Session 3

Basic Challenges of Organizational

Design
 Agenda
• Recap
– Defining an organization
– Historical Perspective:
• Why Organizations Exist
• One best way of organizing and
• Structural Contingency Theories
– Five Basic Parts of an Organization

• Basic challenges of Designing an Organization’s

Structure
ORGANIZATIONAL DESIGN
Challenges to Consider
What is an organizational Structure
• Organizational structure is based on a system
of interlocking roles and relationships of one
role to another, and is defined by task-related
behaviours.
– Some roles require people to oversee the
behaviour of others: A person who holds another
person accountable for his or her performance
holds authority over the other person.
– It helps improve the control organization has over
its employees
Organizational The set of task related
Role behaviours required of a person
by his or her position in an
organization

Authority The power to hold people

accountable for their actions
PGPBM Chair
and to make decisions
concerning the use of
organizational resources
Officer - PGPBM
Organizational The ability to coordinate and
Control motivate people to work in the
organization’s interests – when
Support Staff - PGPBM
employee understands their
roles, responsibilities and
superior’s expectations
Organizations are Systems
Sub unit that
consists of a
collection of
functions or
departments that
share responsibility
for producing a
particular good or
service

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.
Restaurant: Stage 1
Restaurant: Stage 2
Restaurant: Stage 3
Restaurant: Stage 4
 Increased Horizontal Complexity
Proliferation of
Specialization
Organizational Roles

Functional Specialization Social Specialization

• Division of labour • Individuals are
– Employees Highly Specialized
Substitutable e.g Doctors
e.g. Waiters

Departmentalization
Horizontal Complexity in Organizations

• Greater variety in occupation/

specialization leads to differences in
orientation
– Goal emphasis
– Time orientation
– Work vocabulary
• Increase costs of coordination and
communication
Organizational Chart of the Restaurant
 Vertical and Spatial Differentiation
Vertical differentiation indicates depth
of the structure

• Hierarchy increases complexity due Related Concepts

to
– Communication distortion Span of Control
– Gap between senior management • Number of direct
and Frontline employees reportees of a manager
• Vertical differentiation can increase
due to increase in horizontal Tall Structure:
differentiation • Low span of control
• Greater number of
– Supervision of each specialized
group levels of hierarchy

Spatial differentiation is an extended case of horizontal and vertical

differentiation
• Multiple locations increase complexity of coordination and communication
Restaurant: Stage 5
Challenge 1 in a Growing Organization
• Complexity
– Complexity increases when:
• Horizontal differentiation increases
• Vertical differentiation increases
• Spatial differentiation increases
 Types of Integrating Mechanisms
Integrating Mechanism Description Example (in Johnson &
(in order of increasing Johnson)
complexity)
Hierarchy of Authority A ranking of employees Salesperson reports to Diaper
integrates by specifying who division sales manager
reports to whom
Direct Contact Managers meet face to face to Diaper division sales and
coordinate activities manufacturing managers
meet to discuss scheduling

Liaison Role A specific manager is given A person from each of J&J’s

responsibility for coordinating production, marketing and
with managers from other R&D depts. Is given
subunits on behalf of his/ her responsibility with dealing
subunit with other departments.

Task Force Managers meet in temporary A committee is formed to find

committees to coordinate cross- new ways to recycle diapers
functional activities
 Types of Integrating Mechanisms
Integrating Mechanism (in Description Example (in Johnson &
order of increasing Johnson)
complexity)
Team Managers meet regularly in A permanent J&J committee
permanent committees to is established to promote
coordinate activities new product development

Integrating Role A new role is established to One manager takes

coordinate the activities of two responsibility for coordinating
or more functions or divisions Diaper & Baby soap divisions
to enhance their marketing
activities

Integrating Department A new department is created to A team of managers is

coordinate the activities of
function or division
created to take responsibility
for coordinating J&J’s
centralization program to
allow divisions to share skills
and resources.
Balancing Differentiation and Integration
• Managers facing the challenge of deciding
how and how much to differentiate and
integrate must:
– Carefully guide the process of differentiation so
that it develops the core competences that give
the organization a competitive advantage
– Carefully integrate the organization by choosing
appropriate integrating mechanisms that allow
subunits to cooperate and that build up the
organization’s core competences
 Challenge 2: Centralization
• Centralized organization: the authority to
make important decisions is retained by top
level managers
– Top managers able to coordinate activities to keep
the organization focused on its goals

• Decentralized organization: the authority to

make important decisions is delegated to
managers at all levels in the hierarchy
– Promotes flexibility and responsiveness
 Balancing: Centralization and De-
centralization
• Ideal balance entails:
– Enabling middle and lower managers who are at
the scene of the action to make important
decisions
– Allowing top managers to focus on long-term
strategy making
– Ensuring decisions taken are in line with
organizations long term vision
 Standardization

Can be achieved through

• Aim of Standardization: Formalization

• Rules and regulations
– Reduce Variability
• Procedures
– Increase predictability
• Policies
– Promote coordination
• Training
– Minimize scope of employee • Selection
discretion
Socialization:
• Norms

Standardization is typically high in work situations where employees perform

narrow, repetitive and routine jobs
 Mutual Adjustment
• Mutual adjustment: the process through
which people use their judgment rather than
standardized rules to address problems, guide
decision making, and promote coordination
Balancing Standardization and Mutual
Adjustment
• Challenge facing managers is:
– To find a way of using rules and norms to
standardize behavior, and
– to allow for mutual adjustment to give managers
opportunity to discover new and better ways to
achieve goals
APPLICATION
 Mechanistic and Organic Structures
Mechanistic Structures results when
an organization makes these choices
• Individual Specialization
– Employees work separately and
specialize in one clearly defined
task.
• Simple Integrating Mechanisms
– Hierarchy of authority is clearly
defined and is the major
integrating mechanism.
• Centralization
– Authority to control tasks is kept at
the top of the organization. Most
communication is vertical.
• Standardization
– Extensive use is made of rules and
SOPs to coordinate tasks and work
process is predictable.
Organic Structure results when an
organization makes these choices
• Joint Specialization
– Employees work together and
coordinate their actions to find the
best way of performing a task.
• Complex Integrating Mechanisms
– Task forces and teams are the
major integrating mechanisms.
• Decentralization
– Authority to control tasks is
delegated to people at all levels in
the organization. Most
communication is lateral.
• Mutual Adjustment
– Extensive use is made of face-to-
face contract to coordinate tasks,
and work process is relatively
unpredictable.
THANK YOU