Six Key Elements in Organizational Design

Organizational design is engaged when managers develop or change an organization's
structure. Organizational Design is a process that involves decisions about the following six key elements: I. Work Specialization describes the degree to which tasks in an organization are divided into separate jobs. The main idea of this organizational design is that an entire job is not done by one individual. It is broken down into steps, and a different person completes each step. Individual employees specialize in doing part of an activity rather than the entire activity. II. Departmentalization It is the basis by which jobs are grouped together. For instance every organization has its own specific way of classifying and grouping work activities. There are five common forms of departmentalization: 1. Functional Departmentalization. As shown in the Figure 2-1, it groups jobs by functions performed. It can be used in all kinds of organizations; it depends on the goals each of them wants to achieve. Figure 2-1Functional Departmentalization example

Different aspects on this type of departmentalization: Positive Aspects Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations o Coordination within functional area
o o

Negative Aspects Poor communication across functional areas Limited view of organizational goals
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In-depth specialization
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Geographical Departmentalization. Each manager is responsible of an area within the organization depending of his/her specialization Figure 2: Product Departmentalization example Source: Bombardier Annual Report Different aspects on this type of departmentalization: Positive Aspects Allows specialization in particular products and services o Managers can become experts in their industry o o o Negative Aspects Duplication of functions Limited view of organizational goals o Closer to customers 3. It groups jobs by product line. It groups jobs on the basis of territory or geography. Product Departmentalization.2. Figure 2-3: Geographical Departmentalization example Different aspects on this type of departmentalization: .

Positive Aspects More effective and efficient handling of specific regional issues that arise o o Negative Aspects Duplication of functions Can feel isolated from other organizational areas o Serve needs of unique geographic markets better o 4. Process Departmentalization. It groups on the basis of product or customer flow. Figure 2-4: Process Departmentalization example Different aspects on this type of departmentalization: Positive Aspects More efficient flow of work activities o o Negative Aspects Can only be used with certain types of products 5. It groups jobs on the basis of common customers Figure 2-5: Customer Departmentalization example . Customer Departmentalization.

Also. Span of Control It is important to a large degree because it determines the number of levels and managers an organization has. Centralization and Decentralization More Centralization • • More Decentralization • • • • • Environment is stable Lower-level managers are not as capable or experienced at making decisions as upper-level managers. Responsibility: The obligation to perform any assigned duties. Company is geographically . Corporate culture is open to allowing managers to have a say in what happens. There are three important concepts attached to this theory: • • • Authority: Refers to the rights inherent in a managerial position to tell people what to do and to expect them to do it. Lower-level managers are capable and experienced at making decisions. Organization is facing a crisis or the risk of company failure.Different aspects on this type of departmentalization: Positive Aspects Customers' needs and problems can be met by specialists o o Negative Aspects Duplication of functions Limited view of organizational goals o III. Chain of command It is defined as a continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who reports to whom. IV. Lower-level managers want a voice in decisions. uncertain. • • • • Environment is complex. Lower-level managers do not want to have say in decisions Decisions are significant. Unity of command: The management principle that each person should report to only one manager. determines the number of employees a manager can efficiently and effectively manage. V. Decisions are relatively minor.

I am going to define and discuss each design in order to give an understanding of the organizational design concept. For example in a business with few employees the owner tends to be the manager and controls all of the functions of the business. Within . When the company begins to expand then the structure tends to become more complex and grows out of the simple structure. wide spans of control. project structure. Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions VI.• • Company is large. and divisional structure. matrix structure. • dispersed. traditional and contemporary. This type of design is very common in small start up businesses. and little formalization. functional structure. and the learning organization. Traditional designs include simple structure. It is the functional approach to departmentalization applied to the entire organization. Contemporary designs would include team structure. semi-autonomous units or divisions. Often employees work in all parts of the business and don’t just focus on one job creating little if any departmentalization. Divisional Structure A divisional structure is made up of separate. Formalization It refers to the degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures. Functional Structure A functional structure is defined as a design that groups similar or related occupational specialties together. Simple Structure A simple structure is defined as a design with low departmentalization. I. In this type of design there are usually no standardized policies and procedures. centralized authority. boundaryless organization. Types of Organizational Designs Organizational designs fall into two categories. Effective implementation of company strategies depends on managers retaining say over what happens. Traditional Designs 1. 3. 2.

. This gets managers to focus more on results knowing that they will be held accountable for them. and figure out the most effective and efficient way to perform their tasks. Autonomous Internal Units Some large organizations have adopted this type of structure. A manager oversees their division and is completely responsible for the success or failure of the division. the project manager and the department or functional manager. the organization is comprised of many independent decentralized business units. Teams are given the power to be as innovative as they want. They continuously work on projects in a team like structure. 2. In a matrix structure those resources include the different functions of the company such as operations. engineering. each with its own products. Some teams may have a group leader who is in charge of the group. teams must perform well because they are held accountable for their performance. teams can work the way they want to. Basically the project manager has to gather specialists from each function in order to work on a project. This is like the matrix structure. Once the project is finished then the team moves on to the next project. accounting. In an organization there may be different projects going on at once. Each specific project is assigned a project manager and he has the duty of allocating all the resources needed to accomplish the project. Project Structure A project structure is an organizational structure in which employees continuously work on projects. 3. and complete it successfully. Each team has the necessary employees to successfully complete the project. Matrix Structure A matrix structure is one that assigns specialists from different functional departments to work on one or more projects. In this structure there are two managers. and each team works towards a common goal.one corporation there may be many different divisions and each division has its own goals to accomplish. 4. Contemporary Designs 1. marketing. Therefore. II. Each employee brings his or her specialized skill to the team. however when the project ends the employees don’t go back their departments. That is. Since the organization is made up of groups to perform the functions of the company. Team Structure A team structure is a design in which an organization is made up of teams. and human resources. In a team structured organization there is no hierarchy or chain of command. sales.

6. or external boundaries imposed by a predefined structure.clients. 5. environment. and technology. modular. Instead of having departments. competitors. vertical. strategy. Boudaryless Organization A boundaryless organization is one in which its design is not defined by. A learning organization must have a team design and great leadership. or limited to. adapt. There is no centralized control or resource allocation. This type of organization has work done outside of the company from different suppliers. This structure is much more flexible because there is no boundaries to deal with such as chain of command. or network organizational structures. the horizontal. the following five factors are the most common: size. A modular organization is one in which manufacturing is the business. In order to have a learning organization a company must have very knowledgeable employees who are able to share their knowledge with others and be able to apply it in a work environment. The learning organization must also have a strong organizational culture where all employees have a common goal and are willing to work together through sharing knowledge and information. and profit goals. departmentalization. and organizational hierarchy. Each supplier produces a specific piece of the final product. life cycle. In order to eliminate boundaries managers may use virtual. In a virtual organization work is outsourced when necessary. There are a small number of permanent employees. and change. the organization then assembles the final product. Learning Organization A learning organization is defined as an organization that has developed the capacity to continuously learn. Examples of this would be subcontractors or freelancers. companies have used the team approach. In other words it is an unstructured design. A network organization is one in which companies outsource their major business functions in order to focus more on what they are in business to do. Factors Affecting Organizational Design Although many things can affect the choice of an appropriate structure for an organization. When all the pieces are done. Learning organizations that are innovative and knowledgeable create leverage over competitors. however specialists are hired when a situation arises. Organizational size .

there is not much delegation of authority. most organizations go through the following four stages: birth. The type of structure that develops will be one that provides the organization with the ability to operate effectively. and detailed rules and guidelines dictate work procedures. the organization is trying to grow. An organization in the birth stage does not yet have a formal structure. In a young organization. Small organizations are very often organic systems. it tends to become less innovative. responsibility.” Youth: In this phase.The larger an organization becomes. and more interested in maintaining itself in a stable. The organization becomes more organic in structure during this phase. a two-person consulting firm. As an organization grows. As the organization becomes older. . However. tend to progress through stages known as a life cycle. It is during this phase that the formal structure is designed. Tasks are highly specialized. youth. dislikes. with a more complex and increasingly formal structure. in an attempt to improve efficiency and profitability. The emphasis is on improving efficiency and profitability. Maturity: Once a firm has reached the maturity phase. Therefore. and hierarchical relationships serve as the foundation for authority. and some delegation of authority occurs. Each stage has characteristics that have implications for the structure of the firm. secure environment. less interested in expanding. The company shifts its attention from the wishes of the founder to the wishes of the customer. the more complicated its structure. a firm is just beginning. In reality. ability. An organization in midlife is larger. Midlife: This phase occurs when the organization has achieved a high level of success. The emphasis in this stage is on becoming larger. and the founder may have difficulty remaining in control. individuals simply perform tasks based on their likes. and/or need. however. More levels appear in the chain of command. like humans. However. and control. large organizations develop formal structures. it becomes increasingly difficult to manage without more formal work assignments and some delegation of authority. Instead of following an organizational chart or specified job functions. • • • • Birth: In the birth state. Organizations in this stage are slowly dying. Stale products result in sales declines and reduced profitability. Rules and guidelines are not prevalent and may exist only to provide the parameters within which organizational members can make decisions. Interorganizational communication flows primarily from superior to subordinate. it may also become more mechanistic in structure. Organization life cycle Organizations. When an organization is small — such as a single retail store. it may not even have a formal structure. Like humans. if the organization is very small. and maturity. The founder usually “calls the shots. That's one reason larger organizations are often mechanistic—mechanistic systems are usually designed to maximize specialization and improve efficiency. or a restaurant — its structure can be simple. the firm often tends to become less innovative. midlife.

technological. Companies that elect to produce the same products more efficiently and effectively will probably be mechanistic. An organization may even try to change its position in the life cycle by changing its structure. and includes conditions that influence the organization such as economic. Environment The environment is the world in which the organization operates. • • In a stable environment. cleaning supplies. and more rules. they tend to get larger. Each of these strategies requires a structure that helps the organization reach its objectives. A company may decide to be always the first on the market with the newest and best product (differentiation strategy). Therefore. the older the organization and the larger the organization. Companies that want to be the first on the market with the newest and best product probably are organic. and natural environment conditions. or it may cycle back to an earlier phase. or it may decide that it will produce a product already on the market more efficiently and more cost effectively (costleadership strategy). Environments are often described as either stable or dynamic. the greater the likelihood that it will move from an organic structure to a mechanistic structure. An organization may skip a phase. As a result. legal-political.maturity is not an inevitable stage. the older and larger the organization becomes. the technology that a company uses while in this environment may need to be continuously improved and updated. a relationship exists between an organization's size and age. Firms experiencing the decline of maturity may institute the changes necessary to revitalize. In other words. In addition. thus. This condition is often thought of as turbulent. the customers' desires are continuously changing— the opposite of a stable environment. social-cultural. it does not have to. Strategy How an organization is going to position itself in the market in terms of its product is considered its strategy. the structure must fit the strategy. Although an organization may proceed sequentially through all four stages. and paper products. because organic structures permit organizations to respond quickly to changes. Examples of organizations that face relatively stable environments include manufacturers of staple items such as detergent. the structural changes a firm experiences as it gets larger and the changes it experiences as it progresses through the life cycle are parallel. In a dynamic environment. An example of . As the life-cycle concept implies. the customers' desires are well understood and probably will remain consistent for a relatively long time. As organizations age. more specialization of tasks. the greater its need for more structure.

an industry functioning in a dynamic environment is electronics. A company that bottles soda pop is an example of an organization that utilizes mass production. because as technology changes. and gases. Mass production is used to create a large number of uniform goods in an assembly-line system. and human know-how. through a highly automated system. In the early 1960s. as the product passes from stage to stage until completion. Joan Woodward found that the right combination of structure and technology were critical to organizational success. but can often be operated by a relatively small labor force. which she classified into three categories of core-manufacturing technology: • • • Small-batch production is used to manufacture a variety of custom. Woodward discovered that small-batch and continuous processes had more flexible structures. Classic examples are automated chemical plants and oil refineries. The small-batch and continuous processes work well in organic structures and mass production operations work best in mechanistic structures. and the best mass-production operations were more rigid structures. Technology Advances in technology are the most frequent cause of change in organizations since they generally result in greater efficiency and lower costs for the firm. solids. . Workers are highly dependent on one another. organizations that operate in volatile and frequently changing environments are more likely to find that an organic structure provides the greatest benefits. A print shop is an example of a business that uses small-batch production. made-toorder goods. organizational design depends on the type of business. Technology changes create competitive pressures for all electronics industries. and workers often follow detailed instructions while performing simplified jobs. Organizations using continuous-process production create goods by continuously feeding raw materials. She conducted a study of technology and structure in more than 100 English manufacturing firms. organizations that operate in stable external environments find mechanistic structures to be advantageous. Equipment may be sophisticated. In contrast. Technology is the way tasks are accomplished using tools. Such systems are equipment intensive. techniques. This structure allows the organization to respond to environment change more proactively. such as liquid. Once again. Each item is made somewhat differently to meet a customer's specifications. so do the desires of consumers. equipment. In general. This system provides a level of efficiency that enhances the long-term performances of organizations that enjoy relatively stable operating environments.