Chapter 8

ORGANIZATIONAL DESIGN AND STRUCTURE

 THE ESSENCE OF ORGANIZATIONAL DESIGN AND STRUCTURE
Organizational structure

It defines how jobs and tasks are formally divided, grouped, and coordinated.
• It refers to the division of labor as well as the patterns of coordination, communication,
work flow , and formal power that direct organizational activities
• In general, the formal arrangement of jobs within an Organization

Seven key elements should be considered when designing an organization’s structure:

- work specialization, departmentalization, chain of command, span of control,
centralization and decentralization, formalization, and boundary spanning.
 CONT’D
The Key Question The Answer Is Provided by
1. To what degree are activities subdivided Work specialization
into separate jobs?
2. On what basis will jobs be grouped Departmentalization
together?
3. To whom do individuals and groups Chain of command
report?
4. How many individuals can a manager Span of control
efficiently and effectively direct?
5. Where does decision-making Centralization and decentralization
authority lie?
6. To what degree will there be rules and Formalization
regulations to direct employees and managers?
7. Do individuals from different areas need Boundary spanning
to regularly interact?
 CONT’D
1. Work specialization or division of labor
- Describes the degree to which activities in any organization are divided into separate jobs, each
completed by a separate individual.

In essence, individuals specialize in doing part of an activity rather than the entirety.
Division of labor:
• Makes efficient use of employee skills
• Increases employee skills through repetition
• Less time is spent in changing tasks and it increases productivity
• Specialized training is more efficient.
• Allows use of specialized equipment
• However, Over specialization can result in human diseconomies from boredom,
exhaustion, stress, increased absenteeism, and higher turnover which more than
offset the economic advantages.
2. Departmentalization

So, the basis by which jobs are grouped is called departmentalization

Once jobs have been divided through work specialization, they must be grouped.
So, common tasks can be coordinated and complexity can be reduced.

3. Chain of command

Is the unbroken line of authority that extends from the top of the organization to
the lowest echelon and clarifies who reports to whom.
 CONT’D
Authority:-
§ Refers to the rights inherent in a position
§ To give orders and expect them to be obeyed.
§ To facilitate coordination
§ Each position is given a place in the chain of command, and each person is given a degree of
authority in order to meet their responsibilities.

Unity of command:-
§ States that a person should have one and only one superior to whom they are directly responsible.
§ If the unity of command is broken, an employee might have to cope with conflicting demands or
priorities from several superiors.
 CONT’D
4. Span of Control
• The number of subordinates a manager can efficiently and effectively direct.
• All things being equal, the wider or larger the span, the fewer the levels, and the
more employees at each level, the more efficient the organization.
• Narrow or small spans have their advocates by keeping the span of control to five
or six employees, a manager can maintain close control.
• But narrow spans have three major drawbacks.
- First, they are expensive because they add levels of management.
- Second, they make vertical communication in the organization more complex.
- Third, narrow spans encourage overly tight supervision and discourage
employee autonomy.
 Cont’d
5. Centralization and Decentralization
Ø Centralization refers to the degree to which decision making is concentrated at a single
point in the organization.
§ In centralized organizations, top managers make all the decisions, and lower-level managers merely
carry out their directives.

Ø Decentralization the other extreme, decentralized decision making is pushed down to the
managers closest to the action or to workgroups.
§ A decentralized organization can act more quickly to solve problems, more people provide input into
decisions, and employees are less likely to feel alienated / isolated from those who make decisions that
affect their work lives.

Ø Centralized organizations are better for avoiding commission errors (bad choices), while
decentralized organizations are better for avoiding omission errors (lost opportunities).
 FACTORS THAT INFLUENCE THE AMOUNT OF CENTRALIZATION
More Centralization if:
§ Environment is stable
§ Lower-level managers are not as capable or experienced at making decisions as upper-level
managers
§ Lower-level managers do not want to have a say in decisions
§ Decisions are significant
§ Organization is facing a crisis or the risk of company failure
§ Effective implementation of company strategies depends on managers retaining say over what
happens
More Decentralization
§ Environment is complex, uncertain
§ Lower-level managers are capable and experienced at making decisions
§ Lower-level managers want a voice in decisions
§ Decisions are relatively minor
§ Corporate culture is open to allowing managers to have a say in what happens
§ Company is geographically dispersed
§ Effective implementation of company strategies depends on managers having involvement and
flexibility to make decisions
 CONT’D
6. Formalization
üRefers to the degree to which jobs within the organization are standardized (job description,
rules, procedures, policies).

If a job is highly formalized, the employee has a minimal amount of discretion over
what to do and when and how to do it, resulting in consistent and uniform output.

Q. What is the main difference between formalization and specialization?

- Formalization is how jobs are structured and standardized within an organization, whereas
- Specialization is the degree to which activities are divided and then subdivided into
individual jobs.
 FORMALIZATION…
High formalization:
üMinimize job officer’s discretion or decision (what, when , how… to do)
üAllow employees to handle the input in exactly the same way.
üResults consistent and uniform out put.

Low standardization:
üJob behaviors are relatively non-programmed.
üHigh level of freedom for employees discretion.
üAllow employees to consider alternatives in their works .
WORK DESIGN

Some of the options left with managers to redesign or change the makeup of employee jobs are:

i. Job rotation
ii. Job enlargement
iii. Job enrichment
iv. Team based design
 CONT’D
i. Job rotation
Ø Is a periodic shifting of a worker from one task to another to avoid frustration of the employees
suffering from the routine work.
Ø This is also known as cross-training. Job rotation is practiced for increasing the flexibility and also
some times avoiding lay-offs.
Ø The strength of the job rotation lies in reduction of employee boredom and increasing the motivation
through diversified activities.
ii. Job enlargement
Ø This means horizontal expansion of jobs, that means to increase the number and the variety of tasks
that an individual can perform.

Ø This leads to diversity in jobs. This however did not apply by and large to employees probably because
of lack of diversity in the specialized jobs.
 CONT’D
iii. Job enrichment
Ø This refers to vertical expansion of jobs. This means increase in the degree to
which the worker controls the planning, execution and evaluation of his work.

Ø In job enrichment the employee does a complete activity with freedom and
independence and bearing extra responsibility.

Ø This is bound (a way to assure) to increase the employee’s own performance. The
benefits of the organization are in the form of reduced absenteeism and turnover
cost with increased employee satisfaction.
ü The difference between job enrichment and job enlargement is quality and quantity.

ü Job enrichment means improvement, or an increase with the help of upgrading and
development,

ü Whereas job enlargement means to add more duties, and an increased workload.
CONT’D
iv. Team based design
Ø Many organizations do have working in groups and teams. We are fully aware about individual based
work design than that at the group level.
Ø Therefore, a group or team involvement can contribute to both the employees and the organizations
in certain ways or certain points mentioned here with:
a. The group members to use very high level skills.
b. The group tasks is meaningful with possible output vision,
c. The output result is consequence oriented to other employees,
d It should generate a trusting feedback about its work performance and
e. Provision of sizable economy for individuals to work.
 TYPES OF ORGANIZATIONAL STRUCTURE
The basis by which jobs are grouped together.

Grouping Activities By:

1. Functional
2. Product
3. Geography
4. Customer
5. Process
6. Matrix
1. FUNCTIONAL DEPARTMENTALIZATION

Functional : Grouping jobs by functions performed

Plant Manager

Manager, Manager, Manager, Manager, Manager,

Engineering Accounting Manufacturing Human Purchasing
Resources
+ Efficiencies from putting together similar specialties and people with common
skills, knowledge, and orientations
+ Coordination within functional area
+ In-depth specialization
+ Poor communication across functional areas
+ Limited view of organizational goals 18
2. PRODUCT STRUCTURE
§ Customers are served by self-contained divisions that handle a specific type of product or service.
§ Allows specialization in particular products and services
§ Managers can become experts in their industry or area.
§ Closer to customers
§ Removes need for direct supervision of division by corporate managers.
§ Divisional management improves the use of resources.
§ Eg, E-commerce, Mobile banking, Internet banking,
§ Washing machine, Tv Division, Lighting division,

– Duplication of functions

– Limited view of organizational goals

3. Geographic Structure
§ Each regional or a country or area with customers with differing needs is served by a local self-
contained division producing products that best meet those needs.

§ More effective and efficient handling of specific regional issues that arise

§ Serve needs of unique geographic markets better

– Duplication of functions

– Can feel isolated from other organizational areas

3. Market (Customer) Structure
§ Each kind of customer is served by a self-contained division
§ Global market (customer) structure
§Customers in different regions buy similar products so firms can locate manufacturing
facilities and product distribution networks where they decide is best.
§Firms pursuing a global strategy will use this type of structure.
§Government, NGO, PLC, Embassies

Duplication of functions

Limited view of organizational goals

PRODUCT,
MARKET, AND
GEOGRAPHIC
STRUCTURES
Cont’d

15–24
 CONTEMPORARY FORM OF ORGANIZATIONAL STRUCTURE
Matrix Structure
§ An organizational structure that simultaneously groups people and resources by
function and product.
§Results in a complex network of superior-subordinate reporting relationships.
§The structure is very flexible and can respond rapidly to the need for change.
§Each employee has two bosses (functional manager and product manager) and
possibly cannot satisfy both.
Key Elements:
+Gains the advantages of functional and product departmentalization while avoiding
their weaknesses.
+Facilitates coordination of complex and interdependent activities.
§Breaks down unity-of-command concept.
Matrix Structure
MECHANISTIC MODEL VS ORGANIC MODEL
Mechanistic Model
Ø A structure characterized by extensive departmentalization,
Ø high formalization,
Ø a limited information network, and
Ø centralization.
Organic Model
Ø A structure that is flat,
Ø uses cross-hierarchical and cross-functional teams,
Ø has low formalization,
Ø possesses a comprehensive information network, and
Ø relies on participative decision making.
© 2005 PRENTICE HALL INC. ALL RIGHTS RESERVED. 15–28
FACTORS AFFECTING ORGANIZATIONAL STRUCTURE

© COPYRIGHT 2004 MCGRAW-HILL. ALL RIGHTS RESERVED. 7–30

Figure 7.1
 DETERMINANTS OF STRUCTURE
A. The Organizational Environment
§ The quicker the environment changes, the more problems face managers.
§ Structure must be more flexible (i.e., decentralized authority) when
environmental change is rapid.
Key Dimensions-
• Capacity: the degree to which an environment can support growth.
• Volatility: the degree of instability in the environment.
• Complexity: the degree of heterogeneity and concentration among
environmental elements.
B. Strategy
§ Different strategies require the use of different structures.
§ A differentiation strategy needs a flexible structure, low cost may need a more formal structure.
§ Increased vertical integration or diversification also requires a more flexible structure.

Innovation Strategy
A strategy that emphasizes the introduction of major new products and services. (Require flexible
structure)

Cost-minimization Strategy
A strategy that emphasizes tight cost controls, avoidance of unnecessary innovation or marketing
expenses, and price cutting. No need for the structure to be flexible.

Imitation Strategy
A strategy that seeks to move into new products or new markets only after their viability has already
been proven.
C. Technology
The combination of skills, knowledge, tools, equipment, computers and machines used in
the organization.
§ More complex technology makes it harder for managers to regulate the organization.
§Organizations utilizing complex technology require a flexible structure to be managed
efficiently.
§Organizations utilizing routine technology can be more readily managed using a formal
structure.
§Organizations with high employee interaction requirements need a flexible structure.
Characteristics of routineness (standardized or customized) in activities:
§Routine technologies are associated with departmentalized structures
and formalization in organizations.

§Routine technologies lead to centralization when formalization is low.

§Non-routine technologies are associated with delegated decision

authority.
D. Human Resources
§Highly skilled workers whose jobs require working in teams usually need a
more flexible structure.
§Higher skilled workers (e.g., CPA’s and doctors) often have internalized
professional norms.

Managers must take into account all four factors (environment, strategy,
technology and human resources) when designing the structure of the
organization.
 Reading assignment

Organizational Structure Trends

Globalization

Flexible

Flat

Networked

Virtual Organizations

Network Organizations

Advantage and Disadvantage of different types of Organizational Structure.

Chapter /Course End