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1. Basic Challenges of
Organizational Design
Organization Design and Theory
Gibran D. Kwan

2. Learning Objectives
 After studying this chapter you should be able to:
 1. Describe the four basic organizational design challenges confronting
managers and consultants.
 2. Discuss the way in which these challenges must be addressed
simultaneously if a high-performing organizational structure is to be
created.
 3. Distinguish among the design choices that underlie the creation of either a
mechanistic or an organic structure.
 4. Recognize how to use contingency theory to design a structure that fits an
organization’s environment.

3. Differentiation
 The process by which an organization allocates people and
resources to organizational tasks and establishes the task
and authority relationships that allow the organization to
achieve its goals.

4. Sample form of Differentiation

5. Sample form of Differentiation

6. Four basic organizational design
challenges
 1. The first challenge is to choose the right extent of vertical and
horizontal differentiation.
 2. The second challenge is to strike an appropriate balance between
differentiation and integration and use appropriate integrating mechanisms.
 3. The third challenge is to strike an appropriate balance between the
centralization and decentralization of decision-making authority.
 4. The fourth challenge is to strike an appropriate balance between
standardization and mutual adjustment by using the right amounts of
formalization and socialization.

7. Horizontal vs Vertical Differentiation

8. Other basic organizational design
challenges

9. Horizontal vs Vertical Differentiation
 Hierarchy A classification of people according to authority and rank.
 Vertical differentiation The way an organization designs its hierarchy of
authority and creates reporting relationships to link organizational roles and
subunits.
 Horizontal differentiation The way an organization groups organizational tasks
into roles and roles into subunits (functions and divisions).

10. Four basic organizational design
challenges
 1. The first challenge is to choose the right extent of vertical and horizontal
differentiation.
 2. The second challenge is to strike an appropriate balance between
differentiation and integration and use appropriate integrating
mechanisms.
 3. The third challenge is to strike an appropriate balance between the
centralization and decentralization of decision-making authority.
 4. The fourth challenge is to strike an appropriate balance between
standardization and mutual adjustment by using the right amounts of
formalization and socialization.

11. Integration and Integrating Mechanisms
 Integration The process of coordinating various tasks, functions, and divisions
so that they work together and not at cross purposes.
 HIERARCHY OF AUTHORITY - The simplest integrating technique is the
organization’s hierarchy of authority, which differentiates people by the
amount of authority they possess.

12. Types and Examples of Integrating
Mechanisms

13. Differentiation versus Integration

14. Four basic organizational design
challenges
 1. The first challenge is to choose the right extent of vertical and horizontal
differentiation.
 2. The second challenge is to strike an appropriate balance between
differentiation and integration and use appropriate integrating mechanisms.
 3. The third challenge is to strike an appropriate balance between the
centralization and decentralization of decision-making authority.
 4. The fourth challenge is to strike an appropriate balance between
standardization and mutual adjustment by using the right amounts of
formalization and socialization.

15. Balancing Centralization and
Decentralization
 Centralization refers to the concentration of management and decision-
making power at the top of the organizational hierarchy for the purpose of
coordinating financial, human, and other business resources. In centralized
organizations, strategic planning, goal setting, budgeting, and talent
deployment are typically conducted by a single, senior leader or leadership
team.
 On the other hand Decentralization refers to formal decision-making power is
distributed across multiple individuals or teams. It’s notable that although
centralization can involve the colocation of personnel, it does not have to;
centralization is more about where decisions get made rather than where
people sit.

17. Four basic organizational design
challenges
 1. The first challenge is to choose the right extent of vertical and horizontal
differentiation.
 2. The second challenge is to strike an appropriate balance between
differentiation and integration and use appropriate integrating mechanisms.
 3. The third challenge is to strike an appropriate balance between the
centralization and decentralization of decision-making authority.
 4. The fourth challenge is to strike an appropriate balance between
standardization and mutual adjustment by using the right amounts of
formalization and socialization.

18. Balancing Standardization and Mutual
Adjustment
 Standardization is the Conformity to specific models or examples—defined by
sets of rules and norms—that are considered proper in a given situation.
 Mutual adjustment The compromise that emerges when decision making and
coordination are evolutionary processes and people use their judgment rather
than standardized rules to address a problem.
 Formalization The use of written rules and procedures to standardize
operations.
 Rules Formal written statements that specify the appropriate means for
reaching desired goals.

19. Learning Objectives
 After studying this chapter you should be able to:
 1. Describe the four basic organizational design challenges confronting
managers and consultants.
 2. Discuss the way in which these challenges must be addressed
simultaneously if a high-performing organizational structure is to be created.
 3. Distinguish among the design choices that underlie the creation of
either a mechanistic or an organic structure.
 4. Recognize how to use contingency theory to design a structure that fits an
organization’s environment.

20. Mechanistic and Organic Organizational
Structures
 Mechanistic structures Structures that are designed to induce people to
behave in predictable, accountable ways.
 Organic structures Structures that promote flexibility, so people initiate
change and can adapt quickly to changing conditions.

21. Mechanistic and Organic Organizational
Structures

22. Learning Objectives
 After studying this chapter you should be able to:
 1. Describe the four basic organizational design challenges confronting
managers and consultants.
 2. Discuss the way in which these challenges must be addressed
simultaneously if a high-performing organizational structure is to be created.
 3. Distinguish among the design choices that underlie the creation of either a
mechanistic or an organic structure.
 4. Recognize how to use contingency theory to design a structure that fits
an organization’s environment.

23. The Contingency Approach to
Organizational Design
 Contingency approach A management approach in which the design of an
organization’s structure is tailored to the sources of uncertainty facing an
organization.

24. The Relationship between Environmental
Uncertainty and Organizational Structure