Organizational Structure & Design

What is an Organization ?

A social unit of people, systematically structured and managed to meet a need or to pursue collective goals on a continuing basis.

Organizational Structure:

It is a framework within which an Organization arranges it’s lines of authorities and communications and allocates rights and duties.

Work specialization:

Work specialization also called division of labor or job specialization is the degree to which organizational tasks are sub-divided into individual jobs. It may increase the efficiency of workers.

Example: In a bakery that uses batch production , one semi skilled individual prepares the dough, the other cuts the dough into pieces followed by a worker who prepares the bread or cake and the other who decorates it and still others that deliver the cake. The same workers do the same task for each batch of bread cake or other desserts.

Departmentalization:

It is the basis on which the jobs that are divided due to work specialization are grouped together into logical units. the grouping is based on common aspects of the jobs that can be coordinated and evaluated. there are different techniques of departmentalization:

Functional departmentalization:

It is when jobs are grouped according to activities or its functions. It is a very common form of departmentalization. Functional departments usually include marketing , sales, human resource, finance departments respectively. The advantage is that workers specializing in the tasks are put together.

Organizational Structure & Design

Example: Shell is divided along various functional departments such as marketing department ,project development, training and research, human resource department, finance management department and operational department .

Geographical Departmentalization:

It refers to when the organization is divided with respect to different areas of geography served by the business. it is usually opted in multinational firms or firms that have operations in different regions of the same country.

Example: HEC Pakistan is divided into its regional centers with their own regional directors. the regional centers are regional centre Karachi, regional centre Lahore and regional centre Quetta.

Product or service departmentalization:

It is when the organization is divided on the basis of different products or services created by the firm. This helps to focus on specific product lines efficiently.

Example: Insurance companies usually departmentalize along different services such as a life insurance department, a fire insurance department, an accident and health department, liability department and others.

Process Departmentalization:

It is when the organization is divided according to different processes used in creating a product or service of the business. It is used when different processes requiring different machinery and skills to make a product are used in businesses.

Example: In the insurance companies, to claim insurance for an accident you have to pass through many departments to complete a process. first the application department takes the application followed the survey department that survey the accident then the payment processing department.

Customer Departmentalization:

It is when the organization is divided to offer their services or products to separate identifiable customer groups. it is used when the firm caters to the needs of separate customer categories.

Example: Nike the sports goods manufacturer divides its product lines into customer categories such as professional athletes, amateur athletes, males athletes, women athletes. And therefore has divisions that caters to the needs of these separate customer groups.

Chain of Command:

The continuous line of authority that extends from upper level of organization to lowest level of organization and clarifies who reports to whom.

Organizational Structure & Design

Example: Store Manager > First Assistant Manager > Second Assistant Manager > Shift/Swing Managers > Crew Trainer > Crew Member.

Authority:

The rights inherent in a managerial position to tell people what to do and expect them to do it.

Responsibility:

The obligation or expectation to perform. Responsibility brings with it accountability.

Unity of command:

The concept that a person should have one boss and should report only to him.

Span of Control:

Span of control-refers to the number of subordinates working directly under a manager. span of control can be:

1. Narrow

2. Wide

Narrow span of control:

With lesser number of subordinates working under a manger

Organizational Structure & Design

Wide span of control: With a larger number of subordinates working under one manager.

CENTRALISATION AND DECENTRALISATION:

Centralization and decentralization refer to the degree to which decisions making authority is distributed within an organization.

Centralization:

When the entire decision making authority is in the hands of the central management of the firm and no lower level involvement is required in making decisions for the firm. it is useful when the decision are strategic and serious in nature and involve a lot of risk.

Example:McDonalds practice centralization because as a franchise all the advertising decision have to be approved by the top level management. Every decision involving the procedure to create burgers and employee training ,even cleaning schedules is decided by the top level management.

Decentralization:

When the decision making authority is delegated to the managerial levels just below the top level i.e. not all the decision making authority lies in the hands of the top level management.

Example: The clothing brand in Pakistan employees decentralization as it allows the store managers at different outlets discretion in how they want to set up or decorate the outlet. The decoration need not be approved by the regional managers.

FORMALIZATION:

It refers to the extent to which jobs are standardized within an organization .it refers to the degree to which the employee has to follow the given pattern to do their job.A highly formalized job-is when the worker knows exactly what is asked from him.

Organizational Structure & Design

Example: Armed forces are highly formalized jobs as there are strict procedures at every step for the workers to follow. The time to wake up train eat everything is standardized and no discretion is allowed at jobs.

Mechanistic organization:

Mechanistic Structure is appropriate for organizations focusing on a cost- minimization strategy through tight control, extensive division of labor, high formalization and centralization. The information network is limited and employees rarely participate in decision making process.

Example: Organizations using Mechanistic structures include colleges and universities. If you think about it, they have long and strict registration procedures, rarely have to adapt or change in order to keep students enrolling, and most students tend to maintain high loyalty or obedience toward their instructors.other examples are healthcare, governmental organizations.

Mechanistic Structures Include:

Belief upper management is better capable of making decisions Management instructions must be followed Communication and control must proceed through hierarchical routes More emphasis toward completing a task opposed to achieving company goals Employees are more jobs specialized and placed into certain departments Low differentiation of tasks

Organic Structures:

Organic Structure is decentralized and has low complexity and formalization. It has an extensive information system, and employees rarely participate in decision making. It tends to be flexible and adaptive.

Example: Google Corporation is a great example of an Organic structure based business. Their employees are encouraged to use creative problem solving skills and develop new products. General Motors (GM), The Salvation Army, and the Minnesota Mining and Manufacturing Company (more commonly known as 3M).

Organic Structures Include:

Large network of authority, control, and communication Problem solving is encouraged by all employees Employees are more goals oriented than job orientated Employee empowerment is encouraged

Organizational Structure & Design

Contingency factors:

Contingency factors play an important role in contingency planning within an organization. They are what makes a company more prepared for the unexpected situations that can arise all too often within the corporate world. Having a good contingency plan may be what makes the difference between a company coming through a difficult trading period and not making it.

Contingency factors may include social, economic, cultural or political factors that could affect the company.

Example: This type of planning may be more important for a company that deals with suppliers or clients from countries where there is political instability.

• Structural decisions are influenced by:

Overall strategy of the organization

Organizational structure follows strategy.

Size of the organization

Firms change from organic to mechanistic organizations as they grow in size.

Technology use by the organization

Firms adapt their structure to the technology they use.

Degree of environmental uncertainty

Dynamic environments require organic structures; mechanistic structures need stable environments.

• Strategy and Structure

Achievement of strategic goals is facilitated by changes in organizational structure that accommodate and support change.

• Size and Structure

As an organization grows larger, its structure tends to change from organic to mechanistic with increased specialization, departmentalization, centralization, and rules and regulations.

• Technology and Structure

Organizations adapt their structures to their technology.

Organizational Structure & Design

Woodward’s classification of firms based on the complexity of the technology employed:

Unit production of single units or small batches

Mass production of large batches of output

Process production in continuous process of outputs

Routine technology = mechanistic organizations

Non-routine technology = organic organizations

• Environmental Uncertainty and Structure

Mechanistic organizational structures tend to be most effective in stable and simple environments.

The flexibility of organic organizational structures is better suited for dynamic and complex environments.

COMMON ORGANIZATIONAL DESIGNS:

I. TRADITIONAL DESIGNS:a) Simple structure:

A structure characterized by a low degree of departmentalization, wide span of control, authority centralized in a single person, and little formalization

Strengths:

simplicity fast and flexible

Organizational Structure & Design

inexpensive to maintain clear accountability

Weaknesses:

difficult to maintain creates information overload at top decision making becomes slower or a standstill lose momentum eventually fail dependency on one person

b) Functional Structure:

A functional structure is defined as a design that groups similar or related occupational specialties together. It is the functional approach to departmentalization applied to the entire organization.

Departmentalization by function– Operations, finance, human resources, and product research and development

c) Divisional structure:

A divisional structure is made up of separate, semi-autonomous units or divisions. Within one corporation there may be many different divisions and each division has its own goals to accomplish. A manager oversees their division and is completely responsible for the success or failure of the division. This gets managers to focus more on results knowing that they will be held accountable for them.

Composed of separate business units or divisions with limited autonomy under the coordination and control the parent corporation.

Organizational Structure & Design

II. CONTEMPORARY ORGANIZATIONAL DESIGNS:

Team structures:

A structure in which the entire organization is made up of work groups or teams.

Advantages: Employees are more involved and empowered. Reduced barriers among functional areas.

Disadvantages: No clear chain of command. Pressure on teams to perform.

The entire organization is made up of work groups or self-managed teams of empowered employees.

Matrix and project structures:

A structure that assigns specialists from different functional areas to work on projects but who return to their areas when the project is completed. Project is a structure in which employees continuously work on projects. As one project is completed, employees move on to the next project.

Advantages: Fluid and flexible design that can respond to environmental changes. Faster decision making.

Disadvantages: Complexity of assigning people to projects. Task and personality conflicts.

Organizational Structure & Design

Specialists from different functional departments are assigned to work on projects led by project managers.

Matrix and project participants have two managers.

In project structures, employees work continuously on projects; moving on to another project as each project is completed.

Boundary less Organization:

A structure that is not defined by or limited to artificial horizontal, vertical, or external boundaries; includes virtual and network types of organizations.

• Advantages: Highly flexible and responsive. Draws on talent wherever it’s found..

• Disadvantages: Lack of control. Communication difficulties..

An flexible and unstructured organizational design that is intended to break down external barriers between the organization and its customers and suppliers.

Removes internal (horizontal) boundaries:

• Eliminates the chain of command

• Has limitless spans of control

• Uses empowered teams rather than departments

Eliminates external boundaries:

Uses virtual, network, and modular organizational structures to get closer to stakeholders