ORGANIZATIONAL DESIGN

&
Structures

By
SREENATH B.
 ORGANIZATIONAL DESIGN
• The process by which managers select and manage
aspects of structure and culture so that an organization
can control the activities necessary to achieve its goals.
 Differentiation

• The process by which an organization allocates

people and resources to organizational tasks and
establishes the task and authority relationships that
allow the organization to achieve its goals.
• It is the process of establishing and controlling the
division of labor or degree of specialization, in the
organization.
 Division of labor:

• The process of establishing and controlling the degree of

specialization in the organization.
Building blocks of differentiation

ORGANIZATION

Division

Function

ROLE
F
Cont’d

Organizational role
• The set of task related behaviors required of a person by his or
her position in an organization.
• Authority
The power to hold people accountable for their actions and to
make decisions concerning the use of organizational
resources.
• Control
The ability to coordinate and motivate people to work in the
organizations interest.
Cont’d

• Function
A sub unit composed of a group of people, working
together ,who possess similar skills or use the same kind of
knowledge ,tools, or techniques to perform their jobs.
• Division
A subunit that consists of a collection of functions or
departments that share responsibility for producing a
particular goods or service.
Cont’d

The no of diff. fns and divisions that an org possesses is the

measure of organization’s complexity (degree of
differentiation)
• Support functions
A function which facilitates an organizations control of its
relations with its environment and its stake holders.
• Production functions.
Functions mange and improve the efficiency of organizations
conversion process so that more value is created.
Cont’d

• Maintenance functions
The functions which enables an organization to keep its
departments in operation.
• Adaptive functions
The functions which allow an organization to adjust to
changes in the environment.
• Managerial functions.
The function which facilitate the control an coordination of
within and among the departments.
Types of functions
• Support functions
• Productions functions
• Maintenances functions
• Adaptive functions
• Managerial functions
• Support functions – a function which facilitate an
organizations control of its relations with its environment and
its stakeholders.
• Support functions includes purchasing- to handling the
acquisition of input; sales and marketing – to handling the
disposal of outputs .
• Productions functions – Functions manage and
improve the efficiency of an orgn’s conversion
process so that more value is created.
• Productions functions include production operation,
production control, and quality control.
• At Ford production operation department controls the
manufacturing process
• Maintenances functions – the functions which enable
an orgns to keeps its departments in operation.
• Maintenances functions includes personnel,
engineering and janitorial services – keep
environment safe and healthy
• Adaptive functions – the function which allow an orgn
to adjust to changes in the environment.
• Adaptive function include research and development
market research and long range planning
• Managerial functions – the function which facilitate
the control and coordination of activities within and
among departments.
• Managers at different orgnal level direct the
acquisition of, investment in and control of resources
to improve the orgnal abilities to create value.
• Managers at different orgnal level direct the
acquisition of, investment in , and control of
resources to improve the orgnal abilities to create
value.
• Eg Top mgt responsible for formulating strategy and
establishing the policies
• Middle mgt responsible for managing orgnal
resources
• Lower level mgt for oversee and direct the activities
of the workforces
 Vertical and Horizontal Differentiation
• Vertical Differentiation- the way an orgns designs its
hierarchy of authority and creates reporting relationship
to link orgnal roles and sub units. It help an orgn more
control over its activities and increase its ability to create
value.
 Horizontal Differentiation
• The way an orgns groups orgnal tasks into roles and roles
in to sub units. (functions and divisions )
• Horizontal Differentiation establishes division of labor that
enables people in an orgn to become more specialized
and productive and increase its ability to create value.
Balancing Differentiation And Integration
• Horizontal Differentiation, enable people to specialize thus
become more productive.

• Specialization limits communication between subunits and

prevent them from learning from one another.

• Members of different division develop a sub unit orientation

• Subunit orientation – a tendency to view one’s role
in the organization strictly from the perspective of
the time frame goals & interpersonal orientations of
one’s subunit.

• E.g., production dept. concerned with reducing cost

& quality( short term ),
In R&D innovation to the production process may
take years to come to fruition ( long term ).

Thus communication fails and coordination becomes

difficult
• To avoid communication problem – promote cooperation,
coordination, and communication among separate subunits
• Advanced forms of IT, allow different func. Or divn. To share
databases, memos, and reports, often on a real time basis
• Electronic means – email, teleconferencing, and enterprise
management sys. to bring different functions together.
• E.g., buyers at Wal-Mart’s home office use television linkups to
show each individual store the appropriate way to display products
for sale.
• Integration and integrating mechanism

• Integration – The process of coordinating various tasks and divisions so they work
together and not at cross purposes.

• Seven integrating Mechanisms.

• 1. Hierarchy of Authority
• 2. Direct contact
• 3. Liaison role
• 4. task force
• 5.Team
• 6. Integrating role
• 7. integrating Dept.
• Hierarchy of authority

• Differentiate people by the amount of authority they possess.

• Hierarchy dictates who reports to whom, it coordinates

various organizational roles.

• Managers must carefully divide and allocate authority within a function and
between one function and others to promote coordination.

• Becton Dickinson, a high tech medical instrument maker, Marketing argued

that company’s products needed more features to please customers,
engineering wanted to simplify product design to reduce cost

• To resolve this conflict B.D. recognised the heirarchy , both dept. reported to
the head of instrument product division

• The third party thus make impartial decision, that will be best for the org. as a
whole
• Direct Contact

• Using direct contact involves more problems than using hierarchy of

authority

• Manger in one function have no authority over a manager on another.

• Managers from diff. func. who have the ability to make direct contact with
each other can work together to solve common problems

• If disputes still occur, it is important for both parties to be able to a

common superior who is not far removed from the scene of the problem
E.g. Diaper Division sales and manuf. Mangers meet to discuss scheduling
• Liason Roles
• A specific manager is given responsibility for coordinating
with managers from other subunits on behalf of his or her
subunit
• This interaction helps to overcome barriers between
subunits
• E.g. A person from each of J&J’s production, marketing,
and R&D department is given responsibility fro
coordinating with the other dept.
• Task Forces
• Increasing an organization's ability to serve its customers
effectively, may require input from prod., marketing,
engineering, and R&D.
• Task force – a temporary committee set up to handle a
specific problem
• E.g. A committee is formed to find new ways to recycle
diapers.
• Teams
• Permanent task force or committee.
• Product development & customer-contact teams to
monitor & respond to ongoing challenges of increased
competition in global mkt.
• A permanent J&J committee is estd. To promote new
product development. in the Diaper Division.
• Integrating Roles or Departments

• A full time position estd. Specifically to improve

communication between divisions.
• A new role is estd. To coordinate the activities of two or
more func. Or divisions.
• E.g. One manager takes responsibility for coordinating
Diaper and Baby Soap divisions to enhance their
marketing activities
• Differentiation versus Integration

• Managers must achieve an appropriate balance between

differentiation & integration. A complex org. that is highly
differentiated needs a high level of integration to
affectively coordinate its activities
Balancing centralization and
Decentralization
• In discussion vertical differentiation, we note that
establishing a hierarchy of authority is suppose to improve
the way an org functions because people can be held
accountable for their action –the hierarchy defines the
areas of each person’s authority within the org.

• Many co however complain that when a hierarchy exist

employees are constantly looking to their superiors
direction.
• When some new or unusual issues arises their they
prefer not to deal with it or they pass it on to their superior
rather than assume responsibility and the risk of dealing
with it.
• As responsibility and risk taking decline so does org
performance because its members do not take
advantage of new opportunities for using its core
competences.
• .
• For example- at Levi srauss,for ex ,employees often told
former CEO roger sant that they felt they couldn't do
some thing because “they wouldn't like it ”when asked
who ‘they' were ,employee had a hard time saying
nevertheless the employee felt that they did not have the
authority or responsibility to initiate changes

• Sant started a “They busters" campaign to renegotiate

authority and relationships so that employees could take
on new responsibilities .
Centralization and decentralization of
Authority

• Centralization

• organizational set up whereby the authority to make

important decision is retained by manager at the top of
the hierarchy .
Decentralization –An org set up where by the authority to
make important decisions
About organizational recourses and to initiate new project is
delegated to mangers at all levels in the hierarchy
• Authority gives one person the power to hold other people
accountable for their action and the right to make decisions
about the use of org recourses.
• As we saw in B A R and grille example ,vertical differentiation
involve choice about how to distribute authority .but even
when a hierarchy of authority exists the problem of how much
decision –making authority to delegate to each level must be
solved.
Each alternative has certain advantages and disadvantages .

• Centralization keeps the org focused on its goals

• Centralization becomes a problem when top manager
becomes overloaded and immersed in operational decision
making about day to day recourses issue (such as hiring
people and obtaining inputs )

• The advantage of decentralization is that it promote

flexibility & responsiveness by allowing lower level manager
to the spot decision .
• Manager remain accountable for their action but have the
opportunity to assume greater responsibility and take
potentially successful risk.
• When authority is decentralized manager can make imp
decision that allows them to demonstrate their personal skill
&competences and so they be more motivated to perform
well for the org .

• The down side of decentralization is that if so much authority

is delegated that managers at all level can make their own
decision , planning and coordination become very difficult.
• Thus ,too much decentralization may lead an organization to
lose control of its decision – making process. The following
organizational insight reveals many of its issues surrounding
this design choice
BALANCING STANDARDIZATION AND
MUTUAL ADJUSTMENT
 STANDARDIZATION
• Conformity to specific models or examples. defined by
sets of rules and norms that are considered proper in
a given situation
• Eg:- IBM was a company close 2 customers later as
company grew it sell its products to a certain group of
customers
• The organization has to achieve the balance between
standardization and mutual adjustment
 MUTUAL ADJUSTMENT
The compromise that emerges when decision making and
coordination are evolutionary processes and people use
their judgment rather than standardized rules to address
a problem.
 FORMALIZATION
• The use of written rules and procedures to standardize
operations
• Eg:- military, FedEx or UPS, everything is done by book,
rules perform how people are to perform their roles and how
decisions are to be made
 Socialization; understood norms
• 1)Rules: formal,written statements that specify the
appropriate means for reaching desired goals
• When people follow rules they behave in accordance with
certain specified principles
• 2) norms
• Standards or styles of behavior that are considered
acceptable or typical for a group of people
• Eg people take 1.5hrs of lunch break for a formally specified
one hour lunch break
• Socialization
• The process by which organizational members learn the
norms of an organization and internalize these unwritten
rules of conduct
 Standardization vs mutual adjustment
• People at higher levels depends on mutual adjustments
than on standardization to coordinate their actions
• Eg: an organization wants its accountants to perform
standard practices, but in R&D it need creative behavior
that leads to innovation
 Mechanistic
&
Organic
Organizational Structures
 Mechanistic Organizational Structures
• Structures which are designed to induce people to behave people
to behave in predictable, accountable ways.
• A mechanistic organization is an organizational design that is
rigid and tightly controlled.
• It is characterized by high specialization, rigid
departmentalization, narrow spans of control, high
formalization, a limited information network, and little
participation in decision making by lower-level employees.
• One to one correspondence between a person and task.

• At functional level, each function is separate & communication

and cooperation among functions are responibility of top
managers.
Cont’d
• Standardization and hierarchy is the main means of orgn
control.
• Employee appraisal is normally slow and depends on
performance, takes long time.
• Suited for orgns that face unstable, unchanging
environments.
• Eg:-
– Indian PSU’s in 80-90’s. After 1991 LPG, this orhn structure was
dismantled in many PSU’s.
– Old IBM structure.
 Organic Organizational Structures
• Structures which promote flexibility, so people initiate change
and can adapt quickly to changing conditions.
• An organic organization is an organizational design that is
highly adaptive and flexible.
• It is characterized by little work specialization, minimal
formalization, and little direct supervision of employees.
• High level of integration is required among employees to
share information and overcome problems caused by
differences in subunit orientation.
• Specific norms and values develop that emphasize personal
competence, expertise, ability to act in innovative ways.
 Task and Role relationships
• Individual • Joint specialization in an
specialization in a organic structure.
mechanistic
• A person in a role is
structure.
assigned to a specific task
• A person in a role
specializes in a or set of tasks.
specific task or set • However, the person is
of tasks able to learn new tasks
and develop new skills
and capabilities.

A B C A B C

X Y Z X Y Z
 HOW THE DESIGN CHALLENGES RESULT IN
MECHANISTIC OR ORGANIC STRUCTURES
• Mechanistic structures
1. Individual specialization Employees
work separately and specialize in
one clearly defined task
2. Simple integrating Mechanisms
Hierarchy of authority is clearly
defined and is the major integrating
mechanism.
3. Centralization
Authority to perform task s is kept
at the top of the organization. Most
communication is vertical .
4. Standardization
Extensive use is made of rules
and SOPs to coordinate tasks, and
work process is predictable
• Organic structures
1. Joint specialization
Employees work together & coordinate
their actions to find the best way of
performing a task
2. Complex integrating mechanisms Task
forces and teams are major integrating
mechanism
3. Decentralization
Authority to control tasks is delegated
to people at all levels in the
organization. Most communication is
lateral.
4. Mutual Adjustment
Extensive use is made of face to face
contact to coordinate tasks, and work
process is relatively unpredictable
Burns and Stalker on Organic vs Mechanistic
Structures and Environment
• They found that organic structures were more effective in unstable,
changing environments than were companies with mechanistic
structures.
• In stable environment mechanistic structure worked better.
• Unstable, changing environment employees need to be
empowered to take decisions.
• In complex environments rapid communication, information
sharing are required to respond to customer needs and develop
new products.
• When environment is stable no need for complex decision making
systems.
• Burns and Stalker concluded that orgn should design structure
to match the dynamism and uncertainty of their environment.
The relationship between environmental uncertainty and
Organizational Structure
Cont’d
• Most successful orgn are those who have achieved a balance
between two structures.
• Orgn may design its structure so that some functions like
(manufacturing and accounting) act as mechanistic structures
and (marketing or R&D) act as organic structures.
From Functional Structure to Divisional Structure
• A functional structure best serves a company that produces
a few, similar products at a few production sites and markets
to one type of customer.
• When production expands to more products at more
locations and to several types of customers, a company
requires a complex structure.
• This move entails three design choices:
1. Increasing vertical differentiation, increasing the levels in
the hierarchy, centralizing decision-making and increasing
control with rules.
2. Increasing horizontal differentiation, product teams or
divisions to overlay a functional grouping.
3. Increasing integration, using integrating mechanisms such
as task forces and teams to improve coordination between
subunits and motivation.
 Divisional Structure
• Its a structure in which functions are grouped together
according to the specific demands of products, markets, or
customers.
• A divisional structure groups people from different functions to
provide customers with goods or services.
• This structure makes subunits easier to manage as a
company grows. The type of divisional structure depends on
the source of control problems.

1. If many, complex products cause problems, a product

structure fits best.
2. If multiple locations cause problems, a geographic structure
fits best.
3. If different customer types cause problems, a market
structure fits best.
 Divisional Structure I: Three Kinds of
Product Structure
• A product structure is a divisional structure in which products
are grouped into separate divisions, according to their
similarities or differences.
• As the number of products and/or services increase, tasks
are grouped by product and function.
• A product structure groups products into separate divisions. A
company must determine the difference and complexity of
products and coordination methods between support
functions and product divisions.
• Support functions can be centralized at the top or grouped for
each product division.
• These decisions determine a company’s product division,
multi division, or product team structure.
 Divisional Structure I: Three Kinds of
Product Structure
1. Product Division Structure
• A product division structure with centralized support functions is
appropriate when products are similar and target the same market.
• Vertical differentiation is increased and support functions
centralized at the top.
• Sharing of skills and resources increases a function’s ability to
create value across product divisions.
2. Multidivisional Structure
• A multidivisional structure is appropriate if products are different
and are sold in many markets.
• Divisions are self-contained, each with their own support functions
and control. Because products differ, centralized support functions
at the top is infeasible.
Product Division Structure
CEO

Vice President Vice President Vice President Vice President

Sales and Research and Materials Finance
Marketing Development Management

PDM PDM PDM PDM

Canned Frozen Frozen Baked

Soups Vegetable Entrees Goods
Division Division Division Division

Centralized support functions

Divisions
Multidivisional Structure.
CEO

Corporate Headquarters Staff

Corporate Senior VP Senior VP Senior VP Senior VP

Managers Marketing Finance Materials Research and
Management Development

Divisional Division A Division B Division C Division D

Managers

Functional
Managers

Support functions Support functions Support functions Support functions

 Divisional Structure I: Three Kinds of
Product Structure
• An automaker doesn’t know how to market a computer.
• The multidivisional structure has a corporate headquarter,
organized functionally and responsible for overseeing
division managers.
• Staff members facilitate integration to share information
quickly among divisions.
• Unlike a product division structure, a multidivisional structure
can control many businesses.
• Advantages of a Multidivisional Structure
1. Increased organizational effectiveness, due to a division of
labor between corporate and divisional Managers.
2. Increased control, because corporate managers monitor
divisional managers and make comparisons.
 Divisional Structure I: Three Kinds of
Product Structure
3. Profitable growth, because capital can be allocated to divisions with
the greatest potential return on investments.
4. An internal labor market, because good divisional managers are
promoted to corporate management.
• Disadvantages of a Multidivisional Structure
• Determining what authority to centralize or decentralize from the
corporate to the divisional level
• Coordination problems from uncooperative divisions competing for
resources
• Determining transfer pricing, the price of a product or service sold by
one division to another
• Higher bureaucratic costs
• Distorted information, resulting in communication problems.
 Divisional Structure I: Three Kinds of
Product Structure
3. Product Team Structure
• A hybrid of the product division and the multi division
structures, the product team structure customizes products,
speeds development time, and reduces costs.
• The poor communication leading to slow development in the
multidivisional structure is avoided.
• Functional specialists serve on self-contained, product
division teams.
• A team manager oversees design and manufacturing
activities, and employees become loyal to product not
function.
• Decentralization and integration facilitate rapid decision-
making.
Product Team CEO
Structure.

Functions

Vice President Vice President Vice President Vice President Vice President
Research and Sales and Manufacturing Materials Finance
Development Marketing Management

Product
Development
Teams
PTM PTM PTM

Product Product Product

Division Division Division

Functional specialist
PTM Product Team Manager
Divisional Structure II: Geographic Structure
• When an organization experiences control problems that are
a function of geography, a geographic divisional structure is
used.
• Such a structure organizes divisions according to the
requirements of different locations.
• As a company expands into different regions, it needs to
organize its core competences to meet the needs of different
regional customers.
• The geographic divisional structure permits some functions to
be centralized and others to be decentralized.
• This structure increases both horizontal and vertical
differentiation. A regional hierarchy is added.
Geographic Structure

Regional
Operations

CEO
Regional Regional
Operations Operations
Central Support
Functions

Individual
stores
Regional
Operations
 Divisional Structure III: Market Structure
• When an organization experiences control problems that are
a function of the differences in the various customer groups
being served, a market structure is used.
• Such a structure aligns functional skills and activities with
different customer needs.
• The customer is the focus in a market structure: commercial,
consumer, corporate, and government customers.
• Each division develop products for its customers but uses
centralized support functions.
• This structure permits a quick response to market changes.
Market Structure

CEO

Central Support Functions

Commercial Consumer Government Corporate

Division Division Division Division

4- 71
 Matrix Structure
• The search for better and faster ways to develop products
and meet customer needs led to the matrix structure.
• The matrix structure includes both functional and product
responsibility.
• It is used for a high level of group coordination to respond to
changing conditions.
• The matrix structure is flat with decentralized authority.
Functional employees remain under a functional head, but
work under a product manager.
• The product manager leads the team whose members are
responsible to both functional and product managers.
• Role and authority relationships are ambiguous. Control is
exerted horizontally via teams.
• A matrix is an organic structure.
Matrix Structure
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 Structure
• Although both a product team and matrix structure use
teams, matrix team members have two bosses and team
membership is not fixed.

• Advantages of a Matrix Structure

1. Functional barriers and subunit orientation are reduced.
2. Cross-functional communication allows members to learn and
develop skills.
3. Employee skills are utilized.
4. Employees are concerned about both cost and quality.
 Disadvantages of a Matrix Structure
1. Lack of bureaucratic structure leads to role ambiguity and
role conflict.
2. Teams may fight over resources.
3. Members often refuse transfers to stay with peers.
4. Informal hierarchies emerge in response to uncertainty.
5. Unmet expectations lead managers to increase control
resulting in a taller, bureaucratic structure.
 Multidivisional Matrix Structure
• A multidivisional matrix structure provides for more integration
between corporate and divisional managers and between
divisional managers.
• A matrix design can enhance a multidivisional structure when
placed at the company’s top to increase integration between
corporate and division managers.
• Corporate specialists analyze divisional performance and
design action plans.
• Division heads and corporate executives exchange information
and coordinate activities.
Multidivisional Matrix Structure

CEO

Senior Vice Senior Vice Senior Vice Senior Vice

President President President President
Marketing Finance Research and Materials
Development Management

Automobile
Products
Division

Personal
Computer
Division

Consumer
Electronics
Division