Meaning Org design is concerned with making decisions about the forms of coordination, control and motivation that best fit the enterprise. In making these decisions it is necessary to consider external factors and internal factors of the enterprise. It is intimately concerned with the way in which decision making is centralised, shared or delegated and with the way the enterprise is governed.
Management FunctionsDesigning organizational structures is part of organizing, one of thefour basic management functions.Planning Organizing Leading Controlling Lead toDefining Determining Directing Monitoring Achieving thegoals, estab- what needs and moti- activities organization’slishing to be done, vating all to ensure statedstrategy, and how it will involved that they are purposedeveloping be done, parties and accomplishedsubplans to and who is resolving as plannedcoordinate to do it conflictsactivities
Determinants of org design Environment Objectives or Mission Strategy Technology People & culture Age Size
Components of org design Centralisation Complexity Formalisation Structure Division of labour Standardisation Differentiation Departmentalization Span of control
Formalization - the degree Centralization - the degree to which the organization to which decisions are has official rules, made at the top of the regulations and procedures organizationHierarchy of Specialization - Authority - the degree tothe degree of Basic which jobs are vertical narrowlydifferentiation Design defined and across depend on levels of Dimensions uniquemanagement expertise Complexity - the degree to Standardization - the which many different types degree to which work of activities occur in the activities are accomplished organization in a routine fashion
Key Design Questions and Answers for Designing ProperOrganization Structure
Centralisation One of the important building blocks of org design is the level of Centralistion or Decentralisation in decision making. Centralisation refers to the degree to which formal authority for making discretionary choices is concentrated in an individual, unit or level allowing employees to work with minimal inputs. In simple words, it refers to the extent to which decision making lies at a single point in the org.
The hierarchical structure with centralised authority at the top is based on command & control. Top of the pyramid has the right to give command and the subordinates have the duty to obey & follow. Decentralisation:It is the process of dispersing decision making closer to people in the organisation.Decentralization is the policy of delegating decision- making authority down to the lower levels in an organization.A decentralized organization shows fewer tiers in the organizational structure, wider span of control, and a bottom-to-top flow of decision-making and flow of ideas.
Centralisation vs. Decentralisation-Advantages DecentralisationCentralistion 1. Greater flexibility1. Uniformity of policies, stds & actions. 2. Quick response to local requirements.2. Closer control 3. Top mgt focus on policy3. Maxi eco of scale issues4. Eliminates duplication 4. Intra unit5. Reduces risk in DM by communication less skilled subordinates 5. On the job training. 6. Morale & commitment 7. Healthy competition among units
Disadvantages Centralisation Decentralisation1. Much decision load on 1. Problems of control top mgt. 2. Conflicts of goals &2. Lack of initiative from interests among units top mgt 3. Loss of economies of3. No quick response to scale local requirements. 4. Duplication of efforts
•Both has benefits and troubles to the organization.•Manager has to bring a correct balance betweenthese two for effective decision making.•Balance should be made in terms of long termstrategy making and short term flexibility andinnovation.•As top mgt can concentrate on the former, middleand lower managers can respond to quick changes inthe environment and be more flexible.•Thus, leads to bringing a balance betweencentralisation and decentralisation.
Complexity Refers to degree of differentiation that exists within an organisation. It focuses on number of specific jobs, roles, hierarchical levels etc in an org. Complexity exists due to the grouping of the tasks. It requires more process of managing control, coordination and communication with all the sections of task group. Organisations can be complex in 3 ways:
3 ways of org complexity Horizontal :Refers to the degree of differentiation between the units in terms of nature of work, requirements of skills and knowledge, employees orientation etc…It can be seen in division of labour, departmentation and functional specialisation. Vertical :Refers to the number of hierarchical levels which exist between top and lowest level operators in the org.Increase in vertical complexity leads to increase in horizontal also.Number of these levels can be determined by Span of Control.
Spatial complexity Refers to the degree to which the subunits & personnel of an org are geographically separated. Additional units in different locations create additional requirements for control and coordination. Eg: FMCG co, have their marketing divisions spread across the country but production is done in one place. Technology help such org to overcome the problem of control and coordination.
Formalisation Refers to the degree to which jobs in an org are standardised. Greater formalisation reduces the employees discretion in dealing with their work. Formalisation exists in the form of detailed rules, meticulous work procedures & clear job descriptions. By this org ensure that any input is handled in a std manner to produce a uniform output. But less stdzn mean less programmed jobs & provide discretion to employees for work.
It benefits the org in following manner Reduces variability of outputs. It is the best way of dealing with complexity Reduces the need for direct supervision and control. Reduces the chances of committing mistakes at work. Jobs can be handled by less experienced individuals also.
Formalisation techniques Selection & recruitment Role or Job description Rules & procedures Training Culture & Organisational socialisation
Implication of high formalisationFactors High formal Low formalNature of task Routine Non routineNature of product Mass CustomisedOutput predictability High LowCause – effect reln High LowMgt philosophy Control & command Consensus & commitmentHierarchical level Low HighFunctional depts Production Marketing / sales
Structure Refers to the way various tasks, activities & roles are grouped together and relate with each other. It provides the basic framework for organisation to work. It establishes the relationship between various components of org & provides coordination and communication, decision making and control mechanisms. Based on the need of the org, structure can be designed.
Types of org structure Broadly speaking, there are two types of org structures. They are Mechanistic model Organic model
Features of Mechanistic structure High specialisation Rigid departmentalisation Clear chain of command Narrow spans of control Centralisation High formalisation
Features of organic structures Broad specialisation Multi level, cross functional teams Multi channel command Wide span of control Decentralisation Low formalisation
Mechanistic Organic BoundarylessRigid hierarchical Collaboration (both vertical Collaboration (vertical,relationships and horizontal) horizontal, customers, suppliers, competitors)High formalization Low formalization Low formalizationTop-down communication Informal communication Informal communicationCentralized decision Decentralized decision Decentralized decisionauthority authority authorityNarrowly defined specialized Broadly defined flexible jobs Broadly defined flexible jobsjobsEmphasis on individuals Emphasis on teams Emphasis on teams that alsoworking independently may cross organization boundaries
Division of labour When total tasks are divided into smaller and simplified units for the purpose of assigning responsibilities to perform the job is called as Division of Labour. As org become more complex, breaking the work into various tasks become the norm. Also called as specialistion, refers to the distribution of formal duties among a number of positions. Specialisation can be of two types:1. Functional2. Role
Division of labor:• Makes efficient use of employee skills• Increases employee skills through repetition• Less between-job downtime increases productivity• Specialized training is more efficient• Allows use of specialized equipment
Advantages Disadvantages High efficiency Routine tasks leading to Low skill requirement monotony Less time and cost in High cost of supervision training Full potential not utilised High standardisation Low job satisfaction Uniform output Lack of identification with total problems No new challenges Increased need for coordination and control
•Refers to the extent to which jobs & procedures areprecisely & clearly defined.• rules apply invariably.•Jobs requiring adoption of different procedurescannot be standardised.•It can applied to tasks that are routine, problems thatcan be analysed and decision can be programmed.•Balancing the need for standardisation is complextask for a manager.•Discovering new ways of doing job needs mutualadjustment but not standardisation is the slogan oftoday’s orgs.
Differentiation Horizontal differentiation often refers to the process of departmentalistion. Vertical differentiation refers to the levels in the structure of an org. Increased differentiation leads to greater complexity. It also leads to distortion of communication, delay in decision making and increased time lag for finishing the tasks.
DepartmentalizationWhat is it? The process of grouping jobs according to some logical arrangement.Functional Departmentalization: Grouping jobs involving the same or similar activities.Product Departmentalization: Grouping activities around products or product groups.
Ways to Departmentalisation By function: arranging the business according to what each section or department does By product or activity: organising according to the different products made By area: geographical or regional structure By customer: where different customer groups have different needs By process & market: where products have to go through stages as they are made
Functional structure This depends on the business type, size and structure used Let’s look at a Chief Executive Board of Directors Production Marketing Accounts Personnel IT
Functional Structure Advantages Disadvantages Specialisation – each Closed communication department focuses on could lead to lack its own work of focus Accountability – Departments can become resistant someone is responsible to change for the section Coordination Clarity – know your and may take too long others’ roles Gap between top and bottom
Organisation by Product/Activity Advantages Disadvantages Clear focus on market Duplication of functions segment helps meet (e.g. different sales force customers’ needs for each division) Positive competition Negative effects of between divisions competition Better control as each division can act as Lack of central control separate profit centre over each separate division
Hewlett-Packard’s Headquarters Worldwide Hewlett Packard Americas Europe, Middle East, Africa Asia PacificHouston, Texas Geneva, Switzerland Hong Kong
PRESIDENT MANUFAC-MARKETING RESEARCH FINANCE PLANNING PERSONNEL TURING LINE MANAGEMENT VICE-PRESIDENT VICE-PRESIDENT VICE-PRESIDENT DOMESTIC DOMESTIC INTERNATIONAL DIVISION A DIVISION C DIVISION VICE-PRESIDENT VICE-PRESIDENT DOMESTIC DOMESTIC DIVISION B DIVISION D ASIA/PACIFIC EUROPE/MIDDLE LATIN AMERICA STAFF EAST/AFRICA COUNTRY COUNTRY COUNTRY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES
Organisation by Area Advantages Disadvantages Serve local needs better Conflict between local and Positive competition central management More effective Duplication of resources communication between and functions firm and local customers
PRESIDENT CORPORATE STAFF MANUFAC-MARKETING RESEARCH FINANCE PLANNING PERSONNEL TURING LINE MANAGEMENT AREA MANAGER AREA MANAGER NORTH AMERICA EUROPE AREA MANAGER AREA MANAGER AREA MANAGER FAR EAST LATIN AMERICA MIDDLE EAST/AFRICA Executives with total corporate and worldwide responsibilities. Corporate staff activities on a worldwide basis generally involve policy matters, strategic planning, basic product planning, functional guidance to line geographic unit, and coordination of activities between geographic units Executives with line responsibility for all operations in a particular geographic area
Advantages and Disadvantages of the Matrix Approach: Advantages Disadvantages Efficient utilization of scarce, Employee frustration and expensive specialists confusion as a result of the dual Flexibility that allows new chain of command projects to start quickly Conflict between product and Development of cross-functional functional managers over skills by employees deadlines and priorities Increased employee involvement Too much time spent in meetings in management decisions to coordinate decisions affecting project or product assignments
Establishing ReportingRelationships – Span of control What needs to be clarified? Chain of Command: Clear and distinct lines of authority among all positions in an organization. Span of Management: What is it? The number of people who report to each manager.
Tall Versus Flat Organizations What is the difference? Flat organizational structure leads to higher levels of employee morale and productivity. Tall organizational structures usually tend to be more expensive requiring more managers.
Factors Influencing the Span ofManagement Competence of supervisor and subordinates. Dispersion of subordinates. Extent of non-supervisory work. Degree of required supervision. Extent of standard procedures. Similarity of tasks. Frequency of new problems. Preferences of supervision.
Flexibility Design should be flexible enough to allow for adaptation to changing demands of the environment. Design based on narrow specialistion places constraints on the flexibility in redeployment of HR. Structure shd encourage innovation thro rearrangement of org resources. Structure shd change in response to environment and the needs of the org as orgs cannot be static and constant.