Organizational Design

Organizational Design Defined

Organizational design is the creation or change of an organization's

structure. The organizational design of a company reflects its efforts
to respond to changes, integrate new elements, ensure collaboration,
and allow flexibility.
Factors Affecting Organizational Design
• Organization life cycle
Stages in the organization's life cycle:
1. Birth- the beginning of the organization.
2. Youth - growing stage. It is during this phase that
the formal structure is designed, and some
delegation of authority occurs.
3. Midlife- This phase occurs when the organization
has achieved a high level of success. An
organization in midlife is larger, with a more
complex and increasing formal structure.

4. Maturity- Once a firm has reached the maturity

phase, it tends to become less innovative, less
interested in expanding, and more interested in
maintaining itself in a stable, secure environment.
The emphasis is on improving efficiency and
profitability. Organizations in this stage are slowly
dying. However, maturity is not an inevitable stage.
Firms experiencing the decline of maturity may
institute the changes necessary to revitalize.

- Strategy - is the positioning of the organization in the

market in terms of its product. The structure must fit the
strategy of the organization.

- Environment is the world in which the organization

operates, and includes conditions that influence the
organization such as economic, social-cultural, legal-
political, technological, and natural environment
conditions. Environments are often described as either
stable or dynamic.

 In a stable environment, the customers' desires are well

understood and probably will remain consistent for a relatively
long time. Examples of organizations that face relatively stable
environments include manufacturers of staple items such as
detergent, cleaning supplies, and paper products.
  In a dynamic environment, the customers' desires are
continuously changing—the opposite of a stable environment. This
condition is often thought of as turbulent. In addition, the
technology that a company uses while in this environment may
need to be continuously improved and updated. An example of an
industry functioning in a dynamic environment is electronics.
Technology changes create competitive pressures for all
electronics industries, because as technology changes, so do the
desires of consumers.

In the early 1960s( Joan Woodward found that the right combination of
structure and technology were critical to organizational success. She
conducted a study of technology and structure in more than 100
English manufacturing firms, which she classified into three categories
of coremanufacturing technology:

Small-batch production is used to manufacture a variety of

custom, made-to-order goods. Each item is made somewhat
differently to meet a customer’s specifications. A print shop
is an example of a business that uses small-batch
production.

Mass production is used to create a large number of

uniform goods in an assembly-line system. Workers are
highly dependent on one another, as the product passes
from stage to stage until completion. Equipment may be
sophisticated, and workers often follow detailed
instructions while performing simplified jobs. A company
that bottles soda pop is an example of an organization that
utilizes mass production.

• Organizations using continuous-process production create

goods by continuously feeding raw materials, such as
liquid, solids, and gases, through a highly automated
system. Such systems are equipment intensive, but can
often be operated by a relatively small labor force. Classic
examples are automated chemical plants and oil refineries.

Woodward discovered that small-batch and continuous processes had

more flexible structures, and the best mass-production operations
were more rigid structures.

Once again, organizational design depends on the type of business.

The small-batch and continuous processes work well in organic
structures and mass production operations work best in mechanistic
structures.
 Organizational Structure Defined

Organizational structure pertains to an organization’s internal

framework. It indicates how the people inside the organization and
their tasks are arranged. It defines the lines of authority and
communications, allocation of duties and rights, the manner and
extent that the roles, power and responsibilities are delegated,
controlled, and coordinated, and how the information flows between
the different levels of management.

Factors to Consider in Creating an Effective Organizational Structure

- Competitors
- Industry where you belong
- Legal requirements
- Organizational goal

- Investors and Other Funding Sources

Ways of Structuring Organizations

Different organizations have different structures. One that will suit its
needs in achieving its goals. The basic types of organizational structures
are:

 Functional structure

 Divisional structure

 Matrix structure

Functional structure. This structure groups people and positions into

work units based on similar activities, skills, expertise, and resources.
This is the simplest approach. It presents well-defined channels of
communication, authority, and responsibility relationships. This also
avoids duplication personnel and equipment.
Functional structure has some pitfalls that can make it not suitable for
some organizations. Some of these are:

 This can result in narrowed perspectives because of the

discreteness of different department work groups.
Managers may have a hard time relating to another
department because it is an entirely different grouping.
Less cooperation and communication may occur.
 Decisions and communication will be slow because of the
many layers of hierarchy and authority is centralized.
 The functional structure gives managers experience in
only one fields—their own. Managers do not have the
opportunity to see how all the firm's departments work
together and understand their interrelationships and
interdependence. In the long run, this specialization
results in executives with narrow backgrounds and little
training handling top management duties.

Employees in a matrix structure belong to at least two formal groups at

the same time—a functional group and a product, program, or project
team. They also report to two bosses—one within the functional group
and the other within the team.

This structure increases employee motivation and it also allows technical

and general management training across functional areas as well.

Potential advantages of matrix structure include

  Better cooperation and problem solving.
 Increased flexibility.
 Better customer service.
 Better performance accountability.
 Improved strategic management.

Matrix structure also has potential disadvantages. Here are a few of

them:

The two-boss system is susceptible to power struggles, as functional

supervisors and team leaders vie with one another to exercise authority.

 Members of the matrix may experience task confusion

when taking orders from more than one boss.
 Teams may develop strong team loyalties that cause a
loss of focus on larger organization goals.
 Additional team leaders to a matrix structure can result in
increased costs.

Team structure. This structure organizes separate functions into a group

based on one overall objective (see Figure 5). These cross-functional
teams are composed of members from different departments who work
together as needed to solve problems and explore opportunities. The
purpose is to break down functional barriers among departments and
create a more effective relationship for solving ongoing problems. How
well team members work together often depends on the quality of
interpersonal relations, group dynamics, and their team management
abilities.
The team structure has many potential advantages, including the
following:

 Intradepartmental barriers break down.

 Decision-making and response times speed up.
 Employees are motivated.
 Levels of managers are eliminated.
 Administrative costs are lowered.

The disadvantages include:

 Conflicting loyalties among team members.

 Time-management issues.

 Increased time spent in meetings.

Network structure. This structure relies on other organizations to

perform critical functions on a contractual basis (see Figure 6). In other
words, managers can contract out specific work to specialists.

This approach provides flexibility and reduces overhead because the size
of staff and operations can be reduced. On the other hand, the network
structure may result in unpredictability of supply and lack of control
because managers are relying on contractual workers to perform
important work.
Functions within Organizations

The goals or objectives and structure of an organization

determine the functions and responsibilities of management
within the organization.

A typical business organization may consist of the following main

departments or functions:

Production

 Research and Development (R&D)

 Purchasing
 Marketing (including the selling function)
 Human Resource Management
 Accounting and Finance.

The Production function

This undertakes the activities necessary to provide the organization's

products or services. Its main responsibilities are:

 Production planning and scheduling

 Control and supervision of the production workforce
 Managing product quality (including process control and
monitoring
 Maintenance of plant and equipment
 Control of inventory
 Deciding the best production methods and Factory Layout

Close collaboration will usually be necessary between Production and

various other functions within the organization. For example,
collaboration with the Research and Development, concerning the
implications of product design for production methods and cost;
Marketing, concerning desired product functionality, appearance,
quality, durability and so on; Finance, concerning the availability of funds
for purchase of new equipment and the acceptability of inventory levels;
Human Resource Management, concerning staff motivation implications
of job design and production methods.

The Research and Development function

The Research and Development (R&D) function is concerned with

developing new products or processes and improving existing
products/processes. R&D activities must be closely coordinated with the
organization’s marketing activities to ensure that the organization is
providing exactly what its customers want in the most efficient, effective
and economical way.

The Purchasing function

The Purchasing function is concerned with obtaining goods and services

to be used by the organization. These will include, for example, raw
materials and components for manufacturing and also production
equipment. The responsibilities of this function usually extend to buying
goods and services for the entire organization (not just the Production
function), including, and for example, office equipment, furniture,
computer equipment and stationery. In performing this function,
purchasing managers must consider the factors - quantity, quality, price,
and delivery, this is also known as the "'purchasing mix' 1.
  Quantity. Buying in large quantities can attract price
discounts and prevent inventory running out. On the other
hand, there are substantial costs involved in carrying a
high level of inventory.

 Quality. There will usually be a trade-off between price

and quality in acquiring goods and services.
Consequently, Production, R&D and Marketing Functions
will need to be consulted to determine an acceptable level
of quality which will depend on how important quality is
as an attribute of the final product or service of the
organization.

 Price. Other things being equal, the purchasing manager

will look for the best price deal when procuring goods and
services, although price must be considered in conjunction
with quality and supplier reliability, in order to achieve best
value, rather than lowest price only.

 Delivery. The time between placing an order and receiving

the goods or services, the lead time, can be critical for
production planning and scheduling and also has
implications for inventory control. Suppliers must therefore
be evaluated in terms of their reliability and capability for
on time delivery.

In short, the ‘purchasing mix' can be considered as making sure that the
organization has the right amount, of the right quality, at the right price,
in the right place at the right time.

The Marketing function

Marketing is concerned with identifying and satisfying customers' needs

at the right price. Marketing involves researching what customers want
and analyzing how the organization can satisfy these wants. Marketing
activities range from the 'strategic', concerned with the choice of
product markets (and how to compete in them, for example, on price or
product differentiation) to the operational, arranging sales promotions
(e.g., offering a 25 per cent discount), producing literature such as
product catalogues and brochures, placing advertisements in the
appropriate media and so on. A fundamental activity in marketing is
managing the Marketing Mix consisting of the '4Ps': Product, Price,
Promotion and Place.

Product. Having the right product in terms of benefits that customers

value.

Price. Setting the right price which is consistent with potential

customers' perception of the value offered by the product.

Promotion. Promoting the product in a way which creates

maximum customer awareness and persuades potential
customers to make the decision to purchase the product

Place. Making the product available in the right place at the right time -
including choosing appropriate distribution channels.

Competitive marketing strategies:

 Cost leadership strategy - lowering the price than its

competitors.

 Differentiation strategy- developing a superior product.

The Human Resource function

The Human Resources function involves the following:

1.Recruitment and selection. Ensuring that the right people

are recruited to the right jobs.

2.Training and development. Enabling employees to carry out

their responsibilities effectively and make use of their
potential.

3.Employee relations. Including negotiations over pay and

conditions.

4.Grievance procedures and disciplinary matters. Dealing

with complaints from employees or from the employer.
 5.Health and Safety matters. Making sure employees work in
a healthy and safe environment.

6.Redundancy procedures. Administering a proper system

that is seen to be fair to all concerned when deciding on
redundancies and agreeing redundancy payments.
The Accounting and Finance function

This function is concerned with the following:

Financial record keeping of transactions involving monetary inflows or

outflows.

1.Preparing financial statements (the income statement,

balance sheet and cash flow statement] for reporting to
external parties such as shareholders. The financial
statements are also the starting point for calculating any tax
due on business profits.

2.Payroll administration Paying wages and salaries and

maintaining appropriate income tax and national insurance
records.

3.Preparing management accounting information and

analysis to help managers to plan, control and make
decisions.