company coalition, and the virtual company. Few historians are prescient.
Chandler was.

Source: adapted from Crainer and Dearlove 2003

Q To what extent does structure follow strategy?

Technology
Technology can be defned as how the organization transfers its inputs into its outputs (Rob-
bins, Judge and Campbell 2010: 443). A car manufacturer, such as Ford, uses production lines to
manufacture its vehicles. A university, however, may use a variety of teaching technologies – some
traditional, such as the lecture or seminar, and others more modern, such as the case study and a
virtual learning environment.
It is suggested that the type of technology has an important infuence on the organizational
structure. Studies point to the degree of routineness as being a key aspect in this. Technologies
lie on a continuum from the standardized, routine, and automated through to the non-routine
and customized. Much of large-scale production-line manufacturing would be an example of the
former, while furniture restoring, custom shoemaking, and medical research would be examples of
the latter. Although the link between routines and structure is a complex one, studies have found
a clear association between routineness and formalization: organizations with routine technologies
tend to have greater formalization, in terms of rules, regulations, job descriptions, and documen-
tation. Routine technologies also tend to be associated with taller and more departmentalized
structures.
 Organizational design and structure 157
Recent changes in technology, particularly in relation to e-business (see Chapter 10) in which
technologies such as the internet, smartphones and tablet computers, plus social networks have
allowed new forms of business to fourish, ranging from Amazon and eBay to Facebook, Netfix,
and Twitter have led to signifcant attention on the non-physical workplace and teleworking, and
new forms of working that are more fexible both in work method and structure (Wilson 2018:
316). But, whilst there have undoubtedly been changes in terms of job types and methods of work-
ing, some management writers have cast doubts on the extent to which there has been a move
towards post-bureaucratic postmodern or networked organizational forms (see Chapter 2 and 6).
Hales (2002), for example, suggests that such changes are less pervasive than they frst appear, and
that where they are found they may occur within bureaucratic forms and hierarchies. In a similar
vein, Clegg, Kornberger, and Pitsis (2016: 538) argue that despite the interest in the ability of vir-
tual, digital technologies to lead to the erosion of bureaucracy, fndings from empirical studies tend
to suggest that in large-scale organizations such technologies tend to be framed by pre-existing
organizational structures.

Environment
Various studies have shown a link between the structure and management of an organization and
the external environment within which the frm operates, specifcally in relation to the degree of
uncertainty and change in the environment.
Burns and Stalker (1961) studied a number of UK frms in diferent industries and their set-
tings. They characterized these settings or environments into fve types, ranging from stable to
unpredictable. Two main types of structure and management practice were also identifed: the
mechanistic and the organic. The mechanistic structure was one with a high degree of task spe-
cialization and formalization, tight specifcation of individual responsibility and authority, central-
ized decision-making, and formal rules and procedures. It can be likened to Weber’s bureaucratic
structure. The organic structure possessed little task specialization, a low degree of formalization,
delegated decision-making, and a high degree of individual responsibility.

Key term
Mechanistic structures: organizational structures that show a high degree of task spe-
cialization and formalization, tight specifcation of individual responsibility, clear rules and
regulations, and centralized decision-making.

Neither form of organizational structure was viewed as being better than the other; what was
suggested was that either could be the most appropriate and efcient, depending on the circum-
stances. Thus, in their study, for a textile mill facing a stable and predictable environment, the
mechanistic structure was found to be most suitable, whereas for an electronics frm operating in
an unpredictable and rapidly changing environment, the organic structure suited it best.

Key term
Organic structures: organizational structures that have low task specialization and formal-
ization, where individual responsibility is not tightly specifed, there are few formal rules,
and decision-making is delegated downwards.
158 Organizational design and structure
An assessment of contingency approaches
Contingency approaches to organizational structure have the advantage over ‘one best way’
approaches in that they allow for a variety of possible structures, depending on circumstances. They
have been subject to a number of criticisms however: one is that of contingent determinism – that
is, they specify which structure will be the most suitable in a particular situation. This would mean
that all organizations faced with the same environment should have the same structure, yet this is
not the case. Even within the constraints of a particular situation, management may exercise some
degree of choice. John Child (1972) has argued against the notion that structures are determined by
their contingent factors; rather, he argues, they infuence the structure, but leaders and managers still
have an important part to play. Thus, he stressed the importance of management choice.
Another issue is that organizations are likely to face multiple contingencies (size, technology,
environment and so on); how these combine and the efect they may have on the resultant struc-
ture could be complex and difcult to predict.
Overall, however, despite these limitations, it can be argued that contingency approaches help
managers to gain a deeper understanding of complex situations afecting organizations and their
structure.

8.9 Trends and issues in organizational structure

Organizational structure and individual behaviour

In Chapter 1 it was suggested that the subject of organizational behaviour involves the study of
organizations and their design and functioning, as well as the behaviour of individuals and groups
within them. These two elements will interact; thus, not only is it people who design and run
organizations, but the design and structure of organizations will infuence the people within them.
In attempting to assess the infuence of diferent forms and aspects of organizational structure on
people, although some general trends can be discerned, we have to be careful about over-general-
izing these; it very much depends on the particular individual and his or her preferences. Although
some people will prefer the relative freedom and creativity of an organic organization, others will
favour the relative order and predictability of mechanistic structures. This is what makes manage-
ment both tricky and fascinating! We need to understand what makes each individual ‘tick’.
We can illustrate this point with reference to two dimensions of structure: specialization and
centralization. In general, evidence suggests that work specialization (assuming that a job is capable
of being easily subdivided into discrete sub-elements or tasks) leads to higher productivity and
lower job satisfaction (Robbins, Judge, and Campbell 2010). Yet there are two provisos to this:
frst, if specialization is taken to such extremes that the job becomes boring and repetitive, then
productivity is likely to sufer. Second, although the majority of people may prefer varied work,
particularly as the workforce has become more educated and people seek work that is intrinsically
satisfying (see Chapter 4 on motivation and engagement), some individuals may still prefer the
repetitive nature of more routine jobs.
In addition, although evidence shows that organizations that are less centralized lead to workers
having more autonomy and freedom, and this is positively linked to job satisfaction, there will still
be individual diferences in this, in that some individuals may fnd such environments ambiguous
and confusing, and thus prefer the regularity and predictability of more centralized organizational
structures.

Refective question
How can the structure of an organization afect individual behaviour?
 Organizational design and structure 159
National culture and organizational structure
The work of authors such as Hofstede (1980) and Trompenaars and Hampden-Taylor (1999) has
suggested that national culture makes an important contribution to organization and management.
In terms of organizational structure, a study of 15 western European countries by the European
Commission (quoted in Robbins, Judge, and Campbell 2010: 447) found that in all the countries,
apart from Greece, organic structures were more favoured than mechanistic ones. However, within
this there were signifcant national variations: the Netherlands and Denmark had a particularly
high preference for organic structures, whereas this was less the case for Portugal, Italy, and Greece.
Despite this variability, however, it was suggested that all of these countries were moving in the
same direction in terms of structure, and that strategy, size, environment, and technology were
more important contingent factors than national culture.
Robbins, Judge, and Campbell (2010) also point to studies that suggest national cultural difer-
ences in preferences with regard to structure. Thus, people in countries with high power distance
(Hofstede 1980), such as France, Greece, and Latin America, are more accepting of mechanistic
structures and hierarchy than are those in countries with low power distance (see Section 10.7).

Case study: the Aston studies 50 years on

On the 25th anniversary of the British Academy of Management Conference (13–15 Sep-
tember 2011) at Aston Business School, Birmingham, some of the original researchers of
the Aston studies held a symposium on learning from these studies. The ideas of two of the
researchers, Derek Pugh and John Child, are outlined as follows.
Derek Pugh highlighted a fundamental lesson learned to be that of taking the structure
seriously using a contingency approach, in contrast to institutional theorists, who suggest
that all organizations in a particular sector will be very similar. He then outlined three key
dilemmas or tensions of structure that organizations had to face:

1 The dilemma of centralization – or hierarchy versus participation. A clear hierarchy means

that decision-making will be concentrated at the top, but this can result in what is actually
put into practice lower down the organization being very different from the message given
at the top. However, greater participation can lead to decision inertia – that is, decisions
can be slow and difficult to reach because of the need to consult throughout the
organization.
2 The dilemma of standardization – or standard routines versus encouraging personal
ideas and contribution. The former gives predictability and consistency but may stifle
initiative, while the latter may lead to wayward decisions and actions.
3 The dilemma of specialization – or specialist expertise versus common goals. Having a
high degree of unit specialization can lead to units and departments each developing
their own goals rather than pulling together, while stressing common goals and reducing
unit specialization may result in ‘groupthink’, with everyone thinking along the same lines.

In deciding on the appropriateness of a particular structure, managers need to balance

these tensions, and as the context changes, so does the point of balance. This leads to what
is termed ‘Pugh’s paradox’: ‘All organizations have the weaknesses of their strengths’ and
‘All organizations have the strengths of their weaknesses’ (as long as they are recognized as
weaknesses). In conclusion, Pugh suggests the need for a detailed analysis of the organiza-
tion and its context, which will lead to determination of the best structure.
160 Organizational design and structure

In his presentation, John Child reminded us of how organizations affect every aspect of
our lives in some way. Most of us are born in an organization, are educated and work in
them, are affected as consumers and members of our communities by them, and ultimately
are buried by them. This stresses the importance of organizations in and to society. Thus,
organizations and the study of them do matter, not just for reasons of management effi-
ciency, but for wider societal reasons.
The key lesson Child pointed to was that one of the most consistent findings of the Aston
studies was the strong association between size of organization, measured by total employ-
ment, and the number of levels of its hierarchy. This was found to be the case across a range
of sectors: manufacturing, service, and public agencies. Hierarchy thus appears to be dif-
ficult to avoid as organizations grow. Yet this association raises troubling questions in view of
the socially and psychologically negative consequences of hierarchy.
The organizational dysfunctions of hierarchy have been well documented (see Section
8.3 on bureaucracy and classical management approaches, for example), yet there is less
awareness of the negative social consequences of hierarchy. Child points to the recent riots
in inner cities as just one manifestation of this situation. The remoteness of decision-making
and growing income inequalities that tend to mirror one’s position in the hierarchy (or, of
course, outside of the organizational hierarchy altogether in direct terms in the case of the
unemployed), Child argues, have had a negative effect on well-being and have led to a
decline in the perceived legitimacy of social institutions and a decline in trust in our leaders,
including our political leaders. This has led some to suggest a seemingly inevitable slide
towards a post-democratic age.
Child quotes E.F. Schumacher, author of Small is Beautiful, in asking how we can seek
to achieve smallness within large-scale organizations and thus mitigate the negative social
effects of hierarchy, either directly, via delayering and downsizing, or indirectly, by develop-
ments such as employee ownership and partnerships, as in the case of John Lewis. Such
direct and indirect forms may allow hierarchies, and thus organizations, to be brought within
the ambit of society.

Source: adapted from BAM 2011; Pugh and Hickson 2007

8.10 Summary
This chapter began by outlining what is meant by organizational structure, as well as reviewing
the importance of structure in terms of the coordination of activities to achieve organizational
goals. Early approaches to organizational design stressed formality and hierarchy, and bureaucracy
was seen as the most efcient structure. Contingency approaches move away from a ‘one best way’
and suggest that the most efective structure will be determined by consideration of a number of
important variables, including strategy, technology, size, and environment. However, authors such
as John Child have argued that, while such variables will infuence structure, there is still room for
management choice. The chapter also considered key elements and types of organizational struc-
ture, as well as relationships. Key trends and issues were also reviewed.

Key ideas
• Organizational structure can be defned as the way that work is divided and activities coor-
dinated to achieve organizational goals; it provides managers with a formal system in which
to control, coordinate, and motivate employees.
 Organizational design and structure 161
• Early approaches to organizational design stressed formality, hierarchy, and rules; bureaucracy
was seen as the most efcient form of structure.
• Contingency approaches moved away from such ideas and suggested that the most efective
structure could be determined by consideration of a number of key variables, including
strategy, size, technology, and environment.
• Some authors have argued that, while such variables will have an important infuence on
organizational structure, they will not determine it, and that there is still room for manage-
ment choice in any particular set of circumstances.
• Key elements of structure are division of work, hierarchy, span of control, chain of com-
mand, degree of formalization, and centralization.
• Work tasks need to be divided up and activities coordinated. Jobs can be grouped together
in various ways to result in diferent structural types, the chief of which are by function,
by product or service, and by geographical location.
• Real-world complexities mean that most large organizations will have mixed structures,
examples being divisionalized and matrix structures.
• Changes in the external environment have meant that organizations have had to be more
fexible and able to make quicker decisions; this has led to more fexible organizational
structures, including the use of project teams and loosely coupled organic structures.
• Structure has an important infuence on individual employees.
• Studies have shown that national culture has an infuence on structure and on individual
preferences in terms of structure.

Review questions
1 Why is a consideration of structure important to managers?
2 Outline the key characteristics of bureaucracy.
3 What is the relevance to managers today of early approaches to organizational design, such as
those of Weber?
4 What is meant by ‘span of control’?
5 What are the possible advantages and disadvantages of the matrix structure?
6 Outline the diference between line and staf relationships and give examples of each.
7 What is meant by the term ‘the virtual organization’?
8 Compare and contrast ‘mechanistic’ and ‘organic’ organizations.
9 How and why will structure afect individual behaviour?
10 What were the key fndings of the Aston studies in relation to structure?

Recommended reading
Clegg, S.R., Kornberger, M. and Pitsis, T.S. (2016) Managing & Organizations. London: Sage Publications.
Hales, C. (2002) ‘Bureaucracy-lite and continuities in managerial work’. British Journal of Management,
13, pp. 51–66.
Handy, C.B. (1999) Understanding Organizations (4th edn). Harmondsworth: Penguin Books.
Pugh, D.S. (1997) Organization Theory: Selected Readings (4th edn). Harmondsworth: Penguin Books.
Pugh, D.S. and Hickson, D.J. (2007) Writers on Organizations (6th edn). London: Penguin Books.

Useful websites
www.bam.ac.uk – provides information on events, conferences, and journals of the British Academy
of Management
www.derekpugh.com – Derek Pugh’s website; includes the Pugh OD Matrix
www.youtube.com/watch?v=ppXbtMAafk – ‘Organisation Design’ by Dr Nils Stieglitz, Professor
of Strategic Management, Frankfurt School of Finance and Management
162 Organizational design and structure
References
BAM (2011) Conference proceedings, 13th–15th September. London: British Academy of Management.
Buchanan, D.A. and Huczynski, A.A. (2010) Organizational Behaviour (7th edn). Harlow: Pearson
Education.
Burns, T. and Stalker, G.M. (1961) The Management of Innovation. London: Tavistock Publications.
Castells, M. (2001) The Internet Galaxy. Oxford: Oxford University Press.
Child, J. (1972) ‘Organizational structure, environment and performance: the role of strategic choice’.
Sociology, 6(1), pp. 1–22.
Clegg, S.R., Kornberger, M. and Pitsis, T.S. (2016) Managing & Organizations. London: Sage
Publications.
Cole, G.A. and Kelly, P. (2011) Management Theory and Practice (7th edn). Andover: Cengage Learning.
Crainer, S. and Dearlove, D. (2003) The Ultimate Business Guru Book. Oxford: Capstone Publishing.
Drucker, P.F. (1989) The Practice of Management. Oxford: Heinemann Professional.
Hales, C. (2002) ‘Bureaucracy-lite and continuities in managerial work’. British Journal of Management,
13, pp. 51–66.
Hart-Davis, A. (2007) History: The Defnitive Visual Guide. London: Dorling Kindersley.
Hofstede, G. (1980) Culture’s Consequences: International Diferences in Work-related Values. London: Sage
Publications.
Lundy, O. and Cowling, A. (1996) Strategic Human Resource Management. London: Routledge.
Mintzberg, H. (1979) The Structuring of Organization. London: Prentice-Hall.
Morgan, G. (1989) Creative Organization Theory. London: Sage Publications.
Mullins, L.J. (2010) Management and Organizational Behaviour (9th edn). Harlow: Pearson Education.
Pugh, D.S. and Hickson, D.J. (1976) Organization Structure in Its Context: The Aston Programme 1. Farn-
borough: Gower.
Pugh, D.S. and Hickson, D.J. (2007) Writers on Organizations (6th edn). London: Penguin Books.
Robbins, S.P., Judge, T.A. and Campbell, T.T. (2010) Organizational Behaviour. Harlow: Pearson
Education.
Trompenaars, F. and Hampden-Taylor, C. (1999) Riding the Waves of Culture (2nd edn). London: Nicho-
las Brealey Publishing.
Wilson, F.M. (2018) Organizational Behavior and Work (5th edn). Oxford: Oxford University Press.