Organizational Structure
Broadly defines as the sum total of the ways in which an organization divides its tasks and then coordinates them. It defines the firms’ decision-making authority and serves as the connecting fiber between the company’s strategy and the actions and behaviour of its members. An organization structure designates formal reporting relationships, encompassing the number of levels in the hierarchy and the span of control held by managers and supervisors; identifies groupings of individuals into specific positions, work units, teams, departments, division and others as well as the groupings of these submits into the total organization.
Organization structure is reflected in the organization chart. The organization chart is the virtual representation of a whole set of underlying activities and processes in an organization. It can be quite useful in understanding how a company works. It’s also shows the various parts of an organization, how they are interrelated, and how each position and department fits into the whole. The concept of an organization chart – showing what positions exist, how they are grouped, and who reports to whom.
Several Dimensions of Organization Structure and Design
Chain of Command
An unbroken line of authority that links all persons in an organization and shows who reports to whom. It is associated with two underlying principles. Unity of Command – each employee is held accountable to only one supervisor.
Scalar Principle –refers to a clearly defined line of authority in the organization that includes all employees.
Concepts necessary to an understanding of chain of command include authority, responsibility, accountability and delegation. The chain of command illustrates the authority structure in the organization.
Authority is the formal and legitimate right of a manager to make decisions, issue orders and allocate resources.
Responsibility is the flip side of authority, it is a duty to perform the task or activity an employee has been assigned.
Accountability means that people with authority and responsibility are subject to reporting and justifying task outcomes to those above them in the chain of command.
Delegation is the process of managers use to transfer authority and responsibility to people in positions below them in the hierarchy.
Line and Staff Position Line Departments perform tasks that reflect the organization’s primary goals.
Staff Departments include those that provide specialized skills in support of line departments.
Staff departments have an advisory relationship with line departments and typically include marketing, labor relations, research, accounting and human resources. Staff personnel do background research and provide technical advice and recommendations to line managers.
Span of Control (Span of Management) Refers to the number of employees who report to a supervisor. Traditional views of organization design recommended a narrow span of control, with each manager supervising approximately seven subordinates. The span of control determines how many management levels and managers an organization has.
Centralization and Decentralization Refers to the hierarchical level at which decisions are made.
Centralized Organizations – one in which decisions are concentrated at one or a few points, typically at the top of the organizational hierarchy
Decentralized Organizations – disperses authority for making decisions throughout a number of positions in the organization. a. Vertical Decentralization – refers to the distribution of formal decision-making power down the hierarchy or chain of command. Although such power is still vested at a higher organizational level, the individual involved may choose to disperse or delegate the authority to make certain decisions to others at lower organizational levels. b. Horizontal Decentralization – focuses on the extent to which people in non-managerial positions control decision processes.
Formalization
Refers to the extent to which an organization relies on rules and standardized procedures to direct behaviour of its members. This dimension of organizational structures reflects the amount of discretion that is built into particular roles and positions. It can also vary depending on organization function.
Work Specialization (Division of Labor) Degree to which organizational tasks are subdivided into different individual jobs. Despite the apparent advantages of work specialization, many organizations are moving away from this principle. With too much work specialization, employees are isolated and do only a single, tiny, boring job, which can lead to fatigue, stress, lower productivity, increased absenteeism and higher turn-over. Work specialization can reach a point in many jobs where the human costs begin to outweigh the economic advantages. Thus, most managers today recognize that specialization can be carried too far.
Differentiation – concerned with the amount of work segmentation of an organizational system into component parts. 1. Horizontal Differentiation – work is divided on a particular level of an organizational hierarchy. 2. Vertical Differentiation – work is divided by levels of the organizational hierarchy; distinction is between a tall and flat organization refers to whether it has many or few levels of hierarchy. 3. Personal Differentiation – work is divided according to the personal specialty 4. Spatial Differentiation – work is divided according to geographical location
Integration – defined as the “quality of the state of collaboration that exists among departments that are required to achieve unity of efforts by the demands of the environment. Organizations differ in the ways that they coordinate or integrate such specializations through the use of various types of integrative mechanisms. It may be roughly categorized into two types based on the extent of face-to-face interaction: 1. Indirect Integrative Mechanisms (no face-to-face interaction between participants) – appropriate for organizations in stable environments that are not highly differentiated. There is a high degree of similarity across work assignments. 2. Direct Integrative Mechanisms –for organizations with highly differentiated structures
Key Organization Structure Challenges
Differentiation and Integration Basic rule of organizational theory is that organizations differentiates a key management task is to ensure an appropriate level of coordination across the various operation. Depending on the level and nature of differentiation that exists in an organization, such integration can range from relatively indirect mechanisms such as the exchange of information through memos and standard operating procedures; a reliance on the chain of command and formal hierarchy; more direct forms such as specific integrative roles whose primary activity is to coordinate the efforts across different departments and even temporary or permanent cross-functional teams.
Centralization versus Decentralization A general principle in centralizing or decentralizing decision making is that the person or unit with most relevant information should make the decision. A primary advantage of decentralization is that it promotes flexibility and responsiveness by allowing unit-level managers to use local knowledge to make “on-the-spot” decisions. This capability not only speeds ups the decision process, but providing unit-level managers with the power and authority to make decisions is also a strong motivational factor. The main drawback associated with decentralization is when so much authority is delegated throughout the organization that managers at all levels are able to make their own decisions. In this instance, the organizations can begin to lose control over their decision-making process. One of the realities of today’s rapidly changing business environment is that most organizations are neither fully centralized nor fully decentralized. Even in highly centralized organizations, most routine decisions are still decentralized to lower-level staff. There are four primary disadvantages associated with highly centralized organization: 1. The decision-making capacity of the top management is limited and is consequently subject to overload. 2. Top management frequently lacks specific knowledge about conditions at the sub-unit level. 3. Moving information up and down the hierarchy is time consuming and can delay decision making. 4. Centralization can have a negative effect on the motivation of sub-unit managers.
Standardization versus Mutual Adjustment Organizational control is also achieved through various mechanisms that organizations use to coordinate their work, ranging from the standardization of work processes, work outputs and/or worker skills and knowledge to direct supervision, to the mutual adjustment between organizational members. Work processes can be standardized when the actual work itself is specified or programmed. Standardized work processes range from the assembly instructions provided with many children’s toys to coordination of work on an assembly line. Work Outputs are standardized when the results or outcomes of the work are specified. The final way to standardize work focuses on the individuals doing the tasks rather than the way in which they are done or the outcomes that are expected. Worker skills and knowledge are standardized when specific training and education are necessary to perform the work. Direct supervision coordinates work through hierarchical referral, having one individual assume responsibility for the work of others, giving them directions and monitoring their efforts. Mutual adjustment secures the coordination of work through relatively simple processes of informal communication and interaction. It can be used to coordinate work in the simplest to the most complicated organizations.
Structural Approaches
Mechanistic Organizational Structure – reflects the traditional description of a bureaucracy where there is clear definition of jobs; senior administrators have more knowledge of problems facing an organization than those at lower levels; standardized policies and procedures govern organizational decision making and rewards are determined by adherence to instruction forms Characteristics 1. Tall structure, many levels of management 2. Information flows up and down the hierarchy 3. Decision making centralized at upper levels 4. Emphasis on standardized policies and procedures and indirect integration
Organic Organizational Structure – sometimes referred to as adhocracies, designed to be flexible and to cope with rapidly changing environments. Adhocracies are characterized by decreased emphasis on formal job descriptions and specializations; there is no assumption that people in higher positions are necessarily better informed than those lower in the organization; horizontal relationships are equal or more important than vertical, chain of command, relationships; organizational atmosphere is more collegial and formal structure of the organization is fluid and changeable.
Characteristics
1. Flat Structure, few levels of management 2. Information flows horizontally across departments 3. Decision making decentralized to point where work is done 4. Emphasis on mutual adjustment and direct integration
Functional Organizational Structure –activities are grouped together by common function from the bottom to the top of the organization. With a functional structure, all human knowledge and skills with respect to specific activities are consolidated, providing a valuable depth of knowledge for the organization. It is generally mechanistic in that authority is centralized, tasks are narrow defined and there is little cross-functional teamwork.
Advantages
1. It promotes economies of scale within functions. 2. Allows in-depth skill development for employees. 3. Promotes high quality technical problem solving.
Disadvantages
1. Slow response to environmental changes. 2. The vertical hierarchy may become overloaded. 3. Stresses extensive work specialization, which may lead to routine, non-motivating employee tasks.
Divisional Organizational Structure – occurs when departments are grouped together based on organizational outputs. Divisions are created as self-contained units for producing a single product, serving a single geographical region, or serving a particular set of customer. Sometimes called “Product Structure”, “Program Structure” or “Self-Contained Unit Structure”.
Advantages
1. Organizations are more flexible and responsive to change. 2. Enables top managers to pinpoint responsibility for performance problems in different product lines. 3. Employees develop a broader goals orientation rather than being focused on their own functional departments.
Disadvantages
1. Duplication of resources and the high cost of running separate divisions. 2. Fosters excellent coordination within divisions 3. Divisions may feel themselves in competition with one another.
Matrix Organizational Structure – combines aspects of both functional and divisional chains of command simultaneously in the same part of the organization. It evolved as a way to improve horizontal coordination and information sharing.
Advantages
1. Highly effective in a complex, changing environment in which the organization needs to be flexible and adaptable. 2. Makes efficient use of human resources because specialists can be transferred from one division to another. 3. Engages the participation of employees in team meetings and the achievement of the divisional goals.
Disadvantages
1. Frustration and confusion caused by the dual chain of command. 2. Generate high levels of conflict because it pits divisional against functional goals in a domestic structure and product line against country goals in a global matrix. 3. Time lost to meetings and discussion devoted to resolving conflicts.
Horizontal Organizational Structure – organizes employees around core work processes. It takes the team approach to its ultimate level. This is highly organic organization structure that virtually eliminates both the vertical hierarchy and old departmental boundaries.
Characteristics
1. Structure is created around cross-functional core processes 2. Self-directed teams are the basis of organizational design and performance. 3. Process owners have responsibility for each core process in its entirety. 4. People on one team are given the skills, tools, motivation, freedom and authority to think creatively and make decisions central to the teams performance.
Advantages
1. Dramatically increase the company’s flexibility and shorten response time to changes in customer needs because of the enhances coordination 2. Employees take a broader view of organizational goals 3. Improve the quality of life for employees by giving them opportunities to share responsibility, make decisions and contribute significantly to the organization
Disadvantages
1. Can harm rather than help organizational performance unless managers carefully determine which core processes are crtitical 2. Time consuming 3. Can limit in-depth knowledge and skill development.
Network Organizational Structure – a company subcontracts most of its major functions to separate companies and coordinates their activities from small headquarters organizations. The network may be viewed as a central hub surrounded by network of outside specialists
Advantages
1. Organizations can be truly global 2. Workforce flexibility and challenge 3. May have only two or three levels of hierarchy
Disadvantages
1. Lack of hands-on control 2. Uncertainty is high 3. Employee loyalty weaken.
Determinants of Structure
Organization Size – typically defined in terms of the total number of members. This definition follows from the assumption that organizations are social entities, their number should be more closely related to the way in which the organization is structured than other size measures.
Organizational Technology – based on the nature of the task in the production or service subsystem and encompasses the actions, knowledge and techniques used to transform various inputs into outputs.
Strategy – defines as the “determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out those goals. It requires sound diagnostic skills and astute judgment.