Organizational Design

Organizational Design Defined

Organizational design is the creation or change of an organization's structure. The

organizational design of a company reflects its efforts to respond to changes, integrate
new elements, ensure collaboration, and allow flexibility.
Factors Affecting Organizational Design
• Organization life cycle
Stages in the organization's life cycle:
1. Birth- the beginning of the organization.
2. Youth - growing stage. It is during this phase that the formal
structure is designed, and some delegation of authority occurs.
3. Midlife- This phase occurs when the organization has achieved
a high level of success. An organization in midlife is larger,
with a more complex and increasing formal structure.

4. Maturity- Once a firm has reached the maturity phase, it tends to

become less innovative, less interested in expanding, and more
interested in maintaining itself in a stable, secure environment. The
emphasis is on improving efficiency and profitability.
Organizations in this stage are slowly dying. However, maturity is
not an inevitable stage. Firms experiencing the decline of maturity
may institute the changes necessary to revitalize.

- Strategy - is the positioning of the organization in the market in terms of

its product. The structure must fit the strategy of the organization.

- Environment is the world in which the organization operates, and

includes conditions that influence the organization such as economic,
social-cultural, legal-political, technological, and natural environment
conditions. Environments are often described as either stable or
dynamic.

 In a stable environment, the customers' desires are well understood and probably
will remain consistent for a relatively long time. Examples of organizations that
face relatively stable environments include manufacturers of staple items such as
detergent, cleaning supplies, and paper products.

 In a dynamic environment, the customers' desires are continuously changing—the

opposite of a stable environment. This condition is often thought of as turbulent. In
addition, the technology that a company uses while in this environment may need
to be continuously improved and updated. An example of an industry functioning
in a dynamic environment is electronics. Technology changes create competitive
pressures for all electronics industries, because as technology changes, so do the
 desires of consumers.

In the early 1960s( Joan Woodward found that the right combination of structure and
technology were critical to organizational success. She conducted a study of technology
and structure in more than 100 English manufacturing firms, which she classified into
three categories of coremanufacturing technology:

Small-batch production is used to manufacture a variety of custom, made-

to-order goods. Each item is made somewhat differently to meet a
customer’s specifications. A print shop is an example of a business that uses
small-batch production.

Mass production is used to create a large number of uniform goods in an

assembly-line system. Workers are highly dependent on one another, as
the product passes from stage to stage until completion. Equipment may
be sophisticated, and workers often follow detailed instructions while
performing simplified jobs. A company that bottles soda pop is an
example of an organization that utilizes mass production.

• Organizations using continuous-process production create goods by

continuously feeding raw materials, such as liquid, solids, and gases,
through a highly automated system. Such systems are equipment
intensive, but can often be operated by a relatively small labor force.
Classic examples are automated chemical plants and oil refineries.

Woodward discovered that small-batch and continuous processes had more flexible
structures, and the best mass-production operations were more rigid structures.

Once again, organizational design depends on the type of business. The small-batch and
continuous processes work well in organic structures and mass production operations
work best in mechanistic structures.

Organizational Structure Defined

Organizational structure pertains to an organization’s internal framework. It indicates

how the people inside the organization and their tasks are arranged. It defines the lines
of authority and communications, allocation of duties and rights, the manner and extent
that the roles, power and responsibilities are delegated, controlled, and coordinated, and
how the information flows between the different levels of management.

Factors to Consider in Creating an Effective Organizational Structure

 - Competitors
- Industry where you belong
- Legal requirements
- Organizational goal

- Investors and Other Funding Sources

Ways of Structuring Organizations

Different organizations have different structures. One that will suit its needs in achieving its
goals. The basic types of organizational structures are:

 Functional structure

 Divisional structure

 Matrix structure

Functional structure. This structure groups people and positions into work units based on
similar activities, skills, expertise, and resources. This is the simplest approach. It presents
well-defined channels of communication, authority, and responsibility relationships. This
also avoids duplication personnel and equipment.

Functional structure has some pitfalls that can make it not suitable for some organizations.
Some of these are:

 This can result in narrowed perspectives because of the discreteness of

different department work groups. Managers may have a hard time
relating to another department because it is an entirely different grouping.
Less cooperation and communication may occur.
  Decisions and communication will be slow because of the many layers of
hierarchy and authority is centralized.
 The functional structure gives managers experience in only one fields—
their own. Managers do not have the opportunity to see how all the firm's
departments work together and understand their interrelationships and
interdependence. In the long run, this specialization results in executives
with narrow backgrounds and little training handling top management
duties.

Employees in a matrix structure belong to at least two formal groups at the same time—a
functional group and a product, program, or project team. They also report to two bosses—
one within the functional group and the other within the team.

This structure increases employee motivation and it also allows technical and general
management training across functional areas as well.

Potential advantages of matrix structure include

 Better cooperation and problem solving.

 Increased flexibility.
 Better customer service.
 Better performance accountability.
 Improved strategic management.

Matrix structure also has potential disadvantages. Here are a few of them:

The two-boss system is susceptible to power struggles, as functional supervisors and team
leaders vie with one another to exercise authority.

 Members of the matrix may experience task confusion when taking

orders from more than one boss.
 Teams may develop strong team loyalties that cause a loss of focus on
larger organization goals.
 Additional team leaders to a matrix structure can result in increased
costs.
Team structure. This structure organizes separate functions into a group based on one
overall objective (see Figure 5). These cross-functional teams are composed of members
from different departments who work together as needed to solve problems and explore
opportunities. The purpose is to break down functional barriers among departments and
create a more effective relationship for solving ongoing problems. How well team members
work together often depends on the quality of interpersonal relations, group dynamics, and
their team management abilities.

The team structure has many potential advantages, including the following:

 Intradepartmental barriers break down.

 Decision-making and response times speed up.
 Employees are motivated.
  Levels of managers are eliminated.
 Administrative costs are lowered.

The disadvantages include:

 Conflicting loyalties among team members.

 Time-management issues.
 Increased time spent in meetings.

Network structure. This structure relies on other organizations to perform critical functions
on a contractual basis (see Figure 6). In other words, managers can contract out specific
work to specialists.

This approach provides flexibility and reduces overhead because the size of staff and
operations can be reduced. On the other hand, the network structure may result in
unpredictability of supply and lack of control because managers are relying on contractual
workers to perform important work.
Functions within Organizations

The goals or objectives and structure of an organization determine the functions

and responsibilities of management within the organization.

A typical business organization may consist of the following main departments or

functions:

Production

 Research and Development (R&D)

 Purchasing
 Marketing (including the selling function)
 Human Resource Management
 Accounting and Finance.

The Production function

This undertakes the activities necessary to provide the organization's products or services.
Its main responsibilities are:

 Production planning and scheduling

 Control and supervision of the production workforce
 Managing product quality (including process control and monitoring
 Maintenance of plant and equipment
 Control of inventory
 Deciding the best production methods and Factory Layout

Close collaboration will usually be necessary between Production and various other
functions within the organization. For example, collaboration with the Research and
Development, concerning the implications of product design for production methods and
cost; Marketing, concerning desired product functionality, appearance, quality, durability
and so on; Finance, concerning the availability of funds for purchase of new equipment and
the acceptability of inventory levels; Human Resource Management, concerning staff
motivation implications of job design and production methods.

The Research and Development function

The Research and Development (R&D) function is concerned with developing new
products or processes and improving existing products/processes. R&D activities must be
closely coordinated with the organization’s marketing activities to ensure that the
organization is providing exactly what its customers want in the most efficient, effective
and economical way.

The Purchasing function

The Purchasing function is concerned with obtaining goods and services to be used by the
organization. These will include, for example, raw materials and components for
manufacturing and also production equipment. The responsibilities of this function usually
extend to buying goods and services for the entire organization (not just the Production
function), including, and for example, office equipment, furniture, computer equipment and
stationery. In performing this function, purchasing managers must consider the factors -
quantity, quality, price, and delivery, this is also known as the "'purchasing mix'1.

 Quantity. Buying in large quantities can attract price discounts and

prevent inventory running out. On the other hand, there are substantial
costs involved in carrying a high level of inventory.

 Quality. There will usually be a trade-off between price and quality in

acquiring goods and services. Consequently, Production, R&D and
Marketing Functions will need to be consulted to determine an
acceptable level of quality which will depend on how important quality
is as an attribute of the final product or service of the organization.

 Price. Other things being equal, the purchasing manager will look for the
best price deal when procuring goods and services, although price must be
considered in conjunction with quality and supplier reliability, in order to
achieve best value, rather than lowest price only.

 Delivery. The time between placing an order and receiving the goods or
services, the lead time, can be critical for production planning and
scheduling and also has implications for inventory control. Suppliers must
therefore be evaluated in terms of their reliability and capability for on
time delivery.

In short, the ‘purchasing mix' can be considered as making sure that the organization has
the right amount, of the right quality, at the right price, in the right place at the right time.
The Marketing function

Marketing is concerned with identifying and satisfying customers' needs at the right price.
Marketing involves researching what customers want and analyzing how the organization
can satisfy these wants. Marketing activities range from the 'strategic', concerned with the
choice of product markets (and how to compete in them, for example, on price or product
differentiation) to the operational, arranging sales promotions (e.g., offering a 25 per cent
discount), producing literature such as product catalogues and brochures, placing
advertisements in the appropriate media and so on. A fundamental activity in marketing is
managing the Marketing Mix consisting of the '4Ps': Product, Price, Promotion and Place.

Product. Having the right product in terms of benefits that customers value.

Price. Setting the right price which is consistent with potential customers' perception of the
value offered by the product.

Promotion. Promoting the product in a way which creates maximum

customer awareness and persuades potential customers to make the
decision to purchase the product

Place. Making the product available in the right place at the right time - including choosing
appropriate distribution channels.

Competitive marketing strategies:

 Cost leadership strategy - lowering the price than its competitors.

 Differentiation strategy- developing a superior product.

The Human Resource function

The Human Resources function involves the following:

1.Recruitment and selection. Ensuring that the right people are recruited to
the right jobs.

2.Training and development. Enabling employees to carry out their

responsibilities effectively and make use of their potential.

3.Employee relations. Including negotiations over pay and conditions.

 4.Grievance procedures and disciplinary matters. Dealing with complaints
from employees or from the employer.

5.Health and Safety matters. Making sure employees work in a healthy and
safe environment.

6.Redundancy procedures. Administering a proper system that is seen to be

fair to all concerned when deciding on redundancies and agreeing
redundancy payments.
The Accounting and Finance function

This function is concerned with the following:

Financial record keeping of transactions involving monetary inflows or

outflows.

1.Preparing financial statements (the income statement, balance sheet and

cash flow statement] for reporting to external parties such as shareholders.
The financial statements are also the starting point for calculating any tax due
on business profits.

2.Payroll administration Paying wages and salaries and maintaining

appropriate income tax and national insurance records.

3.Preparing management accounting information and analysis to help

managers to plan, control and make decisions.