Startbucks

 

Review the case study found in Chapter 3 of your text titled “Starbucks’ Structure” and write a paper that answers the four case study questions listed below in narrative form using APA format. Provide supporting rationale into your responses to the case study questions. Infuse vocabulary learned from the course in your case study analysis. The case analysis should be three to four pages long, excluding title and reference pages, with at least two references.

 

• Create a job description and job specification for a Starbucks employee. Do not simply copy and paste the job description from the Starbucks’ website or any other source. The Starbucks site can be utilized to view the different job requirements of employees, but the intent of the assignment is to apply job specification concepts from the book to this case. Cite any references.
• What form of departmentalization should Starbucks use? Should the form be changed in stores offering food products and lunch? Why or why not?
• When the company began to experience financial problems, should the leadership try to centralize power and decision-making or decentralize the operation?

1. What form of organizational configuration best fits Starbucks?  

Sean Justice/Corbis

chapter 3

The Organizing Function

Chapter Goals

After completing this chapter, you should be able to
• Connect the organizing function with company success.
• Explain the basic principles of job design.
• Employ the best form of departmentalization for a specific company.
• Finalize the structure of a company.
• Describe various types of organizational configuration.

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56

CHAPTER 3Section 3.1 Introduction

3.1 Introduction
Learning Objective #1: What role does organizing play in company success?

One key part of a manager’s job is to identify the best way to organize and run a company or organization. Well-organized companies are often recognized as being the most efficient, effective, and productive within an industry group. A
well-organized company is critical to success. Having a manager who can work with and
implement the structures and plans of a company is vital.

Organizing is a normal process that flows naturally from the human tendency for coopera-
tion. People are predisposed to cooperate with one another. Early humans used cooperation
behaviors and organizational skills, familiar to us today, initially as survival techniques. As
humanity progressed, cultural technologies were developed to enhance success in life.

While some cooperative human behaviors are likely instinctual, the majority are learned
through various interactions with the environment, family, school, and culture. Many
people learn early in life to keep their bedroom clean and orderly. They later learn to keep
a school locker orderly, and eventually how to organize computer files and MP3 music
files on portable music devices. The progression of organizational abilities throughout
history indicates that humans have a natural understanding that everything has its place.
Organizing complex structures, however, such as a large-scale manufacturing plant or a
500-guest-room resort requires sophistication beyond basic socialization.

Organizing may be defined as the process of efficiently and effectively bringing people
and resources together to create products and services. Organizing establishes task and
authority relationships that allow people to work together to achieve the organization’s
goals. Organizing consists of three primary activities: (a) job design, (b) departmentaliza-
tion, and (c) completion of the organizational structure.

In a business organization, the focus should be on creating a structure within the orga-
nization as a social institution. The structure of the organization is made up of the func-
tional jobs within an organization, and they represent “the skeleton of the organizational
system” (Steers, Ungson, & Mowday, 1985). This structural “skeleton” holds up the entire
organization and allows it to move forward to achieve its plan for success. An organiza-
tional structure is a formal system of task and reporting relationships that coordinates the
activities of members so that they work together to achieve organizational goals.

The organizational structure determines how an organization’s resources can be best used
to create goods and services. Organizational design is the process by which managers
make specific organizing choices that result in the particular kind of organizational struc-
ture they will utilize.

In this chapter, we introduce the organizing function and divide it into three primary
steps: job design, departmentalization, and specification. Job design creates the individual
job units, departmentalization categorizes the jobs into logical groups, and specification of
authority-responsibility relationships finalizes the company structure.

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57

CHAPTER 3Section 3.1 Introduction

The Richards Group: Organizing Creativity

The Richards Group, based in Dallas, Texas, is America’s largest independent advertising
agency. The company generates billings in excess of $1 billion annually and employs over
650 marketing professionals. Its list of clients includes a variety of well-known companies,
such as Orkin, Fruit of the Loom, T.G.I. Friday’s, Zales, Red Lobster, Farmer’s Insurance,
and others. Graphic Design USA has listed The Richards Group as one of the six most influ-
ential agencies in the United States. The firm has also received many awards, including
Adweek magazine’s Agency of the Year numerous times.

Beyond these simple statistics is a story that owner-founder Stan Richards once described
as “a rocket ride,” in an April 6, 2006, article printed in the Dallas Business Journal, which
led to his being named as one of The Wall Street Journal’s “Giants of Our Time.” Other
agencies have emulated many of the tactics employed by The Richards Group. Rich-
ards notes that his company utilized them first and still utilizes them best. He has
creatively employed the fundamentals of organizing to help the company achieve
such dramatic success.

The Richards Group is founded on key core principles in its mission statement and its over-
all strategy. In a 2010 interview with Don Baack, Richards expressed his company’s phi-
losophy when he said, “Some companies push products. Some sell ads. We sell the truth.”
The approach clearly works. “When we are hired by a client,” Richards notes, “it’s not
just to make ads. We do so many things that are extremely important. That ad is what the
consumer ultimately sees, but in order to get there, you have to have a dead-on strategy,
if you’re going to be successful. You go through the strategic process, you get to the right
answer, and then you can execute against that answer.”

Based on this foundation, the company’s organizational structure has been built. The
Richards Group carefully engaged in job design. A small advertising agency will hire gen-
eralists, who take care of a variety of assignments. As the organization grows, jobs become
more specialized. The Richards Groups employs highly skilled specialists in every aspect
of advertising, from creating contracts with prospective clients, to purchasing media time,
to making advertisements, to evaluating their success.

Departmentalization is where Stan Richards moved away from traditional models. The
firm, which at one point consisted of fewer than 60 workers all located on one floor of an
office building, expanded to a major office building on the North Central Expressway in
Dallas, Texas. Employees in The Richards Group work in open offices with no doors or
walls. More significantly, Richards notes:

What we do is co-mingle all the disciplines, so that in every cluster of spaces
we will have an art director who sits next to a brand manager, who, for exam-
ple, sits next to a print production manager, so that, in those interdisciplinary
villages that everyone here occupies, nobody’s next door neighbor does the
same thing that he or she does. What you don’t get is all the creative people
sitting on this floor, then all the account management people on the next floor,
and the media people on the floor above that.

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CHAPTER 3Section 3.1 Introduction

The reason I did that in the first place was
that when we were 50 or 60 people, there
was an extraordinary level of energy and
electricity that just flowed through the
place. You could just walk in and feel it. A
lot of it was created by the casual contact
people had with each other. When you
have 50 or 60 people packed into a tight
space, you see everybody every day.

What agencies have always done, is
when they reach that 120 to 130 person
size, they then had to move to multiple
floors. And the minute they do, they take
a tight-knit bunch of people who really
liked each other and understood each
other, because they saw each other every
day, and divide them up into tribes.
These tribes don’t always get along.

There are lots of occasions where a cre-
ative will butt heads with a planner,
because they have a different point of
view. When you are packed into a tight
space, and when you have a great deal

of casual contact going on all day, every day, you get over that stuff, because
they are your friends. When you’re on a different floor, you seldom see them
and you decide, “That’s a different tribe up there, and they drive me crazy.”
By moving away from traditional forms of departmentalization, the company
has avoided many of those problems. (S. Richards, personal communication,
February 2010)

The organizational structure at The Richards Group consists of fairly standard authority-
responsibility relationships. Individuals continue to report to supervisors who are in
charge of the basic functions, such as media selection. At the same time, to continue the
creative cooperative spirit built by comingling specialists, staff meetings are often held
in the stairwells between floors to help maintain egalitarian and positive relationships
among all of the employees.

Some of the successful campaigns initiated by The Richards Group include the long-
standing Chick-fil-A cow campaign, the Motel 6 campaigns, and the company’s 2010 and
2011 Super Bowl commercials for Bridgestone. The next time you view a commercial for
Corona beer that features a laid-back setting on a beach in the Caribbean where you leave
the cares of the world behind you, Richards suggests, you will also be viewing another
company success story. Corona has become the number one imported beer in the United
States, passing Heineken—due, in part, to a successful advertising management program
assisted by The Richards Group (Richards, 2010).

Stockbyte/Thinkstock

A unique organizational structure has
helped The Richards Group become one of
America’s top advertising agencies.

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59

CHAPTER 3Section 3.2 Job Design

3.2 Job Design
Learning Objective #2: How does a company design jobs?

A major component of the organizational structure within a company is coming up with a job design for all levels of employees. The first step is to define the types of jobs the company will need to meet its objectives. A job is a set or series of tasks
performed by an individual on behalf of an organization. A task is a single chore that is part
of something larger—the job. A mechanic in a car dealership may be asked to sweep the
floor (task one), change the oil in a truck (task two), and sometimes drive patrons from the
shop to their work or homes (task three). Most jobs require the completion of many tasks
throughout the day. Jobs may be assigned to categories, such as those displayed in Table 3.1.

TABLE 3.1: TYPES OF JOBS

Category Examples

Unskilled Blue Collar Housekeeper
Trash Hauler

Semiskilled Blue Collar Assembly Line Employee
Truck Driver

Skilled Blue Collar Electrician
Plumber
Carpenter

Front-Line White Collar Retail Clerk
Bank Teller

Semiprofessional Paralegal
Paramedic
Dental Hygienist

Professional Doctor
Attorney
CPA

Specialized Professional Research Scientist

Questions for Students

1. How are jobs in advertising agencies different from jobs in other companies?
2. Do you think comingling specialists, such as is the case in The Richards Group, would

work in other companies?
3. What types of individuals should The Richards Group hire, and what types would not fit

with the company?

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CHAPTER 3Section 3.2 Job Design

Job design progresses when managers deter-
mine the tasks needed to be done, who will do
them, and what selection criteria will be used
to choose employees and place them on the job.
The standard approach to job design involves
three steps: (a) job analysis, (b) job description,
and (c) job specification.

Job Analysis

The process of assigning tasks to jobs, called
job analysis, will be conducted by the human
resource department working in conjunction
with departmental managers. There are three
forms of commonly employed job analysis: (a)
comparison with other companies, (b) experi-
mentation, and (c) reflective planning.

Comparison with other companies can result from something as simple as a phone call to a
friend in another firm to ask how that company defines duties for a particular job. For exam-
ple, the position of administrative assistant varies widely, depending on the industry. Some-
one assigned to manage a new walk-in emergency care facility might call leaders of similar
organizations for advice. Comparisons can take place more formally. This normally involves
using a resource such as the Dictionary of Occupational Titles (U. S. Department of Labor, 1977).

Experimentation methods begin with simply trying various methods to learn which is most
effective and efficient for performing a job. This allows managers to evaluate workload to
aid the organization of workflow. For instance, if an employee cannot keep up with every-
thing, tasks can be removed; if an employee is bored, additional tasks may be assigned.
One more sophisticated form of experimentation is the time-and-motion study designed
by Frank Gilbreth. In these cases, jobs are performed in various ways and observed using
a stopwatch and sometimes even through filming of specific tasks. The goal is to eliminate
wasted motion and create an efficient set of job tasks.

Reflective planning requires managers to give thought to how processes are completed. In
some organizations, the public relations function will be performed by specialists trained
in media relations and writing. Those jobs are clearly spelled out as more managerial in
nature. In other companies, a job in the public relations department is more of a market-
ing activity, with an emphasis on finding sponsorships with charities and other groups
to generate positive publicity. The job title is the same, but the job itself will be quite dif-
ferent. Therefore, it requires reflection on the part of managers to determine the goals of
particular jobs before deciding who is most qualified to execute them.

Markus Brunner/Photolibrary

The time-and-motion study is a
classic example of job design through
experimentation.

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CHAPTER 3Section 3.2 Job Design

Job Description

When the manager and human resource specialist have agreed on the tasks that belong
to each job, the next organizational step in job design takes place—creation of a job
description. A job description is a formal list of tasks and duties that is used in two
main ways. First, job descriptions are part of the recruiting process that allows appli-
cants to review what exactly a job entails by reading the job description. Second, job
descriptions often appear in a company manual, handbook, or on an organizational
Web site. Managers and employees can then refer to the listing to see which employee is
responsible for any given task. Indeed, writing clearly articulated job descriptions is an
essential part of organizing a business.

Job Specification

Once job descriptions are created, organizers generate a list of requirements that appli-
cants must have in order to be considered for a particular job. This list is called a job
specification, and it lists the eligibility requirements or qualifications needed to per-
form a job. Table 3.2 identifies the standard set of specifications. Job specifications are
often posted on Web sites and in publications that are associated with the recruiting
process. The usual order of operations at this level of organizational development is
as follows: First, specifications are published online and in some cases, in print media,
most notably newspapers and trade journals. Second, job specifications are published
in particular employment markets where pools of employers and job seekers meet,
such as LinkedIn, Career Finder, and Monster.com. This helps streamline the appli-
cation process. Third, specifications may be published at a trade show for those in a
particular industry.

TABLE 3.2: COMPONENTS OF JOB SPECIFICATIONS

Qualification Examples

Level of Education high school diploma, associate’s degree, college
degree, M.B.A., Ph.D.

Amount and Types of Experience number of years, job experience

Special Skills—Physical ability to lift heavy weights, work outdoors

Special Skills—Technical ability to use software programs

Personality Characteristics outgoing, self-starter, confident, effective public
speaker

Legal Requirements meet current laws for employment

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CHAPTER 3Section 3.3 Departmentalization

Summary

Jobs form the building blocks for the creation of the organization’s structure. Carefully
designed jobs allow workers to succeed by being responsible for appropriate and manage-
able levels of work. Precise job descriptions give workers clarity about what they are and
what they are not assigned to do. Well-written job specifications enhance the odds that the
proper person will be hired to complete the assigned tasks.

3.3 Departmentalization
Learning Objective #3: What types of departmentalization can company leaders use?

Departmentalization is an effective organizational tool in that it involves dividing people up into different departments or divisions in which collections of tasks are placed together, such as accounting, marketing, and production. Although
there are several additional ways in which departmentalization may also be utilized,
Table 3.3 summarizes some of the various types and when each is most helpful to the
management team.

TABLE 3.3: TYPES OF DEPARTMENTALIZATION

Departmentalization by: Found in:

Function small, single product/service firms

Product growing, few product companies

Customer firms selling the same product to diverse customers

Geographic Region branch banking, retail chains, franchise operations

Strategic Business Unit conglomerates

Matrix high-tech firms, multinational companies

Departmentalization by Function

Departmentalization by function is the most common form, because most companies are
smaller and offer one main product or service. Figure 3.1 is a simplified organization
chart for a firm using this approach. Functional structure allows for top-level control with
expertise maintained in the individual departments. Jobs are easily matched to functional
specialties (Mintzberg, 1979).

Henry Mintzberg (1983) recognized five coordinated flows linking the common parts of
departmentalization:

• Authority. Authorization is needed to move the structural part forward and com-
plete job tasks.

• Work material. Raw material and supplies are essential to start and complete tasks.

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CHAPTER 3Section 3.3 Departmentalization

• Information. Data is required to inform decision making at every level of the

organization.

• Decision process. Timely decision making allows for the continual operation of
job tasks.

• Ideology. An organization’s unique vision, theories, culture, and traditions con-
tribute to its structure.

Mintzberg’s coordinated flows are essential to begin operating activity as well as to mea-
sure progress. They are well served by a functional form of departmentalization.

Departmentalization by Product

Multiproduct firms use departmentalization by product, that is, placing all activities related
to a product or service in one department under one executive or senior manager.

See Figure 3.2 for an example as applied to the Bic company. As shown, Bic is divided into the
products sold. General Motors, Dupont, and other firms learned that growth and expansion
of product lines require a form of structure that facilitates the differences in products and at
the same time allows for some specialists to serve all parts of the company. Departmentaliza-
tion by product meets these needs and demands (Ranson, Hinings, & Greenwood, 1980).

President

Bic, Inc.

Vice President
Pens

Production Sales Production Sales Production Sales

Vice President
Razors

Vice President
Lighters

Vice President
Accounting

Figure 3.2: Departmentalization by Product

President

Vice President
Sales

Vice President
Production

Vice President
Accounting

Vice President
R & D

Figure 3.1: Departmentalization by Function

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64

CHAPTER 3Section 3.3 Departmentalization

Departmentalization by Customer

Many companies offer the same product to divergent customers. As depicted in Figure 3.3,
departmentalization by customer allows for specialization based on customer differences.
A company such as Dell Computers has three distinct groups: (a) other businesses (indus-
trial sales), (b) the government, and (c) individual consumers. The most notable advantage
of this form of structure is that it optimizes service to these groups, which have different
purchasing needs and purchasing methods. For example, individuals buy online or at the
store, whereas businesses tend to make purchases at trade shows or through a purchas-
ing department, and governments must follow specific purchasing procedures. The three
groups also have different servicing needs such as repair contracts and warranties.

Departmentalization by Geographic Region

When a company is divided by territories or regions, terms such as district, zone, and area
are assigned to the departments. Figure 3.4 displays an example of departmentalization
by geographic region. Departmentalization by location is also known as parallel depart-
mentalization, because the levels in the organizational hierarchy contain managers who

President

Vice President
Western Region

Vice President
Eastern Region

Vice President
Central Region

District Manager

Store Managers

District Manager
Store Managers
District Manager
Store Managers

Figure 3.4: Departmentalization by Geographic Region

President

Industrial
Sales Division

Government
Sales Division

Consumer
Sales Division

Vice President
Accounting

Figure 3.3: Departmentalization by Customer

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65

CHAPTER 3Section 3.3 Departmentalization

perform the same duties in different regions, such as at branch banks or fast food loca-
tions. Geographical departmentalization makes it possible to tailor managerial efforts that
address territorial differences. For example, a Sears retail store in Florida will sell different
items than one in Minnesota during the winter months; however, the department names
remain the same. A food chain such as Subway may offer region-specific menu items,
while the basic model of operation remains the same in all locations.

Departmentalization by Strategic Business Unit

As noted in the previous chapter, strategic business units are clusters of activities typically
held together by a common thread, such as a product type or type of customer served. A
strategic business unit will be analyzed as a “company within the company.” Many major
corporations align strategic business units by products, customers, geographic region,
manufacturing methods, and other common elements, as depicted in Figure 3.5.

Departmentalization by Matrix

Matrix organizations are also called two-boss systems. As shown in Figure 3.6, each employee
answers to a functional area supervisor as well as a product manager. Matrix organiza-
tions create circumstances in which maximum flexibility and adaptability in operations
are possible. Workers must be able to adjust to change and accept some role ambiguity as
part of the daily routine. The tasks they work on tend to vary. The only constant will be
the employee’s functional supervisor.

An adaptation of the matrix organization is to design the company by product and by
country. Products must often be adapted when they are moved into new areas, due to
differences in electrical systems (AC versus DC) and in measurements such as ounces
versus grams. Product managers are asked to identify national differences and help adapt
production systems, marketing programs, and other activities to the new circumstances.

Summary

The most rudimentary form of structure, by function, is also the most common. As compa-
nies add products and services, as well as additional specialists and activities, the degree
of complexity rises. Departmentalization by products, customers, geographic areas, and

President

Vice President
SBU 1

Vice President
SBU 2

Vice President
SBU 3

Vice President
SBU 4

Figure 3.5: Departmentalization by Strategic Business Unit

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66

CHAPTER 3Section 3.4 Completing the Organization’s Structure

strategic business units helps the manager adapt to increasing complexity. The matrix
organization grants the manager the highest degree of flexibility and adaptability.

3.4 Completing the Organization’s Structure
Learning Objective #4: What additional activities must an organization undertake to
complete its structure?

Completion of an organizational structure occurs as managers identify the amount of influence and accountability for these different individuals and groups, along with other elements of organizational design. The organization charts shown in the
previous section hint at the first key activity that is part of completing the organization’s
structure: drawing lines of authority and responsibility. In each of the models, any vertical
line from one position to the next lower (or higher) position depicts an authority-responsi-
bility relationship. In essence, a president holds authority over his or her vice presidents;
those VPs are responsible for carrying out the instructions and decisions of the president.

Authority, then, consists of the right to direct with permission to act. This means that
authority has two key components. The right to direct means the right to give orders and
oversee activities. The manager of an auto repair shop has the authority to ask a worker
who is changing a tire to stop and help another employee pull the transmission from

Vice President

Product 1

Vice President

Product 2

Vice President
Production
Vice President
Accounting

Vice President
SalesTop-Level

Management
Team

Production
Group

Product 1

Accounting
Group

Product 1

Sales
Group

Product 1
Production
Group
Product 2
Accounting
Group
Product 2
Sales
Group
Product 2

Figure 3.6: Departmentalization by Matrix

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CHAPTER 3Section 3.4 Completing the Organization’s Structure

another car being repaired. Permission to act rep-
resents the right to make decisions on behalf of
a company. The auto repair manager may have
made the decision to work on the transmission
first because the tire repair can be completed
later, and the customer will not return until the
next day. The transmission repair is more urgent
and deserves attention first.

Responsibility, or accountability, is the obliga-
tion to complete tasks as assigned. Someone who
is responsible follows directions and is expected
to follow them correctly and completely. The
mechanic who has been asked to assist in the
transmission repair should do so until the job
has been successfully completed.

The noted French management expert Henri
Fayol was among the first to describe the con-
cept of parity of authority and responsibility. The
concept suggests that anyone who holds a posi-
tion of authority should be held accountable
for how that authority is used. Anyone who is
responsible for an outcome should have suffi-
cient authority to carry out the assignment.

In today’s modern organizations, three forms of
authority are found. Line authority is direct for-

mal authority, the type shown on the lines of an organization chart. Staff authority consists
of the right to advise or give advice. A company’s legal department provides legal advice
to all levels in the company. An accountant gives tax advice to all departments. Functional
authority has been described as the right to direct, but not to discipline. It is found when a
person has been placed in charge of a task force or committee. The individual is charged
with the responsibility of getting something done (direct), such as completing a safety
committee report; however, committee members may or may not follow directions and
complete the task on time. Functional authority relies on employee professionalism to
accomplish goals. Due to the increasingly complex nature of work, the reliance on func-
tional authority has risen as the number of teams and groups increases. When the first
process in completing the structure of an organization, outlining authority-responsibility
relationships, is complete, then other decisions can be made.

Centralization and Decentralization

Another key set of decisions to be completed includes those regarding the delegation of
authority. Centralization and decentralization refer to the degree of delegation of decision
making, authority, and power within an organization. A highly centralized organization
is one in which authority is not delegated. The executive management team, for example,
makes key decisions and issues orders that direct company activities. Other members of the

Wavebreak Media/Photolibrary

Outlining authority/responsibility
relationships helps complete the company’s
structure.

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CHAPTER 3Section 3.4 Completing the Organization’s Structure

organization must take and follow orders issued by the executive management team. In a
highly decentralized firm, front-line supervisors make important organizational decisions.

Size and Decentralization
Peter Blau (1970) suggests that a strong relationship exists between the size of an organi-
zation and the degree of decentralization. In essence, smaller firms are likely to remain
centralized, because managers are aware of all activities and know each employee. This
places them in the position to make all decisions. As a firm grows, the company begins
to add specialists and new departments. The sheer volume of decisions to be made
rises. The top manager becomes less able to direct everything, which means delega-
tion begins to take place. At the same time, the top manager wants to retain a degree of
control, which leads to (a) standardization, (b) formalization, and (c) mechanization/
computerization.

Standardization is the use of a series of job titles that are exactly the same, and the workers
perform the same activities. Formalization refers to the presence of rules and procedures.
Mechanization/computerization measures the reliance on computers and technology to
maintain operations (Blau & Schoenherr, 1971).

As an example, consider the differences between managing a “stop and shop” conve-
nience store and a Walmart superstore. In the convenience store, the manager knows all
the employees and every aspect of the store’s operations, so he or she can make every
decision. At the Walmart superstore, the manager would not even know the names of
all employees. The store employs specialists in many areas, including automotive, lawn
and garden, jewelry, men and women’s clothing, and others. The Walmart store manager
is best served by a classic management cliché: Let experts make decisions. The manager
delegates to the specialists (decentralization). At the same time, Walmart hires many indi-
viduals with titles such as “stocker” and “cashier” (standardization), the rules for rotating
inventory on the shelves and for checking out customers are the same for every stocker
and cashier (formalization), and the store uses
computers to track sales, inventory, and other
statistics (mechanization).

Strategies and Decentralization
In 1962, Alfred Chandler proposed a relation-
ship between company strategies and company
structure. His work suggests that organizational
structure may be a matter of managerial design
that evolves over time and as organizational con-
ditions change. Chandler’s analysis is grounded
in historical research. An in-depth review of case
histories of a number of major U.S. companies
reveals four stages of structural development
that were consistently present (see Table 3.4).

MIXA Co. Ltd./Photolibrary

Organizational structure changes when a
small-sized company grows into a larger,
more sophisticated company.

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CHAPTER 3Section 3.4 Completing the Organization’s Structure

TABLE 3.4: STRATEGY AND STRUCTURE

Stage 1 Most firms begin with a single product and a centralized, functional form of structure.

Stage 2 Successful firms tend to grow by adding products and services, the strategy known as
product diversification.

Stage 3 The demands of the new products and services become so great that the company
becomes inefficient, and eventually a crisis develops.

Stage 4 To resolve the crisis, company leaders adopt new forms of structure that are product-
based and decentralized.

As Table 3.4 indicates, Stage 2 holds a strategy; Stage 4 suggests a corresponding change
in structure. The historical information corresponds with the work of Blau in that firms
in Stage 1 are likely to be small and centralized. Stages 2 and 3 add the complexity of
added decisions and specialists. Stage 4 indicates that decentralization better serves a
larger company.

Summary
Centralization and decentralization change job descriptions and job specifications. In a
highly centralized operation, individuals at the lowest levels must understand they will
not be allowed to make decisions and will be expected to follow orders. Front-line supervi-
sors in the company will experience the same situation. In highly decentralized companies,
individuals who are willing to take the initiative, make key decisions, and work with others
are more likely to be hired. Delegation and decentralization rely on cooperation between
managers and employees to make the best decisions and take the proper course of action.

Mechanistic and Organic Structures

Another key element of organizational design regulates company flexibility and adapt-
ability. Mechanistic organizations are characterized by the high use of rules and proce-
dures, a greater number of levels in the organization, formal relationships between work-
ers, and, as a result, a less flexible method of operation. Organization charts in mechanistic
organizations tend to be tall and thin, with many ranks and fewer people at each rank.

Organic structures employ few rules and procedures, have a small number of organiza-
tional levels and ranks, allow for informal relationships among workers and supervisors,
and are much more flexible and adaptable as a result. Organic structures are short and
squat, with few ranks and many people in each rank.

Joan Woodward (1965) and her associates engaged in a major research project in Great
Britain in the 1950s. The purpose was to seek out the causes of structure in effective orga-
nizations. These efforts identified a consistent pattern in which the technology of a firm
could be matched to its structure, as displayed in Table 3.5.

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CHAPTER 3Section 3.4 Completing the Organization’s Structure

TABLE 3.5: TECHNOLOGY AND STRUCTURE

Type of Technology Type of Structure

unit, small batch organic

large batch, mass production mechanistic

process production organic

Unit or small batch technology occurs when units are made one-by-one (repairing a car; tai-
loring a suit), or in small lots or batches, such as the amount of marinara sauce prepared for
daily use in an Italian restaurant. Remaining flexible and adaptable best serves that type of
operation, at least in terms of profits, growth, and other measures of company success.

Large batch assembly line operations create standardized products. Carefully following
rules and procedures increases efficiency. Many production facilities are mechanistic in
their structural design.

Process production includes unique circumstances such as chemical manufacturers, some
utilities, and breweries and distilleries. In these organizations, problems tend to be
unusual and require investigation. The more flexible and adaptable organic structure fits
these circumstances.

Characteristics of Typical Organizations

German sociologist Maximilian C. Weber (1864–1920) in his work published posthu-
mously in 1922, suggested organizations share certain characteristics in addition to goal
orientation (Weber, 1947). The final design of the organization should account for each of
these characteristics, which include the following:

1. Division of Labor (Labor Specialization). Tasks in organizations tend to be grouped to
maximize productivity and are often based on some inter- or extra-organizational
criteria. Typically, work specialization is broken down by specific job tasks or work
skills, such as machinists, equipment
operators, quality control inspectors,
accountants, and salespeople. Seldom
does an organization efficiently operate
for long without labor specialization.

2. Span of Control. A superior cannot man-
age an unlimited number of subordinates,
as it is unwieldy and ineffective. Subor-
dinates require feedback, direction, and
often correction. Organization theory
suggests limiting the number of subor-
dinates, and the number depends on the
nature of the work to be completed by the
subordinates, and the distance from the
center of control. The span should be kept
as manageable as possible.

iStockphoto/Thinkstock

An organic form of structure matches a unit,
or small batch technology.

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CHAPTER 3Section 3.4 Completing the Organization’s Structure

3. Formalization. Almost all organizations have rules, whether written or unwritten.
Most modern organizations use the term policy or work rules, but in every case
the rules are intended to guide action and decision making across the organiza-
tion. The more clear, detailed, and specific the rules of the organization, the more
formal the organization.

4. Number of Authority Levels. Organizations may have very few authority levels
(flat) or several (tall), depending on the nature of the organization and its plan
of operation. Organization theory suggests the wider the span of control (more
subordinates reporting to a superior), the flatter the organization; and the nar-
rower the span of control (fewer subordinates reporting to a superior), the taller
the organization’s structure.

Weber suggested the coordination of these characteristics could happen only through
effective communication by organizational members and through standardizing work
processes. As work becomes more complex, direct supervision becomes a more important
factor in maintaining standardized work outputs. Weber’s concept of formalization is a
natural efficiency-improving process that happens within the organization and may occur
by several means: by the job, by work, or by way of rules.

An Organization in Crisis

There are times when events in an organization’s environment threaten internal opera-
tions. J. D. Thompson (1967) developed a view of organizational structure in which the
core technology a company utilizes becomes the key. In an organizational system, such
as the one displayed in Table 3.5, inputs are regulated by the buffers, which lead them
into the technical core. Outputs are moved into the external environment through various
departmental activities. In essence, management develops departments (the buffers in
Figure 3.7) to protect and facilitate the core technology.

When a threat emerges in the external environment, such as a dramatic rise in prices for
raw materials, a natural disaster, a terrorist action, negative publicity, or a new competing
technology, company leaders tend to respond by creating a new buffer or department to
defend against the threat. When mad cow disease threatened the U.S. beef industry, one
response would have been to create a new layer of inspectors to make sure the disease did
not infect local herds. Many information technology departments have specially assigned
units to defend against virus attacks, bombs, and other malware.

Thompson’s Model of Technology and Structure

Inputs

Labor
Funding
Materials

Buffers

HRM
Finance

Purchasing

Buffers

Sales
Warehouse

Shipping

Technical
Core

New
Buffer

THREAT

Outputs

Goods
&

Services

Figure 3.7: Technology and Structure

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CHAPTER 3Section 3.5 Structural Configurations

Summary

Organizational design consists of far more than simply drawing an organization chart. After
jobs have been specified, company structure consists of the form of departmentalization to
be used along with other elements of structure. Beyond authority-responsibility relation-
ships, management teams dictate the degree of delegation to be used on a company-wide
basis. The level of centralization or decentralization that is present influences the jobs to
be performed and the people selected to perform those jobs. Mechanistic organizational
structures match with more standardized operations. Organic structures are best suited
to problem-solving situations in which organizations must remain flexible and adaptable.
Most forms of structure are relatively standardized, specifying the level of job specializa-
tion and the number and types of managers. When an environmental crisis emerges, one
natural tendency is to develop a new department or buffer to defend against the threat.

3.5 Structural Configurations
Learning Objective #5: What kinds of structural configurations are found in various
companies?

Structural configurations constitute the final element of organizational design. The dominant part of the organization is the major factor in the structural configuration of the organization. Management theorist Henry Mintzberg (1983) suggested that
there are five common parts in any organization:

• Operating core. The subordinate workers who perform the basic labor in the orga-
nization that is related to the production of goods or services.

• Strategic apex. Top-level managers charged with ensuring the organization serves
its mission in an effective way.

• Middle line. The managers who connect the strategic apex with the operating core.
• Technostructure. The analysts who design, change, plan, or train the operating core.
• Support staff. The specialists providing the direct support services for the

organization.

These core elements then dictate the design of the organizational structure. Mintzberg
identified five common structures: simple structure, machine bureaucracy, professional
bureaucracy, divisional structure, and adhocracy.

Simple Structure

Small entrepreneurial businesses often use a simple structure. The local dry cleaner, the
corner restaurant, the auto repair shop, and many others are likely organized as simple
structures. This form of organization is dominated by the “Strategic Apex,” but has less
formalization and complexity. Almost everyone reports directly to the owner of the busi-
ness, so the organization chart is depicted as flat with few, if any, reporting layers.

When should this structure be used? Typically, this structure is used when the organiza-
tion is “small or in the formative stage of development” (Robbins, 1990).

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CHAPTER 3Section 3.5 Structural Configurations

Machine Bureaucracy

The trademark of the machine bureaucracy is standardization. The structure features highly
routine operating tasks typically grouped together into functional departments with high
formalization and central authority, and the decision making flows through a chain of com-
mand. Machine bureaucracies work best in large organizations such as manufacturing or
service, where large volumes are produced, resulting in a routine. In machine bureaucracy,
standardized production work is the norm. These structures utilize elaborate work rules,
considerable numbers of middle-line managers, and distinctive line and staff manage-
ment configurations. Organization charts are depicted with multiple management layers
between top management and the shop floor, where production or services are delivered.

Such structures require a simple and stable operating environment, which may be the single
greatest weakness of this type of organizational design. Machine bureaucracies have diffi-
culty adapting to changes in the environment, such as significant product changes brought
about by market demand. Business history is filled with accounts of large manufacturing
firms that could not change to meet emerging environments and as a result collapsed in
bankruptcy. Few people remember Nash Motors (part of Nash-Kelvinator Corporation) or
Hudson Motors. While each was a technology innovator in its time and a designer/builder
of beautiful automobiles, eventually, market instability forced their merger and then a later
merger with Kaiser-Jeep Corporation to form American Motors Corporation (AMC). Then,
in 1987, the Chrysler Corporation bought out AMC/Jeep.

When should a machine structure be used? Typically, this structure is most “efficient when
matched with large size, a simple and stable environment, and a technology that contains
routine work that can be standardized” (Robbins, 1990, p. 285). This is the typical structure of
large manufacturing firms, large insurance firms, and even state and federal prisons systems.

Professional Bureaucracy

A professional bureaucracy may be used when an organization depends on highly skilled
professionals delivering goods or services at the core of the organization. “Obvious
examples include hospitals, school districts, universities, museums, libraries, engineering

design firms, social service agencies, and pub-
lic accounting firms” (Robbins, 1990, p. 289). In
this type of structure, professionals self-impose
standardization and formalization, often in com-
pliance with governing bodies (e.g., licensing
agencies or professional associations or both),
typically due to the complexities in the operat-
ing environment. For example, certified pub-
lic accounting firms are licensed in most states
and have a professional organization (American
Institute of Certified Public Accountants) and
several governing bodies, including the Finan-
cial Accounting Standards Board and the Secu-
rities and Exchange Commission. Accounting
professional training incorporates the standards
of conduct, legal requirements, and the skills

Polka Dot Images/Thinkstock

Professional bureaucracies are best suited
to professional, white collar companies.

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CHAPTER 3Section 3.5 Structural Configurations

appropriate to the profession. As such, accountants have a degree of autonomy within the
organization and in the exercise of professional judgment.

When should professional bureaucracy be used? Typically, this structure is most effective
when the environment is stable and complex, and when formalization and standardiza-
tion are internalized through professionalization.

Divisional Structure

The divisional structure is actually a set of autonomous units, each typically a machine
bureaucracy unto itself, coordinated by a central headquarters (Robbins, 1990). The divi-
sional structure is widely used across the postindustrialized business world, and exam-
ples include General Motors, Microsoft, 3M Company, AT&T, General Electric Company,
International Business Machines, Coca-Cola Company, United Technologies Corporation,
and The Walt Disney Company. Divisions are created (or acquired) to serve a market and
are given operating control to make decisions appropriate to meeting the needs of that
market. This could be a category of a market such as with Chevrolet Motors. Chevrolet
manufactures automobiles in the mid-priced category of a market ($25K to $40K sales
price), or the luxury market category such as Cadillac ($35K to $70K sales price). Both are
generally autonomous divisions of General Motors.

Among the many weaknesses of the divisional structure is the duplication of activities
and the potential for counterproductive inter-market competition for customers, which
is not only inefficient but can limit opportunities for cooperation across market segments
and waste resources. This was a significant factor leading to GM’s 2009 bankruptcy reor-
ganization and federal government bailout. Now reorganized with fewer divisions and
dealers, GM may be able to rebuild its business and value.

When should the form of divisional structure be used? Typically this structure is most
effective when the organization selects the diversification strategy; that is, when the orga-
nization decides to become a multi-market or multi-product operation. It is important to
note here that the organization’s technology must be divisible without significant deterio-
ration of economies of scale gained as a machine bureaucracy.

Adhocracy

Most people working in an organization have experienced a project team, task force, or a
cross-functional team. When you participated, you were part of an adhocracy. Adhocra-
cies are organic and dynamic in nature and have limited formalization and standardiza-
tion, and tend toward decentralized decision making. Little is routine in an adhocracy.
Adhocracies live during the life of the project and are disbanded afterward. Adhocracies
are largely populated by professionals with high levels of skills and abilities to contribute
to the completion of the project. Adhocracies are flexible and adaptable. That is the reason
they exist at all.

A commercial building construction project is an example of an adhocracy. A project man-
ager takes the plans from the building’s architect and assembles a project team that includes
internal (assistant superintendent, construction site managers, etc.) and external members
(the trades appropriate for the work required). The work begins once a calendar is created

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CHAPTER 3Section 3.5 Structural Configurations

and contracts are established, and continues in a planned sequence until all work is com-
plete, final inspection is made, and the building is handed over to the owner/user. The
project is over, and all project members move on to other projects. They may participate in
a project together in the future or maybe never see any of the project team again.

A weakness of the adhocracy structure is the stresses placed on participants during the life
of the project. There are limited boundaries and few vertical relationships (boss-subordi-
nate) to mitigate tensions. Many participants have difficulty working in temporary work
environments subject to rapid change or operating in ambiguity. As a result, adhocracy
structures are difficult to establish and to dismantle once they are operating.

Typically, the adhocracy structure is most effective when used for developing nonroutine
solutions and projects, and where flexibility is required. Use of this structure is best when
solutions or projects have a short life cycle and high levels of professionalism are resident
or available. Table 3.6 summarizes the five organizational configurations.

TABLE 3.6: SUMMARY OF THE FIVE ORGANIZATIONAL CONFIGURATIONS

CHARACTERISTIC SIMPLE
STRUCTURE

MACHINE
BUREAUCRACY

PROFESSIONAL
BUREAUCRACY

DIVISIONAL
STRUCTURE

ADHOCRACY

Specialization Low High
Functional

High Social High
Functional

High Social

Formalization Low High Low High within
Divisions

Low

Centralization High High Low Limited Low

Environment Simple and
Dynamic

Simple and
Stable

Complex and
Stable

Simple and
Stable

Complex and
Dynamic

General
Structural
Classification

Organic Mechanistic Mechanistic Mechanistic Organic

(Robbins, 1990, p. 305.)

The Importance of Organizational Goals in Structural Design

Organizations exist for a purpose. The purpose of the organization, or the plan, also influ-
ences the structure of the organization. The purpose of a small shop operator located
on Main Street in your hometown likely will be to meet small capital financing needs,
design an informal mission, and employ less than 25 employees who report directly to
the owner. The planning process of this small shop focuses on the needs of its community
by maintaining inventory, appropriate capital availability, and a sensitivity to the com-
munity’s standards. On the other hand, a multiunit retail operator with 100,000 square-
foot, large-scale retail stores located in and across several states or the entire nation, may
have 10,000 employees, high capital demands, a well-defined mission statement, and
sophisticated marketing needs. Such a large organization likely has a long-range strate-
gic plan, complex operational plans, and several levels of management, each with very
specific performance expectations.

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CHAPTER 3Chapter Summary

authority the right to direct with permission
to act.

centralization/decentralization the degree of
delegation of decision making, authority, and
power within an organization.

departmentalization organizing people into
different departments or divisions in which
collections of tasks are placed together, such
as accounting, marketing, and production.

formalization the presence of rules and
procedures.

job a set or series of tasks performed by an
individual on behalf of an organization.

job analysis the process of assigning tasks
to jobs.

job description a formal list of tasks and
duties.

Chapter Summary
Organizational design involves numerous activities. These include designing jobs, depart-
mentalizing decisions, completing the company’s structure, and outlining the best struc-
tural configuration.. The five forms of configuration can be applied to ensure the highest
possible level of success. Configurations include specialization, formalization, centraliza-
tion, environmental, and general structural classification components.

Key Terms

Case Study: Starbucks’ Structure

What happens when a highly successful business formula begins to run out of steam? For
more than two decades, Starbucks had reconfigured the coffee marketplace by changing
the way people viewed the product. Until the company entered the market, coffee was
often perceived as a rather banal item consumers purchased as needed. Price often deter-
mined which brand someone would buy at the store.

Howard Schultz became convinced that he could turn coffee drinking into a cultural expe-
rience. He had traveled to Italy and watched with interest as city dwellers would stop to
begin the day at a coffee bar. Using the same type of model, Schultz purchased and opened
his first location as Il Giornale. The company evolved into Starbucks, where multitudes
of consumers began purchasing designer coffees, such as espresso, cappuccino, and cof-
fee mocha. Store interiors encouraged lounging and relaxing with a newspaper, magazine,
laptop, or friends. Each cafe featured enticements such as jazz music in the background,
additional merchandise to examine, and comfortable seating.

The original Starbucks chain emphasized location. Cafes were placed on commuter routes
and in other places where people were likely to gather and socialize. Over time, units
expanded into other major traffic routes, including airports.

Starbucks employs people who enjoy coffee. They are retrained using motivation programs
that include buy-in options. They are known as baristas, or bar persons, rather than serv-
ers, who become experts in coffee brewing while providing friendly service to patrons.
The company insists on a diverse workforce that reflects the makeup of the local commu-
nity. Employees are also encouraged to pass along ideas about how to improve operations.
Those who make suggestions that are adopted are rewarded. (continued)

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CHAPTER 3Chapter Summary

job design what occurs when managers
determine the tasks that need to be done,
who will do them, and what selection criteria
will be used to choose employees and place
them on the job.

job specification a list of the eligibility
requirements or qualifications needed to per-
form a job.

mechanistic organization characterized by
high use of rules and procedures, a greater
number of levels in the organization, and for-
mal relationships between workers, and that is,
as a result, a less flexible method of operation.

mechanization/computerization measures
the reliance on computers and technology to
maintain operations.

organic structures that employ few rules and
procedures, have a small number of organi-
zational levels and ranks, allow for informal
relationships among workers and supervisors,

and are much more flexible and adaptable as
a result.

organizational design the process by which
managers make specific organizing choices
that result in the particular kind of organiza-
tional structure they will utilize.

organizational structure a formal system of
task and reporting relationships that coordi-
nates the activities of members so that they
work together to achieve organizational goals.

organizing the process of bringing people and
resources together to create products and ser-
vices in an efficient and effective manner.

responsibility (or accountability) the obliga-
tion to complete tasks as assigned.

standardization the use of a series of job titles
that are exactly the same, and the assignment
of workers to perform the same activities.

Until the 2008 recession, Starbucks had continued to grow. Some of the units in larger cit-
ies experimented with selling additional products, including lunch service. Then a quickly
collapsing economy, possibly coupled with other problems, including overexpansion, sent
the corporation on a downhill slide. Founder Howard Schultz worried that the addition of
so many locations had watered down the Starbucks experience.

Increased competition became an additional factor that led to declining sales, the closing of
stores, and a loss rather than profit at the corporate level. McDonalds, Dunkin’ Donuts, and
numerous smaller operations began to chip away at Starbucks’ share of the market. Many
analysts believed that when Starbucks was no longer the only place to purchase high-quality
coffee products, and when others were selling at least acceptable brews at lower prices, the
drop in sales would became inevitable.

Schultz, who had previously stepped down as CEO, returned to try to bring Starbucks back
to prominence. As the economy continues to recover, time will tell if the company will
return to its previous status.

1. Complete a job description and job specification for a Starbucks employee.
2. What form of departmentalization should Starbucks use? Should the form be changed

in stores offering food products and lunch? Why or why not?
3. When the company began to experience financial problems, should the leadership

have tried to centralize power and decision making, or decentralize the operation?
4. What form of organizational configuration best fits Starbucks?

Case Study: Starbucks’ Structure (continued)

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CHAPTER 3Chapter Summary

Review Questions

1. Define organizing, organizational structure, and organizational design.
2. What is a job?
3. What are the three steps of job design?
4. Define departmentalization and name the six major forms.
5. What types of companies match with departmentalization by:
a. function
b. product
c. customer
d. geographic region
e. matrix
6. Define authority and responsibility.
7. Define centralization/decentralization, standardization, formalization, and

mechanization/computerization.
8. Define mechanistic and organic forms of structure.
9. What four characteristics apply to most organizations, according to Max Weber?
10. What kinds of companies should employ the simple structure organizational

configuration?
11. What kinds of companies should use the machine bureaucracy form of structure?
12. What kinds of organizations should feature a professional bureaucracy form of

structure?
13. What kinds of firms should use the divisional form of structure?
14. What types of organizations are best suited to the adhocracy form of structure?

Analytical Exercises

1. The analogy has been made that an organization’s structure is its skeleton. If so,
what part is the company’s mission? What parts are individual jobs? What parts
are the departments?

2. How could a company such as FedEx or UPS utilize the time-and-motion study
process in conducting its operations in the following areas:
• receiving packages for delivery at designated stores
• sorting packages
• delivering packages to individual customers and businesses

3. Create job specifications for the following positions:
• laborer at Burger King
• heavy equipment operator for a construction company
• salesperson for tractors and farm equipment
• information technology specialist to be a web master

4. Which form of departmentalization best matches the following companies?
Explain your answer.
• local dry cleaner
• T.G.I. Friday’s
• Greyhound Bus Lines
• GEICO Insurance
• Ford Motor Company International

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CHAPTER 3Chapter Summary

5. Marjorie is the chief accounting officer in her company. She has five junior
accountants under her supervision. She serves as head of the workplace safety
committee in the firm. She has expertise in the area of internal auditing, and
lately the firm’s CEO has asked her numerous questions about the firm’s most
recent audit. What types of authority does Marjorie hold in her current situation?
Can you think of ways in which the forms of authority may be in conflict with
one another? Explain your answer.

6. Explain how the following personality characteristics would fit with a central-
ized and mechanistic organization, or would better match a decentralized and
organic organization.
• high need for autonomy
• high need for continuing performance feedback
• enjoys working with others
• enjoys problem solving
• prefers direction and role clarity

7. “Among the weaknesses of the divisional structure is the duplication of activi-
ties and potential of counter-productive inter-market competition for customers,
which is not only inefficient but can limit opportunities for cooperation across
market segments and waste resources.” This statement applies to conglomerate
organizations. Can you think of a form of structure that is better suited to multi-
product, multiservice companies? Defend your answer.

8. Explain how the following somewhat match each other:
• functional structure with simple structure
• machine bureaucracy with centralized, mechanistic structure
• professional bureaucracy with decentralized, organic structure
• divisional structure with departmentalization by product

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