8 Organizational Structure Factors’ Influence on Ethical Decision-Making and Management
Learning Objectives
In this chapter, you will learn to:
- Understand components of organizational structure and discuss how they are used with a few examples.
- Compare mechanistic vs organic organizational traits.
- Contrast the common types of organizational structures and where they fit on the mechanistic-organic spectrum.
- Identify how each of the following Structure Factors influence of a decision-maker’s ethical behaviour:
- Performance management;
- Reporting systems;
- Availability of information; and
- Codes of ethics.
Review of Organizational Structure and Design
(Adapted from Principles of Management, available on OpenStax)
(Credit: GLady/ Pixabay/ (CC BY 0))
Jackie Smith, CareSource University
Jackie Smith is a human resources, training and organizational development professional with more than 20 years of experience. She has worked in a variety of organizations and industries in both the for-profit and not-for-profit sectors.
Jackie is vice president of CareSource University at CareSource, a Medicaid managed care organization. She oversees CareSource University as well as the company’s performance management, succession, and goal-setting processes. In 2017 CSU delivered more than 240,000 learning hours, coached 300 leaders, and onboarded 1,100 new hires. CareSource University has been nationally recognized for seven years as one of Training magazine’s Top 125 training organizations, ranking in the top 19 for six years. In 2017, CSU was named to the global Learning Elite, ranking 18th among worldwide organizations. Prior to CareSource, Jackie was president of Reflections on Learning, a performance-consulting firm, and worked as a senior organizational development consultant, regional human resources manager, training specialist, and manager in the financial services, retail, and transportation industries.
Jackie’s instructional focus has been in the area of leadership development, designing programs including:
- Developing Your Leadership Vision
- Leading through Extraordinary Change
- Transforming Team Performance through Dialogue
- Building Sustainable Strategy with Appreciative Inquiry
Her educational background includes a BS in education from Miami University, Ohio and Luxembourg and an MS in organizational development and leadership from St. Joseph’s University in Philadelphia. In addition, she has served as an adjunct faculty member at Antioch McGregor University and is a certified facilitator in a variety of training and development programs, organizational assessments, and Myers-Briggs profiling. She also serves as a team leader facilitating business strategy sessions in countries around the world including Ecuador, Jordan, Guinea, and Senegal.
This first half of this chapter will cover several concepts that deal with how leaders develop and shape organizations. An understanding of the concepts in this chapter is essential for leaders who need to pull people together to accomplish the essential work of a business in a consistent process over time. We will address the essential ideas.
The Organizational Life Cycle
Most organizations begin as very small systems that feature very loose structures. In a new venture, nearly every employee might contribute to many aspects of an organization’s work. As the business grows, the workload increases, and more workers are needed. Naturally, as the organization hires more and more people, employees being to specialize. Over time, these areas of specialization mature through differentiation, the process of organizing employees into groups that focus on specific functions in the organization. Usually, differentiated tasks should be organized in a way that makes them complementary, where each employee contributes an essential activity that supports the work and outputs of others in the organization.
The patterns and structures that appear in an organization need to evolve over time as an organization grows or declines, through four predictable phases (see Figure 7.4). In the entrepreneurship phase, the organization is usually very small and agile, focusing on new products and markets. The founders typically focus on a variety of responsibilities, and they often share frequent and informal communication with all employees in the new company. Employees enjoy a very informal relationship, and the work assignments are very flexible. Usually, there is a loose, organic organizational structure in this phase.
(Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
A two-way table shows the patterns and structures that appear in an organization through four phases.
The second phase, survival and early success, occurs as an organization begins to scale up and find continuing success. The organization develops more formal structures around more specialized job assignments. Incentives and work standards are adopted. The communication shifts to a more formal tone with the introduction of hierarchy with upper- and lower-level managers. It becomes impossible for every employee to have personal relationships with every other employee in the organization. At this stage, it becomes appropriate for introduce mechanistic structures that support the standardization and formalization required to create effective coordination across the organization.
In a third phase, sustained success or maturity, the organization expands and the hierarchy deepens, now with multiple levels of employees. Lower-level managers are given greater responsibility, and managers for significant areas of responsibility may be identified. Top executives begin to rely almost exclusively on lower-level leaders to handle administrative issues so that they can focus on strategic decisions that affect the overall organization. At this stage, the mechanistic structures of the organization are strengthened, and functional structures may be introduced. Often, tension emerges over how to find balance in the structure. Most organizations at this stage of development need to have elements of a mechanistic bureaucracy while maintaining an environment that allows for the innovation and flexibility that is a feature of an organic structure.
A transition to the fourth phase, renewal or decline, occurs when an organization expands to the point that its operations are far-flung and need to operate somewhat autonomously. Functional structures become almost essential, and subunits may begin to operate as independent businesses. Often, the tensions in the company between mechanistic and organic inclinations may be out of balance. To address these issues, the organization has to be reorganized or restructured to achieve higher levels of coordination between and among different groups or subunits. Managers may need to address fundamental questions about the overall direction and administration of the organization.
To summarize, the key insight about the organizational life cycle is that the needs of an organization will evolve over time. Different structures are needed at different stages as an organization develops. The needs of employees will also change. An understanding of the organizational life cycle provides a framework for thinking about changes that may be needed over time.
Organizational Structures and Design
What are mechanistic versus organic organizational structures?
First, an organizational structure is a system for accomplishing and connecting the activities that occur within a work organization. People rely on structures to know what work they should do, how their work supports or relies on other employees, and how these work activities fulfill the purpose of the organization itself.
Second, organizational design is the process of setting up organizational structures to address the needs of an organization and account for the complexity involved in accomplishing business objectives.
Next, organizational change refers to the constant shifts that occur within an organizational system—for example, as people enter or leave the organization, market conditions shift, supply sources change, or adaptations are introduced in the processes for accomplishing work. Through managed change, leaders in an organization can intentionally shape how these shifts occur over time.
Finally, organizational development (OD) is the label for a field that specializes in change management. OD specialists draw on social science to guide change processes that simultaneously help a business achieve its objectives while generating well-being for employees and sustainable benefits for society. An understanding of OD practices is essential for leaders who want to maximize the potential of their organizations over a long period of time.
Together, an understanding of these concepts can help managers know how to create and direct organizations that are positioned to successfully accomplish strategic goals and objectives.
To understand the role of organizational structure, consider the experience of Justin, a young manager who worked for a logistics and transportation company. His success at leading change in the United States gave his leaders the confidence that he could handle a challenging assignment: organize a new supply chain and distribution system for a company in Northern Europe. Almost overnight, Justin was responsible for hiring competent people, forming them into a coherent organization, training them, and establishing the needed infrastructure for sustained success in this new market.
If you were given this assignment, what would you do? How would you organize your employees? How would you help them understand the challenge of setting up a new organization and system? These are the kinds of questions that require an understanding of organizational structure, organizational design, organizational change, and organizational development.
One of the first issues Justin will need to address deals with how he will organize the system he will manage. “The decisions about the structure of an organization are all related to the concept of organizational design. There are two fundamental forms of structure to remember when designing an organization.
To address these questions, we need to be familiar with two fundamental ways of building an organization.
The formal organization is an officially defined set of relationships, responsibilities, and connections that exist across an organization. The traditional organizational chart, as illustrated in Figure 7.1, is perhaps the most common way of depicting the formal organization. The typical organization has a hierarchical form with clearly defined roles and responsibilities.
(Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
A flowchart shows an example of a formal organizational chart.
When Justin sets up his formal organization, he will need to design the administrative responsibilities and communication structures that should function within an organizational system. The formal systems describe how flow of information and resources should occur within an organization. To establish the formal organization, he will identify the essential functions that need to be part of the system, and he will hire people to fill these functions. He will then need to help employees learn their functions and how these functions should relate to one another.
The informal organization is sometimes referred to as the invisible network of interpersonal relationships that shape how people actually connect with one another to carry out their activities. The informal organization is emergent, meaning that it is formed through the common conversations and relationships that often naturally occur as people interact with one another in their day-to-day relationships. It is usually complex, impossible to control, and has the potential to significantly influence an organization’s success.
As depicted in Figure 7.2, the informal organization can also be mapped, but it is usually very different than the formal organization. The chart you see in this example is called a network map, because it depicts the relationships that exist between different members of a system. Some members are more central than others, and the strength of relationships may vary between any two pairs or groups of individuals. These relationships are constantly in flux, as people interact with new individuals, current relationships evolve, and the organization itself changes over time.1
(Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
A flowchart shows a network map depicting the structure of an informal organization.
The informal organization in Justin’s design will form as people begin interacting with one another to accomplish their work. As this occurs, people will begin connecting with one another as they make sense of their new roles and relationships. Usually, the informal organization closely mirrors the formal organization, but often it is different. People quickly learn who the key influencers are within the system, and they will begin to rely on these individuals to accomplish the work of the organization. The informal organization can either help or hinder an organization’s overall success.
In sum, the formal organization explains how an organization should function, while the informal organization is how the organizational actually functions. Formal organization will come as Justin hires and assigns people to different roles. He can influence the shape of the informal organization by giving people opportunities to build relationships as they work together. Both types of structures shape the patterns of influence, administration, and leadership that may occur through an organizational system.
As we continue our discussion of structure and design, we will next examine different ways of understanding formal structure.
Types of Formal Organizational Structures
Now, Justin will need to choose and implement an administrative system for delegating duties, establishing oversight, and reporting on performance. He will do this by designing a formal structure that defines the responsibilities and accountability that correspond to specific duties throughout an organizational system. In this section, we’ll discuss the factors that any manager should consider when designing an organizational structure.
A photo shows white smoke rising from the chimney of the Sistine Chapel in Vatican City.
(Credit: Jeffrey Bruno/ flickr/ Attribution 2.0 Generic (CC BY 2.0))
Bureaucracy
One of the most common frameworks for thinking about these issues is called the bureaucratic model. It was developed by Max Weber, a 19th-century sociologist. Weber’s central assumption was that organizations will find efficiencies when they divide the duties of labor, allow people to specialize, and create structure for coordinating their differentiated efforts, usually within a hierarchy of responsibility. He proposed five elements of bureaucracy that serve as a foundation for determining an appropriate structure: specialization, command-and-control, span of control, centralization, and formalization.
Specialization
The degree to which people are organized into subunits according to their expertise is referred to as specialization—for example, human resources, finance, marketing, or manufacturing. It may also include specialization within those functions. For instance, people who work in a manufacturing facility may be well-versed in every part of a manufacturing process, or they may be organized into specialty units that focus on different parts of the manufacturing process, such as procurement, material preparation, assembly, quality control, and the like.
Command-and-Control
The next element to consider is the reporting and oversight structure of the organization. Command-and-control refers to the way in which people report to one another or connect to coordinate their efforts in accomplishing the work of the organization.
Span of Control
Another question addresses the scope of the work that any one person in the organization will be accountable for, referred to as span of control. For instance, top-level leaders are usually responsible for all of the work of their subordinates, mid-level leaders are responsible for a narrower set of responsibilities, and ground-level employees usually perform very specific tasks. Each manager in a hierarchy works within the span of control of another manager at a level of the organization.
Centralization
The next element to consider is how to manage the flows of resources and information in an organization, or its centralization. A highly centralized organization concentrates resources in only one or very few locations, or only a few individuals are authorized to make decisions about the use of resources. In contrast, a diffuse organization distributes resources more broadly throughout an organizational system along with the authority to make decisions about how to use those resources.
Formalization
The last element of bureaucracy, formalization, refers to the degree of definition in the roles that exist throughout an organization. A highly formalized system (e.g., the military) has a very defined organization, a tightly structured system, in which all of the jobs, responsibilities, and accountability structures are very clearly understood. In contrast, a loosely structured system (e.g., a small, volunteer nonprofit) relies heavily on the emergent relationships of informal organization.
The Spectrum of Organizational Structures – Mechanistic vs Organic Structures
Using the principles of bureaucracy outlined above, managers like Justin have experimented with many different structures as way to shape the formal organization and potentially to capture some of the advantages of the informal organization. Generally, the application of these principles leads to some combination of the two kinds of structures that can be seen as anchors on a continuum (see Figure 7.3).
Figure 7.3 Elements of Organizational Structure and Their Relationship to Mechanistic and Organic Forms
| Elements of Organizational Structure and Their Relationship to Mechanistic and Organic Forms | ||
|---|---|---|
| Mechanistic |  |
Organic |
| Highly formalized | Standardization | Low |
| High/Narrow | Specialization | Low/Broad |
| Centralized | Centralization | Decentralized |
| Many divisions and levels | Departmentalization | Flat, with flexible departments |
(Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
On one end of the continuum is mechanistic bureaucratic structure. This is a strongly hierarchical form of organizing that is designed to generate a high degree of standardization and control. Mechanistic organizations are often characterized by a highly vertical organizational structure, or a “tall” structure, due to the presence of many levels of management. A mechanistic structure tends to dictate roles and procedure through strong routines and standard operating practices.
In contrast, an organic bureaucratic structure relies on the ability of people to self-organize and make decisions without much direction such that they can adapt quickly to changing circumstances. In an organic organization, it is common to see a horizontal organizational structure, in which many individuals across the whole system are empowered to make organizational decision. An organization with a horizontal structure is also known as a flat organization because it often features only a few levels of organizational hierarchy.
The principles of bureaucracy outlined earlier can be applied in different ways, depending on the context of the organization and the managers’ objectives, to create structures that have features of either mechanistic or organic structures.
For example, the degree of specialization required in an organization depends both on the complexity of the activities the organization needs to account for and on the scale of the organization. A more organic organization may encourage employees to be both specialists and generalists so that they are more aware of opportunities for innovation within a system. A mechanistic organization may emphasize a strong degree of specialization so that essential procedures or practices are carried out with consistency and predictable precision. Thus, an organization’s overall objectives drive how specialization should be viewed. For example, an organization that produces innovation needs to be more organic, while an organization that seeks reliability needs to be more mechanistic.
Similarly, the need for a strong environment of command-and-control varies by the circumstances of each organization. An organization that has a strong command-and-control system usually requires a vertical, tall organizational administrative structure. Organizations that exist in loosely defined or ambiguous environments need to distribute decision-making authority to employees, and thus will often feature a flat organizational structure.
The span of control assigned to any specific manager is commonly used to encourage either mechanistic or organic bureaucracy. Any manager’s ability to attend to responsibilities has limits; indeed, the amount of work anyone can accomplish is finite. A manager in an organic structure usually has a broad span of control, forcing her to rely more on subordinates to make decisions. A manager in a mechanistic structure usually has a narrow span of control so that she can provide more oversight. Thus, increasing span of control for a manager tends to flatten the hierarchy while narrowing span of control tends to reinforce the hierarchy.
Centralization addresses assumptions about how an organization can best achieve efficiencies in its operations. In a mechanistic structure, it is assumed that efficiencies will occur in the system if the resources and decisions flow through in a centralized way. In an organic system, it is assumed that greater efficiencies will be seen by distributing those resources and having the resources sorted by the users of the resources. Either perspective may work, depending on the circumstances.
Finally, managers also have discretion in how tightly they choose to define the formal roles and responsibilities of individuals within an organization. Managers who want to encourage organic bureaucracy will resist the idea of writing out and tightly defining roles and responsibilities. They will encourage and empower employees to self-organize and define for themselves the roles they wish to fill. In contrast, managers who wish to encourage more mechanistic bureaucracy will use tools such as standard operating procedures (SOPs) or written policies to set expectations and exercise clear controls around those expectations for employees.
When a bureaucratic structure works well, an organization achieves an appropriate balance across all of these considerations. Employees specialize in and become highly advanced in their ability to perform specific functions while also attending to broader organizational needs. They receive sufficient guidance from managers to stay aligned with overall organizational goals. The span of control given to any one manager encourages them to provide appropriate oversight while also relying on employees to do their part. The resources and decision-making necessary to accomplish the goals of the organization are efficiently managed. There is an appropriate balance between compliance with formal policy and innovative action.
References for the Previous Sections
Brown, S. L., & Eisenhardt, K. M. (1997). The Art of Continuous Change: Linking Complexity Theory and Time-Paced Evolution in Relentlessly Shifting Organizations. Administrative Science Quarterly, 42(1), 1–34. https://doi.org/10.2307/2393807
Eisenbach, R., Watson, K., & Pillai, R. (1999). Transformational leadership in the context of organizational change. Journal of Organizational Change Management, 12(2), 80–89. https://doi.org/10.1108/09534819910263631
Katz, D., & Kahn, R. L. (1978). The Social Psychology of Organizations (2nd ed.). Wiley. ; and Schein, E. H. (1979). Organizational Psychology (3rd ed.). Prentice Hall.
Kotter, J. P., & Schlesinger, L. A. (1989). Choosing Strategies for Change. Readings in Strategic Management, 294–306. https://doi.org/10.1007/978-1-349-20317-8_21
Taylor, F. W. (1911). The principles of scientific management. New York: Harper & Brothers.
Common Organizational Structures
Along the spectrum from mechanistic to organic organizations, where rigidity gives way to adaptability, several common structures have emerged, primarily as a response to their historical contexts.
Taylor’s scientific management emphasized efficiency and productivity, advocating for the systematic division of labor and the specialization of tasks. This approach laid the groundwork for the divisional structure by encouraging organizations to break down functions into specialized units, each responsible for specific tasks, thereby enhancing operational efficiency.
Following this, Weber’s theory of bureaucracy introduced the principles of hierarchical organization, clear roles, and formal procedures. He argued for a structured approach to management where authority is based on rational-legal grounds. This bureaucratic model influenced divisional organizations by promoting the idea of distinct divisions or departments within a larger organizational framework, each with its own hierarchy and responsibilities. This structure allows for clearer accountability and more effective coordination among different business units.
Functional organizations also emerged at the end of the Industrial Revolution. In this structure, each department focuses on a specific area of expertise, such as marketing, finance, human resources, or production, allowing for efficient task execution and clear delineation of responsibilities.
After the Second World War, there was a push for businesses to be responsive to customers, who were previously expected to buy what was offered by existing large corporations. With the introduction of the Marketing Era, competition increased further. To attract customers, organizations needed to be more flexible and adapt their approaches, leading to the development of organizational structures that were more adaptable.
Then, with the integration of computing and later the internet, organizations needed to be even more nimble. In the early 2000s and especially into the 2010s, the rate of change in the market expanded further, as organizations now had global audiences for their products.
Today, organizations are increasingly operating in a landscape characterized by rapid technological advancement, globalization, and shifting consumer expectations. As a result, many organizations have adopted agile structures that emphasize flexibility, collaboration, and responsiveness to change.
In the following sections, we will discuss the common structures: divisional, functional, matrix, project, and networked.
Divisional Structure
Divisions or groupings within organizations often categorize work by geography, process, customer, or product. For example, Coca-Cola employs a geographic division structure, organizing its operations into areas such as North America, Latin America, Europe, Africa, and Asia-Pacific. Each area has its own teams responsible for various organizational functions—such as legal, operations, and marketing—allowing them to operate semi-autonomously. Similarly, McDonald’s utilizes a process-based division, with separate divisions for food preparation, customer service, and supply chain management. In contrast, Loblaws targets different customer segments through its distinct divisions: No Frills caters to price-conscious shoppers, Canadian Superstore serves the average income earner, and Loblaws City Market is designed for customers who prefer high-quality food. Finally, Canadian Tire has four main divisions that function somewhat separately: automotive, home, sports and leisure, and clothing and footwear. As you can see in these examples, they may divide their divisions differently, but they share the two traits. Their divisions have some independence in their division, and also, their structures tend to be on the more mechanistic side of the spectrum.
Functional Structure
In a functional structure, the organization is divided into departments based on specific functions or specialties, such as marketing, finance, human resources, and production. Each department operates independently but contributes to the overall goals of the organization. For example, any college or university is usually divided into functions, such as student services, academic, facilities, marketing and communications, and technology. This structure emphasizes efficiency and expertise within each functional area. In terms of the mechanistic and organic spectrum, it blends the components. Some functions, such as finance, might actually work fairly mechanistically whereas other functions, such as marketing might be more flexible in completing the tasks.
Matrix Structure
A matrix organization is a company structure in which employees report to more than one manager, allowing for flexibility and collaboration across various teams. In this structure, individuals engage in both cross-functional projects and their specific departmental roles, promoting a dynamic work environment where resources and expertise can be shared effectively. Bombardier employs a matrix structure where employees report to both a functional manager (e.g., engineering, production) and a project manager (e.g., specific aircraft programs). This dual reporting system allows for flexibility and dynamic resource allocation across projects. This makes the matrix organization more flexible on the mechanistic and organic spectrum. This structure works well for adding flexibility to a large organization.
Project Structure
A project organization is a structure that employs specialized teams to execute specific projects. In these organizations, project teams focus on optimizing resources, ensuring clear communication of roles and responsibilities, and minimizing potential roadblocks. For example, a small technology software development company with 10-15 employees may adjust its structure based on the needs of the specific client they are serving. To maintain an effective project organization, teams require proper guidance and training. Each company may develop its own approach to project organization, influenced by factors such as employee count and project complexity. Project structures are inherently flexible and organic; however, they can be challenging to implement in larger organizations due to the pressures of constant change, which can complicate the management of a substantial workforce.
Networked Structure
A networked structure is an organizational framework characterized by a decentralized and flexible approach, where organizations maintain a core team while outsourcing various functions to external partners or contractors. This structure allows companies to be agile, responsive, and adaptable to changing market conditions by leveraging specialized expertise from different sources, facilitating collaboration across diverse teams, and fostering innovation through interconnected networks.
Summary of the Connection of Organizational Design and Structure to Ethics
Assessing how well an organizational structure facilitates ethical decision-making and management can be challenging. However, by drawing on the insights gained from Personal and Issue Factors, we understand that managers can foster ethical decision-making within their organizations by consistently reiterating organizational values, providing ethics training to employees, and creating safe learning environments for ethical dilemmas. These measures empower employees when confronted with ethical challenges.
Different organizational structures may influence the ability of managers to implement these practices effectively. For instance, divisional and functional structures are often found in organizations prioritizing efficiency. This emphasis on efficiency can sometimes lead to a stronger focus on results, which may overshadow ethical considerations. In contrast, project and networked structures prioritize agility to meet client demands, which frequently includes a focus on values and social responsibility. As a result, organizations employing these structures may be more inclined to emphasize ethics and promote ethics training among their employees.
Structure Factors’ Effect on Ethical Decision-Making and Management
In this final area of the PICS framework, we will briefly discuss the organizational structure (S) factors that influence ethical decision-making and management. To get started, it is good to understand that:
- Performance management system – organizations can promote ethical behaviour if their performance management systems:
- Reward ethical behaviour in performance reviews (even when it might mean less profit)
- Recognize people for outstanding ethical behaviour
- Reporting systems – organizations can promote ethical behaviour if their reporting systems:
- Allow for subordinates to be safe when reporting their peers or superiors
- Availability of information – if individuals in the organization have access to information relevant to the situation, then they often feel more empowered to make the decision.
- Codes of ethics – codes of ethics can support ethical behaviour because they allow employees to clearly understand what is expected of them. It is important to note that a code of ethics is more effective when accompanied by training on the code of ethics.
Organizational Structure, like Organizational Culture, is an area in which managers can directly impact ethical decision-making by establishing and maintaining structures, policies, and process that support ethical decision-making.
Structure Factor – Performance Management Systems
Performance management is the mechanism through which employers monitor and management employees behaviour. Thus, it is only logical that if a performance management system integrates the ideas of ethics and social responsibility, it will aid its employees in acting ethically. In terms of Structure Factors, performance management can promote ethical behaviour if their performance management systems:
- Reward ethical behaviour in performance reviews and
- Recognize people for outstanding ethical behaviour
The next two sections will clarify how each of the areas can promote ethical behaviour, or if not done right, decrease the likelihood of ethical behaviour.
Performance Management
Performance management is made up of aligning a person’s role in the company with the purpose and direction of the company, defining the outcomes expected in the role, clarifying how those outcomes will be measured, monitoring an employees performance on the targeted outcomes, and as needed, making plans to improve the employee’s achievement of those outcomes. Superficially, one would think that these steps in performance management would promote ethical behaviour, but that is not always the case.
When an employee’s job outcomes are primarily focused on achieving transactional results—such as increased sales, reduced waste, or fewer mistakes—employees may feel pressured to cut ethical corners to meet these goals.
For instance, Aadila works at an electronics store with high sales targets. If she fails to meet her sales numbers in a given month, her three-month performance review will likely be unfavorable. Consequently, she might be tempted to mislead customers or inflate her sales figures in the system to meet her quotas. Similarly, Nikau works for a delivery company with stringent efficiency targets for timely deliveries. If his on-time delivery numbers fall short or he fails to deliver all items during his shift, he risks receiving negative feedback from his supervisor. When pressed for time, he might skip checking in with customers in large buildings, where he has to navigate multiple buzzer codes. In both cases, Aadila and Nikau could receive negative reviews for choosing to do their jobs ethically. Many organizations’ performance management systems prioritize monetary-driven results.
Companies that balance financial goals with ethical practices tend to promote ethical behavior.
For example, if Aadila’s company evaluated her sales performance alongside customer ratings of her fair service, she would be more inclined to act ethically when assisting customers. Likewise, if Nikau’s company considered customer satisfaction alongside measures of timeliness and delivery efficiency, he would be more motivated to perform his job well.
To encourage ethical behavior among employees, organizations must ensure that acting ethically does not jeopardize their performance evaluations. The cases of Aadila and Nikau illustrate how employees can be forced to choose between ethical conduct and job security. Companies adopting frameworks like the triple bottom line—which emphasizes profit, people, and the planet—often integrate a balanced approach into their performance metrics. However, for some businesses, the accountability associated with the triple bottom line may be overly burdensome. In such cases, prioritizing ethics and social responsibility within performance management systems can encourage employees to achieve results through ethical means.
For more information on the triple bottom line, follow this link: https://online.hbs.edu/blog/post/what-is-the-triple-bottom-line
Recognizing Outstanding Ethical Behaviour
Another key aspect of performance management is the distribution of awards or rewards, whether through bonuses or public recognition. Companies that take the time to reward ethical choices alongside financial incentives significantly encourage their employees to act ethically. Furthermore, this practice fosters an organizational culture that enhances both structure and overall performance.
Awards also contribute to shaping the organization’s image regarding the importance of ethics. By publicly recognizing individuals who make ethical decisions aligned with the company’s values, organizations reinforce the message that profitability must go hand in hand with ethical and social responsibility.
Structure Type and Structure Factor – Performance Management Systems
While the type of organizational structure does not inherently affect the effectiveness of performance management systems, rewards, and awards in incentivizing employees, these components are often less prevalent in mechanistic organizations. As previously mentioned, mechanistic organizations prioritize efficiency over other targets, resulting in performance management systems that emphasize profit over ethics and social responsibility. Even if they manage to strike a balance between profit-centric and ethics/responsibility-centric targets, their rigidity makes it challenging to adapt to emerging issues.
In contrast, organic organizations tend to be more flexible and conducive to change and growth. They typically embrace a holistic definition of success that emphasizes accountability among internal and external stakeholders. Consequently, they are better equipped to respond to issues and are more likely to establish organizational goals that promote ethical behavior and social responsibility.
Structure Factor – Reporting Systems
An employee’s willingness to act ethically or report unethical behavior is largely influenced by the effectiveness of the reporting systems in place. Systems that require significant personal exposure or risk, such as political consequences, often discourage reporting, allowing unethical behavior to continue unchecked. In contrast, systems that offer confidentiality or anonymity remove these barriers, encouraging employees to take action. The structure for reporting and mechanisms for whistle-blowing are key elements in creating a system that supports ethical behavior.
Reporting Systems
Employees are less likely to report unethical actions if they must:
- Publicly disclose the issue, such as in a team meeting;
- Report to a supervisor or higher management due to concerns about:
- Damaging the superior’s perception of them;
- The supervisor’s ability to maintain confidentiality; and
- The risk of retaliation if others learn of their report.
- Endure a lengthy or complicated reporting process;
- Experience difficulty in reporting, such as needing to provide extensive evidence or relive a traumatic experience.
Effective reporting systems should aim to:
- Ensure protection and confidentiality, so the reporting individual feels safe and knows the matter will involve as few people as possible;
- Remove power dynamics by allowing reports to be made through a safe, neutral third party;
- Minimize the time between reporting and resolution, reducing the individual’s involvement where possible; and
- Provide guidance on how to gather evidence and offer support, particularly when the reporter has faced hardship.
These principles should be integrated into both everyday reporting to supervisors and formal processes for addressing ethical concerns.
Whistle-Blowing
Whistle-blowing policies are a vital part of reporting systems, protecting individuals who report illegal, unethical, or problematic actions. While anonymous whistle-blowing encourages more reports, it can hinder follow-up investigations due to the lack of verifiable testimony. Confidential reporting (as opposed to anonymous) strikes a better balance, protecting the whistle-blower while enabling the organization to gather necessary information for action. Organizations must balance whistle-blower protection with the ability to act effectively on the report.
Structure Type and Reporting Systems
Organic structures foster open, collaborative communication, encouraging employees to share concerns for the organization’s growth. These structures reduce emotional and power-based barriers to reporting. However, they may lack formal processes for reporting, leaving employees uncertain about how to raise issues or fear disrupting the culture by pointing out problems.
Mechanistic structures, while typically having formal reporting systems, often operate in profit-driven environments, where employees may fear retaliation or negative career impacts from reporting. Additionally, if unethical behavior benefits the organization financially, management might be less inclined to take action, further discouraging employees from reporting unethical conduct.
Structure Factor – Availability of Information
Availability of Information
The organizational structure plays a significant role in determining how information is stored, who has access to it, and the process employees must follow to gain that access. Structures that encourage open communication and transparency make it easier for individuals to access relevant information, while more rigid or hierarchical structures may limit the flow of information.
Access to information within an organization is essential for empowering employees to make ethical decisions. When individuals have relevant information, they are more likely to:
- Understand expectations: Employees who have clear access to company policies and context can align their actions with ethical standards.
- Make confident decisions: With sufficient information, employees feel more empowered to choose ethical paths.
However, when information is limited or unavailable, several challenges arise:
- Misjudgment of situations: Lack of context may lead employees to perceive behavior as unethical, even if it is appropriate within a broader understanding.
- Uncertainty in acting ethically: Employees might be unsure of how to proceed ethically if they don’t have all the information necessary to make informed choices.
- Barriers to reporting unethical behavior: Limited information can prevent employees from knowing how or where to report unethical issues, leaving them unaware of appropriate channels.
For example, the way information is stored (whether in open-access databases or restricted systems), who in the organizational hierarchy has permission to access it, and the process required to gain access can all influence an employee’s ability to make ethical decisions. If employees must navigate complex procedures or hierarchies to get the information they need, they may feel discouraged or unable to act ethically in certain situations.
In short, when information is restricted, it impedes employees’ ability to make informed, ethical decisions, potentially weakening the organization’s ethical culture.
Structure Type and Availability of Information
Mechanistic structures tend to restrict access to information, either intentionally or unintentionally, by creating unnecessary hierarchical barriers. Employees may need to go through multiple layers of approval to access or use information. On the positive side, mechanistic organizations often have well-established systems for recording and managing data, ensuring long-term information is available when needed. In contrast, organic organizations, while often more transparent and better at making information readily accessible, may struggle with long-term data management due to less formalized processes.
Structure Factor – Codes of Ethics
A code of ethics is a formal document that outlines an organization’s values, principles, and expected behaviors, serving as a framework for ethical decision-making. However, it’s not just about having a code—it’s about how effectively it is implemented within the organization. Consider the following:
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- Most organizations have a code of ethics, but having one is not the same as fostering ethical behavior. It’s often a baseline requirement for insurance and compliance purposes.
- Codes of ethics need to be actively integrated into company culture. For them to be effective, they must be tied to performance measures, rewards, and organizational culture. This integration helps employees understand and internalize what is expected of them.
- Training is essential for empowerment. To take employees from simply understanding the code to feeling confident in acting on it, companies should offer use cases and simulations through training. These learning environments create a safe space for employees to practice ethical decision-making and build confidence.
Ultimately, employees need a place where they can learn, fail, and feel supported. Providing such training environments ensures that they not only know the code of ethics but also feel empowered to act on it.
Structure Type and Codes of Ethics
As previously mentioned, most companies have Codes of Ethics. However, the enforcement and integration of these codes can vary significantly based on the organization’s structure:
- Mechanistic Organizations: These profit-focused organizations often treat Codes of Ethics as tools to enhance profitability. While rare, some mechanistic organizations do emphasize performance structures that balance profit with ethics and social responsibility. In such cases, the Code of Ethics may be connected to employee performance metrics. However, these organizations typically lack comprehensive training and safe learning environments for their employees.
- Organic Organizations: In contrast, organic organizations usually prioritize creating safe learning environments. Those that emphasize the integration of ethics and social responsibility into their performance measures often establish a stronger connection between employees’ behavior and the Code of Ethics.
Unfortunately, many companies fail to actively engage employees with their Codes of Ethics through training and other supportive learning opportunities. However, those that do foster such environments empower employees to act ethically, ultimately helping the organization grow in its commitment to ethical practices and social responsibility.
How to Build a Structure that Promotes Ethical Decision-Making
Similar to Culture Factor, managers have the ability to directly impact the organizational structure to develop in a manner that support ethical decision-making by:
- Support an ethical structure by emphasizing a/an:
- Balanced focus between achieving results and acting ethically when managing employees’ performance,
- Reporting system within different levels of the organization that emphasizes shared accountability and removes any risk of retaliation for reporting an ethical issues;
- Whistle-blowing mechanism for people to confidentially report ethical issues;
- Transparency approach to sharing information and keeping people up-to-date; and
- Code of Ethics that is living, meaning that employees regularly engage with it through connecting to day-to-day tasks, receiving further training on it, and being able to contribute (as relevant) to it;
- Balanced focus between achieving results and acting ethically when managing employees’ performance,
- Actively working to decolonize and build inclusive work policies, structures, and practices that promote the empowerment from diverse backgrounds.
- Ensuring that managers and employees are not expected to just know the values, but are expected to live up to them in they way they conduct their work; in particular, it is very important for managers to model and model accountability to ethical cultural values.
Therefore, although managers have a more indirect influence on Personal Factors and Issue Factors, they have the opportunity to foster an organizational culture and structure that actively promote ethics and social responsibility.
Key Takeaways
In this Structure Factors chapter, students learned the following:
- Components of organizational structure include bureaucracy, which emphasizes hierarchical authority and standardized procedures; specialization, focusing on task division based on expertise; and command-and-control, where decision-making is centralized. Additionally, span of control reflects the number of direct reports a manager oversees, while centralization consolidates decision-making at higher levels. Lastly, formalization establishes clear rules and procedures, promoting consistency in operations.
- Mechanistic organizations feature a high reliance on bureaucracy, specialization, command-and-control structures, centralization, and formalization, while typically maintaining a low span of control. This framework emphasizes a highly structured approach, prioritizing efficiency and accuracy in operations.
- Organic organizations exhibit low levels of bureaucracy, specialization, centralization, and formalization, while having a high span of control. This results in a flexible structure that promotes collaboration, adaptability, and innovation. In contrast to mechanistic organizations, organic structures emphasize open communication and teamwork, enabling organizations to respond swiftly to changes in the environment and customer needs.
- Divisional structures are more mechanistic in nature. Functional structures a blend of organic and mechanistic characteristics, but the strategic approach and organizational culture can influence whether it leans more mechanistic or organic. On the other side of the spectrum, project and networked organizations have a strong emphasis on adapting; hence, being more organic. Matrix structures occupy a unique position in the middle of the spectrum, as they integrate aspects of both functional and project structures. They often help large companies balance maintaining structural clarity and having organic approach for managing complex projects in changing markets while balancing the need
- Companies can promote an ethical structure by emphasizing a/an:
- Balanced focus between achieving results and acting ethically when managing employees’ performance,
- Reporting system within different levels of the organization that emphasizes shared accountability and removes any risk of retaliation for reporting an ethical issues;
- Whistle-blowing mechanism for people to confidentially report ethical issues;
- Transparency approach to sharing information and keeping people up-to-date; and
- Code of Ethics that is living, meaning that employees regularly engage with it through connecting to day-to-day tasks, receiving further training on it, and being able to contribute (as relevant) to it.
Reference
Miller, K. (2020, December 8). What is the triple bottom line? Harvard Business School Online. https://online.hbs.edu/blog/post/what-is-the-triple-bottom-line
