The Function of Organizational Structure

Week 13, Monday

Psychology 360
Outline
I. The problem of sense-making
II. Structure as a solution
III. Some consequences of structure
IV. Ford: A case of re-structuring
The problem of sense-making
assumption: the environment is complex and ambiguous
this creates high demands on individuals processing information
BUT -- people have limited attention and limited cognitive capacity
Bounded rationality
assumes that people want to make optimal decisions
optimal decisions require full knowledge of solution space -- this is impossible
BUT -- optimal decisions are possible within a restricted solution space, “satisficing”
bureaucratic structure reduces complex information into manageable chunks
Structure as a Solution
Weber -- bureaucracy defines: functional domains and the flow of information
offices and job descriptions determine functional domains
reporting relationships determine the flow of information
therefore, bureaucratic structure reduces complex issues into manageable chunks
Shape: Tall vs. flat
shape varies as a function of the span of control, or the number of subordinates per manager
tall shape = narrow span of control = few subordinates per manager
flat shape = broad span of control = many subordinates per manager
Tall shape
Flat shape
Form: Product vs function
form reflects the nature of an organization’s divsions, or specialized sub-units
product form = divisions organized around product lines = GM
functional form = divisions organized around functional activities = DuPont
Product form
Functional form
Centralization: Mechanistic vs organic
centralization varies as a function of the concentration of decision-making authority
mechanistic = high centralization = predictable environment
organic = low centralization = unpredictable environment
Ford: A Case of Re-structuring
tradition: product form organized within geographic markets
problem: complicates design and manufacture of vehicles, vis “chimney” organizations
solution: Ford 2000 will create a world-wide functional form
result = Ford is the Big Three quality leader, but Mondeo/Contour cost $6 billion to develop
Copyright © 1996, The Regents of the University of Michigan, All rights reserved.
Revised - November 4, 1996