Chapter # 15: Foundation of Organization Structure

1. Identify the six elements of an organizations structure

Exam Q: List six elements of organizational structure and explain three of
them?(Two Times)
Organizational structure is defined as how job tasks are formally divided,
grouped, and coordinated.
The key elements of organizational structure include:
I.
II.
III.
IV.
V.
VI.
I.

Work specialization
Departmentalization
Chain of command
Span of control
Centralization and Decentralization
Formalization
Work specialization
Work specialization refers to Division of Work.
Work Specialization is the degree to which organizational activities are
subdivided into separate jobs (Individual specializes in doing part of an
activity rather than the entire job).

Advantages and Disadvantages of Work Specialization

Work Specialization makes efficient use of employee skills.
Work Specialization increases employee skills through repetition and
specialized trainings.
Work Specialization increases efficiency and productivity of the employee.
Work Specialization allows use of specialized equipment.
Overspecialization can result in boredom, fatigue, stress, poor quality,
increased absenteeism, and higher turnover.

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II.

Departmentalization
Departmentalization is defined as how the jobs are grouped together and
common tasks can be coordinated.
When jobs are grouped, departments are formed.
The jobs can be grouped and organized in the following categories:

i.
ii.
iii.
iv.
v.

Function
Product
Geography
Process
Customer

III.

Chain of command
Chain of command is an unbroken line of authority that extends from Top
to Lowest level and clarifies who reports to whom.
To understand the chain of command, it is necessary to understand three
other following important concepts:
a) Authority
b) Responsibility
c) Unity of Command
a) Authority
Authority is the rights inherent (inbuilt) in a managerial position to tell
people what to do and to expect them to do it.
b) Responsibility
Responsibility is the obligation or expectation to perform.
c) Unity of Command
Unity of command is the concept that a person should have one boss and
should report only to that person.

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IV.

Span of control
Span of control is defined as the number of subordinates that a manager
can effectively and efficiently directs towards organizational goals.
Wider spans are more efficient in terms of cost because fewer managers
needed but they can reduce the efficiency and performance of the
employee.
Narrow spans can allow manager to maintain the control over the
employees but they are expensive, make vertical communication in the
organization and are more complex.

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V.

Centralization and Decentralization

Exam Q: Contrast Centralization and decentralization of organizational
operations, which one is better in your view. Explain.
Centralization is the degree to which decision making is concentrated at a
single point in the organization.
Decentralization is the degree to which decision making is spread
throughout the organization.

More Centralization
More Decentralization
The dissemination of authority,
The retention of the powers and
responsibility and accountability
authority with respect to
to the various management
planning and decisions with the
levels.
top management.
Communication flow is open and
Communication flow is formal or
free.
vertical.
Power of decision making lies
Power of decision making lies
with multiple persons.
with the top management.
Decision
making
is
Decision making is slow.
comparatively faster
Decisions are significant.
Decisions are relatively minor.
Sharing
of
burden
and
Proper
coordination
and
responsibility.
leadership.
Considerable control over the
Inadequate control over the
organization.
organization.
Best suited for large sized
Best suited for small sized
organization.
organization.

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 The difference between centralization and decentralization is one of the

hot topics these days.
Some people think that centralization is better while others are in favor of
decentralization.
In early times, people used to run their organization in a centralized
manner, but now the scenario has been changed completely due to rise in
extreme competition where quick decision making is required and
therefore many organizations opted for decentralization.
However, centralization still exists in some of the organizations.
Coming to the point, no organization is completely centralized or
decentralized; they are centralized or decentralized only up to the extent
of the delegation of authority.
VI.

Formalization.
Formalization is the degree to which jobs within the organization are
standardized.
When there is high formalization, workers have very little control over their
work and they have to follow rules and procedures.
When there is low formalization, workers have more control over their
work.

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2. Common Organizational Designs

Exam Q: List various types of organizational structures and explain the
characteristics of virtual organization?( Three Times)
Following are the most used organizational designs
I.
II.
III.
IV.
V.
VI.

The Simple Structure

The Bureaucracy
The Matrix Structure
The Virtual Organization
The Boundary-less Organization
The Leaner Organization: Downsizing

I.

The Simple Structure

The first and most basic structure is the simple structure.

Simple structure has Low degree of departmentalization.
Simple Structure has wide spans of control
Simple Structure has centralized decision making
Simple Structure has low formalization in job design
Simple structure is best suited for small business

Advantages

Simple
Flexible
Inexpensive
Accountability is clear

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II.

The Bureaucracy
Bureaucracy is a system of organization.
Bureaucracy is an organization structure in which highly routine operating
tasks achieved through work specialization and Rules (Formalized).
Bureaucracy has narrow Span of control.
Bureaucracy has Centralized Authority and decision making is through chain
of command.
In bureaucracy, Tasks are grouped into Functional departments

Advantages:
i.
ii.
iii.
iv.
v.
vi.
vii.

Standardized activities are performed effectively.

Economy of Scale is achieved by putting specialist in department.
Minimum duplication of equipment and personnel.
Same language in each Department.
Less talent thus less costly Middle and Low management
Rules replace Discretion
Centralized Decision making due to Formalization

Disadvantages:
i.
ii.
iii.

Specialization creates subunit conflicts and functional goals may override

organization goals.
Concerned with following rules. There is no room for modification when a
case does not fit the rules.
It is efficient only in case of familiar problems with programmed decisions.

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The Matrix Structure

The Matrix Structure is a structure that creates dual lines of authority and
combines functional and product departmentalization.
Advantages:
It gains the advantages of functional and product departmentalization
while avoiding their weaknesses
It puts specialists together thus minimizes their number and allows sharing
of resources
It facilitates coordination for complex and interdepartmental activities.
Problems:
Project Delay due to difficulty in coordinating the tasks of specialists on
time and within budget.
It breaks the unity of command principle
It creates confusion and conflicts among managers

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III.

The Virtual Organization

Exam Q: What are the characteristics of virtual Organization? Explain
Virtual organizations are developing as acceptable organizational
structures.
This structure offers a small core organization that outsources many of its
major functions to competent suppliers.
Virtual organizations are highly centralized with virtually no
departmentalization to provide maximum flexibility, focusing on what the
organization does best.
This type of organization reduces control over some of the key parts of the
business.
It is also known as modular or network organization as shown in the
following figure.

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Characteristics of Virtual Organizations

The virtual organizations have the following characteristics:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
xii.

Flat organization
Dynamic
Informal communication
Power flexibility
Multi-disciplinary (virtual) teams
Vague organizational boundaries
Goal orientation
Customer orientation
Home-work
Absence of apparent structure
Sharing of information
Staffed by knowledge workers

Advantages:
Flexibility
Disadvantages:

Constant state of flux & Reorganization

Roles , Goals & responsibilities are not very clear
Cultural alignment and shared goals can be lost
Information and knowledge sharing is difficult
Leadership presence is valuable

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IV.

The Boundary-less Organization

It is an organization that seeks to eliminate the chain of command, has
limitless span of control and replaces departments with empowered teams.
Replace departments with cross-functional teams & organize activities
around process.
It organizes more in what is called T-form concepts in order to eliminate
vertical and horizontal boundaries.
It tries to break down external barriers to customers and suppliers through
their structure and style of communication.

V.

The Leaner Organization: Downsizing

The goal of this organizational form is to improve agility by creating a lean,
focused, and flexible organization.
Downsizing is a systematic effort to make an organization leaner by closing
locations, reducing staff, or selling off business units that dont add value.

Advantages:
Cost reduction
Return to Core competencies after costly acquisitions
Disadvantages:
Employee commitment is low
Stress results in absence, Low creativity, Low concentration on job
High Turn - over

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3. Two Extreme Models of Organizational Design

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4. Why do Structure Differ?

The following are the major causes or determinants of an organizations
structure
I.
II.
III.
IV.
I.

Strategies
Organization Size
Technology
Environment
Strategies

Following strategies are used in organizational structure:

A. Innovation Strategy
B. Cost Minimization Strategy
C. Imitation Strategy
A. Innovation Strategy
It is a strategy that emphasizes the introduction of major new products &
services.
Innovative Organizations use competitive pay to attract talent.
Innovative Organizations motivate employees to take risk.
Innovative Organizations have well developed communication channels.
Innovative Organizations have clear channel of authority.
This strategy is used in Organic Model has a loose structure; low
specialization, low formalization and decentralized decision making.

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B. Cost Minimization Strategy

It is a strategy that emphasizes the tight cost controls, avoidance of
unnecessary innovations & marketing expenses and price cutting.
This strategy is used in Mechanistic Model has tight control costs; extensive
work specialization, high formalization and high centralization in decision
making.
C. Imitation
It is a strategy that seeks to move into new products or new markets only
after their viability (feasibility) has already been proven. This strategy:
Minimizes Risk
Maximizes opportunity for profit
Move into new product only after it is proved
This strategy is used in both organic and Mechanistic Models has Mix of
loose with tight properties; tight controls over current activities and looser
controls for new undertakings.
II.

Organization Size
As organizations grow, they become more mechanistic, more specialized,
with more rules and regulations

III.

Technology
How an organization transfers its inputs into outputs.
The more routine the activities, the more mechanistic the structure with
greater formalization
Custom activities need an organic structure.

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 Cars : Assembly line

College : Lecture, case studies Exercises
IV.

Environment
An organizations environment includes institutions or forces outside the
organization that potentially affect the organizations performance.
The more dynamic the environment, the more organic the structure will
need to be to facilitate quick decisions and fast turnaround because
dynamic environment creates departmental uncertainty.
Any organizations environment has three dimensions:
a) Capacity
b) Volatility
c) Complexity
a) Capacity
Capacity refers to the degree to which the environment can support
growth.
Rich and growing environments generate excess resources.
b) Volatility
Volatility describes the degree of instability in the environment.
A dynamic environment with a high degree of unpredictable change makes
it difficult for management to make accurate predictions.
c) Complexity
Finally, complexity is the degree of heterogeneity and concentration among
environmental elements.

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 Simple environmentslike the tobacco industryare homogeneous and

concentrated.
Environments characterized by heterogeneity and dispersionlike the
broadband industryare complex and diverse, with numerous
competitors.

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