ORGANIZATIONAL ORGANIZATIONAL DESIGNDESIGN(Part-II)(Part-II)

DifferentiationDifferentiation

All organizations must split their work All organizations must split their work into tasks into tasks

The division of labor into tasks is The division of labor into tasks is called differentiationcalled differentiation

Three Types of DifferentiationThree Types of Differentiation

Horizontal differentiation:Horizontal differentiation: division of division of work to be done into tasks and sub-work to be done into tasks and sub-tasks at the same organizational leveltasks at the same organizational level

Vertical differentiation:Vertical differentiation: division of work division of work by level of authority, hierarchy, or chain by level of authority, hierarchy, or chain of commandof command

Spatial differentiationSpatial differentiation involves the involves the geographical location of different geographical location of different organizational activitiesorganizational activities

Vertical DifferentiationVertical Differentiation

Span of control (division of authority)Span of control (division of authority) The number of subordinates that a single The number of subordinates that a single

manager directly manages.manager directly manages.Organizational hierarchy choicesOrganizational hierarchy choices

Flat structuresFlat structures Few organizational levelsFew organizational levels Wide spans of controlWide spans of control

Tall structuresTall structures Many organizational levelsMany organizational levels Narrow spans of controlNarrow spans of control

Differentiation (cont.)Differentiation (cont.)

In a In a simplesimple organization, differentiation is organization, differentiation is low because the division of labor is low. low because the division of labor is low. That is, individuals typically perform all the That is, individuals typically perform all the organizational tasks.organizational tasks.

In a In a complexcomplex organization, differentiation is organization, differentiation is high because the division of labor is high. In high because the division of labor is high. In other words, the total process is “divided up” other words, the total process is “divided up” so that individuals perform separate tasks.so that individuals perform separate tasks.

Differentiation (cont.)Differentiation (cont.)

As the division of labor increases, As the division of labor increases, managers specialize in some roles and managers specialize in some roles and hire people to specialize in others. hire people to specialize in others.

SpecializationSpecialization allows people to develop allows people to develop their individual abilities and knowledge their individual abilities and knowledge within their specific role.within their specific role.

Span of ControlSpan of Control

Span of controlSpan of control is the number of people is the number of people who report to one manager.who report to one manager.

If there are very few people: If there are very few people: narrownarrow span span of control.of control.

If there are many people: If there are many people: broadbroad span of span of control.control.

Spans of ControlSpans of Control

narrow spannarrow span

broad spanbroad span

Increasing Complexity with Span of Increasing Complexity with Span of ControlControl

Span of Control (cont.)Span of Control (cont.) A broad span might be appropriate where:A broad span might be appropriate where:

Work is straightforwardWork is straightforward There are standard rules and procedures to There are standard rules and procedures to

guide workersguide workers Workers are highly capable and experiencedWorkers are highly capable and experienced Relatively autonomous work groups are usedRelatively autonomous work groups are used

Span of Control (cont.)Span of Control (cont.) With a narrow span of control:With a narrow span of control:

More managers/workers More managers/workers Cost of Cost of management is greater.management is greater.

Few workers/managers Few workers/managers Managers have Managers have more time for managerial duties.more time for managerial duties.

Closer supervision Closer supervision Workers get more Workers get more individual attention but have less autonomy.individual attention but have less autonomy.

Likely to be more levels of hierarchy.Likely to be more levels of hierarchy.

Flat and Tall OrganizationsFlat and Tall Organizations

Flat and Tall HierarchiesFlat and Tall Hierarchies

In a flat organization:In a flat organization: Communication is generally faster and less Communication is generally faster and less

distorted.distorted. Decisions can be made faster.Decisions can be made faster. Employees at lower levels are more in touch with Employees at lower levels are more in touch with

top management.top management. Support provided by more levels of management Support provided by more levels of management

obtained by having more self-sufficient employees obtained by having more self-sufficient employees at lower levels.at lower levels.

Fewer opportunities for promotion.Fewer opportunities for promotion.

Flat and Tall Hierarchies (cont.)Flat and Tall Hierarchies (cont.)

In a tall organization:In a tall organization: Supervisory load is less for each manager. Supervisory load is less for each manager.

Tighter supervision may be more productive.Tighter supervision may be more productive. More opportunities for promotion.More opportunities for promotion. Decisions take longer to take.Decisions take longer to take. Communication is slower and likely to be less Communication is slower and likely to be less

accurate.accurate.

Problems with Tall StructuresProblems with Tall StructuresPrinciple of minimum chain of commandPrinciple of minimum chain of command

Maintaining a hierarchy with the least number of Maintaining a hierarchy with the least number of levels of authority needed to achieve a strategy.levels of authority needed to achieve a strategy.

Sources of bureaucratic costs:Sources of bureaucratic costs:

Centralization and DecentralizationCentralization and Decentralization

When managers at the top of the When managers at the top of the hierarchy retain the authority to make hierarchy retain the authority to make important decisions, the organization is important decisions, the organization is viewed as highly viewed as highly centralizedcentralized..

When managers at all levels are allowed When managers at all levels are allowed to make decisions regarding resources to make decisions regarding resources and new projects, the organization is and new projects, the organization is

viewed as highly viewed as highly decentralizeddecentralized..

Centralization or Centralization or DecentralizationDecentralization

Authority patterns in organizations:Authority patterns in organizations: CentralizedCentralized

Decision making retained in the Decision making retained in the hands of upper-level managers.hands of upper-level managers.

DecentralizedDecentralized Decisions delegated to lower Decisions delegated to lower

levels in the organization.levels in the organization.

Centralization (Structural) Centralization (Structural) Choice?Choice?

Advantages of Advantages of decentralization decentralization Reduced information Reduced information

overload on upper overload on upper managers.managers.

Increased motivation Increased motivation and accountability and accountability throughout organization.throughout organization.

Fewer managers; lower Fewer managers; lower bureaucratic costs.bureaucratic costs.

Faster decision making Faster decision making and response.and response.

Advantages of Advantages of centralizationcentralization Easier coordination of Easier coordination of

organizational activities.organizational activities. Decisions fitted to broad Decisions fitted to broad

organizational objectives.organizational objectives. Exercise of strong Exercise of strong

leadership in crisis.leadership in crisis.

Reasons to CentralizeReasons to Centralize

Control:Control: Company has to meet legal requirementsCompany has to meet legal requirements Decisions made at the local level will affect Decisions made at the local level will affect

the whole companythe whole company

Cost: Economies of scale.Cost: Economies of scale.

Reasons to DecentralizeReasons to Decentralize

Responsiveness to local conditionsResponsiveness to local conditions Independence at lower levels helps Independence at lower levels helps

build a pool of candidates for higher build a pool of candidates for higher level positionslevel positions

Sophisticated information systems Sophisticated information systems enable authority to be delegated to enable authority to be delegated to lower levels while still keeping top lower levels while still keeping top management well informed.management well informed.

Factors to ConsiderFactors to Consider

Make sure decisions are made by people Make sure decisions are made by people who are as close as possible to the source who are as close as possible to the source of information and the field of action.of information and the field of action.

Duration: How far into the future does the Duration: How far into the future does the decision commit the organization? How decision commit the organization? How fast can it be reversed?fast can it be reversed?

Factors to Consider (cont.)Factors to Consider (cont.)

What is the effect of the decision on other What is the effect of the decision on other departments and the organization as a departments and the organization as a whole?whole?

What is the cost (including loss of What is the cost (including loss of customer confidence or employee morale) customer confidence or employee morale) of implementing the decision?of implementing the decision?

Relationship Between Company Size Relationship Between Company Size and Number of Hierarchical Levelsand Number of Hierarchical Levels

Subunit OrientationsSubunit Orientations

While horizontal differentiation enables While horizontal differentiation enables specialization and increase productivity, specialization and increase productivity, it also leads to subunit orientation.it also leads to subunit orientation.

Subunit orientationSubunit orientation refers to the refers to the tendency to view one’s role in the tendency to view one’s role in the organization strictly from the organization strictly from the orientations of one’s subunit.orientations of one’s subunit.

IntegrationIntegration Integration, or coordination, is Integration, or coordination, is

the prime responsibility of the prime responsibility of managers. The functions of managers. The functions of management—decision-making management—decision-making and influence—imply and influence—imply coordinating and integrating.coordinating and integrating.

Integration MechanismsIntegration Mechanisms

Hierarchy of AuthorityHierarchy of Authority—“who reports to —“who reports to who.”who.”

Direct ContactDirect Contact—managers meet face to —managers meet face to face to coordinate activities.face to coordinate activities.

Liaison RoleLiaison Role—A specific manager is given —A specific manager is given responsibility for coordinating with responsibility for coordinating with managers from other subunits on behalf of managers from other subunits on behalf of their subunit.their subunit.

Integration Mechanisms (cont.)Integration Mechanisms (cont.)

Task ForceTask Force—Managers meet in temporary —Managers meet in temporary committees to coordinate cross-functional committees to coordinate cross-functional activities.activities.

TeamTeam—Managers meet regularly in —Managers meet regularly in permanent committees to coordinate permanent committees to coordinate activities.activities.

Integration Mechanisms (cont.)Integration Mechanisms (cont.)

Integrating RoleIntegrating Role—A new role is —A new role is established to coordinate the activities of established to coordinate the activities of two or more functions or divisions.two or more functions or divisions.

Integrating DepartmentIntegrating Department—A new —A new department is created to coordinate the department is created to coordinate the activities of functions or divisions.activities of functions or divisions.

Integrating MechanismsIntegrating Mechanisms

Ladder of Mechanisms for Horizontal Ladder of Mechanisms for Horizontal Linkage and CoordinationLinkage and Coordination

HIGH

LOW

LOW

Information Systems

Direct Contact

Task Forces

Full-time Integrators

Teams

Am

ount

of

Hori

zonta

lC

oord

inati

on R

equir

ed

Cost of Coordination in Time and Human Resources

H IGH

Standardization and Mutual AdjustmentStandardization and Mutual Adjustment

StandardizationStandardization is conformity to specific is conformity to specific models or examples (rules and norms).models or examples (rules and norms).

Many rules are written in a Many rules are written in a formalizedformalized organization.organization.

Mutual adjustment Mutual adjustment is the process of is the process of allowing people to use their judgement allowing people to use their judgement rather than standardized rules to address rather than standardized rules to address a problem.a problem.