Organizational Structure & DesignWhat is an Organization ?A social unit of people, systematically structured and managed to meet a need or to pursuecollective goals on a continuing basis.Organizational Structure:It is a framework within which an Organization arranges it’s lines of authorities andcommunications and allocates rights and duties.Work specialization:Work specialization also called division of labor or job specialization is the degree to whichorganizational tasks are sub-divided into individual jobs. It may increase the efficiency ofworkers.Example: In a bakery that uses batch production , one semi skilled individual prepares thedough, the other cuts the dough into pieces followed by a worker who prepares the bread or cakeand the other who decorates it and still others that deliver the cake. The same workers do thesame 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 togetherinto logical units. the grouping is based on common aspects of the jobs that can be coordinatedand 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 ofdepartmentalization. Functional departments usually include marketing , sales, human resource,finance departments respectively. The advantage is that workers specializing in the tasks are puttogether.
Organizational Structure & DesignExample: Shell is divided along various functional departments such as marketing department,project development, training and research, human resource department, finance managementdepartment and operational department .Geographical Departmentalization:It refers to when the organization is divided with respect to different areas of geography servedby the business. it is usually opted in multinational firms or firms that have operations indifferent regions of the same country.Example: HEC Pakistan is divided into its regional centers with their own regional directors. theregional 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 thefirm. This helps to focus on specific product lines efficiently.Example: Insurance companies usually departmentalize along different services such as a lifeinsurance department, a fire insurance department, an accident and health department, liabilitydepartment and others.Process Departmentalization:It is when the organization is divided according to different processes used in creating a productor service of the business. It is used when different processes requiring different machinery andskills to make a product are used in businesses.Example: In the insurance companies, to claim insurance for an accident you have to passthrough many departments to complete a process. first the application department takes theapplication followed the survey department that survey the accident then the payment processingdepartment.Customer Departmentalization:It is when the organization is divided to offer their services or products to separate identifiablecustomer 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 categoriessuch as professional athletes, amateur athletes, males athletes, women athletes. And therefore hasdivisions 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 oforganization and clarifies who reports to whom.
Organizational Structure & DesignExample: Store Manager > First Assistant Manager > Second Assistant Manager > Shift/SwingManagers > 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 ofcontrol can be:1. Narrow2. WideNarrow span of control:With lesser number of subordinates working under a manger
Organizational Structure & DesignWide 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 isdistributed within an organization.Centralization:When the entire decision making authority is in the hands of the central management of the firmand no lower level involvement is required in making decisions for the firm. it is useful when thedecision are strategic and serious in nature and involve a lot of risk.Example:McDonalds practice centralization because as a franchise all the advertising decisionhave to be approved by the top level management. Every decision involving the procedure tocreate burgers and employee training ,even cleaning schedules is decided by the top levelmanagement.Decentralization:When the decision making authority is delegated to the managerial levels just below the top leveli.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 storemanagers at different outlets discretion in how they want to set up or decorate the outlet. Thedecoration 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 degreeto 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 & DesignExample: Armed forces are highly formalized jobs as there are strict procedures at every stepfor the workers to follow. The time to wake up train eat everything is standardized and nodiscretion is allowed at jobs.Mechanistic organization:Mechanistic Structure is appropriate for organizations focusing on a cost- minimization strategythrough tight control, extensive division of labor, high formalization and centralization. Theinformation network is limited and employees rarely participate in decision making process.Example: Organizations using Mechanistic structures include colleges and universities. If youthink about it, they have long and strict registration procedures, rarely have to adapt or change inorder to keep students enrolling, and most students tend to maintain high loyalty or obediencetoward their instructors.other examples are healthcare, governmental organizations.Mechanistic Structures Include:Belief upper management is better capable of making decisionsManagement instructions must be followedCommunication and control must proceed through hierarchical routesMore emphasis toward completing a task opposed to achieving company goalsEmployees are more jobs specialized and placed into certain departmentsLow differentiation of tasksOrganic Structures:Organic Structure is decentralized and has low complexity and formalization. It has an extensiveinformation system, and employees rarely participate in decision making. It tends to be flexibleand adaptive.Example: Google Corporation is a great example of an Organic structure based business. Theiremployees are encouraged to use creative problem solving skills and develop new products.General Motors (GM), The Salvation Army, and the Minnesota Mining and ManufacturingCompany (more commonly known as 3M).Organic Structures Include:Large network of authority, control, and communicationProblem solving is encouraged by all employeesEmployees are more goals oriented than job orientatedEmployee empowerment is encouraged
Organizational Structure & DesignContingency factors:Contingency factors play an important role in contingency planning within an organization. Theyare what makes a company more prepared for the unexpected situations that can arise all toooften within the corporate world. Having a good contingency plan may be what makes thedifference 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 affectthe company.Example: This type of planning may be more important for a company that deals with suppliersor 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 needstable environments.• Strategy and Structure Achievement of strategic goals is facilitated by changes in organizationalstructure that accommodate and support change.• Size and Structure As an organization grows larger, its structure tends to change from organic tomechanistic with increased specialization, departmentalization, centralization, andrules 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 technologyemployed: 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 andsimple environments. The flexibility of organic organizational structures is better suited for dynamicand complex environments.COMMON ORGANIZATIONAL DESIGNS:I. TRADITIONAL DESIGNS:a) Simple structure:A structure characterized by a low degree of departmentalization, wide span ofcontrol, authority centralized in a single person, and little formalizationStrengths:simplicityfast and flexible
Organizational Structure & Designinexpensive to maintainclear accountabilityWeaknesses:difficult to maintaincreates information overload at topdecision making becomes slower or a standstilllose momentumeventually faildependency on one personb) Functional Structure:A functional structure is defined as a design that groups similar or related occupational specialtiestogether. It is the functional approach to departmentalization applied to the entire organization. Departmentalization by function– Operations, finance, human resources, and product research and developmentc) Divisional structure:A divisional structure is made up of separate, semi-autonomous units or divisions. Within onecorporation there may be many different divisions and each division has its own goals to accomplish. Amanager 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 thecoordination and control the parent corporation.
Organizational Structure & DesignII. 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 amongfunctional 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 empoweredemployees. Matrix and project structures:A structure that assigns specialists from different functional areas to work on projects butwho return to their areas when the project is completed. Project is a structure in whichemployees continuously work on projects. As one project is completed, employees move onto the next project.Advantages: Fluid and flexible design that can respond to environmental changes. Fasterdecision 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 byproject managers. Matrix and project participants have two managers. In project structures, employees work continuously on projects; moving on to anotherproject as each project is completed. Boundary less Organization:A structure that is not defined by or limited to artificial horizontal, vertical, or externalboundaries; 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 externalbarriers 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