Organization Theory & Design
Module 2
Dimensions of Organization
Structure
► ActualDimensions: ► Contextual Dimensions
► Complexity ► Size
► Formalization ► Culture
► Centralization ► Strategy
► Technology
► Environment
Complexity
► The degree of differentiation that exists within an
organization
► Horizontal Differentiation:
Considers the degree of horizontal separation
between units
► Vertical Differentiation:
Refers to the degree of depth
► Spatial Differentiation:
The degree to which the location of an organization’s
facilities and personnel are dispersed geographically
Horizontal Differentiation
► Refers to the degree of differentiation
between units based on the orientation
of members, the nature of task they
perform, their education and training
► The larger number of different
occupations with an organization that
require specialized knowledge and skills,
the more complex the organization
Why?
Horizontal Differentiation
► Diverse orientations make it more difficult for
organizational members to communicate and
more difficult for management to coordinate
their activities
► Diversity increases the likelihood that they
will have different goal emphasis, time
orientations, different work vocabulary
► The most visible evidence in organizations of
horizontal differentiation is specialization
and departmentalization
Horizontal Differentiation
► Specialization:
Particular grouping of activities performed
by an individual
It can be achieved through:
1. Functional Specialization or division of
labor
Job is broken down into simple repetitive
task
2. Social Specialization:
Individual is specialized rather than their
work (professionals)
Horizontal Differentiation
► Reasons for division of labor:
1. Physical limitations
In highly sophisticated and complex jobs, no one can
perform all the task
2. Knowledge and skill limitations
3. Represent proper usage resources and skills level
4. Efficiency
a. Time saving
b. Training
Horizontal Differentiation
► Departmentalization:
The way specialists are grouped together.
Departmentalization is the way in which organizations
typically coordinate activities that have been horizontally
differentiated
Departments could be created on the basis of:
a. Functions
b. Product
c. Customer
d. Geography
e. Process
Discussion Question
► Is
it possible for an organization to use all
the methods of departmentalization?
Vertical Differentiation
► Refers to the depth in structure
► How does vertical differentiation increases
complexity?
The more levels that exist between top
management and operatives, the greater
the potential of communication distortion,
the more difficult it is to coordinate the
decisions of managerial personnel, the more
difficult for top management to oversee the
actions of operatives
Vertical Differentiation
► Can horizontal differentiation and vertical differentiation
be construed as independent of each other?
► Vertical differentiation should be understood as a
response to horizontal differentiation
► Reason:
As specialization expands, it becomes increasingly
necessary to coordinate tasks. Since, high differentiation
that members will have a diverse training and
background, it may be difficult for individual units to see
how their task fits into greater whole. The result is a
need for increased coordination, which shows itself in
development of vertical integration
Vertical differentiation
► Do organizations with same number of employees need to
have same degree of vertical differentiation?
► The determining factor is span of control
► Span of control:
Defines the number of subordinates that a manager can direct
effectively
a. Wide span:
managers would have large number of subordinates reporting
to them
b. Narrow span:
managers would have less number of subordinates reporting to
them
Wider span of control leads to flat organization structure
whereas narrow span would lead to taller organization
Vertical Differentiation
► Advantages of tall organizations:
1. Tighter controls
2. Better psychological career paths, better promotion
opportunities
► Disadvantages:
1. Coordination and communications become complicated
2. Costly
► Advantages of Flat Organizations
1. Shorter and simpler communication chain
2. Efficient
► Disadvantages
1. Loose controls
2. Reduced promotion chances
Spatial Differentiation
► The degree to which the location of an
organization’s offices, plants, and personnel
are dispersed geographically
► Spatial differentiation can be thought as an
extended dimensions to horizontal and
vertical differentiation
Discussion Question
► Arethree complexity measures inter-
correlated?
Why is Complexity Important
► The more complex an organization, the greater the need
for effective communication, coordination and control
devices
► The higher the complexity, the greater amount of attention
they must pay to dealing with problems of communication,
coordination, and control
Paradox in Organizational Analysis
Management’s decision to increase differentiation is made
in the interest of economy and efficiency. These decisions
create cross pressure to add managerial personnel to
facilitate control, coordination, and conflict reduction. So
the advantage that complexity creates may be
counterbalanced by the increased burden of keeping the
organization together
Formalization
► The degree to which jobs within the organization are standardized
► In highly formalized jobs, the job incumbent has minimum amount of
discretion over what is to be done, and how he should do it. Employees can
be expected always handle the same input in exactly the same way,
resulting in consistent and uniform output
► In jobs with low formalization, employees behavior would be relatively non-
programmed by the organization. Such jobs would offer employees a great
deal of freedom to exercise discretion in their work
► Since employees’ behavior is inversely related to the behavior that is
programmed by the organization, the greater the standardization, the less
input the employee has into how his/ her work is to done.
► Standardization not only eliminates employees engaging in alternative
behaviors but also removes the need for employees to consider alternatives
Range of Formalization
► Unskilled jobs versus professional jobs
► Kind of work being performed ( production
versus sales)
► Level in the hierarchy of organization
Why is formalization Important
► Standardized behavior reduces variability
► Standardization promotes coordination
► Standardization offers economies/cost
effective
The “Make or Buy” Decision
► The “Make” decision refers to formalization achieved on the job
1. The term externalized behavior is used. It means that formalization is
external to the employee; that is, the rules, procedures, and
regulations governing the individual’s work activity are specifically
defined, codified and enforced through direct management
supervision. This characterizes unskilled workers. It is also what is
typically meant by formalization
2. The “Buy” decision refers to creation of internalized behavior through
social specialization. Individual learns the values, norms, and expected
behavior patterns for the job and the organization of which they will
be a part. This is true in hiring professionals, where the individual is
“standardized” rather than the job!
Management has two decisions to make:
a. What degree of standardization of behavior is desired?
b. Will the standardization be made “ in house” or “bought” outside?
The “ Make or Buy” Decision
► In house variety is emphasized with unskilled
workers
► For professionals only fine tuning is required –
called “cultural acclimatization”
► Direct on the job formalization and
professionalization are basically substitutes for each
other
► The organization can either control employee
behavior directly or it can achieve indirect control by
hiring highly trained professionals
► As the level of professionalization increases in an
organization, the level of formalization decreases
“Make” & “Buy” Techniques
► Selection
► Role Requirements
► Rules, procedures and policies
► Training
► Rituals
The Relationship between
Formalization and Complexity
► High horizontal differentiation when achieved
through division of labor, typically means hiring
unskilled personnel to perform routine and repetitive
task tends to be associated with high degree of
formalization to facilitate coordination and control.
Where high horizontal differentiation is achieved by
hiring professionals, formalization tends to be low
► The key to understanding the complexity –
formalization relationship is to focus on the degree
of horizontal differentiation and the way it is
achieved
Centralization
► The degree to which decision making is
concentrated at a single point in the
organization
► A high concentration implies high
centralization where as a low
concentration indicates low centralization
or decentralization
► Centralization is concerned with dispersion
of authority to make decisions within the
organization, not geographic dispersion
Centralization
► Issues in Centralization:
1. Do we look only at formal authority
2. Can policies override decentralization
3. What does “ concentration at a single point mean?
4. Does information processing system that closely
monitors decentralized decisions maintain
centralized control
5. Does the control of information by lower level
members result in decentralization of what
appears to be centralized
Centralization
► Centralization can be described as the degree to
which the formal authority to make discretionary
choices is concentrated in an individual, unit, or
level (usually high in organization), thus
permitting employees
(usually) low in the organization minimum input
into their work
1. Centralization is concerned only with formal
structure, not the informal structure
2. Looks at decision discretion. Where decisions are
delegated downward but extensive policies exist
to constrain the discretion of lower members,
there is increased centralization
Centralization
3. Concentration at a single point can refer
to an individual, unit, or level, but the
single point implies at high level
4. An information processing system that
closely monitors decentralized decisions
does not maintain centralized decisions
5. The control of information input is a form
of de facto decentralization
Organizational Decision Making Process
Situation Action
Information Interpretation Authoriz
choice Execution
input and advice ation
What can be What is What is
What should What is
done intended authorized actually
be done
to be to be done done
done
Why is Centralization Important
► Reasons for Decentralization
Avoidance of information overload
Fast response to changing conditions
Detailed input into decision making process
Employee motivation
Training opportunity
Reasons for Centralization
Choosing action consistent with the best interest
of the organization
Some activities are done more effectively
Relationship of centralization,
complexity and formalization
► Centralization and Complexity:
Inverse relationship with centralization and
complexity
Increase in number of occupational specialties
means an increase in the expertise and ability to
make decisions. The more employees have
undergone professional training the more likely they
would participate in decision making
The greater the centralization of decision making,
the less professional training is likely to be exhibited
by employees
Centralization and
Formalization
► Relationship is ambiguous
High formalization can be found coupled with
either centralized or decentralized structure
If employees are predominantly unskilled one
can expect high formalization and centralized
authority
With professional employees one might
predict low formalization and decentralization
Discussion Question
► You are evaluating an organization’s structure. You
find production activities are highly formalized,
whereas level of formalization of research-design
is low. Similarly, legal decisions are highly
centralized, but marketing decisions are
decentralized. How do you arrive at organization
wide measures of organization structure if units
within the organization are not homogenous?
