ORGANIZATIONAL

STRUCTURE &
DESIGN
 What is an Organisational
Structure
■ The organisational structure defines the organisation’s hierarchy of
people and departments as well as how information flows within the
organization.
■ The organisational structure determines how and when information is
distributed as well as who makes what decisions based on the
information available.
■ How job tasks are formally divided, grouped and coordinated.
The importance of the Organizational
Structure

■ The Organisational Structure is important because it ensures

that there is an efficient operation of a business and it clearly
defines its workers and their functions.
■ The organisational structure also helps define the hierarchy
and the chain of command.
The Concept of Organisation
Structure
 Structure helps influence behaviour and relationships of jobs
and functions
 Structure defines recurring activities and processes.
 Structure provides a purposeful and goal-oriented behaviour.
 The Designing the Process
cont…
1. Develop a clear mission statement for the organization.
Focus the organisation structure around the mission
statement.
2. The mission statement should include the inter-relationship
between workers at every level as well as inspiring
innovation and ensuring efficiency.
 The Designing the Process cont…
3. Decide whether the organisation structure will be centralized and formal
or decentralized and informal. For centralized and formal
organisations, the organisation structure takes more of a top-down
approach with strictly defined work roles.
For decentralized and informal organizations, there is more of a
cooperative approach with workers often performing a wide range of
functions.
The Designing Process cont…

4. The organisation structure can be department based or based

on a particular project or process. Department -based
organization structure is often divided into line functions (such as
manufacturing) and staff functions (such as human resources).
The Designing Process cont…

5. Design the overall chain of command for the organisation. If

there is a single overall director or leader, determine the title
for that role. If there are dual or multiple leaders, divide the
overall company function between the various roles in a way
that there is a clear unity of command.
The Designing Process cont…

7. Add subordinate roles to the chain of command. Determine the

process of reporting from subordinate to supervisor and make
allowances for special circumstances (such as an
emergency). Indicate if and how interactions across
departments or projects will take place.
 Designing the Process

8. Determine the authority and responsibility to be assigned to

each position in the organization structure. Attempt to achieve
a minimum of overlapping functions. Also, attempt to
minimize any possible confusion by subordinates concerning
which supervisors to consult with on specific issues.
The effects of structure on
individual and group
The structure of any organisation will affect the following:-
1. Behaviour of how people act and work
2. Motivation of workers
3. Performance
4. Teamwork and cooperation
5. Intergroup and interdepartmental relationships
 TYPES OF STRUCTURES
I. Functional structure – this kind of organisational structure classifies
people according to the function they perform in the organization. The
organisation chart for a functional based organisation consists of:
Vice President, Sales department, Customer Service Department,
Engineering or production department, Accounting department and
Administrative department.
 FUNCTIONAL STRUCTURE cont.

■ Product structure – a product structure is based on

organizing employees and work on the basis of the different
types of products. If the company produces three different
types of products, they will have three different divisions for
these products.
 TYPES OF ORGNAZATIONAL STRUCTURES
cont…
II. Line Structure: This has a very specific line of command. The approvals
and orders in this kind of structure come from top to bottom in a line.
Hence the name line structure. This kind of structure is suitable for smaller
organizations. This is the sort of structure allows for easy decision making,
and is very informal in nature. They have fewer departments, which makes
the entire organization a very decentralized one.
 Types cont..
III. Line and Staff Structure: Line and structure combines the line
structure where information and approvals come from top to bottom,
with staff departments for support and specialization. Line and staff
organizational structures are more centralized. Managers of line and
staff have authority over their subordinates, but staff managers have
no authority over line managers and their subordinates.
 LINE & STAFF STRUCTURE cont.

■ The decision making process becomes slower in this type of

organizational structure because of the layers and guidelines
that are typical to it, and the formality involved.
 IV MARKET STRUCTURE

■ Market Structure – market structure is used to group

employees on the basis of specific market the company sells
in a company could have three different markets they use and
according to this structure, each would be a separate division
in the structure.
 V GEOGRAPHIC STRUCTURE

■ Geographic structure – large organizations have offices at

different place, for example there could be a north zone,
south zone, west and east zone. The organizational structure
would then follow a zonal region structure.
 VI. MATRIX STRUCTURES

■ Matrix Structures
This is a structure, which has a combination of function and
product structures. This combines both the best of both
worlds to make an efficient organizational structure. This
structure is the most complex organizational structure.
In-Depth Explanation
Of Organizational
Structure
 Components of
Organizational Structure
Organizational Design
Management decisions and actions that result in a
specific organization structure and work
specification including:-
1. Work Specification: Specify to what degree the
tasks are subdivided into separate jobs
2. Departmentalization: The basis in which jobs will
be grouped together
3. Chain of Command: To whom do individuals and
groups report to.
Organizational Structure
cont..
4. Span of Control: The number of people that a can a manager
efficiently and effectively direct.
5. Centralization and Decentralization: Where is the decision
making authority?
6. Formalization: To what degree will there be rules and
regulations to direct employees and managers?
Division of Labour/specialization

This is a process of identifying the specific jobs that need to

be done and designing the people who will perform them.
Job specialization can occur in 3 different ways:
1. Personal Specialties: occupational and professional
specialties e.g. accountants, engineers, scientists.
Division of Labour cont..

2. Horizontal Specialties: work is divided by the natural

sequence order e.g. manufacturing plants divide work into
fabricating and assembly.
3. Vertical Specialties: Work is divided along the vertical plane
of an organization from the lowest level manager to the
highest level manager.
Delegation of Authority

Process of distributing authority downward in

an organisation. Whether an organisation
chooses to centralize or decentralize will be
guided by:
1. How routine and straightforward are the job’s
required decisions?
2. Are individuals competent to make decisions?
3. Are individuals motivated to make the
decisions?
Delegation of Authority cont..

Reasons to Decentralize Authority:-

 It encourages the development of professional managers.
 Managers are able to exercise more autonomy but it can lead
to a competitive climate.
Delegation of Authority cont…

Reasons to Centralize Authority:-

1. When the managers are not skilled enough and would need
further training which can be expensive.
2. When there are new administrative costs because new
divisions need to be formed.
3. Decentralization can mean duplication of functions.
Departmental Bases

■ The process of grouping jobs into logical units.

■ The process in which an organization is structurally divided
by combining jobs in departments according to some
shared characteristics.
1. Functional Departmentalization
2. Geographical
3. Product
Multiple Forms of Departmentalization

President

Functional Departmentalization

Vice President Vice President Vice President Vice President

Marketing Production Finance Training

Geographical Departmentalization

Nairobi Plant Mombasa Plant Johannesburg Plant Bulawayo Plant

Manager Manager Manager Manager

Product Departmentalization

Consumer Products Industrial Products Marketing Products Training Products

SPAN OF CONTROL

This is the number of individuals who report to a specific

manager.
Three factors are important in determining optimum span of
control:-
 Required Contact
 Degree of Specialization
 Ability to communicate
 Defining Organizational
Structure
■ Organizational Structure
– The formal arrangement of jobs within an organization.
■ Organizational Design
– A process involving decisions about six key elements:
■ Work specialization
■ Departmentalization
■ Chain of command
■ Span of control
■ Centralization and decentralization
■ Formalization
 Purposes of Organizing

• Divides work to be done into specific jobs and

departments.
• Assigns tasks and responsibilities associated with
individual jobs.
• Coordinates diverse organizational tasks.
• Clusters jobs into units.
• Establishes relationships among individuals,
groups, and departments.
• Establishes formal lines of authority.
• Allocates and deploys organizational resources.
 Organizational Structure
■ Work Specialization
– The degree to which tasks in the organization are divided into
separate jobs with each step completed by a different person.
– Overspecialization can result in human diseconomies from boredom,
fatigue, stress, poor quality, increased absenteeism, and higher
turnover.
Departmentalization by Type

■ Functional ■ Process
– Grouping jobs by – Grouping jobs on the
functions performed basis of product or
■ Product customer flow
– Grouping jobs by product ■ Customer
line
– Grouping jobs by type of
■ Geographical customer and needs
– Grouping jobs on the
basis of territory or
geography
 Functional Departmentalization

• Advantages
• Efficiencies from putting together similar specialties and
people with common skills, knowledge, and orientations
• Coordination within functional area
• In-depth specialization
• Disadvantages
• Poor communication across functional areas
• Limited view of organizational goals
 Geographical Departmentalization

• Advantages
• More effective and efficient handling of specific
regional issues that arise
• Serve needs of unique geographic markets better
• Disadvantages
• Duplication of functions
• Can feel isolated from other organizational areas
 Product Departmentalization

+ Allows specialization in particular products and services

+ Managers can become experts in their industry
+ Closer to customers
– Duplication of functions
– Limited view of organizational goals
 Process Departmentalization

+ More efficient flow of work activities

– Can only be used with certain types of products
 Customer Departmentalization

+ Customers’ needs and problems can be met by specialists

- Duplication of functions
- Limited view of organizational goals
Organization Structure
(cont’d)
■ Chain of Command
– The continuous line of authority that extends from upper
levels of an organization to the lowest levels of the
organization and clarifies who reports to who.
Organization Structure
(cont’d)
■ Authority
– The rights inherent in a managerial position to tell people
what to do and to expect them to do it.
■ Responsibility
– The obligation or expectation to perform.
■ Unity of Command
– The concept that a person should have one boss and should
report only to that person.
Organization Structure
(cont’d)
■ Span of Control
– The number of employees who can be effectively and efficiently
supervised by a manager.
– Width of span is affected by:
■ Skills and abilities of the manager
■ Employee characteristics
■ Characteristics of the work being done
■ Similarity of tasks
■ Complexity of tasks
■ Physical proximity of subordinates
■ Standardization of tasks
Organization Structure
(cont’d)
■ Centralization
– The degree to which decision-making is concentrated at a
single point in the organizations.
■ Organizations in which top managers make all the decisions and
lower-level employees simply carry out those orders.
■ Decentralization
– Organizations in which decision-making is pushed down to
the managers who are closest to the action.
■ Employee Empowerment
– Increasing the decision-making authority (power) of
employees.
 Factors that Influence the Amount of Centralization

• More Centralization
 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 relatively minor.
 Organization is facing a crisis or the risk of company failure.
 Company is large.
 Effective implementation of company strategies depends on
managers retaining say over what happens.
 Factors that Influence the Amount of Centralization

• 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 significant.
 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.
Organization Structure
(cont’d)
■ Formalization
– The degree to which jobs within the organization are
standardized and the extent to which employee behavior is
guided by rules and procedures.
■ Highly formalized jobs offer little discretion over what is to be done.
■ Low formalization means fewer constraints on how employees do
their work.
Organizational Design
Decisions
■ Mechanistic ■ Organic Organization
Organization

– Highly flexible and

– A rigid and tightly adaptable structure
controlled structure
■ High specialization ■ Non-standardized jobs
■ Rigid departmentalization ■ Fluid team-based structure
■ Narrow spans of control ■ Little direct supervision
■ High formalization ■ Minimal formal rules
■ Limited information network ■ Open communication network
(downward)
■ Empowered employees
■ Low decision participation
Mechanistic versus Organic Organization

• High specialization • Cross-functional teams

• Rigid departmentalization • Cross-hierarchical teams
• Clear chain of command • Free flow of information
• Narrow spans of control • Wide spans of control
• Centralization • Decentralization
• High formalization • Low formalization
Contingency Factors

■ Structural decisions are influenced by:

– Overall strategy of the organization
■ Organizational structure follows strategy.
– Size of the organization
■ Firms change from organic to mechanistic organizations as they
grow in size.
– Technology use by the organization
■ Firms adapt their structure to the technology they use.
– Degree of environmental uncertainty
■ Dynamic environments require organic structures; mechanistic
structures need stable environments.
Contingency Factors (cont’d)

■ Strategy Frameworks:
– Innovation
■ Pursuing competitive advantage through meaningful and unique
innovations favors an organic structuring.
– Cost minimization
■ Focusing on tightly controlling costs requires a mechanistic structure
for the organization.
– Imitation
■ Minimizing risks and maximizing profitability by copying market
leaders requires both organic and mechanistic elements in the
organization’s structure.
Contingency Factors (cont’d)

■ Strategy and Structure

– Achievement of strategic goals is facilitated by changes in
organizational structure that accommodate and support
change.
■ Size and Structure
– As an organization grows larger, its structure tends to change
from organic to mechanistic with increased specialization,
departmentalization, centralization, and rules and
regulations.
Contingency Factors (cont’d)

■ Technology and Structure

– Organizations adapt their structures to their technology.
– Woodward’s classification of firms based on the complexity of
the technology employed:
■ Unit production of single units or small batches
■ Mass production of large batches of output
■ Process production in continuous process of outputs
– Routine technology = mechanistic organizations
– Non-routine technology = organic organizations
Woodward’s Findings on Technology, Structure, and
Effectiveness
Contingency Factors (cont’d)

■ Environmental Uncertainty and Structure

– Mechanistic organizational structures tend to be most
effective in stable and simple environments.
– The flexibility of organic organizational structures is better
suited for dynamic and complex environments.
Common Organizational
Designs
■ Traditional Designs
– Simple structure
■ Low departmentalization, wide spans of control, centralized
authority, little formalization
– Functional structure
■ Departmentalization by function
– Operations, finance, human resources, and product research and
development
– Divisional structure
■ Composed of separate business units or divisions with limited
autonomy under the coordination and control the parent corporation.
Strengths and Weaknesses of Traditional Organizational
Designs
 Contemporary Organizational Designs

Team Structure
• What it is: A structure in which the entire organization is made up of
work groups or teams.
• Advantages: Employees are more involved and empowered. Reduced
barriers among functional areas.
• Disadvantages: No clear chain of command. Pressure on teams to perform.

Matrix-Project Structure
What it is: A structure that assigns specialists from different functional
areas to work on projects but who return to their areas when
the project is completed. Project is a structure in which
employees continuously work on projects. As one project is
completed, employees move on to the next project.
• Advantages: Fluid and flexible design that can respond to environmental
changes. Faster decision making.
• Disadvantages: Complexity of assigning people to projects. Task and
personality conflicts.
 Contemporary Organizational Designs

Boundaryless Structure
What it is: A structure that is not defined by or limited to artificial
horizontal, vertical, or external boundaries; includes virtual
and network types of organizations.
• Advantages: Highly flexible and responsive. Draws on talent wherever it’s
found..
• Disadvantages: Lack of control. Communication difficulties..
Organizational Designs
(cont’d)
■ Contemporary Organizational Designs
– Team structures
■ The entire organization is made up of work groups or self-managed
teams of empowered employees.
– Matrix and project structures
■ Specialists from different functional departments are assigned to
work on projects led by project managers.
■ Matrix and project participants have two managers.
■ In project structures, employees work continuously on projects;
moving on to another project as each project is completed.
 An Example of a Matrix Organization

© 2007
Prentice Hall,
10–68
Inc. All rights
Organizational Designs
(cont’d)
■ Contemporary Organizational Designs (cont’d)
– Boundaryless Organization
■ An flexible and unstructured organizational design that is intended to
break down external barriers between the organization and its
customers and suppliers.
■ Removes internal (horizontal) boundaries:
– Eliminates the chain of command
– Has limitless spans of control
– Uses empowered teams rather than departments
■ Eliminates external boundaries:
– Uses virtual, network, and modular organizational structures to get
closer to stakeholders.
Removing External
Boundaries
■ Virtual Organization
– An organization that consists of a small core of full-time
employees and that temporarily hires specialists to work on
opportunities that arise.
■ Network Organization
– A small core organization that outsources its major business
functions (e.g., manufacturing) in order to concentrate what it
does best.
■ Modular Organization
– A manufacturing organization that uses outside suppliers to
provide product components for its final assembly operations.
Today’s Organizational Design
Challenges
■ Keeping Employees Connected
– Widely dispersed and mobile employees
■ Building a Learning Organization
■ Managing Global Structural Issues
– Cultural implications of design elements
Organizational Designs
(cont’d)
■ The Learning Organization
– An organization that has developed the capacity to
continuously learn, adapt, and change through the practice
of knowledge management by employees.
– Characteristics of a learning organization:
■ An open team-based organization design that empowers employees
■ Extensive and open information sharing
■ Leadership that provides a shared vision of the organization’s future,
support and encouragement
■ A strong culture of shared values, trust, openness, and a sense of
community.
Assignment
 Terms to Know
■ organizing ■ responsibility
■ organizational structure ■ unity of command
■ organizational design ■ span of control
■ work specialization ■ centralization
■ departmentalization ■ decentralization
■ functional departmentalization ■ employee empowerment
■ product departmentalization ■ formalization
■ geographical ■ mechanistic organization
departmentalization
■ organic organization
■ process departmentalization
■ unit production
■ customer departmentalization
■ mass production
■ cross-functional teams
■ process production
■ chain of command
■ simple structure
■ authority
■ functional structure
 Terms to Know
■ divisional structure
■ team structure
■ matrix structure
■ project structure
■ boundaryless organization
■ virtual organization
■ network organization
■ learning organization
■ organizational chart