Organizational Structure

Organization Structure
 The structure of an organization can be
defined simply as the total of the ways in which
its labor is divided into distinct tasks and then
its coordination achieved among those task.
 Structural elements include
 Allocation of duties, tasks, and responsibilities
between departments and individuals
 Reporting relationships
 Number of levels
 Basic Building Blocks
 Division Of Labour
 Departmentalization
 Chain of command
 Span of Control
 Centralization/decentralization of decision making
 Formalization
 1. Division Of Labour

 Also called as Work Specialization.

 It is the degree to which activities in the
organization are subdivided into separate jobs.
 2. Departmentalization
Subdividing work and workers into separate organizational
units that take responsibility for completing particular tasks

Functional Product

Customer Geographic Process

 Functional Organization

President

VP VP VP VP VP
Marketing Manufacturing Engineering Finance HR
Functional
Departmentalization
 Example:
A hospital might have departments devoted to
research, patient care, accounting etc.
Divisional Structure

Multi-divisional structure
General manager

Division Division Division

A B C

etc. etc.

ENG MFG Sales FIN

 Divisional
Departmentalization
 Example:
P&G is organized by way of this type of
departmentalization.
Each major product such as Tide, Pampers etc, is
placed under the authority who has complete
global responsibility for that product.
Customer
Departmentalization
 The assumption underlying departmentalization
is that customer in each department have a
common set of problems & needs that can best
be met by having specialist for each.
 Example:
Microsoft is organized around four customer
market :consumers, large corporations, software
developers, & small businesses.
Geographic
Departmentalization
 It is responsive to the demands of different
market areas.
Process Departmentalization
 The grouping of activities by work or customer flow
 Units are organized around common skills needed to
complete a certain process

 E.g., different departments handle applications, testing,

payment collection, etc.
3. Chain of Command
 The vertical line of authority in an organization
 Clarifies who reports to whom
 Unity of command
 workers report to only one boss

 prevents confusion

 matrix organizations violate

this principle
4. Degree of Centralization
 Centralization of authority
 primary authority is held by upper management

 Decentralization
 significant authority is found in lower levels of the
organization
 5. Span of Control
(Highest) Assuming Span of 4 Assuming Span of 8
1 1 1
Organization Level

2 4 8

3 16 64

4 64 512

5 256 4,096

6 1,024

7 4,096

(Lowest)
Span of 4: Span of 8:
4,096 Operatives. 1,365 Managers 4,096 Operatives. Only 585 Managers!
 Tall versus Flat Organizations
Chief
Executive
Tall Organization
Tall hierarchy

Chief Relatively narrow

Flat Organization Executive span of control
Flat hierarchy

Relatively wide
span of control
6. Formalization
 Formalization refers to the degree to which
jobs within the organization are standardized.
 It is basically the extent to which written rules,
regulations, policies & procedures exists in
the system.
Common Organizational
Design
1. Simple Structure

 A structure characterized by a low degree of

departmentalization , wide spans of control,
authority centralized in a single person & little
formalization.
 Mr. X
Owner /Manager

A B C D E
 2. Bureaucratic Structure

 A structure with highly routine operating tasks

achieved though specialization, very formalized
rules & regulations ,tasks that are grouped into
functional departments, centralized authority ,
narrow spans of control, & decision making that
follows the chain of command.
3.Matrix Structure
 Combines functional and divisional approaches to
emphasize project or program teams (temporary or
permanent)
 Example: a mental hospital where there is a team
leader for each ward, but professionals also identify
with departments of social work, psychology,
psychiatry, nursing, etc.
 CEO

Vice President Vice President Vice President Vice President Vice President
Engineering Sales and Finance Research and Purchasing
Marketing Development

Product A
Manager

Product B Product Team

Manager

Product C
Manager

Product D
Manager

Two-boss employee Matrix

4-
Structure 23
Advantages

 Interfunctional cooperation
 Flexibility
 Customer service better since there is always
someone informed and available for each
specialty
 Better accountability
 Better decision making at team level
Disadvantages

 Two boss system can create confusion and

power struggles
New Design Options
1. The Team Structure

 It is basically the use of teams as the central

device to coordinate work activities.

 Characteristics of the team structure:

Breaks departmental barrier
Decentralizes decision making
Team Structure
2. Virtual Organizations

 Virtual organization – a collection of

geographically distributed, functionally
and/or culturally diverse aggregations of
individuals that is linked by electronic forms
of communication

 Assembled and disassembled according to

needs
Network Structure

.
Virtual Organizations

Advantages Disadvantages

 let companies share  difficult to control the

costs quality of partners
 fast and flexible  requires tremendous
 being the “best” should management skills
provide better products
 Models of
Organizational Design
 Organization Design Models

The Mechanistic The Organic Model

Model 
 Emphasizes

 Emphasizes importance of
importance of achieving high levels
achieving high levels of production and
of production and efficiency through:
efficiency through: 
 Limited use of rules and

 Extensive use of rules procedures
and procedures
procedures 
 Decentralized authority

 Centralized authority 
 Relatively low
low degrees

 High specialization of of specialization
labor
 Comparison of Mechanistic and Organic
StructuresMechanistic Structure Organic Structure
Process

1. Leadership

2. Motivation

3. Communication
 Comparison of Mechanistic and Organic
StructuresMechanistic Structure Organic Structure
Process

4. Interaction

5. Decision

6. Goal setting
 Comparison of Mechanistic and Organic
Structures
Process Mechanistic Structure Organic Structure

7. Control

8. Performance
goals
Determinants of
Organizational
Structure
Determinants of Organizational
Structure
 Strategy
 Organization Size
 Technology
 Environment
1. Strategy
 An organization’s strategy describes long-term
goals and way of reaching the goals
 Describes resource allocation
 Plays a mediating role between the external
environment and the tools of organizational
design.
Structure follows strategy – strategy dictates
the type of structure the organizational will
have.
For example, if an organization is attempting to
employ a growth strategy by entering into global
markets, they will need a structure that is
flexible and readily adaptable to the
environment.
 STRATEGY

• INNOVATION STRATEGY

• COST-MINIMIZATION STRATEGY

• IMITATION STRATEGY
 STRATEGY STRUCTURE RELATIONSHIP

STRATEGY STRUCTURE OPTION

INNOVATION ORGANIC:A Loose structure, low

specialization, low formalization, decentralized

COST MECHANISTIC: Tight control, extensive work

MINIMISATION specialization, high formalization, high
centralization

IMITATION MECHANISTIC AND ORGANIC: mix of loose

with tight properties, tight controls over current
activities and looser controls for new
undertakings
2. Organization size
 Larger organizations tend to have more mechanistic
designs.
 Organizational life cycle
 Birth stage—small size, simple structure.
 Youth stage—rapid growth in size, simple structure
experiences stress.
 Midlife stage—large size, more complex and formal
structure.
 Maturity stage—large size, mechanistic structure.
3. Technology
 The technological imperative
 Technology is a major influence on organizational
structure.
 The best small-batch plant have more flexible organic
structures.
 The best mass-production plants have more rigid
mechanistic structure.
4. Environment

 Certain environment …
 Relatively stable and predictable elements.
 Bureaucratic organizations and mechanistic designs are
appropriate.
 Uncertain environment …
 More dynamic and less predictable elements.
 Adaptive organizations and organic designs are
appropriate.
Key Dimensions to Organizations Environment

 Capacity( degree to which it can support growth)

 Volatility( degree of instability)

 Complexity( degree of heterogeneity &

concentration among environmental elements)
Three - Dimensional Model of the Environment

STABLE
ABUNDANT

SIMPLE COMPLEX

DYNAMIC SCARCE
 The more scarce ,dynamic & complex the
environment ,the more organic structure
should be.

 The more abundant, stable & simple the

environment , the more mechanistic structure
will be preferred.
 Questions?
