Ms.

Neha Goel

Designing Organizational Structure

Organizational Structure: The formal system of task and job

reporting relationships that determines how employees use resources to achieve org goals.
Organizational Design: The process by which managers create a

specific type of org structure and culture so that the org can work in most effective and efficient way.
The challenge: coordinating the activities of employees, groups,

functions, and divisions.

 Mechanistic Structure Stable environment Organic StructureRapidly changing environ

Complicated technology- flexible structure Routine TechnologyFormal Structure

Organizational Environment

Technology

Strategy
Flexible structureDifferentiation strategy Formal structure- low cost strategy

Human Resources
Skilled workforceFlexible structure Non specialized employees: Formal Structure

The Organizational Environment

Rapidly changing external environment Greater uncertainty More problems Scarce resources
Stable external environment Uncertainty is low Less coordination and communication is required Easily available resources

Strategy
Different strategies call for different org structures
Differentiation strategy- develop new and innovative

products Low-cost strategy: driving down costs in all functions International Strategy

Technology
What makes technology routine or complicated Task Variety: no. of new/unexpected problems/situation a person/function encounters in performing a job/task. Task Analyzability: degree to which programmed solutions are available Routine technology: low task variety, high task

analyzability Complicated technology: high task variety, low task analyzability

Human Resources
Factors that determine org structure:
Needs of the workforce regarding authority and freedom Skill level of employees: Complexity and kind of work

employees perform

Organizational Design Decisions

1.

Managers decide how to divide the overall task into successively smaller jobs Managers decide the bases by which to group the jobs Managers decide the appropriate size of the group reporting to each superior Managers distribute authority among the jobs

2. 3.

4.

The Four Key Design Decisions

Division of Labor:
High
Specialization

Low
Basis

Departmentalization:

Homogeneous
Number

Heterogeneous

Span of Control:
Few

Many
Delegation

Authority:
High

Low

Division of Work
Division of Work concerns the extent to which jobs are

specialized It is the process of breakdown of a complex task into components. It is the process of dividing work into relatively specialized jobs to achieve advantages of specialization
3 ways of dividing work:
- Personal specialties: e.g. accountants, software engineers, graphic

designers, scientists, etc. - Natural sequence of work: e.g. dividing work in a manufacturing plant into fabricating and assembly (horizontal specialization) - Vertical plane: e.g. hierarchy of authority from lowest-level manager to highest-level manager

Delegation of Authority
Managers decide how much authority should be

delegated to each job and to each jobholder

Delegation of authority process of distributing

authority downward in the hierarchy of an organization

Authority - Decentralized: Distribution of authority a large extent - Centralized: less distribution of authority at lower levels

Reasons to Decentralize Authority

1.

Relatively high delegation of authority encourages the development of professional managers High delegation of authority can lead to a competitive climate within the organization

2.

3.

Managers who have relatively high authority can exercise more autonomy, and thus satisfy their desires to participate in problem solving

Reasons to Centralize Authority

1.

Managers must be trained to make the decisions that go with delegated authority

2.

Many managers are accustomed to making decisions and resist delegating authority to their subordinates
Administrative costs are incurred because new control systems must be developed to provide top management with information about the effects of subordinates decisions Decentralization means duplication of functions

3.

4.

Departmentalization process in which an organization is structurally divided by combining jobs in departments according to some shared characteristic or basis.

Departmentalization Bases
Functional Geographic

Product

Market

Departmental Bases: Functional Departmentalization

Jobs are combined according to the functions of the

organization
The principal advantage is efficiency

- By having departments of specialists, management creates efficient units

A major disadvantage is that organizational goals may be

sacrificed in favor of departmental goals

Functional Departmentalization Structure

OBM Company

Engineering

Reliability

Finance

Public Relations

Manufacturing

Distribution

Human Resources

Purchasing

Departmental Bases: Geographic Departmentalization

Establish groups according to geographic area Advantageous in large organizations because physical

separation of activities makes centralized coordination difficult Provides a training ground for managerial personnel
ABC Company

Delhi

Chennai

Mumbai

Kolkata

Departmental Bases: Product Departmentalization

Product becomes the preferred basis as a firm grows by

increasing the number of products it markets Concentrating authority, responsibility, and accountability in a specific product department allows top management to coordinate actions
ABC Industry

Retail

Oil and Petroleum

Telecom

Financial services

Departmental Bases: Customer Departmentalization

The importance of customer satisfaction has stimulated firms

to search for creative ways to serve people better Each kind of customer is served by a self-contained unit. Group Divisions according to type of customer they serve
ABC Company

Retail Stores

Mail Order

On-Line Sales

Institutional Sales

Government Contracts

Span of Control
Number of individuals who report to a specific manager The frequency and intensity of actual relationships is the

critical consideration in determining the managers span of control

Span of control is important for 2 reasons:

o o

Span affects work relations in the organization Span affects decision making-

Tall hierarchies: narrow span Flat hierarchies: wide span

Dimensions of Structure
Formalization the extent to which expectations regarding the means and ends of work are specified,

written, and enforced

Centralization the location of decision-making

authority in the hierarchy

Complexity the direct outgrowth of dividing work

and creating departments

Types of Organization
Patterns for organizing the personnel: - Line System: Activities at one level are the same, each performing same type of work, divisions exist solely for control and direction - Functional System: separate departments look after diff functions, - Line & Staff System: Staff positions are advisory and line positions are specialized. Staff managers can recommend and line managers have the authority.

 Line organization: - simple, - disciplined, - flexible, - prompt decision, - fixed responsibility - overloading, - Scope for favourism

GM

Manager: South India

Manager: north India

Manager: District 1

Manager: District 2

Manager: District 3

Manager: District 4

 Line and staff organizations

President

VP finance

Director R&D

VP production

Director: PR

VP Sales

Manager: accounting

Manager: Factory

Manager: personnel

Manager: Domestic sales

Manager cash control

Chief: Assembly

Manager: Foreign Sales

Chief: Maintenance

- Planned specialization, quality decisions, trained personnel, lack of well defined authority, line and staff conflicts.

Organization Design Models

The Mechanistic Model
Emphasizes importance of

The Organic Model

Emphasizes importance of

achieving high levels of production and efficiency through: - Extensive use of rules and procedures - Centralized authority - High specialization of labor

achieving high levels of production and efficiency through: - Limited use of rules and procedures - Decentralized authority - Relatively low degrees of specialization

Comparison of Mechanistic and Organic Structures

Process
1. Leadership

Mechanistic Structure
Includes no perceived confidence and trust between superiors and subordinates.

Organic Structure
Includes perceived confidence and trust between superiors and subordinates.

2. Motivation

Taps only physical, security, and economic motives, through use of fear and sanctions.
Information flows downward and tends to be distorted, inaccurate, and viewed with suspicion by subordinates.

Taps a full range of motives through participatory methods.

Information flows freely: upward, downward, and laterally. The information is accurate and undistorted.

3. Communication

Comparison of Mechanistic and Organic Structures

Process
4. Interaction

Mechanistic Structure
Closed and restricted. Subordinates have little effect on departmental goals, methods, and activities.
Relatively centralized. Occurs only at the top of the organization. Located at the top of the organization, discouraging group participation.

Organic Structure
Open and extensive. Both superiors and subordinates are able to affect departmental goals, methods, and activities.
Relatively decentralized. Occurs at all levels through group processes. Encourages group participation in setting high, realistic objectives.

5. Decision

6. Goal setting

Comparison of Mechanistic and Organic Structures

Process
7. Control

Mechanistic Structure
Centralized. Emphasizes fixing blame for mistakes.

Organic Structure
Dispersed throughout the organization. Emphasizes selfcontrol and problem solving. High and actively sought by superiors, who recognize the need for full commitment to developing, through training, the organizations human resources.

8. Performance goals Low and passively sought by managers, who make no commitment to developing the organizations human resources.

Organization Design Models: The Matrix Model

Matrix organization attempts to maximize the strengths

and minimize the weaknesses of both the functional and product bases Simultaneously group people and resources by functions and by products Superimpose a horizontal structure of authority, influence, and communication on the vertical structure Facilitates the utilization of highly specialized staff and equipment

Example of the Matrix Organization Model

Functions Projects, products
Project or product A Project or product B Project or product C Project or product D Project or product E

Manufacturing

Marketing

Engineering

Finance

Advantages of Matrix Organization

Efficient use of resources Flexibility in conditions of change and uncertainty

Technical excellence
Freeing top management for long-range planning Improving motivation and commitment

Providing opportunities for personal development

Thank You!!!!