Defining organizationalstructure Organisational structure refers to the way tasks are divided up, how the work flows, how this flow is coordinated and the forces and mechanisms that allow this coordination to occur. The organizational chart cannot fully capture the organizational structure but gives us a place to begin when studying it.
Three components as the coredimensions of organizationalstructure are: Complexity Formalization Centralization
Core Dimensions Complexity : refers to the degree of differentiation that exists within the organization. There are three kinds of differentiation .1) Horizontal differentiation : means separation between units.2) Vertical differentiation : refers to the depth of the organizational hierarchy.3) Spatial differentiation : it encompasses the degree to which the location of an organization’s facilities and personnel are dispersed geographically. An increase in any one of these three factors will increase an organizations complexity.
Core Dimension contd. Formalization : refers to the degree to which jobs within an organization are standardized. Formalization has been defined as the “extent to which rules, procedures, instructions and communications are written”. Formalization would be measured by determining if the organizations has a policies and procedures manual, assessing the number & specificity of its regulations, reviewing job descriptions to determine the extent of elaborateness and detail, and looking at other similar official documents of the organization.
Formalization contd. Organizations use formalization because of the benefits that accrue from regulating employees’ behavior. Standardizing behavior reduces variability. Formalization tends to be inversely related to level in the organization. Most popular techniques :1. Selection : Organizations do not choose employee at random.2. Procedure : To ensure standardization of work process.3. Policies : Provide greater leeway than rules do.
Core Dimension Centralization : Most problematic of the three components. The term refers to the degree to which decision making is concentrated at a single point in the organization. A high concentration implies high centralization, whereas a low concentration indicates low centralization or what may be called decentralization.
Centralization contd. Centralization can be described more specifically as the degree to which the formal authority to make discretionary choices is concentrated in an individual, unit, or level, thus permitting employees minimum output into their work. Centralization is concerned only with the formal structure not the informal organization. It looks at decision discretion.
Decentralization It reduces the probability of information overload, facilitate rapid responses to new information, provides more detailed input into a decision, instills motivation, and represents a potential vehicle for training managers in developing good judgement.On the other hand, centralization adds a comprehensive perspective to decisions and can provide significant efficiencies.
Decentralization InOrganization A definition by Dale states that if degree of decentralization is greater, greater is the number of decisions made lower down in the hierarchy, and the more important those decisions are.
Decentralization contd. The balance between centralization and decentralization : There are choices about which decisions to decentralize & which to centralize. Choosing decision areas to delegate is frequently regarded as a problem of selecting the proper balance between centralization and decentralization. According to Koontz & O’Donnell such a balance is the key to effective decentralization.
The most commonorganizational types may beclassified as follows: The Functional Structure The Divisional Structure The Adaptive Structure
Dimensions of Organizational Structure There is the Vertical Dimension, in which the organization is considered to be either a tall or a flat structure; There is the Horizontal Dimension, in which an organization is considered to be either wide or narrow.
The Vertical Dimension of Organizational Structure The Vertical Dimension of the Organizational Structure basically lays out who is in charge of whom and who makes the decisions inside an organization. Span of Control is a very simple concept: It refers to the number of people who can report to a single manager inside of the hierarchy.
Because there are so many levels, managers in a Tall Organization tend to have a Narrow Span of Control, which means there are no more than five or six people reporting to any individual manager or supervisor. In the Flat Organizational Structure, because there are fewer levels, managers tend to have a Wide Span of Control, so there could be as many as ten or twelve people reporting to any individual manager or supervisor, depending upon the tasks involved. So, essentially, as an organizational structure flattens out, the Span of Control increases. As the organizational structure becomes taller, the Span of Control decreases
Functional Structure It is the organizational structure that is based on the functions of the units and sub-units of activities. Every organization has specialized functions and they constitute as separate units of the organization. The entire activities that are connected with such functions are placed in the same unit.
Employees are grouped together according to their similar tasks, skills or activities. Functional structures are suitable for SMEs with high level of specialization.The decision making is centralized at the top of the organization.
Benefits of functionalorganizational structure Efficient use of resources; In-depth skill development; Clear career paths; Strategic decisions are made on the top of the organization
Disadvantages of functionaldesign Slow decision making Less innovative. Performance responsibility is unclear; Limited management training. Poor coordination across functions.
The Horizontal Dimension ofOrganizational Structure This type of structure is well suited for large enterprise.. The division of organization takes place into small business units that are entrusted with business related to difficult products or different market territories. All the divisional managers are given authority and autonomy to run all function relating to their respective products or marketing segments or regional markets. Each division contributes planned profits to the organization but works as independent business.
Forms of divisional responsible design Product division. Each unit is for a single product or a group of related products. Division by products is created when there is specific in the production process; Customer division. Organization sells products to diverse group of customers. Geographic division. It is advantageous when is necessary to locate facilities close to customers who have differences in regional tastes or needs.
Strengths of divisional design: Adaptation to unstable environment; High customer satisfaction; High task coordination; Clear performance responsibility; General management training.
Weaknesses of divisionaldesign Inefficient use of resources; Low-in depth training. Decrease of the number of personnel reduces the specialization; Focus on division’s objectives. Difficult coordination between headquarter and the division. Loss of control.
Differences between functional and divisional design Functional designs Divisional design are based on considers output groupings by input; such as Each department is product, customer or not an independent location. profit center; Each division is independent profit center;
Adaptive Structure This type of structure is designed as to cope with the unique nature of undertaking and the situations in the organization. There are two types of adaptive structure they are: a) Project organization b) Matrix organization
Project organization This type of organization is suitable when an organization undertakes specialized work for a particular period as one time operation. In order to deal with such situations organizations develops a unit which is specially designed to accomplish such project works without disturbing the routine jobs of the organization.
The organizations engage their existing employees on deputation basis to deal with a particular project and then that particular executive resumes to his parent department after the completion of the project. The advantage of such organizations is that it does not disturb the regular work of the organization. It enables the better control over the project activities because the managers enjoy the authority to function the projects effectively. But at times these organizations spoil the stability of the various departments as the personnel are shifted for the sake of the project and thus disrupt the basic functioning of the parent department
Matrix Structure It aims to combine the advantages of autonomous project organization and functional specialization. In this structure functional departments are having full time specialized workers to accommodate and are capable of handling more than one project at a time. This is found suitable as the organization is most of the time engaged in the project activities and the managers are also more in number and can accomplish the project work effectively.
Less recognizable are the entities Project Alpha, Project Beta, and Project Gamma, which seem to cut across the functional structure. These are, indeed, projects that must pass through the functional structure of this division; however, each project must be allocated its own Production Support team, its own Legal Support team, its own Engineering Support team and its own Accounting Support team.
The manager of each project has no staff at all. His job is to assemble his staff from the functional areas of the organization in order to see his project through from conception to completion. The project manager, in other words, must borrow his staffing from each department. The challenge is that each department has a finite staff, and the demands of each project are not equal — so one project may require more staffing than the others.
It is suitable for the following situations:- Environmental pressure exists for a dual focus;- Large amount of information needs to be processed;- Innovations are performed- Organization is working on several projects together.- Efficiency is needed in the use of resources.
Strengths of matrix design Provides flexibility; Encourages resource efficiency; Enhances skill development; Increase motivation and commitment; Helps top management in planning process.
Weaknesses of matrixdesign Creates dual authority confusion; Is time consuming; Generates high implementation cost; Requires interpersonal skill training; Spawns power struggle.
Classical vs. Neoclassical Theories of Organizational Structure There are two overriding theories of optimal Organizational Structure that hold forth in the business world, known as Classical Organizational Theory and Neoclassical Organizational Theory. As the names suggest, the former is a traditional approach while the latter is a more progressive approach.
Classical OrganizationTheory The Classical Organization Theory assumes that there is a single best way to design organizations — that managers should have tight control over their subordinates, and that calls for designing organizations with tall hierarchies and a narrow Span of Control. Classical Theory entails a high degree of written documentation and rules and procedures intended to direct and control employees. As such, the Classical Theory advocates a decidedly functional type of organization.
Neoclassical OrganizationTheory Neoclassical Organization Theory, which argues that employee satisfaction, as well as economic effectiveness, should be the ultimate goal of an organization. Neoclassical Theory assumes that managers do not tightly control their subordinates and calls for designing organizations with flat hierarchies and a wide Span of Control. Following Neoclassical Theory, the manager relies more on the employees to make decisions, and these organizations are less rigid with fewer rules, regulations, and processes.
Classical and Neoclassical Theories of Organizational Structure