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Chapter Twenty Two
Organizational Structure and Design
Objectives
To develop an understanding of:
Organizational Structure and Design
Key Elements for Organizational Structure
( a)Work specialization
(b) Departmentalization
(c) Chain of command
(d)Span of control
(e) Centralization and decentralization
(f)Formalization
Organization Structure: Its Determinants and Outcomes
Organizational Designs and Employee Behavior
Challenges in Designing an Organizational Structure
Organizational Designs
Indian organizations
Empowerment Styles in Indian Perspective
Restructuring Indian organizations: Challenges and responses
Impact of culture on Indian Business Organizations
Introduction
Organizational Structure and Design are important factors influencing behavior of individuals and groups that comprise the organization; they establish expectations for what individuals and groups will do to achieve the organization's purposes.
Design: Managers make a conscious effort to predetermine the way employees do their work.
Structure: Defined as "stable relationships and processes of the organization." It is also the "anatomy" or framework of an organization. It focuses on different positions, formulations of rules and procedures, and prescriptions of authority. It is used to regulate, or at least reduce uncertainty in the behavior of individual employees.
Organizational Structure defines how job tasks are formally divided, grouped, and coordinated. Key Elements for Organizational Structure are (a)Work specialization (b) Departmentalization (c) Chain of command (d)Span of control (e) Centralization and decentralization (f)Formalization
Work Specialization
The degree to which tasks in the organization are subdivided into separate jobs
Division of Labor (a)Makes efficient use of employee skills (b)Increases employee skills through repetition (c)Less between-job downtime increases productivity (d)Specialized training is more efficient (e)Allows use of specialized equipment
Departmentalization- The basis by which jobs are grouped together. Activities are grouped by: (a)Function (b)Product (c)Geography (d)Process (e)Customer (f)Authority-The rights inherent in a managerial position to give orders and to expect the orders to be obeyed
Complexity is the number of distinctly different job titles, or occupational groupings, and the number of distinctly different units, or departments.
a. Horizontal differentiation —the number of different units at the same level.
b. Vertical differentiation —the number of levels in the organization.
Chain of Command- The unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom.
Unity of Command- A subordinate should have only one superior to whom he or she is directly responsible
Flat chart: Lower height - Greater span
Narrow Versus Wide Spans
Subordinate interactions
- Direct—the manager’s relationship with each subordinate.
- Cross—among the subordinates themselves.
- Group—between groups of subordinates.
- Formula for the number of interactions of all types:
» I = N(2N/2 + N - 1), where I is the total number of interactions and N is number of subordinates.
- Ralph Davis
- Operative span for lower-level managers up to 30 workers.
- Executive span for middle and top managers at 3 to 9.
Determining the Appropriate Span: Factors Influencing the Span of Management (reference: Houghton Mifflin Company). 1.Competency of supervisor and subordinates 2. Physical dispersion of subordinates.3. Extent of non supervisory work in a manager’s job 4 Degree of required interaction. 5. Extent of standardized procedure. 6. Similarity of tasks being supervised. 7.Frequency of new problem.8.Preference of supervisor and subordinates
Drawbacks of Narrow Span (a)Expense of additional layers of management(b) Increased complexity of vertical communication(c)Encouragement of overly tight supervision and discouragement of employee autonomy
Centralization and Decentralization
Centralization is the location of the decision-making authority in the hierarchy of the organization.it is the degree to which decision making is concentrated at a single point in the organization
Decentralization is the degree to which decision making is spread throughout the organization.
Formalization
The degree to which jobs within the organization are standardized. It is the extent to which expectations regarding the means and ends of work are specified and written down.It is effective only if are enforced.
The relationships between dimensions of organizational structures and the four design decisions are summarized below
Key Design Questions and Answers for Designing the Proper Organization Structure
1.To what degree are articles subdivided into separate jobs? Work specialization.
2.On what basis jobs will be grouped together? Departmentalization
3.To whom do the individual and group report to? Chain of command
4.How many individuals can a manager efficiently and effectively direct? Span of control
5.Where does decision making authority lie? Centralization and decentralization
6.To what degree there will be rules and regulations to direct the employees?Formalization
(Reference: Organizational Behaviour, Stephen P.Robbins, Timothi A.Judge and Seema Sanghi, 12th ed, Pearson education, pp590)
Organization Structure: Its Determinants and Outcomes
Strategy, Size, technology, environment determines structural designs like mechanistic or organic which moderated by individual differences and cultural norms leads to performance and satisfaction.
- Routine technologies are associated with tall, departmentalized structures and formalization in organizations.
- Routine technologies lead to centralization when formalization is low.
- Nonroutine technologies are associated with delegated decision authority.
Why Do Structures Differ? — Environment
Institutions or forces outside the organization that potentially affect the organization’s performance
Key Dimensions of Environment
- 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
Structure-Effectiveness Relationship
Structures like organizations are: a. Purposive. b. Goal-oriented.
Structure should be focused toward organizational effectiveness. However the exact relationship between structure and effectiveness is difficult to know as people hold perceptions regarding structural variables that are formed by observing things around them in an unscientific fashion. This is called Implicit Models of Organizational Structure
Organizational Designs and Employee Behavior
Research Findings
- Work specialization contributes to higher employee productivity, but it reduces job satisfaction.
- The benefits of specialization have decreased rapidly as employees seek more intrinsically rewarding jobs.
- The effect of span of control on employee performance is contingent upon individual differences and abilities, task structures, and other organizational factors.
- Participative decision making in decentralized organizations is positively related to job satisfaction.
Lawrence & Lorsch: Differentiation, Integration, and the Environment
Investigated how companies in different industries differentiate and integrate their structures to fit the environment
Three industries that experienced different levels of uncertainty:
- The plastics industry
- The food-processing industry
- The container or can-manufacturing industry
When environment is perceived as more unstable and uncertain:Effective organizations are less formalized, more decentralized and rely more on mutual adjustment.
When environment is perceived as stable and certain:Effective organizations have a more centralized, standardized, and formalized structure.
Burns and Stalker: Uncertainty, Differentiation and Integration
When degree of uncertainty (complexity, dynamism, richness) is high it leads to high degree of departmental differentiation and cross functional integration.
Environmental Uncertainty and Structure
Organizations need different kinds of structure to control their activities based on the environment
Unstable and changing environment : Organic structures are more effective.Organic structure is a complex structure with high differentiation, high integration,decentralized decision making,mutual adjustment.
Stable environment : Centralized, formalized and standardized characteristic of mechanistic structures are more effective. Mechanistic structures are simple structures with low differentiation, low integration,centralized decision making anmd standardization.
Designing an Organizational Structure
Organizational design —the decisions and actions that result in an organizational structure.
Decisions to be made when designing an organization.
1. How to divide the task into successively smaller jobs.
a. Smaller sets of related activities.
b. Specialized activities and responsibilities.
2. How to distribute authority.
a. The right to make decisions without higher approval.
Authority is the power to hold people accountable for their actions and to make decisions concerning the use of organizational resources.
Control is the ability to coordinate and motivate people to work in the organization’s interests
Subunits: Functions and Divisions
Function is a subunit composed of a group of people, working together, who possess similar skills or use the same kind of knowledge, tools, or techniques to perform their jobs
Division is a subunit that consists of a collection of functions or departments that share responsibility for producing a particular good or services
Five Function Types
- Support functions : facilitate an organization’s control of its relations with its environment and its stakeholders.Eg-Purchasing, sales and marketing, public relations and legal affairs
- Production functions : manage and improve the efficiency of an organization’s conversion processes so that more value is created.Eg-Production operations, production control, and quality control
- Maintenance functions : enable an organization to keep its departments in operation.Eg- Personnel, engineering and janitorial services
- Adaptive functions : allow an organization to adjust to changes in the environment.Eg-Research and development, market research, and long-range planning
- Managerial function : facilitate the control and coordination of activities within and among departments.Eg-Top management, middle management, and lower-level management
Departmental Bases are the reasons for grouping certain tasks.It refers to grouping of tasks and is necessary for coordination.
Departmentalization bases
- Functional Departmentalization
a. Divisions based on function.
b. Advantage—efficiency.
c. Disadvantage—organizational goals may be sacrificed in favor of departmental goals.
- Territorial departmentalization
a. Divisions based on geographical area.
b. Helpful in large organizations where centralization is difficult.
- Product departmentalization
a. Division based on product line.
b. Helpful in large, diversified companies.
c. Advantage—managers develop expertise in many areas.
d. Disadvantage—some redundancy exists because each product line has its own research, engineering, marketing, etc.
- Customer departmentalization
a. Divisions based on customer group or clients.
b. Better able to satisfy customer-identified needs.
- Mixed and changing departmentalization
a. Organizations use a mixture of bases at different levels.
b. Organizations will change departmental bases over time, as conditions change.
Design Challenge 2
Balancing Differentiation and Integration
We can’t get people to communicate and coordinate in this organization. Specifying tasks and roles is supposed to help coordinate the work process, but here it builds barriers between people and functions.Horizontal differentiation is supposed to enable people to specialize and become more productive.However, specialization often limits communication between subunits as people develop subunit orientation. Subunit orientation is a tendency to view one’s role in the organization strictly from the perspective of the time frame, goals, and interpersonal orientations of one’s subunit. Integration is the process of coordinating various tasks, functions, and divisions so that they work together and not at cross-purposes
Seven Types of Integration Mechanisms
- Hierarchy of authority : “who reports to whom”
- Direct contact : managers meet face to face to coordinate activities
- Liaison roles : a specific manager is given responsibility for coordinating with managers from other subunits on behalf of their subunits
- Leads to competitive climate.
- Managers exercise more authority, satisfying their problem-solving desires.
Costs of high delegation of authority:
- Costly training in decision-making may be necessary.
- Managers may not delegate to subordinates, for fear of losing control.
- Monitoring systems to evaluate decision-making are expensive to develop and use.
Design Challenge 4
Balancing Standardization and Mutual Adjustment
Standardization : conformity to specific models or examples 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.People in this organization pay too much attention to the rules. Whenever I need somebody to satisfy an unusual customer request or need real quick service from another function, I can’t get it because no one is willing to bend or break the rules.
Rules : formal, written statement that specify the appropriate means for reaching desired goals
Norms : standards or styles of behavior that are considered acceptable or typical for a group of people
Socialization : the process by which organizational members learn the norms of an organization and internalize these unwritten rules of conduct
Challenge facing managers is to find a way of using rules and norms to standardize behavior. However, at the same time, managers need to allow for mutual adjustment to give managers opportunity to discover new and better ways to achieve goals
Organizational Designs
Simple Structure
A structure characterized by a low degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization
Bureaucracy
A structure of highly operating routine tasks achieved through specialization, very formalized rules and regulations, tasks that are grouped into functional departments, centralized authority, narrow spans of control, and decision making that follows the chain of command.
Strengths
- Functional economies of scale
- Minimum duplication of personnel and equipment
- Enhanced communication
- Weaknesses
- Subunit conflicts with organizational goals
- Obsessive concern with rules and regulations
- Lack of employee discretion to deal with problems
- Centralized decision making
Weaknesses
- Subunit conflicts with organizational goals
- Obsessive concern with rules and regulations
- Lack of employee discretion to deal with problems
Why Bureaucracy Survives
- Large size prevails
- Environmental turbulence can be largely managed
- Standardization achieved through hiring people who have undergone extensive educational training
- Technology maintains control
Two design models have significantly influenced management theory/practice: the mechanistic model and the organic model.
A design that gives individuals a sense of personal worth and motivation, and that facilitates flexibility and adaptability would have three characteristics:
- Relatively simple.
- Relatively decentralized.
- Relatively informal.
Neither the mechanistic or organic model is best in all situations; both have strengths and weaknesses.
The Matrix Model
Matrix Structure is a structure that creates dual lines of authority and combines functional and product departmentalization. It refers to a combination of the functional and product departmental bases; a balanced compromise between departmentalization by process and by purpose.
Key Elements
Gains the advantages of functional and product departmentalization while avoiding their weaknesses. It overlays a horizontal structure of authority, influence, and communication on the vertical structure. It has Dual authority system where people report to two managers, a functional supervisor and a product supervisor
Facilitates coordination of complex and interdependent activities
Breaks down unity-of-command concept
Matrix designs are used by organizations that:
a. Must respond quickly to rapid change in two or more environments (e.g., technological and markets).
b. Face uncertainties due to high information-processing requirements.
c. Deal with financial and human resources constraints.
Advantages of matrix organization:
- Efficient use of resources—involves sharing rather than duplicating specialized resources.
- Flexibility in conditions of change and uncertainty—timely response to environmental demands because of effective communications channels inherent in the design.
- Technical excellence—because interaction of specialists encourages cross fertilization if ideas.
- Freeing top management for long-range planning—enables top management to delegate ongoing decision making.
- Improving motivation and commitment—offers more opportunities to participate in key decisions.
- Providing opportunities for personal development—exposes members to diverse parts of the organization and other viewpoints; lets them learn about other specialties and become more aware of the total organization.
WEAKNESSES:
Causes participants to experience dual authority, which can be frustrating and confusing
Means participants need good interpersonal skills and extensive training
Is time consuming; involves frequent meetings and conflict resolution sessions
Will not work unless participants understand it and adopt collegial rather than vertical- type relationships
Requires great effort to maintain power balance
Source: Adapted from Robert Duncan, “What Is the Right Organization Structure? Decision Tree Analysis Provides the Answer, ” Organizational Dynamics (Winter 1979): 429.
Different forms of matrix organization:
- Forms can be seen as existing on a continuum from extremely mechanistic to extremely organic.
- Development typically follows an evolutionary process:
a. Task force —new product results in a temporary task force of members from each functional department to expedite the process.
b. Teams —if new product development continues, permanent teams comprising members from the functional departments become permanent. The teams meet regularly to resolve interdepartmental issues and achieve coordination.
c. Product managers —if new product development becomes a way of life, product managers chair the teams and report to top management; however they are temporary and have no formal authority over the team members.
d. Product management departments —created with subproduct managers for each product line.
Multinational Structure & Design
Market potential Moderate, mostly domestic
Large multidomestic
Very large multinational
Whole world
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Matching organizational structure to International advantage
Forces for global integration are
Forces for national responsiveness are
Strategy Structure
Low Low Export International division
High Low Globalization Global product structure
Low High Multidomestic Global geographic structure
High High Globalization and Multidomestic
Global matrix structure.
Ref:http://www.swlearning.com/management/daft/otad8e/powerpoint/powerpoint.html
Emergent Structural Forms
Inter-organizational network
Global international network structure
Transnational Corporate structure Transnational corporations involves linking foreign operations to each other and to headquarters in a flexible way. It is a network of company units and a system of horizontal communication. The characteristics of TNCs are dispersed subunits, specialized operations and interdependent relationships. It requires the dispersal of responsibility and decision making to local subsidiaries. The effectiveness of TNCs is dependant on the ability and willingness to share current and new learning and technology across the network.
Multinational Structures
Output Control Bureaucratic Control
Decision-making Control
Organizational Control
International division structure
Most likely profit control
Must follow company policies
Some centralization
Treated like other divisions
possible
Global geographic
structure
Profit centre most common
Some policies and procedures necessary
Local units have autonomy
Local subsidiary culture often most important
Global product structure
Unit output for supply; sales volume for sales
Tight process controls for product quality and consistency
Centralized at product division headquarters
Possible for some companies but not always necessary
Transnational network structure
Used for supplier units and some independent profit centres
Less important Few decisions centralized at head quarters; more decisions centralized at key network nodes
Organizational culture transcends national culture; supports sharing and learning, the most important control mechanism
New Design Options
Team Structure
The use of teams as the central device to coordinate work activities
Characteristics
- Breaks down departmental barriers
- Decentralizes decision making to the team level
- Requires employees to be generalists as well as specialists
- Creates a “flexible bureaucracy”
However for teams amount of horizontal coordination required is high and cost of coordination in time and human resources is also high.
