Organizational Structure and Design Zara Zahid

ORGANIZATIONA L STRUCTURE AND DESIGN

Organizational Structure and Design

MANAGEMENT REPORT ZARA ZAHID 0911215 BBA 2-C

Instructor: Mr. Nasir Ali Khan Date: May 2nd, 2010

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TABLE OF CONTENTS TABLE OF CONTENTS.................................................................................................. 3 KEY ELEMENTS OF ORGANIZATIONAL STRUCTURE:....................................................5 Work Specialization:................................................................................................ 5 Departmentalization:............................................................................................... 6 Chain of Command:................................................................................................. 7 Span of Control: ....................................................................................................... 8 Centralization and Decentralization: ....................................................................... 9 Formalization:.......................................................................................................... 9 ORGANIZATIONAL DESIGN DECISIONS ..................................................................... 10 Mechanistic Organizations..................................................................................... 10 Organic Organizations........................................................................................... 11 CONTINGENCY FACTORS: ......................................................................................... 11 COMMON ORGANIZATIONAL DESIGNS......................................................................13 Traditional Organization Designs:.......................................................................... 13 Contemporary Organizational Designs: .................................................................14 TODAY’S ORGANIZATIONAL DESIGN CHALLENGES ...................................................14 Supplementary Notes............................................................................................... 15 Bibliography............................................................................................................. 17

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ORGANIZATIONAL STRUCUTURE AND DESIGN Organizing can be in crude terms defined as arranging and structuring work to accomplish the organization’s goals. Organizational structure can be defined as: “Formal and informal framework of policies and rules within which an organization arranges its lines of authority and communications and allocates rights and duties.” Or “The formal arrangement of jobs within an organization”

Organizational structure determines the manner and extent to which roles, power, and responsibilities are delegated, controlled, and coordinated, and how information flows between levels of management. It refers to the way that an organization arranges people and jobs so that its work can be performed and its goals can be met. An organization chart illustrates the organizational structure. Organizational structure is much like a human skeletal structure. It determines what shape an organization will take. We don't spend much time thinking about our skeletal structure until something breaks, and so it goes with organizations. How an organization is structured basically means how the reporting relationships and work teams are organized. It reveals a great deal about the culture, function and leadership of a company.

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KEY ELEMENTS OF ORGANIZATIONAL STRUCTURE: 

Work Specialization

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Departmentalization

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Chain of command

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Span of Control

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Centralization and Decentralization

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Formalization

Work Specialization: It is defined as: “Dividing work activities into separate job tasks.”

We use the term work specializations or division of labor, to describe the degree to which activities in the organization are subdivided into separate jobs. In essence individuals specialize in doing part of an activity rather to the entire activity. By the half of twentieth century, managers used to consider work specializing as an element to increase efficiency and productivity as the labor used to take less time in changing the tasks because of repetition of tasks. But now, most managers see work specialization as an important organization mechanism but not a source to increase productivity. Organization can rather result in human diseconomies from boredom, fatigue, stress, poor quality, increased absenteeism, lack of interest and higher turnover because of it. Work specialization is mostly found in the industries, factories and mills where the people work on the assembly line i.e. the non-managerial skilled labor. For instance if a worker is hired to fill the packet with the biscuits, this is his contribution in the whole biscuit process and with the pace of time he’ll specialize in that and do it in much lesser time but after a couple of years he’ll start facing boredom and lack of interest because of repetition. This is what work specialization is.

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Departmentalization: It can be defined as: “Departmentalization refers to the process of grouping activities into departments.”

Division of labor creates specialists who need coordination. This coordination is facilitated by grouping specialists together in departments. To keep every segment organized, organizations divide into departments on several bases. It is divided into five types. 

Functional:

Functional departmentalization groups jobs by functions performed. Activities can be grouped according to function (work being done) to pursue economies of scale by placing employees with shared skills and knowledge into departments for example human resources, IT, accounting, manufacturing, logistics, marketing, and engineering. Functional departmentalization can be used in all types of organizations. For example, Mobilink Telecom Company follows functional departmentalization. It has separate departments for marketing, sales, finance, customer services, human resource, administration etc. 

Product:

Departmentalization by product assembles all functions needed to make and market a particular product are placed under one executive. For instance, major department stores are structured around product groups such as home accessories, appliances, women's clothing, men's clothing, and children's clothing. It also groups jobs by product line. Each major product area in the corporation is under the authority of a senior manager who is specialist in, and is responsible for, everything related to the product line. LA Gear is an example of company that uses product departmentalization. Its structure is based on its varied product lines which include women's footwear, children's footwear and men's footwear. 6


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Geographical:

Departmentalization by geographical regions groups jobs on the basis of territory or geography. For example, food chains like KFC and Pizza Hut, they use different spices for the people living in China and people living in South Asia depending on their culture and tastes. For example, multinational companies have their businesses spread worldwide like Unilever Private Limited has its branches in Pakistan, India, and Bangladesh etc. Also regional offices of banks and Apple Co. can be cited as an example. 

Process:

Departmentalization by process groups jobs on the basis of product or customer flow. Each process requires particular skills and offers a basis for homogeneous categorizing of work activities. A patient preparing for an operation would first engage in preliminary diagnostic tests, then go through the admitting process, undergo a procedure in surgery, receive post operative care, be discharged and perhaps receive out-patient attention. These services are each administered by different departments. For example, manufacturing companies, they have different departments for different processes. Let’s say textile industries in Japan, they have separate departments for processes of dyeing, spinning and designing etc. 

Customer:

Departmentalization by customer groups jobs on the basis of a common set of needs or problems of specific customers. For example, Shoe outlets. They trade shoes on the basis of customers like male n female shoes are manufactured in different departments.

Chain of Command: It can be defined as: 7


“Chain of command is the line of authority extending from upper organizational levels to the lower levels.”

This basically clarifies the problem ‘who reports to whom?’ For example, military forces, where the junior staff has to report to the senior officials every morning. Or in schools or any institutions there are departments and then there is a Principal and it is clearly mentioned that the department heads will report to the Principal and Vice- principal. The chain of command is usually depicted on an organizational chart, which identifies the superior and subordinate relationships in the organizational structure. In early days there used to be strict chain of command and all the employees and subordinates used to report him/her on dot time but now this system has much relaxed and changed considerably. Nowadays, the managers hold discussion sessions, bird house meetings to facilitate and mentor the employees about their tasks and projects. Moreover, because of I.T., this system sounds obsolete because now the information can be seen by any employee which previously used to be with the top management.

Span of Control: It can be defined as: “The number of employees a manager can efficiently and effectively manage.”

This concept affects organization design in a variety of ways, including speed of communication flow, employee motivation, reporting relationships, and administrative overhead. It truly depends on the efficiency and leadership skills of the manager, though it’s widely accepted that the larger the span the better the management. If there is a narrower span of control there’d be slower communication as compared to a wider one. Let’s say there is a company in which five employees are being supervised by a single manager so in this way if the employees are facing any discrepancy they’ll report to their manager, the manager would then report to his manager and then that manager will communicate to the senior manager and so on. In this way one small issue goes through a big process to reach the top management.

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In today’s world, as the staff is being trained they are capable enough to control and manage big teams working under them. This will also reduce the salary discrimination among employees because of long levels of employment.

Centralization and Decentralization: Centralization can be defined as: “The degree to which decision making is concentrated at upper levels in the organization.”

It refers to the concept of concentration of authority with the top management. It can be because of the factors like stable environment, less capable lower- levels, large company etc. Whereas, decentralization means: “The more the lower-level managers make decisions.”

This gives a concept of ‘employee empowerment’ which says that the lower-level managers should have the authority to raise their voice and have a say in the organization’s decisions. For example, the organizational structure of Mobilink represents well-organized system of control of operations as decentralization in decision making is seen. According to (personal communication, July 29, 2008) decentralization makes the operations more productive as employees are granted more power & autonomy so they feel delegated with authority. Moreover, most of the renowned companies today like Nestle are moving towards decentralization because in this competitive and dynamic environment they feel it better to have the participation from the lower-levels also in the decision making process of the organization because in this way responsibility for operating decisions is pushed down to local units.

Formalization: It can be defined as: “The degree to which there are standardized rules and procedures governing the activities of employees.”

In such highly formalized organizations, rules, regulations, authorities, schedules, planners everything is pre-determined and is strictly followed. For example, in military forces, the system is highly formalized. Everything is started and completed in time. 9


Formalization, either high or low, depends upon the nature of business. In businesses like mills and factories, it is good that it should be highly formalized and disciplined. But for businesses like creative teams or advertising agencies, even low formalization would go. In the twenty first century, management is moving more towards low formalization just to give a space to their employees so that they could work comfortably. One such organization is Navitus, innovative management consultant organization. In that organization there is no restriction on the employees for formal dressing.

ORGANIZATIONAL DESIGN DECISIONS There are two main types of organizational designs which the organizations follow. They are:

Mechanistic Organizations It can be defined as: “A mechanistic organization is a rigid and tightly controlled structure.”

It is a hierarchical, bureaucratic, organizational-structure characterized by centralization of authority, formalization of procedures and practices and specialization of functions. Mechanistic organization is comparatively simpler and easy to organize, but finds it difficult to cope with rapid change. This system is like a machine where you have to put the input, set the systems and you’ll get the work done. Here the structure is extensively departmentalized, highly centralized and work specialization is very high etc. Such structures work where there is a manufacturing unit or a very big organization with 2000 employees, so to keep them in control, manage them and to increase the efficiency, organizations follow this structure. For example, how Dell Computer manages assembly of made-to-order personal computers or how a book publisher manages the workflow from completed manuscripts to final bookbinding. Some flaws of mechanistic design are, specialized tasks are repetitive and can sometimes be boring. For example, at a Sam's Club store, one person stands at the door to perform the single task of marking customer receipts. Because employees often work separately with little interaction, it is often hard for them to see how one's small, specialized task relates to overall organizational objectives. Also, the work of mechanistic organizations tends to be impersonal. Jobs are designed around the task rather than the individual. Personnel selection, assignment, and 10


promotion are based on the possession of skills required for specific tasks. Other people, like interchangeable parts of a machine, can replace people in a position.

Organic Organizations It can be defined as: “An organizational design that’s highly adaptive and flexible.”

This is like a mirror to the mechanistic organization, completely different. The term "organic" suggests that, like living things, organizations change their structures, roles, and processes to respond and adapt to their environments. Organic organizations are characterized by decentralization, flexible, broadly defined jobs, employee empowerment, multi-directional communication, employee initiative and low formalization. In organic organizations, the emphasis is on effectiveness, problem solving, responsiveness, flexibility, adaptability, creativity, and innovation. Such an organization is able to respond in a timely manner to environmental change because employees are empowered to be creative, to experiment, and to suggest new ideas. The process of innovation is triggered by employees throughout the organization in a "bottom-up" manner. In short, the organization cannot keep doing the same old things in the same old ways. Under conditions of uncertainty and complexity, the organization must design its structures and processes to be flexible and responsive to changes in customer desires, technology, governmental regulations, and economic conditions. Such designs are suitable for creative teams, production houses, advertising agencies or small companies.

CONTINGENCY FACTORS: It can be defined as: “The external factors that affect the manager’s discretion about which organizational design to choose for their organization.”

It is the dilemma facing managers charged with the responsibility for organizational design is to determine how mechanistic or organic the structure should be, for either could be successful. The manager designs a structure to fit these contingency factors. If the organization structure is incorrect problems occur. These four factors are: 11


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Strategy and structure

Structure follows strategy. Strategy is what helps the organization achieve its goals. The structure should go in accordance with the organization’s current strategy. For example, if the organization’s strategy is to go towards innovation then the organizational structure should have to be much organic to be flexible enough to accept the changes and advancements. Also, strategy changes the structure. If the organization, previously, was producing a single product and had a small unit, the structure would be organic but if the company is changing its strategy this time and is producing two more products which has enlarged its set-up and business unit, it’ll move towards the mechanistic type of organizational design. 

Size and structure

Size is also a factor which should be determined while selecting an organizational design. Big set ups like industries, factories and heavy complexes require mechanistic structure to manage such big processes whereas; small companies can directly go for an organic one. 

Technology and structure

Technology affects in the sense that if the business is like pharmaceutical companies where much of the work is done on the assembly line, then it is preferred for the organization to go for the mechanistic design. But to ease it up, the author has made three ways to decide which design to go for. 1. Unit Production: the production of items in units or small batches, e.g. Cottage industries. For them, organic structure is preferred as there is low formalization and low differentiation. 2. Mass Production: the production of items in large batches (bulk). Like factories. For them, a mechanistic structure is preferred as there is high formalization and work specialization. 3. Process Production: the production of items in continuous processes. Like the heavy complexes where the production goes through various processes. For such Organic is suggested as there is low formalization.

Organizations with more non-routine technology are more likely to h ave organic structures. 

Environmental uncertainty and structure

One of the major constraints that affect a manager’s discretion is the environmental uncertainty. Simply, if the environment is stable, the company faces structured problems and there is less competition, the organization would go for mechanistic structure whereas; if it’s dynamic, with a 12


lot of pressure from the outside world, managing stakeholders and other external forces, the organization tends to be much organic and flexible in nature to adapt such changes and move towards the world of innovation.

COMMON ORGANIZATIONAL DESIGNS

Traditional Organization Designs: 

Simple Structure:

This kind of a structure is manly adapted by sole proprietors, who start their business on a small scale with low departmentalization, wide spans of control, centralized authority and low formalization. Such structures are fast, flexible with clear accountability. As the organizations grow they don’t stick to this structure. 

Functional Structure:

A structure in which groups are made on the functions they perform. Such structures reach the high efficiency level due to repetition of tasks. But because of restricting to their department they are less aware of the organizational goals. 

Divisional Structures:

A structure made up of separate, semi autonomous units or divisions. For example, Pakistan Steel Mills consists of separate sales division, marketing division, procurement division, 13


inspection division etc. such structures focus on result but face duplication of activities and increasing resource costs.

Contemporary Organizational Designs: 

Team Structures:

In this structure, the employees join to make self-managed teams to complete their given tasks. It focuses much on employee empowerment. The team is responsible for the work it does and at the same time is given the full authority to do the work the way it wants. 

Matrix Structures:

This structure consists of cross-functional teams. Such teams comprise of experts from every field. For example, the employees of Unilever, whenever they initiate any project they make up a team by taking expert from every field like finance, human resource, marketing, R&D etc. such structures are organic and flexible in nature. The only flaw is the group conflicts. 

Project Structures:

This structure consists of groups formed temporarily to work on some on-going project. For example, the employees hired on contracts are an example for such structure. It is effective because appropriate outcome is derived as the people with suitable skills and abilities join together. 

The Boundary less Structure:

Such organizations are based on self-managed teams where there are no horizontal or vertical boundaries imposed. Example can be creative teams. Such kinds of organizations face communication problems.

TODAY’S ORGANIZATIONAL DESIGN CHALLENGES As the environment, day by day, is getting much complicated and dynamic, managers are looking for a structure so that the employees can work effectively and efficiently and get maximum profits to the organization. Three challenges are being faced by the organizations today. They are: 

Keeping Employees Connected:

With the boost in information technology, world is getting closer and closer. Communication is getting effective day by day. Therefore, in such a competitive corporate world, there is a need for employees to be mobile and still well-connected with the organization. For instance, an ABC 14


Company, whose head office is in Islamabad, the employee of that company is although sitting in Peshawar but is completely in touch with the company and is performing his/her activities through some source of technology. Why such communication is necessary? The answer to it is simple. It’s necessary to increase the efficiency as it reduces the employee’s time and energy and other costs. So, the managers face this challenge to keep all the mobile employees wellconnected with the company to ensure effective communication and good revenues. 

Building a Learning Organization:

Learning organization is such an environment which is entirely based on learning, sharing information, helping, adapting changes. As the environment is getting more dynamic day by day, managers nowadays feel necessary to create such an environment in the organization so that every single employee could participate and get a chance to learn from his/her colleagues during the office work. In such an organization, managers act as mentors and facilitators. Bird house meetings are conducted daily to collaborate and facilitate the subordinates. Because of employee empowerment, employees tend to learn and polish their decision-making abilities. Because of effective communication, employees become well-aware of the organization’s goals, its culture, and its strategies. 

Managing Global Structural Issues:

This refers to the effect of cultural diversity on the structure of the organization that every country and every culture has a different structure for their organizations. As per the author, the strategies and types of structures are the same across the globe, what differentiates them is the essence of their culture and this something which the managers should know beforehand.

Supplementary Notes 

Cross-functional teams:

A Cross-functional team is a group of people with different functional expertise working toward a common goal. It may include people from finance, marketing, operations, and human resources departments. Typically, it includes employees from all levels of an organization. Members may also come from outside an organization (in particular, from suppliers, key customers, or consultants). Cross-functional teams often function as self-directed teams responding to broad, but n ot specific directives. Decision-making within a team may depend on consensus, but often is led by a manager/coach/team leader.

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To face today's complex challenges, you need to incorporate a wide range of styles, skills, and perspectives. Cross-functional teams are regarded as a means to manage social collaboration and concept creation. 

Virtual Organization:

It is the one that does not have a physical (bricks and mortar) presence but exists electronically (virtually) on the internet, is not constrained by the legal definition of a company, or is formed in an informal manner as an alliance of independent legal entities. 

Network Organizations:

A network organization is a company or a group of companies that has little formal structures and relies on the formation and dissolution of teams to meet specific objectives. A network organization utilizes information and communications technologies extensively, and makes use of know-how across and within companies along the value chain.

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Bibliography http://www.businessdictionary.com/definition/organizational-structure.html http://www.jobdig.com/articles/439/Organizational_structure_can_be_underlying_cause_of_wor kplace_issues.html http://www.unf.edu/~gbaker/Man4201/Chapt003a.PDF http://www.syfes.com/process.html http://www.referenceforbusiness.com/management/Ob-Or/Organic-Organizations.html http://www.kaizenlog.com/2006/11/03/contingency-factors-affecting-organizational-design/ http://en.wikipedia.org/wiki/Cross-functional_team

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Organizational Structure and Design Zara Zahid

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