Organizational structure and organizational processes are part of strategy implementation. Both these
factors play key role in ensuring the organizational performance is kept aligned towards the achievement
of desired goals in business. Organizational structure articulates to all organizational members the
reporting structure (accountability framework), the way people are grouped according to their skill
specialization and the role they are supposed to play within the organizational. Operational processes
include how work is carried in the organization, and how the activities that constitute such processes are
interlinked. In order to ensure an organization’s performance vis-à-vis its goals, apart from the strategy,
the management needs to ensure an organization’s structure is aligned to its strategy and to the
Differences in Organization’s strategy, in its structure, and in the nature of operating processes
create myriad structure-process configuration. These are influenced by the environment in which
an Organization is operating and also by the strategic intent of the top management.
Centralization and decentralization are two opposite ways to delegate responsibility and
authority, and to design the Organizational structure accordingly. While designing performance
management processes, especially the performance information system, care must be taken to
understand the particular strategy-structure-process configuration that is best suited to achieve the
desired outcomes. An effective performance management process has to formulate only after
analyzing and recommending the suitable configuration.
Organizational structure and Organizational processes play a key role in ensuring that
Organizational performance is kept aligned towards the achievement of desired goals in business.
Organizational structure specifies the formal hierarchy with in an Organization in terms of
reporting relationship, decision-making authority, and control. Correct alignment or fit of the
structure in terms of reporting relationship, decision-making authority and control ensures the
successful implementation of the company strategy. Organizations thus should have structures
that are adaptive to the eternal environment and to the process requirements. The structures
should enable the Organizations to grow by exploring competitive advantages and to take
advantage of opportunities.
5. ORGANIZATIONAL STRUCTURE AND PERFORMANCE
Performance management requires that individuals in the organization know their roles and
responsibilities. The profiling of the roles and responsibilities is done by mapping the
organizational structure with the tasks that need to be accomplished in order to achieve the goals.
The same tasks & responsibilities ought to be considered while evaluating the performance of
individual employees. Thus performance appraisals provide an insight into an organization’s
performance management processes and give an idea about the extent to which the exercise of
performance management is being carried out in it.
This point would be better understood in light of the following example regarding the
performance appraisal of employees of a state electricity board. The partial organizational
structure of the Board is given in the below figure. It provides an excerpt from a performance
appraisal form used by this organization for its executives. The form is common for all the
executives irrespective of the various departments in which they are working.
It is obvious that the duties encompassed in the position of Deputy Director (Vigilance and
Security) and Chief Engineer (Stores) are significantly different in nature and in the manner in
which they are supposed to be carried out. The person occupying the post of the Deputy Director
(Vigilance & Security) has to ensure adherence to organizational rules and regulations by other
executives within the organization so as to prevent any financial irregularity. This will be along
with monitoring any breaches of security, pilferage of materials, etc. Here the work is more of a
policing nature. There can hardly be any scope for providing customer satisfaction. Similarly,
under ‘maintaining economy in expenditure ‘, it is required that Deputy Director (Vigilance &
Security) be responsible for certain costs. Here the only cost may be travel cost, which in all
possibilities will be as per the rules of the organization. Similarly, the absence of any subordinate
makes the parameter of ‘providing’ leader-ship to the subordinate non-purposeful.
Things are different for the person deputed as Chief Engineer (Stores). There are internal
customers to whom he or she is accountable. The Chief Engineer (Stores) has to provide the
required equipment and spares with minimum delay. The presence of subordinate staff also
makes it possible to hold him accountable on the parameter of ‘controlling nd providing
leadership to subordinates’.
However as he or she tries to improve performance on ‘economy in expenditure’ by reducing
inventory costs, there exists a distinct possibility of reducing inventory of spares, compromising
customer satisfaction . Any request that cannot be fulfilled due to inventory reduction would lead
to reduction in customer satisfaction albeit improving his performance on ‘economy in
(vigilance and security)
General General Manager(Stores)
Chief Engineer Chief Engineer Chief Engineer (Stores)
(Zone 1) (Zone 2)
Junior Engineer 1 Junior Engineer 2 Junior Engineer 3
Foreman 1 Fore man 2 Fore Man 3
There would therefore, be possibilities that an individual in the post of Chief Engineer (Stores)
would have to manage a trade- off between the two parameters. Such possibilities illustrate that
the organization has yet to improve upon its performance management systems which are
manifested in the appraisal forms. Similarly, the inapplicability of certain metrics for appraisal of
Deputy Director (Vigilance & Security) indicates that differences in organizational structure and
the processes have not been considered by the organization while implementing a uniform
performance appraisal form.
The example of the State electricity board , thus illustrates a defective performance appraisal
form which indicates that this exercise is either not being carried out in the organization or is not
being carried out properly.
6. ORGANISATIONAL STRUCTURE
An organizational structure is a mainly hierarchical concept of subordination of entities that
collaborate and contribute to serve one common aim. Organizations are a variant of clustered
entities. An organization can be structured in many different ways and styles, depending on their
objectives and ambience. The structure of an organization will determine the modes in which it
operates and performs. Organizational structure allows the expressed allocation of responsibilities
for different functions and processes to different entities such as
the branch, department, workgroup and individual. Individuals in an organizational structure are
normally hired under time-limited work contracts or work orders, or under permanent
employment contracts or program orders.
Organizational structure has been in place since the pre-historic days when human beings were
mainly hunters and collectors and organized in tribal communities. They are found in all kinds of
organizations be it monarchial hierarchies, religious institutions, or industrial enterprises.
Organizational structures specify the formal hierarchy within an organization in terms of
reporting relationships, decision-making authority, and control ensures the successful
implementation of a strategy.
Decisions are made by those who are engaged in doing the work. Team leaders, department
heads, unit managers, or division managers are authorized to make decisions are required for
completing their responsibilities. Organization structure may be defined as the established pattern
of relationships among the components of the organization. Organization structure in this sense
refers to the network of relationships among individuals and positions in an organization. Jennifer
and Gareth have defined organization structure as the formal system of task and reporting
relationships that controls, coordinates and motivates employees so that they cooperate and work
together to achieve an organization’s goals. In fact organization structure describes the
organization framework. Just as human beings have skeletons that define their parameters,
organizations have structures that define-theirs. It is like the architectural plan of a building. Just
as the architect considers various factors like cost, space, special features needed etc. while
designing a good structure, the managers too must look into factors like benefits of specialization,
communication problems, problems in creating authority levels etc., before designing the
organization structure. The manager determines the work activities to get the job done, writes job
descriptions, and organizes people into groups and assigns them to superiors. He fixes goals and
deadlines and establishes standards of performance. Operations are controlled through a reporting
system. The whole structure takes the shape of pyramid. The structural organization implies the
• The formal relationships with well-defined duties and responsibilities;
• The hierarchical relationships between superior and subordinates within the organization;
• The tasks or activities assigned to different persons and the departments;
• Coordination of the various tasks and activities;
• A set of policies, procedures, standards and methods of evaluation of performance which
are formulated to guide the people and their activities.
The arrangement which is deliberately planned is the formal structure of organization. But the
actual operations and behavior of people are not always governed by the formal structure of
relations. Thus, the formal arrangement is often modified by social and psychological forces and
the operating structure provides the basis of the organization.
6.1 Implications for Performance Management
The organizational structure defines the scope and nature of responsibilities for the employees.
Different organizations within the same industry may follow different structures. A typical
example is New Holland tractors. While most organizations having assembly plants would
typically follow a functional structure, New Holland tractors followed the matrix structure in its
assembly plants. This required that organizational systems be oriented towards the structure.
Flexible structures (like the matrix structure) require flexible performance management systems.
As the example of state electricity board given earlier in the chapter illustrates, roles which are
responsible for different tasks should be treated differently- with tasks and structures properly
mapped. The same should be reflected in the performance appraisal forms which would indicate
the extent to which the exercise has been carried out.
6.2 Types Of Organizational Structure:
Different types of Organization structure can be created on the basis of arrangement of activities.
Accordingly, three broad types of structural forms are:
• Functional Structure
• Divisional Structure, and
• Adaptive Structure
6.2.1 FUNCTIONAL STRUCTURE
When units and sub-units of activities are created in organization on the basis of functions, it is
known as functional structure. Thus, in any industrial organization, specialized functions like
manufacturing, marketing, finance and personnel constitute as separate units of the organization.
All activities connected with each such function are placed in the same unit. As the volume of
activity increases, sub-units are created at lower levels in each unit and the number of persons
under each manager at various levels gets added. This results in the interrelated positions taking
the shape of a pyramid.
(Fig 1: Functional Structure)
The main advantage of the functional structure of organization is that there is functional
specialization in each unit, which leads to operational efficiency of people engaged, and the
organization as a whole derives the benefit of specialized operations. The heads of the functional
units are in direct touch with the chief executive who can sort out inter-functional problems, if
any, and also coordinate the interrelated functions. The chief executive is also able to be in direct
touch with lower level subordinates and thereby have full knowledge of the state of affairs in the
organization. However, while the functional arrangement may be well suited to small and
medium size organizations, it is incapable of handling the problems of an organization as it grows
in size and complexity. Problems of subunits at lower levels do not receive adequate attention of
higher level managers while some of the activities tend to be over-emphasized. Functional units
become unwisely and difficult to manage when there are diverse kinds of activities performed in
large number of sub-units. Personal contact between superiors and subordinates become rare, and
flow of communication is slow leading to problems of coordination and control.
6.2.2 DIVISIONAL STRUCTURE
The divisional organization structure is more suited to every large enterprise particularly those
which deal in multiple products to serve more than one distinctive markets. The organization is
then divided into smaller business units which are entrusted with the business related to different
products or different market territories. In other words, independent divisions (product divisions
or market division), are created under the overall control of the head office. Each divisional
manager is given autonomy to run all functions relating to the product or market segment or
regional market. Thus, each division may have a number of supporting functions to undertake. A
divisional structure may consist of two or more product divisions or market or territorial
(Fig 2: Divisional Structure)
In a divisional structure each division contributes planned profits to the organization, but
otherwise operates as an independent business. The functional units are headed by managers
while the final authority vests in the divisional manager, who coordinates and controls the
activities of the various functional units in the division. The top management of the organization,
besides providing funds, determines the organization goals and formulates policies. The
divisional structure is characterized by decentralization of authority. Thus, it enables managers to
take decisions promptly and resolve problems appropriate to the respective divisions. It also
provides opportunity to the divisional managers to take initiative in matters within their
jurisdiction. But such a structure involves heavy financial costs due to the duplication of
supporting functional units for the divisions. Moreover, it requires adequate number of capable
managers to take charge of the respective divisions and their functional units.
6.2.3 ADAPTIVE STRUCTURE
Organization structure is often designed to cope with the unique nature of undertaking and the
This type of structure is known as adaptive structure. There are two types in structures.
i) Project Organization, and
ii) Matrix Organization
i) Project Organization: When an enterprise undertakes any specialized, time-bound work
involving one-time operations for a fairly long period, the project organization is found most
suitable. In this situation the existing organization creates a special unit so as to engage in a
project work without disturbing its regular business. This becomes necessary where it is not
possible to cope with the special task or project. Within the existing system, the project may
consist of developing a new project, installing a plant, building an office complex, etc. A project
organization is headed by a project manager in charge, who holds a middle management rank and
reports directly to the chief executive. Other managers and personnel in the project organization
are drawn from the functional departments of the parent organization. On completion of the
project they return to their parent departments. The main advantage of such a structural
arrangement is that it leaves regular business undisturbed. It is exclusively concerned with the
task of completing the project work on time and in conformity with the standards of performance
relevant to its goal. There is better management and control over the project activities as the
project manager enjoys necessary authority and is alone responsible for the results. But project
organization may create problems as well. Functional managers often resent the exercise of
authority by the project manager in the functional areas and hence conflict arises. The stability of
the functional departments is disturbed by transfer of personnel to project work from time to
time. Shifting of personnel from project to project disrupts their developments in the specialized
ii) Matrix Organization: This is another type of adaptive structure which aims at combining
the advantages of autonomous project organization and functional specialization. In the matrix
organization structure, there are functional departments with specialized personnel who are
deputed to work full time in different projects sometimes in more than one project under the
overall guidance and direction of project managers. When a project work is completed, the
individuals attached to it go back to their respective functional department to be assigned again to
some other project. This arrangement is found suitable where the organization is engaged in
contractual project activities and there are many project managers, as in a large construction
company or engineering firm.
(Fig 3: Matrix Structure)
Matrix organization provides a flexible structure ideally suited to the requirements of changing
conditions. It facilitates pooling of specialized and technical personnel from different functional
departments, who can be deputed to a number of projects. They acquire valuable experience of
handling varied and complex problems in project work. There is speedy exchange of information
and decision-making as they work under the coordinating authority of project managers. The
major drawback of matrix organization is that the personnel drawn from specialized functional
departments are subjected to dual authority, that of the functional heads and the project managers.
The principles of unity of command are thereby sacrificed. This generates stresses and strains in
project management, because there is simultaneous engagement of the same individual in a
number of projects.
Common success criteria for organizational structures are:
High transient speed
Low residual mass
7. ORGANIZATIONAL PROCESS
Organizing, like planning, must be a carefully worked out and applied process. This process
involves determining what work is needed to accomplish the goal, assigning those tasks to
individuals, and arranging those individuals in a decision-making framework (organizational
structure). The end result of the organizing process is an organization — a whole consisting of
unified parts acting in harmony to execute tasks to achieve goals, both effectively and efficiently.
A properly implemented organizing process should result in a work environment where all team
members are aware of their responsibilities. If the organizing process is not conducted well, the
results may yield confusion, frustration, loss of efficiency, and limited effectiveness.
In general, the organizational process consists of five steps (a flowchart of these steps is shown in
Figure 4 ):
To know the importance of organizational structure and process in performance
management of an origination.
To know how organization is affected without having effective structure and processes.
To know the relationship between organizational structure and process in relationship
with effective performance management of an organization.
To make organizational structure and process effective for the effective and efficient use
of performance management system to optimize the resources in the organization.
To implement the performance management system for the growth of the organization
with effective link to organizational structure and process.
To make the effective organizational structure and process in relation to the strategic fit
with the organization.
7.2 Implication for performance management process:
Performance management systems have not only to take into account the differences in
organizations structure, but also the differences in organizational processes. The different
processes and organizational structures that can exist render the possibilities of different
structure-process combination. This requires the management to pay attention to that combination
which can be best aligned or best-suited to the overall strategy.
Differences in processes also influence the performance information system. A typical example is
illustrated in the case of firm in information technology (IT) industry.
Case 1: Software development in IT Industry: Customized software product development is
driven by clients’ specifications. The project would typically have a dedicated project team with a
project manager. The following objectives for the project manager are clear:-
(i) The meet the deadline as committed to the client or as a indicated in the project
(ii) To meet the client’s specifications for the software as defined in the Software
(iii) To prevent cost overrun.
Case 2: IT System Maintenance in a Bank: The IT department in a bank responsible for
maintaining the IT backbone of the organization has a sort of challenge. It is responsible for
maintaining the up-time of the system. Preventing any unplanned shutdown or disruption in the
system is the prime managerial focus.
The two above mentioned cases illustrate how the nature of processes can differ in the same IT
domain. The performance measurement systems in both these cases have to reflect the
differences the task profile and the allocated responsibility. In the first case, since the work is in
the project mode, the performance measurement system has to be on the basis of project network
diagram. However, for the IT system maintenance in a bank ,it would in terms of system
availability (often measured in terms of percentage uptime)and how fast systems are restored in
the eventuality of shutdowns (often measured in terms of mean time between failures ).apart from
the measures, the frequency of monitoring would be different for both he cases .For a software
project, the monitoring would be done with respect to the project milestones ,whereas the bank’s
IT department would probably have monitoring on the basis of system performance measures on
an hourly basis.
7.3 Operational Processes and Performance Management Process
In contrast to ‘who would do what’ issues in organizational structure, an organization’s
operational processes clarify ‘how things would be done.’ The transformation process is the most
important and forms the technical core of the organization. What is a process? Process is a group
of related tasks with specific inputs and outputs. It is the processes that enable an organization to
provide goods or services to its customers. As shown in the figure, an organization can be
conceptualized as a structure that contains the transformation processes which convert the input
into desired output. Design of processes, i.e, the overall approach towards how the tasks would be
carried out requires an understanding of the types of processes that generally exist.
Input Transformation Output
(Fig 5.1 A process view of organization)
Inputs can be goods, data. Or customers for which the corresponding outputs would be products,
information, and service, respectively. Services may be oriented to offer customers a service or
an experience. Examples of service-experience are observed in fairs and travel tours.
Operational processes in any organization can be in any part of the process spectrum given in fig.
To ensure that their processes are oriented towards their objectives, organizations need to
carefully formulate their operations strategy. Operations strategy determines how best to operate
so that there us high degree of compatibility between its operations and the organization’s
Project Job shop Batch process Assembly line Continuous flow
(Fig 5.2 Process spectrum)
8. Relationship Between Organizational Structure & Organizational Processes
Relationships between organizational structures and processes can be decomposed into two
elements: structure–process and process–outcome relationships. Many studies indicate that
organizations form their strategy in response to their environment. However, the ownership and
control of an organization also determines who decides its response, to what elements in its
environment it responds, why and how. Ownership is thus the fundamental structural constraint
upon how organizations respond to changed environmental or poor outcomes. Various studies
indicate that for large companies, poor performance leads to a change in organizational strategy
and thence to re-structuring of the horizontal and vertical design aspects of organisational
9. The Importance of Organization Structure & Processes In Performance
Improved Employee Satisfaction: Effective organization design creates a
culture of commitment. The people fully understand their accountabilities,
authorities, and goals of the business and see themselves as having a
significant impact on the success or the organization.
Improved Customer Satisfaction: Employees are better able to deliver high
quality services and products that meet customer expectations
Improved Financial Performance: When an organization's employees and
goals are properly aligned, there is greater productivity and less waste which
leads to significant returns for the business
Improved Competitive Advantage: Effective organization design creates a
well-aligned, flexible and productive business that is able to meet the demands
of a shifting market place.
An organization specifically designed with high performance in mind, creates the organization
structure and work process which enable each person to contribute their full potential through
tapping into their talents, skills, ideas, energy and creativity.
10. HOW TO COORDINATE ORGANISATIONAL STRUCTURE
& PROCESS TO ENSURE IMPORTANT PERFORMANCE
• Changing organization design is a long-term process
• Needs commitment from the leadership team to provide the necessary resources (e.g.
time, money and people) for successful implementation
• Design choices impact on business performance
• Use a high performance management model so you make deliberate design choices that
engages and energizes people to be at their best .
Energizing leadership - using the best of high performance management ideas - backed up with
effective organization structure and work processes will enable your organization to operate at its
We focus on the organization structure and work processes (in other words organization design)
that lead to high performance.
Hiring talented people is not enough to ensure organizational success. The best and brightest
employees will not be able to do their best work in a poorly designed workplace.
Poor organization design is one of the leading causes of low employee morale and productivity.
There are four critical signs that your organization structure and work processes need
• High employee turnover (particularly of your most talented people)
• Low productivity
• Increased customer complaints
• Decreased profitability
Organizations are perfectly designed to get the results they get. In other words if you want
different results from your business you will need to scrutinize and somehow change your
organization design structure and processes.
• open system design,
• socio-technical systems design,
• high performance work systems design
• total quality management,
• participative management and
The name applied to organization design is not that important. What is important is that the
change is approached systematically and it has long-term commitment from the leadership team
to follow through, even when it gets tough.
All in all, it is quite clear that the relationship between organizational structure and business
performance is complex. Small and medium sized firms are a very heterogeneous bunch, both
across sectors and across size classes. Strategies and objectives provide some insight in the
operational fit of particular structures, but more thorough analysis is desired. Other features of the
context, such as the number of customers, the number of competitors, the number of suppliers
and so forth seem very relevant interacting variables. Analysis of all control variables and
organizational structure at the same time provides an econometric challenge.
Bagchi Saumendra Narain, Performance Management, Cengage Learning, P. 26-40.