ADMN 201 — Ch7: Organizing the Business Enterprise
Learning Objectives
- Discuss the elements that influence a firm’s organizational structure.
- Explain how specialization and departmentalization are the building blocks of organizational structure.
- Distinguish between responsibility and authority; explain centralized vs. decentralized organizations.
- Explain the differences between functional, divisional, project, matrix, and international structures; describe the most popular forms of organizational design.
- Discuss how the informal organization differs from the formal organization.
Overview
An Organizational Structure = the specification of the jobs to be done within a business, and how those jobs relate to one another. It is the company’s internal blueprint. Ch7 covers how that blueprint is built — from defining individual jobs, to grouping them, to deciding who has authority over whom, to the unofficial social network that operates beneath any formal chart.
mindmap root((Ch7: Organizing<br/>the Business)) LO1 Elements of Structure Strategy Environment Size Technology LO2 Building Blocks Job Specialization Departmentalization Functional Product Process Customer Geographic LO3 Authority System Responsibility vs Authority Delegation + Accountability Span of Control Line vs Staff Authority Committee + Team Authority 6 Forms of Power Centralized vs Decentralized LO4 Org Designs Functional Divisional Matrix — dual reporting Project — temporary teams International — 3 variants Modern Forms LO5 Informal Org Personal relationships Grapevine vs Formal Org
LO1 — Elements That Influence Organizational Structure
No single structure fits every company. The right structure depends on four key forces:
| Element | How It Shapes Structure |
|---|---|
| Strategy | A growth strategy needs decentralization and flexibility; a cost-leadership strategy may need tighter central control |
| Environment | Stable environments → rigid, formal structures; fast-changing environments → flexible, flat structures |
| Size | Larger firms need more layers of management and formal coordination mechanisms |
| Technology | Routine technology → mechanistic structures; complex/custom technology → organic, team-based structures |
An Organizational Chart is the physical depiction of a company’s structure — showing employee titles and how they relate to one another. It maps the formal structure, but not the informal one (see LO5).
LO2 — Building Blocks: Specialization and Departmentalization
Every organizational structure is built from two fundamental steps:
flowchart LR A[Identify jobs to be done] --> B[Job Specialization:\nAssign individual roles] B --> C[Departmentalization:\nGroup roles into logical units] C --> D[Org Structure formed]
Job Specialization
Job Specialization = identifying the specific jobs that need to be done and designating who will perform them.
- Creates expertise: people get very good at a narrow task
- Creates efficiency: less time wasted switching between unrelated activities
- Creates accountability: it is clear who is responsible for what
Departmentalization
Departmentalization = grouping specialized jobs into logical units so they can be managed together.
| Type | Grouped By | Example |
|---|---|---|
| Functional | Function or activity | Marketing Dept, Finance Dept, HR Dept |
| Product | Product line | Laptop Division, Smartphone Division, Tablet Division |
| Process | Step in production | Cutting → Sewing → Finishing |
| Customer | Type of customer | Corporate Clients, Personal Banking, Small Business |
| Geographic | Region or territory | North American Division, European Division, Asian Division |
Scenario tip: If you see a company split into divisions by region → Geographic. Split by what they sell → Product. Split by what they do → Functional. Split by who buys → Customer. Split by how they make it → Process.
LO3 — Responsibility, Authority, Delegation, and Decision-Making
The Core Four
These four concepts always travel together — you cannot have one without the others functioning properly.
| Concept | Definition | Direction |
|---|---|---|
| Responsibility | The duty to perform an assigned task | Flows down from manager to subordinate |
| Authority | The power to make decisions necessary to complete the task | Must accompany responsibility |
| Delegation | Manager assigns a task + its responsibility + its authority to a subordinate | Manager → Subordinate |
| Accountability | Subordinate’s obligation to accomplish the task and justify outcomes | Flows up back to manager |
A manager who gives responsibility without authority sets their employee up to fail.
Span of Control
Span of Control = the number of people managed by one manager.
- Narrow span (few direct reports) → more layers of management → tall organizational hierarchy → slower decisions, more supervision
- Wide span (many direct reports) → fewer layers → flat hierarchy → faster decisions, less oversight, more employee autonomy
The right span depends on task complexity, employee skill, and how much supervision is needed.
Line vs. Staff Authority
| Type | What It Is | Example |
|---|---|---|
| Line Authority | Flows directly down the chain of command; right to give orders and make binding decisions | CEO → VP → Director → Manager |
| Staff Authority | Based on expertise; typically advisory — does not issue orders, informs decisions | Legal counsel advising the CEO |
| Committee / Team Authority | Granted to a committee or work team involved in daily operations; decisions made collectively | Product development steering committee |
The 6 Forms of Power
Authority is just one form of power in an organization. There are six in total:
| Form | Source | Example |
|---|---|---|
| Legitimate | Formal position in the hierarchy | A manager can direct their team because of their title |
| Reward | Ability to give or withhold things people value | Bonuses, promotions, recognition, time off |
| Coercive | Ability to punish | Disciplinary action; work groups can also enforce pace norms on peers |
| Expert | Special knowledge or skill | An IT specialist who is the only one who understands the system |
| Referent | Personal charisma; others want to associate with you | A respected mentor or natural leader |
| Control over Resources | Access to key information, materials, or supplies | Gatekeeper of critical data or budget |
Exam trap: the course glossary often lists 5 forms — the 6th (control over resources) is in the lesson notes. Know all six.
Centralized vs. Decentralized
The degree of delegation determines where decisions are made:
graph LR A[Centralized] -- Top managers decide most things --> B[Consistent\nSlow to respond\nStrong top-level control] C[Decentralized] -- Lower managers decide most things --> D[Faster local response\nMore innovation\nPossible inconsistency]
| Centralized | Decentralized | |
|---|---|---|
| Who decides | Top management | Middle and lower management |
| Speed | Slower | Faster |
| Consistency | Higher | More variable |
| Best for | Stable environments, strong brand uniformity | Fast-moving markets, geographically spread operations |
Downsizing
Downsizing = the planned reduction in the scope of an organization’s activity. Usually involves cutting layers of management or eliminating departments. Often done to reduce costs or become more agile. Can shift a company from a tall to a flat hierarchy.
LO4 — Organizational Designs
Companies combine the building blocks above into distinct structures. The five classic designs:
graph TD A[Organizational Design Options] --> B[Functional] A --> C[Divisional] A --> D[Matrix] A --> E[Project] A --> F[International] B --> B1[Group by activity\nMarketing, Finance, HR] C --> C1[Semi-autonomous units\nby product, region, customer] D --> D1[Dual reporting:\nFunctional + Project manager] E --> E1[Temporary specialist teams\nfor a specific project] F --> F1[International Depts\nInternational Divisions\nIntegrated Global]
| Structure | Key Feature | Best For | Watch Out For |
|---|---|---|---|
| Functional | Groups by activity (marketing, finance, HR) | Stable, single-product companies | Silos; poor cross-department coordination |
| Divisional | Semi-autonomous units (each has its own marketing, HR, etc.) | Multi-product or multi-regional companies | Duplication of resources across divisions |
| Matrix | Employees report to two bosses — functional manager AND project manager | Complex projects needing cross-functional teams | Role conflict; two sets of priorities |
| Project | Temporary teams of specialists assembled for a specific project, then disbanded | R&D, consulting, construction | Instability; employees may lack a permanent home |
| International | Built for cross-border operations | Multinational companies | Cultural complexity, coordination across time zones |
International Structure — Three Variants
| Variant | What It Means |
|---|---|
| International Departments | A separate department added to handle international activities (earliest stage of going global) |
| International Divisions | A whole division dedicated to international markets, operating semi-autonomously |
| Integrated Global Organization | No domestic vs. international split — the entire company is organized globally; functions and divisions operate worldwide |
Matrix is the most exam-distinct: the only structure where one employee simultaneously reports to two separate supervisors.
Modern Organizational Forms
Beyond the five classic designs, newer flexible approaches are increasingly common:
| Form | What It Is |
|---|---|
| Team Organization | Work is structured around permanent cross-functional teams rather than departments |
| Virtual Organization | Core firm coordinates a network of external firms and contractors — minimal physical infrastructure |
| Boundary-less Organization | Eliminates traditional internal barriers (departments) and external barriers (suppliers, customers treated as partners) |
| Learning Organization | Culture and structure designed to support continuous learning, knowledge sharing, and adaptation |
These are responses to fast-changing environments where rigid hierarchy creates too much friction.
LO5 — Informal Organization vs. Formal Organization
graph TD A[Organization] --> B[Formal Organization] A --> C[Informal Organization] B --> B1[Defined by org chart] B --> B2[Official roles and titles] B --> B3[Authority flows through hierarchy] B --> B4[Managed and planned] C --> C1[Personal relationships and friendships] C --> C2[No official authority structure] C --> C3[Communication via the Grapevine] C --> C4[Cannot be controlled, only influenced]
| Formal Organization | Informal Organization | |
|---|---|---|
| Based on | Official authority, assigned roles | Personal relationships, shared interests |
| Shown on org chart? | Yes | No |
| Communication channel | Official memos, meetings | Grapevine |
| Speed of information | Slower (goes through channels) | Faster (bypasses hierarchy) |
| Accuracy | High (vetted) | Variable (rumours spread) |
| Management control | High | Low — cannot be eliminated, only influenced |
The Grapevine = the informal communication network that carries gossip and unofficial information throughout the organization. It is fast, powerful, and operates entirely outside management channels. Information traveling through the grapevine can be accurate or wildly distorted.
G.R.A.P.E. mnemonic for the informal organization:
- G — Group dynamics (friendships and cliques that form naturally)
- R — Rumours (information spreads fast and without vetting)
- A — Always present (cannot be eliminated, only influenced)
- P — Personal relationships (based on social bonds, not authority)
- E — Exists alongside the formal org (complements and sometimes contradicts it)
Mnemonics and Exam Traps
5 Types of Departmentalization
“For People Profiting, Companies Grow”
- Functional → Product → Process → Customer → Geographic
5 Classic Org Designs
“Fit Decisions Mostly Past Internationally”
- Functional → Divisional → Matrix → Project → International
Key Exam Traps
| Trap | Correct Answer |
|---|---|
| ”Employees report to two bosses” | Matrix structure only |
| ”Responsibility without authority” | Set-up for failure — must be paired |
| ”Advisory, expertise-based power” | Staff authority |
| ”Non-binding informal power” | Referent or Expert power |
| ”Workforce reduction” | Downsizing |
| ”Committee makes decisions together” | Committee and Team Authority |
| How many forms of power? | Six — don’t forget Control over Resources |
Connections to Other Chapters
- Ch6 ManagementProcess — Organizing is one of the four POLC functions; Ch7 is the deep dive into it
- Ch6 ManagerTypes — manager levels map directly to how centralized/decentralized a firm is
- Ch5 GlobalBusiness — international org structures connect to global strategy
- Ch6 CorporateCulture — informal organization is a key carrier of corporate culture
Related Pages
OrganizationalStructure, Departmentalization, AuthorityDelegation, OrganizationalDesigns, InformalOrganization