This document discusses key concepts related to organizational design including centralization, complexity, formalization, structure, and departmentalization. It defines these terms and discusses their advantages and disadvantages. The document also covers different types of organizational structures like mechanistic, organic, and matrix structures. Finally, it discusses factors that influence organizational design decisions like span of control and flexibility.

1. Module 3

2. 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.

3. Characteristics of org design
 Functionally efficient
 Economically viable
 User friendly
 Environmentally aligned
 Aesthetically appealing – mutual respect & trust
 Growth promoting
 Change responsive

4. Management Functions
Designing organizational structures is part of organizing, one of the
four basic management functions.
Planning Organizing Leading Controlling
Lead to
Defining Determining Directing Monitoring Achieving the
goals, estab- what needs and moti- activities organization’s
lishing to be done, vating all to ensure stated
strategy, and how it will involved that they are purpose
developing be done, parties and accomplished
subplans to and who is resolving as planned
coordinate to do it conflicts
activities

5. Determinants of org design
 Environment
 Objectives or Mission
 Strategy
 Technology
 People & culture
 Age
 Size

6. Components of org design
 Centralisation
 Complexity
 Formalisation
 Structure
 Division of labour
 Standardisation
 Differentiation
 Departmentalization
 Span of control

7. 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 organization
Hierarchy of Specialization -
Authority - the degree to
the degree of Basic which jobs are
vertical narrowly
differentiation Design defined and
across depend on
levels of
Dimensions unique
management 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

8. Key Design Questions and Answers for Designing Proper
Organization Structure

9. 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.

10.  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.

11. Centralisation vs. Decentralisation-
Advantages
Decentralisation
Centralistion
1. Greater flexibility
1. Uniformity of policies,
stds & actions. 2. Quick response to local
requirements.
2. Closer control
3. Top mgt focus on policy
3. Maxi eco of scale
issues
4. Eliminates duplication
4. Intra unit
5. Reduces risk in DM by communication
less skilled subordinates
5. On the job training.
6. Morale & commitment
7. Healthy competition
among units

12. Disadvantages
 Centralisation  Decentralisation
1. 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 of
3. No quick response to scale
local requirements. 4. Duplication of efforts

13. •Both has benefits and troubles to the organization.
•Manager has to bring a correct balance between
these two for effective decision making.
•Balance should be made in terms of long term
strategy making and short term flexibility and
innovation.
•As top mgt can concentrate on the former, middle
and lower managers can respond to quick changes in
the environment and be more flexible.
•Thus, leads to bringing a balance between
centralisation and decentralisation.

14. 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:

15. 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.

16. 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.

17. 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.

18. 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.

19. Formalisation techniques
 Selection & recruitment
 Role or Job description
 Rules & procedures
 Training
 Culture & Organisational socialisation

20. Implication of high formalisation
Factors High formal Low formal
Nature of task Routine Non routine
Nature of product Mass Customised
Output predictability High Low
Cause – effect reln High Low
Mgt philosophy Control & command Consensus &
commitment
Hierarchical level Low High
Functional depts Production Marketing / sales

21. 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.

22. Types of org structure
 Broadly speaking, there are two types of org structures.
They are
 Mechanistic model
 Organic model

23. Mechanistic Vs Organic Models

24. Features of Mechanistic structure
 High specialisation
 Rigid departmentalisation
 Clear chain of command
 Narrow spans of control
 Centralisation
 High formalisation

25. Features of organic structures
 Broad specialisation
 Multi level, cross functional teams
 Multi channel command
 Wide span of control
 Decentralisation
 Low formalisation

26. Mechanistic Organic Boundaryless
Rigid hierarchical Collaboration (both vertical Collaboration (vertical,
relationships and horizontal) horizontal, customers,
suppliers, competitors)
High formalization Low formalization Low formalization
Top-down communication Informal communication Informal communication
Centralized decision Decentralized decision Decentralized decision
authority authority authority
Narrowly defined specialized Broadly defined flexible jobs Broadly defined flexible jobs
jobs
Emphasis on individuals Emphasis on teams Emphasis on teams that also
working independently may cross organization
boundaries

27. Boundaryless Organization

28. Virtual Organization

29. 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. Functional
2. Role

30. 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

31. 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

32. •Refers to the extent to which jobs & procedures are
precisely & clearly defined.
• rules apply invariably.
•Jobs requiring adoption of different procedures
cannot be standardised.
•It can applied to tasks that are routine, problems that
can be analysed and decision can be programmed.
•Balancing the need for standardisation is complex
task for a manager.
•Discovering new ways of doing job needs mutual
adjustment but not standardisation is the slogan of
today’s orgs.

33. 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.

34. Departmentalization
What 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.

35. 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

36. 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

37. 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

38. Product Based

39. 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

40. Hewlett-Packard’s Headquarters Worldwide
Hewlett Packard
Americas Europe, Middle East, Africa Asia Pacific
Houston, Texas Geneva, Switzerland Hong Kong

41. 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

42. 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

43. 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

44. Matrix Organization

45. 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

46. Establishing Reporting
Relationships – 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.

47. 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.

48. Tall Versus Flat Organizations

49. Factors Influencing the Span of
Management
 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.

50. 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.