🏢Power and Politics in Organizations Unit 3 – Organizational Structure & Hierarchy

Key Concepts

• Organizational structure defines how tasks are divided, grouped, and coordinated within an organization
• Formal structure outlines the official hierarchy, roles, and responsibilities while informal structure encompasses the social networks and relationships that develop organically
• Centralization concentrates decision-making authority at the top of the hierarchy whereas decentralization distributes it across various levels and units
• Span of control refers to the number of subordinates a manager directly oversees influencing the shape of the organizational pyramid (flat vs. tall)
• Departmentalization groups jobs into units based on criteria such as function, product, geography, or customer type
  • Functional departmentalization organizes by areas of specialization (marketing, finance, HR)
  • Product departmentalization structures around specific product lines or services
• Formalization establishes rules, procedures, and documentation to standardize work processes and behaviors
• Organizational culture encompasses the shared values, beliefs, and norms that shape behavior and decision-making within the organization

Types of Organizational Structures

• Functional structure groups employees by areas of specialization (marketing, finance, operations) promoting efficiency and expertise within departments
• Divisional structure organizes the company into semi-autonomous units based on products, services, or geographic regions enabling adaptability to specific markets
  • Product division focuses on distinct product lines (consumer goods, industrial equipment)
  • Geographic division caters to the needs of different regional markets (North America, Europe, Asia)
• Matrix structure combines functional and divisional structures creating dual reporting relationships to leverage specialized skills across projects
• Team-based structure assembles cross-functional teams to tackle specific projects or initiatives fostering collaboration and innovation
• Network structure relies on partnerships with external entities (suppliers, distributors, contractors) to perform key functions allowing flexibility and cost savings
• Flat structure minimizes hierarchy by eliminating middle management and empowering employees to make decisions resulting in faster communication and adaptability
• Holacracy is a self-organizing structure that distributes authority through self-managed teams called circles each with clear roles and responsibilities

Hierarchy and Authority

• Hierarchy establishes a vertical chain of command delineating reporting relationships and decision-making authority
• Formal authority is the legitimate power derived from one's position in the hierarchy granting the right to give orders and expect compliance
• Line authority gives managers direct control over subordinates involved in core operations (production, sales) while staff authority supports line functions through advice and expertise (HR, legal)
• Centralized authority concentrates decision-making power at the top of the hierarchy ensuring consistency and control but potentially limiting responsiveness
• Decentralized authority distributes decision-making across various levels and units enabling faster adaptation to local conditions but risking inconsistency
• Delayering removes middle management layers to streamline decision-making and reduce costs but may overburden remaining managers
• Tall structures have many hierarchical levels with narrow spans of control facilitating close supervision but slowing communication and decision-making
• Flat structures have few hierarchical levels with wide spans of control enabling faster communication but potentially overwhelming managers

Power Dynamics in Organizations

• Power is the ability to influence others' behavior and overcome resistance to achieve desired outcomes
• Formal power stems from one's position in the hierarchy and includes legitimate (authority), reward, and coercive power
  • Legitimate power is the authority granted by one's formal role and position
  • Reward power is the ability to provide valued resources or benefits (bonuses, promotions)
  • Coercive power is the capacity to punish or withhold rewards (demotions, terminations)
• Informal power arises from personal characteristics, relationships, and expertise including expert, referent, and information power
  • Expert power is the influence derived from specialized knowledge, skills, or experience
  • Referent power is the influence based on admiration, charisma, and interpersonal skills
  • Information power is the control over access to and distribution of critical information
• Dependence is a key determinant of power; the more dependent others are on an individual or unit, the greater their power
• Centrality in communication and resource networks enhances power by controlling information flow and access to key assets
• Coalitions form when individuals or groups pool their power to influence organizational decisions and outcomes
• Empowerment involves sharing power with lower-level employees through participative decision-making, self-managed teams, and job enrichment

Organizational Culture and Structure

• Organizational culture is the shared values, beliefs, and norms that shape behavior and decision-making within the organization
• Structure influences culture by defining roles, relationships, and communication patterns that reinforce certain behaviors and expectations
  • Hierarchical structures tend to foster cultures of stability, control, and efficiency
  • Flat structures often promote cultures of flexibility, innovation, and empowerment
• Culture shapes structure by influencing the design of formal systems and processes to align with prevailing values and assumptions
  • A culture of collaboration may lead to team-based structures and open office layouts
  • A culture of customer focus may drive a divisional structure organized around market segments
• Subcultures can emerge within different units or levels of the organization based on distinct experiences, goals, or professional identities
• Cultural fit between an individual and the organization enhances job satisfaction, commitment, and performance
• Leaders play a crucial role in shaping and reinforcing organizational culture through their actions, decisions, and communication
• Socialization processes (orientation, training, mentoring) help new members learn and internalize the organization's culture
• Artifacts (dress codes, office design, rituals) symbolize and reinforce cultural values and norms

Pros and Cons of Different Structures

• Functional structure:
  • Pros: Efficiency, expertise, clear career paths, economies of scale
  • Cons: Silos, slow response to change, limited customer focus
• Divisional structure:
  • Pros: Adaptability, customer focus, accountability, local decision-making
  • Cons: Duplication of resources, loss of economies of scale, inter-division conflict
• Matrix structure:
  • Pros: Flexibility, efficient resource utilization, knowledge sharing, dual focus
  • Cons: Dual reporting, role ambiguity, conflict, high coordination costs
• Team-based structure:
  • Pros: Collaboration, innovation, employee empowerment, rapid response
  • Cons: Unclear accountability, decision-making inefficiencies, team dynamics
• Network structure:
  • Pros: Flexibility, cost savings, access to external expertise, scalability
  • Cons: Loss of control, dependence on partners, communication challenges
• Flat structure:
  • Pros: Fast communication, adaptability, employee empowerment, low overhead
  • Cons: Lack of clear progression, decision-making bottlenecks, managerial overload
• Holacracy:
  • Pros: Agility, self-organization, distributed leadership, role clarity
  • Cons: Complexity, training requirements, limited fit for some contexts

Real-World Examples

• Apple's functional structure aligns with its focus on innovation and design excellence by fostering deep expertise within specialized units (hardware engineering, software development, industrial design)
• Johnson & Johnson's divisional structure enables responsiveness to distinct market needs through semi-autonomous units focused on consumer health, pharmaceuticals, and medical devices
• Boeing's matrix structure leverages functional expertise across multiple aircraft programs (737, 787) to optimize resource utilization and knowledge sharing
• Zappos' holacratic structure empowers self-managed teams to make decisions and adapt quickly in the dynamic e-commerce industry
• Uber's network structure relies on partnerships with independent drivers to provide on-demand transportation services with minimal fixed costs and maximum scalability
• Google's flat structure and team-based approach foster collaboration and innovation in developing cutting-edge technologies and products (search algorithms, Android, self-driving cars)
• Valve's flat structure and self-selected project teams enable creative employees to pursue innovative ideas in the competitive gaming industry

Challenges and Future Trends

• Balancing global integration and local responsiveness in multinational organizations through structures that enable standardization and adaptation
• Designing structures that support digital transformation, agility, and innovation in the face of technological disruption
• Fostering collaboration and knowledge sharing across geographically dispersed teams through virtual structures and digital platforms
• Adapting structures to accommodate the needs and preferences of a multigenerational workforce with diverse expectations and work styles
• Implementing structures that promote diversity, equity, and inclusion by mitigating bias and ensuring fair access to opportunities and resources
• Developing structures that enable rapid response to crisis situations (pandemics, natural disasters) through contingency planning and flexible resource allocation
• Exploring alternative structures (holacracy, sociocracy) that distribute power and decision-making to self-managed teams aligned with organizational purpose
• Balancing the benefits and risks of outsourcing and offshoring through structures that ensure quality, security, and ethical standards in global supply chains