FUNDAMENTALS OF ORGANIZATION

STRUCTURE

CHAPTER 3
Organization Structure

 There are three components in the definition of

organization structure (OS):
2. (OS) designates formal reporting relationships
including span of control and number of levels in
the hierarchy.
3. (OS) identifies grouping of individuals.
4. (OS) includes the design of systems to ensure
effective communication, coordination, and
integration across departments.
 The three elements of structure pertain to both
horizontal and vertical aspects of organization.

 The first two are the structural framework which is

the vertical hierarchy. The third element pertains to
the pattern of interaction among employees.

 Organization structure is reflected in the organization

chart.
Information-Processing perspective

 The organization should be designed to provide both

vertical and horizontal information flow as necessary
to accomplish the organization’s overall goals.

 If the structure does not fit the information

requirements of the organization, people either will
have too little information or will spend time
processing information that is not vital to their tasks,
thus reducing effectiveness.
 There is inherent tension between vertical and
horizontal mechanisms in the organization. Vertical
linkages are designed primarily for control( exercised
by top management), horizontal linkages are
designed for coordination and collaboration, which
usually means reducing control.
 Organizations can choose whether to orient toward a
traditional organization designed for efficiency, which
emphasizes vertical communication and control, or
 toward a contemporary learning organization, which
emphasizes horizontal communication and
coordination.
 Emphasis on efficiency and control is associated
with specialized tasks, a hierarchy of authority, rules
and regulations, formal reporting systems, few teams
or task forces, and centralized decision making,
which means problems and decisions are funneled
to top levels for resolution.
 Emphasis on learning is associated with shared
tasks, a relaxed hierarchy, few rules, face-to-face
communication, many teams and task forces, and
informal, DECENTRALIZED decision making.

 Organizations may have to experiment to find the

correct degree of centralization or decentralization to
meet their needs.( do you think the environment has
to be taken into consideration?).
Vertical Information Linkages

 Linkages is defined as the extent of communication

and coordination among organization members.
 Vertical linkages are used to coordinate activities
between the top and bottom of an organization and
are designed primarily for control . Employees at
lower levels should carry out activities consistent
with top-level goals, and executives must be
informed of activities and accomplishments at the
lower levels.
 Organizations may use any of a variety of structural
devices to achieve vertical linkages, hierarchical
referral( chain of command), rules, plans, and formal
management information systems.
Horizontal Information Linkages

 Horizontal communication overcomes barriers

between departments and provides opportunities for
coordination among employees to achieve unity of
effort and organizational objectives.

 Horizontal linkage mechanisms often are not drawn

on the organization chart, but are part of organization
structure.
 The following devices are alternatives that can
improve horizontal coordination and information
flow:

 Cross-functional information systems.

 Direct contact between managers and employees
involved in a problem. A one way is to create a
special liaison role located in one department to
solve problems in two departments.
 Task Forces: when linkage involves several
departments, a more complex device as a task
force is required. A task force is a temporary
committee composed of representatives from each
department affected by the problem. Each member
represents the interest of his department and
carries information from the meeting back to the
department ( but he should be a decision maker).
4. Full time integrators: A stronger horizontal linkage
device is to create a full-time position or
department solely for the purpose of coordination.
Unlike the liaison person, the does not report to one
of the functional departments , he is located outside
the departments and has the responsibility for
coordinating several departments. Integrators need
excellent people skills.
5. Teams: Project teams tend to be the strongest
horizontal linkage mechanism. Teams are
permanent task forces and are often used in
conjunction with a full-time integrator. When activities
among departments require strong coordination over
a long period of time, a cross-functional team is often
the solution.
Amount of horizontal coordination required
high

teams

Full-time integrator

Task force

Direct contact
low

Information system

low high

Cost of coordination in time and human resources

Departmental Grouping Options

 Options for departmental grouping, including

functional grouping, divisional grouping, multi
focused grouping, horizontal grouping, and modular
grouping.
 Functional grouping: places employees together to
perform similar functions or work processes.
 Divisional grouping: means people are organized
according to what the organization produces.
 Multi-focused grouping: means organization
embraces two structural grouping alternatives
simultaneously. These are often called matrix or
hybrid. An organization may need to group by
function and product division simultaneously or
perhaps by product division and geography.
 Horizontal grouping: Means employees are
organized around core work processes, the end-to-
end work, information, and material flows that
provide value directly to customers. All the people
who work on a core process are brought together in
a group rather than being separated into functional
departments.
 Modular grouping: Is the most recent approach to
departmental grouping, the organization is a loosely
connected cluster of separate components.
Departments are separate organizations that are
electronically connected for the sharing of
information and completion of tasks.
Functional, Divisional, And
Geographical Designs

 FUNCTIONAL STRUCTURES: All activities are

grouped together by common function from the
bottom to the top of the organization. The human
knowledge and skills with respect to specific
activities are consolidated, providing valuable depth
of knowledge to the organization. This structure is
effective when the organization needs to be
controlled and coordinated through the vertical
hierarchy and when efficiency is important.
 Strengths and weaknesses of functional
organizational structures:
 Strengths

4. Allows economy of scale within functional

departments.
5. Enables in-depth knowledge and skill development.
6. Is best with only one or few products.
 Weaknesses:

3. Slow response time.

4. Hierarchy overload.
5. Poor horizontal coordination.
6. Restricted view of organizational goals ( why?).
 Very few of today’s successful organizations can
maintain a strictly functional structure. It compensate
for the vertical hierarchy by installing horizontal
linkages, information systems, direct contact
between departments, full-time integrators or project
managers, task forces, or teams.
 DIVISIONAL STRUCTURE: (strategic business
unit) , divisions can be organized according to
individual products, services, major projects or
programs, divisions, or profit centers. Grouping is
based on organizational outputs.
 The divisional structure promotes flexibility and
change because each unit is smaller and can adapt
to the needs of its environment. It also promotes
decentralization.
 STRENGTHS:

3. Suited for fast change in unstable environment.

4. Leads to customer satisfaction.
5. Involves high coordination between functions.
6. Best in large organizations with several products.
7. Decentralizes decision making.
 WEAKNESSES:

3. Eliminates economies of scale .

4. Leeds to poor coordination across product lines.
5. Eliminates in-depth technical specialization.
6. Makes integration an coordination across product
lines difficult.( why?).
 MATRIX STRUCTURE:

 Sometimes, an organization structure needs to be

multi-focused in that product and function or product
and geography are emphasized at the same time.
 The matrix can be used when both technical
expertise and product innovation and change are
important for meeting organizational goals.
 The matrix structure often is the answer when
organizations find that the functional, divisional, and
geographical structures combined with horizontal
linkage mechanisms will not work.
 The matrix is a strong form of horizontal linkage.

Conditions for the matrix:

 Condition 1: pressure exists to share scarce
resources across product lines. Medium-sized
organization and a moderate no. of product lines.
 Condition 2: Environmental pressure exists for two or
more critical outputs.

 Condition 3: The environmental domain of the

organization is both complicated and uncertain.
Frequent external changes and high
interdependence between departments require a
large amount of coordination and information
processing in both vertical and horizontal directions.
 Strengths and Weaknesses:
 Strengths:
3. Achieves coordination necessary to meet dual
demand from customers.
4. Flexible sharing of HR across products.
5. Suited to complex decisions and frequent changes.
6. Best in medium-sized organizations with multiple
products.
 Weaknesses:

3. Causes participants to experience dual authority .

4. Participants need good interpersonal skills.
5. Is time consuming.. Frequent meetings and conflict
resolution sessions.
6. Requires great effort to maintain power balance.
Horizontal Structures

 Organizes employees around core processes. The

shift to horizontal structure takes place during a
REENGINEERING PROCESS basically means the
redesign of vertical organization along its horizontal
workflows and processes. ( what is a process?).
 When the organization is reengineered to a
horizontal structure all the people throughout the
organization who work on a process have easy
access to one another to communicate and
coordinate their efforts.
 The horizontal structure basically eliminates both
the vertical hierarchy and old departmental
boundaries.

 CHARACTARESTICS:
4. Structure is created around cross-functional core
processes rather than tasks, functions, or
geography.
1. Self-directed teams, not individuals, are the basis
of organizational design and performance.
2. Process owners have responsibility for each core
process in its entirety.
3. People in the team are given the skills, tools,
motivation, and authority to make decisions to
teams performance.
4. Teams have freedom to think creatively and
respond flexibly to new challenges.
1. Customers drive the horizontal corporation.
2. The culture is one of openness, trust, and
collaboration, focused on continuous
improvements. The culture values employee
empowerment, responsibility, and well being.

 Strengths:
1. Promotes flexibility and rapid response in customer
needs.
1. Directs the attention of everyone toward the
production and delivery of value to the customer.
2. Each employee has a broader view of
organizational goals.
3. Promotes focus on team work and collaboration.
4. Improves quality of life for employees by offering
them the opportunity to share responsibility, make
decisions, and be accountable for results.
 Weaknesses:
2. Determining core processes is difficult and time
consuming.
3. Requires changes in culture, job design,
management philosophy, and information and
reward system.
4. Traditional managers may balk when they have to
give power and authority.
1. Requires significant training of employees to work
effectively in horizontal team environment.
2. Can limit in-depth skill development.
3. IT CAN HARM RATHER THAN HELP
ORGANIZATIONAL PERFORMANCE UNLESS
MANAGERS CAREFULLY DETERMINE WHICH
CORE PROCESSES ARE CRITICAL FOR
BRINGING VALUE TO CUSTOMERS.
 Modular Structure:
 Extends the concept of horizontal coordination and
collaboration beyond the boundaries of the traditional
organization. With a modular structure, the firm
subcontracts many or most of its major processes to
separate companies and coordinates their activities
from a small headquarters organization.
 HOW THE STRUCTURE WORKS:
 The modular organization may be viewed as a
central hub surrounded by a network of outside
specialists. Rather than being housed under one roof
or located within one organization, services such as
accounting, design, manufacturing, marketing and
distribution are outsourced to separate companies
that are connected electronically to the central office.
 Subcontractors may flow into and out of the system
as needed to meet changing needs.
 With modular structure, the hub maintains control
over processes in which it has difficult-to- imitate
capabilities and then transfers other activities- along
decision making and control over them- to other
organizations.
 These partner organizations organize and
accomplish work using their ideas assets, and tools.
 STRENGTHS AND WEAKNESSES:
 Strengths:
3. Gives a company immediate scale and reach
without huge investments.
4. Enables organization to be highly flexible and
responsive to change.
5. Reduces administrative overhead costs.
6. Enables organizations to obtain worldwide talent
and resources.
 Weaknesses:
2. Managers don’t have hands-on control over many
activities.
3. Requires great deal of time to manage
relationships and potential conflicts.
4. Risk of organizational failure if a partner fails to
deliver.
5. Employees loyalty and corporate culture might be
weak.
 HYBRID STRUCTURE:

 Many structures in the real world do not exist in the

pure forms outlined previously. Organizations often
use hybrid structure that combine characteristics of
various approaches tailored to specific strategic
needs.
 One type is to combine functional and divisional
structures.
 A second hybrid approach is to combine
characteristics of functional and horizontal
structures.
 Applications of Structural Design
 Each type of structure is applied in different
situations and meets different needs. Each
represents a tool that can help managers make an
organization more effective, depending on the
demands of its situation.
 STRUCTURAL ALIGNMENT:

 Ultimately, the most important decision that

managers make about structural design is to find the
right balance between vertical control and
horizontal coordination.
 Vertical control is associated with goals of stability
and efficiency, while horizontal coordination is
associated with learning, innovation, and flexibility.
SYMPTOMS OF STRUCTURAL DEFICIENCY:

3. Decision making is delayed .

4. The organization does not respond innovatively to a
changing environment.
5. Too much conflict is evident.