Organizational Theory,

Design, and Change

Sixth Edition
Gareth R. Jones

Chapter 5

Designing
Organizational
Structure: Authority
and Control
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Vertical Differentiation
Occurs
 The hierarchy begins to emerge when the
organization experiences problems in
coordinating and motivating employees
 Division of labor and specialization make it
hard to determine how well an individual
performs
 Almost impossible to assess individual
contributions to performance when employees
cooperate
 To deal with coordination and motivation
problems, the organization can:
 Increase the number of managers it uses to

monitor, evaluate, and reward employees

 Increase the number of levels in its

managerial hierarchy, thereby making the

hierarchy of authority taller
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Vertical Differentiation
Occurs (cont.)
 Size and height limitations
 Tall organization: an organization
in which the hierarchy has many
levels relative to the size of the
organization
 Flat organization: an
organization that has few levels in
its hierarchy relative to its size

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Figure 5.1: Flat and Tall
Organizations

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Figure 5.2: Relationship Between
Organizational Size and Number of
Hierarchical Levels

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Figure 5.3: Types of
Managerial Hierarchies

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Figure 5.4: Relationship Between
Organizational Size and the Size of the
Managerial Component

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Authority: How and Why
Vertical Differentiation
Occurs (cont.)
 Problems with tall hierarchies:
 Communication problems: communication
takes longer and is likely to be distorted
 Information may be manipulated to serve
managers’ own interests
 Motivation problems: as hierarchy increases,
the relative difference in the authority possessed
managers at each level decreases, as does their
area of responsibility
 Less responsibility and authority could reduce
motivation
 Increased bureaucratic costs: managers cost
money

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Vertical Differentiation
Occurs (cont.)
 Parkinson’s Law Problem
 Argues that the number of
managers and hierarchies are
based on two principles
 A manager wants to multiply
subordinates, not rivals
 Managers make work for one another
 Work expands so as to fill the time
available

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Vertical Differentiation
Occurs (cont.)
 Ideal number of hierarchical levels determined by:
 Principle of minimum chain of command: an
organization should choose the minimum number of
hierarchical levels consistent with its goals and the
environment in which it operates
 Keep organization as flat as possible
 Span of control: the number of subordinates a manager
directly manages

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Vertical Differentiation
Occurs (cont.)
 Factors that determine the appropriate
span of control
 Most important factor is the manager’s inability
to supervise increasing number of subordinates
adequately
 There seems to be a limit to how wide a
manager’s span of control should be
 Dependent on the complexity and
interrelatedness of the subordinates’ tasks

Complex and dissimilar tasks – small span of
control

Routine and similar tasks (e.g., mass production) –
large span of control

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Affecting the Shape of the
Hierarchy

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Control: Factors Affecting
the Shape of the Hierarchy
 Horizontal differentiation: an organization that is
divided into subunits has many different hierarchies,
not just one
 Each function or division has its own hierarchy
 Horizontal differentiation is the principal way an
organization retains control over employees without
increasing the number of hierarchical levels

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the Shape of the Hierarchy
(cont.)
 Centralization: with decentralization, less
direct managerial supervision is needed
 Authority is delegated to the lower levels
 Decentralization does not eliminate the need
for many hierarchical levels in large, complex
organizations
 Assists relatively tall structures to be more flexible
and reduces the amount of direct supervision needed
 Standardization: reduces the need for
levels of management because rules and
SOPs substitute for direct supervision
 Gain control over employees by making their
behavior and actions more predictable

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The Principles of
Bureaucracy
 Max Weber designed a hierarchy so that it
effectively allocates decision-making
authority and control over resources
 Bureaucracy: a form of organizational
structure in which people can be held
accountable for their actions because they
are required to act in accordance with rules
and standard operating procedures
 6 bureaucratic principles that underlie
effective organizational structure

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The 6 Principles of
Bureaucracy (cont.)
Principles one and two establish the
organizational role as the basic
component of organization structure
 Principle one: a bureaucracy is founded on
the concept of rational-legal authority
 Rational-legal authority: the authority a person
possesses because of his or her position in an
organization
 Hierarchy should be based on the needs of the task,
not on personal needs
 People’s attitudes and beliefs play no part in how the
bureaucracy operates
 Principle two: Organizational roles are held
on the basis of technical competence, not
because of social status, kinship, or heredity
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 The Principles of
Bureaucracy (cont.)
The next three principles specify how the
process of differentiation should be
controlled
 Principle three: A role’s task responsibility
and decision-making authority and its
relationship to other roles in the organization
should be clearly specified
 A clear and consistent pattern of vertical and
horizontal differentiation is the foundation for
organizational effectiveness
 Role conflict: when two or more people have different views
of what another person should do, and as a result, make
conflicting demands on that person
 Role ambiguity: the uncertainty that occurs for a person
whose tasks or authority are not clearly defined

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The Principles of
Bureaucracy (cont.)
 Principle four: the organization of roles in a
bureaucracy is such that each lower office in the
hierarchy is under the control and supervision of
a higher office
 Organizations should be arranged hierarchically so that
people can recognize the chain of command
 Principle five: rules, standard operating procedures,
and norms should be used to control the behavior and
the relationships among roles in an organization
 Rules and SOPs are written instructions that specify a
series of actions intended to achieve a given end
 Norms are unwritten
 Rules, SOPs, and norms clarify people’s expectations and
prevent misunderstanding

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The Principles of
Bureaucracy (cont.)
 Principle six: administrative acts,
decisions, and rules should be formulated
and put in writing
 Bureaucratic structure provides an organization
with memory
 Organizational history cannot be altered
 When rules and decisions are written down, they
become official guides to the way the
organization works

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Advantages of
Bureaucracy
 It lays out the ground rules for designing an
organizational hierarchy that efficiently
controls interactions between organizational
members
 Each person’s role in the organization is
clearly spelled out and they can be held
accountable
 Written rules regarding the reward and
punishment of employees reduce the costs of
enforcement and evaluating employee
performance
 It separates the position from the person
 It provides people with the opportunity to
develop their skills and pass them on their
successors
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The Problems of
Bureaucracy
 Managers fail to properly control the
development of the organizational
hierarchy
 Organizational members come to rely
too much on rules and standard
operating procedures (SOPs) to make
decisions
 Such overreliance makes them
unresponsive to the needs of customers
and other stakeholders

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Management by
Objectives
 Management by objectives (MBO): a
system of evaluating subordinates on their
ability to achieve specific organizational
goals or performance standards and to
meet operating budgets
 Step 1: Specific goals and objectives are
established at each level of the organization
 Step 2: Managers and their subordinates together
determine the subordinates’ goals
 Step 3: Managers and their subordinates
periodically review the subordinates’ progress
toward meeting goals

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The Influence of the
Informal Organization
 Decision making and coordination frequently
take place outside the formally designed
channels as people interact
 Rules and norms sometimes emerge from the
interaction of people and not from the formal
rules blueprint
 Managers need to consider the informal
structure when they make changes as it may
disrupt informal norms that work
 Informal organization can enhance
organizational performance

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IT, Empowerment, and
Self-Managed Teams
 The use of information technology (IT)
is making it easier to cost effectively
design structures to control
subordinates based on:
 Empowerment
 The use of teams
 IT provides people with the information
they need at all levels
 IT is encouraging decentralization and
use of teams

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IT, Empowerment, and
Self-Managed Teams (cont.)
 Empowerment: the process of giving
employees the authority to make important
decisions and to be responsible for their
outcomes
 Self-managed teams: self-lead work
groups consisting of people who are jointly
responsible for ensuring that the team
accomplishes its goals
 Cross-functional teams: groups of
employees from across an organization’s
different functions who are empowered to
direct and coordinate the value-creation
activities

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