Organizational Structure Design
Organizational Structure Design
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
■ 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
President
Functional Departmentalization
Geographical Departmentalization
Product Departmentalization
■ 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
• 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
■ 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)
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