Organisational StructureOrganisational Structure

Defining Organizational Structure

How job tasks are formally divided, grouped and coordinated.

The formal pattern of interactions and co-ordination designed by management to link the tasks of individuals and groups in achieving organisational goals.

Defining Organizational Structure

Organizational Structure The formal arrangement of jobs

within an organization. Organizational Design

A process involving decisions about six key elements: Formalization Work specialization Chain of command Centralization and decentralization Span of control Departmentalization

Key Elements

Formalisation - Level of written documentation: policies, procedures, job descriptions etc.

Work Specialisation - Degree to which tasks are divided into separate jobs.

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 whom.

Less relevant than in the past

Centralization/Decentralization –

Describes the locus of decision making in the organisation; centralised organisations are characterised by a concentration of decision making at the top of the management hierarchy.

Centralization

Senior management can exercise greater control.

Procedures can be centralised for organisation as a whole.

Easier to maintain ‘balance’ between departments and functions.

Senior mgmt more experienced decision makers.

Better in times of crisis, as senior management takes care.

Decentralization

Reduced stress and burden on senior mgmt.

Greater job satisfaction for subordinates.

Subordinates may have better ‘local’ knowledge.

Decentralisation can be used to train managers.

Decentralisation may lead to improved control.

Span Of Control- Basic building block of organisational structure

Number of subordinates who report to each manager

OR

Number of employees a manager can effectively/efficiently manage.

1 – 10 : Narrow span

11+ : Wide span

Determines whether the organisation has a Tall or a Flat structure.

Departmentalization

Basis by which jobs are grouped together

Area Product Brand Function Customer / market segment Equipment specialisation Shifts

Why Have a Structure?

An organisation structure is required as soon as there are several people working in the business.

A clear structure makes it easier to see which part of the business does what.

An organisational structure is the way in which a business is arranged to carry out its activities.

It reduces confusion.

The choice of structure impacts the organisations culture – their ethos and beliefs.

A clear structure helps in proper communication and enhances participation.

Develops inter-relationships between departments.

Helps in better coordination.

Types of Organizational Structures

Functional Structure Divisional Structure Tall and Flat Structure Matrix Structure Organic and Mechanistic Structure Virtual Structure Hybrid Structure

Functional Structure

Activities are grouped together by common functions from the bottom to the top of the organisation.

This is the most common type of structure found in most organizations.

Consists of line and staff functions.

Functional Structure

DivisionalStructure

Functional Structure

Advantages

Specialisation – each department focuses on its own work

Accountability – someone is responsible for the section

Clarity – know your and others’ roles

Disadvantages

Closed communication Departments can

become resistant to change

Leads to poor horizontal co-ordination among departments

Involves restricted view of organisational goals

Divisional Structure

Could also be called strategic business units. With this structure, divisions can be organised

according to individual products, services, product groups, major projects or programmes, divisions, geographical location etc.

The divisional structure decentralises decision making – and has its strengths in achieving co-ordination across functional departments.

Divisional Structure

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C E O

Divisional Structure

Strengths

1. Suited to fast change in unstable environment

2. Leads to client satisfaction because product responsibility is clear

3. Involves high co-ordination across functions

4. Best in large organisations with several products

5. Decentralises decision making

Weaknesses

1. Eliminates economies of scale in functional departments

2. Leads to poor co-ordination across product lines

3. Eliminates in-depth competence and technical specialisation

Tall and Flat Organisations

Tall organisation Large number of managers Narrow spans of control Can suffer from having too many managers (expensive) Decisions can take a long time to reach bottom of hierarchy Can provide good opportunities for promotion Manager does not have to spend so much time managing

staff

Flat organisation Few managers Wide span of control

Flat Tall

In order to work, a flatstructure requires thorough training

for staff at each level

Tall Structure

Thought by classical theorists to be inefficient because of:

Communication problems Ill defined mgmt roles Duplication of effort Planning and co-ordination problems However, a contemporary view is that tall structures

may facilitate team working, with all its attendant benefits

Flat Structure STRENGTHS:STRENGTHS:

Flexibility and rapid response to changes in customer needs

Wider span of control Each employee has a broader

view of organizational goals Promotes a focus on teamwork

and collaboration—common commitment to meeting objectives

Improves quality of life for employees by offering them the opportunity to share responsibility, make decisions, and be accountable for outcomes

WEAKNESSES:WEAKNESSES:

Requires changes in culture, job design, management philosophy, and information and reward systems

Traditional managers may balk when they have to give up power and authority

Requires significant training of employees to work effectively in a horizontal team environment

Can limit in-depth skill development

Matrix Structure

Combines a vertical chain of command with project / product teams.

The focus is on the task. Is a more flexible structure and allows the

business to be more responsive to customer needs.

However it can cause conflict and employees may have divided responsibilities.

The matrix formalises horizontal teams along with the traditional vertical hierarchy and tries to give equal balance to both.

Matrix Structure

Two-boss employee

Matrix Structure

Advantages Speeds operational decision making Project loyalty Flexible use of human resources

Disadvantages Complex Costly Confusing Time management

Organic and Mechanistic Structures

Mechanistic Structure Organic Structure

Organic Structure

• Employees work together and coordinate tasks

• Low formalization• Collaboration (vertical & lateral)• Relaxed hierarchy; free flow of

information• Team work• Much verbal communication

Mechanistic (machine-like) Structure

• Employees work separatelyand specialize in one task

•Rigid Hierarchical Relationships

• Fixed Duties

• High Formalization

• Formalized Communication Channels

• Centralized Decision Authority

Mechanistic Vs. Organic

• Highly specialized tasks• Rigid

departmentalization• Strict chain of

command• Narrow span of control• Centralized decision

making• High formalization:

many detailed rules and standard operating procedures

• Vertical communication and reporting system

• Little teamwork

• Low horizontal differentiation• Collaboration (vertical &

lateral)• Relaxed hierarchy; free flow

of information• Wide span of control• Decentralized decision

making• Low formalization• Informal communication,

face-to-face• Teamwork• Adaptable duties

Virtual Structure Also known as boundary less structure. Extends the scope of horizontal co-ordination

and collaboration beyond the boundaries of the traditional organization. Outsourcing – means to contract out

certain corporate functions, such as manufacturing, information technology, or credit processing, to other companies.

Virtual Network Structure –The firm subcontracts many or most of its major processes to separate companies and co-ordinates its activities from a small headquarters organization.

Virtual Network Structure

StrengthsStrengths WeaknessesWeaknesses

1. Enables even small organizations to obtain talent and resources worldwide

1. Managers do not have hands-on control over many activities and employees

2. Gives a company immediate scale and reach without huge investments in factories, equipment or distribution facilities

2. Requires a great deal of time to manage relationships and potential conflicts with contract partners

3. Enables the organization to be highly flexible and responsive to changing needs

3. There is a risk of organizational failure if a partner fails to deliver or goes out of business

4. Reduces overhead costs 4. Employee loyalty and corporate culture might be weak because employees feel they can be replaced by contract services

Hybrid Structure

Hybrid structure combines characteristics of various approaches tailored to specific needs. Most companies combine characteristics of functional, divisional, geographic or horizontal structures.

Hybrid structures tend to be used in rapidly changing environments because they offer the organisation greater flexibility.

Large organisations may have many different types of hybrid organisations.

FunctionalStructure

Hybrid Structure (Sun Petrochemical Products)

President

TechnologyVice

President

FinancialServices

Vice Pres.

HumanResourcesDirector

ChiefCounsel

ChemicalsVice

President

LubricantsVice

President

FuelsVice

President

ProductStructure

Factors Affecting Organizational Design

Objectives of Organizational Design

Respond toChange

Respond toChange

Integrate New Elements

Integrate New Elements

CoordinateComponents

CoordinateComponents

EncourageFlexibility

EncourageFlexibility

Factors Affecting Organizational Design & Structure

Figure 7.1

Strategy

Strategy is –

The direction and scope of an organisation Over the long term Which achieves advantage for the organisation

through its configuration of resources Within a changing environment To meet the needs of markets and To fulfil stakeholder expectations.

Different strategies require the use of different structures.

Influence of Strategy on Structure

Choosing a Structure

Product-market Strategy Organization Structure

Single product or service.Local/regional markets.

Agency

Limited, standardized product or service line.Regional/national markets.

Functional

Diversified, changing product or service line.National/ international markets.

Divisional

Standard and innovative products or services.Stable and changing markets.

Matrix

Product or service design. Global, changingmarkets.

Dynamic network

Environment

Environment refers to the forces or institutions within and outside the organization that potentially affect the organization’s performance.

Environment

Mechanistic structure

Centralized decision making

Specialization

Stable EnvironmentStable Environment

Organic structure Flexibility Coordination Less formal

procedures

Unstable EnvironmentUnstable Environment

Environment

The quicker the environment changes, the more problems a manager has to face.

Structure must be more flexible (i.e., decentralized authority) when environmental change is rapid.

Complexity

Volatility

Capacity

More organicstructures

Environment

Size of the Organization

Organic structure Little division of

labor Few rules and

regulations Informal

procedures

Small OrganizationsSmall Organizations

Mechanistic structure

Greater division of labor

More rules and regulations

More elaborate internal systems to control

Large OrganizationsLarge Organizations

Age of the Organization

BirthBirth YouthYouth MidlifeMidlife MaturityMaturity

Organizational Life CycleOrganizational Life CycleOrganizational Life CycleOrganizational Life Cycle

Technology

Technology

The combination of skills, knowledge, tools, equipment, computers and machines used in the organization refers to technology.

Technology

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.

Types of Technology

Small Batch Technology Small quantities of one-of-a-kind products are

produced by the skills of the workers who work together in small groups.

Appropriate structure should have decentralized authority and flexibility.

Mass Production Technology Automated machines that are programmed to

make high volumes of standard products. Formal structure is the best choice for workers

who must perform repetitive tasks.

Human Resources

Highly skilled workers whose jobs require working in teams usually need a more flexible and organic structure.

On the other hand unskilled/ semi skilled workers would need to be supervised and thus a formal and mechanistic structure would be required.

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

Organization Structure Issues

How to group tasks into individual jobs. How to group jobs into functions and

divisions. Coordinating functions and divisions. Allocating authority.

Symptoms of Structural Deficiency

Decision making is delayed or lacking in quality.

The organization does not respond innovatively to a changing environment.

Too much conflict is evident.

Escalating administrative costs.

Symptoms of Structural Deficiency

Low employee morale due to: Unacceptable decisions/decision making process Unclear performance criteria Conflicting expectations/pressures Overload/lack of support More than one supervisor

Changing Structures

• ‘Developing organisations find it difficult to change their formal structures, and cannot do so at frequent intervals.

• There is usually a time lag between: A change in the environment, or In task/problem type, or In strategy or In technology, ....On the one hand, and the subsequent change

in structure on the other.

Changing Structures

• Internal power-struggle is also involved between different groups.

• Culture may block change intended in restructuring.

Organizational Environment

Organizational Environment

The term organizational environment refers to the forces or institutions within and outside the organization that potentially affect the organization’s performance.

It can be broadly classified into two pats:- Internal environment External environment

Internal environment

Internal environment consists of those factors of the organizational environment which are within the organization and thus the organization has control over them.

Such factors are:- Human Resources Finances R & D Marketing Sales Purchase Production … etc

External environment

External environment consists of those factors of the organizational environment which are outside the organization and thus are beyond the control of the organization.

External environment can further be classified into following two types:-

Macro external environment Micro external environment

Micro External Micro External EnvironmentEnvironment

Have immediate effect on the functioning of the organization.

These consist of:

Customers Competitors Suppliers Stake holders Media

Macro External Macro External EnvironmentEnvironment

Have long term effect on he organizational functioning.

These consist of:

Political environment Cultural environment Social environment Economic environment Technology

SWOT ANALYSIS

A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.

SWOT ANALYSIS

SWOT analysis can be used to assess: A company (its position in the market, commercial viability, etc) A method of sales distribution A product or brand A business idea A strategic option, such as entering a new market or launching a

new product An opportunity to make an acquisition A potential partnership Changing a supplier Outsourcing a service, activity or resource An investment opportunity

SWOT Analysis Framework

StrengthsStrengths

A firm's strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths include:

Patents Strong brand names Good reputation among customers Cost advantages from proprietary know-how Exclusive access to high grade natural resources Favorable access to distribution networks

Weaknesses Weaknesses  

The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses:

Lack of patent protection A weak brand name Poor reputation among customers High cost structure Lack of access to the best natural resources Lack of access to key distribution channels

OpportunitiesOpportunities 

The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include:

An unfulfilled customer need Arrival of new technologies Loosening of regulations Removal of international trade barriers

Threats Threats

Threats can be understood as issues that can harm an organization.

Changes in the external environmental also may present threats to the firm. Some examples of such threats include:

Shifts in consumer tastes away from the firm's products

Emergence of substitute products New regulations Increased trade barriers