Understanding

Organizations UNIT 2 FACTORS AFFECTING

ORGANIZATION DESIGN
At the end of this UNIT, you should be able to understand:
the meaning of organization design,
various objectives of organization design,
different principles of organization design,
theories of organization design,
important factors affecting organization design,
meaning of organization effectiveness,
criteria to measure effectiveness.

Structure
2.1 Introduction
2.2 Meaning of Organizational Design
2.3 Purposes of The Organization Design
2.4 Principles of Good Organizational Design
2.5 Theories of Organization Design
2.6 Key Factors Affecting Organization Design
2.7 Other Factors
2.8 Organizational Effectiveness
2.9 Summary
2.10 Self Assessment Questions
2.11 Further Readings

2.1 INTRODUCTION
Technological advancement has brought about far-reaching changes in the
methods of work and also in the organisation design. Globalisation of market,
changing methods of production, economic instability etc. over the factors which
affect the organisation designing. It is in this context, the present unit seeks to
analyse this concept and to outline the principles and theories associated with it.

2.2 MEANING OF ORGANIZATIONAL DESIGN

The term ‘organizational design’ refers to how various parts of the organization
and the distinct elements are brought together to make it. It considers both,
how these elements match together and ways in which they may be analyzed
and improved.

The design aspects broadly include how the organization is structured, the types
and numbers of jobs, and the processes and procedures used to:
handle and pass information;
make decisions;
produce results;
manage quality;
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 communicate information; Factors Affecting
Organization Design
plan, develop and manage resources;
innovate and handle crises (Cushway and Lodge, 2002).

2.3 PURPOSES OF THE ORGANIZATION DESIGN

Broadly an organization is designed to realize a number of objectives. These
could be:
to support the organization’s strategy. The structure should be designed in
such a way as to assure the realization of the organization’s goals and objectives;
to arrange resources in the most efficient and effective way;
to provide for the effective division of tasks and accountabilities among
individuals and groups;
to ensure effective co-ordination of the organization’s activities and clarify
the decision-making processes;
to enhance and elucidate the lines of communication up, down and across
the organization;
to permit for the effective monitoring and review of the organization’s
activities;
to endow with mechanisms for coping with change in markets, products and
the internal and external environments;
to aid the handling of crises and problems;
to help to motivate, manage and give job satisfaction to individual members
of the organization; and
to provide for management succession (Cushway and Lodge, 2002).

2.4 PRINCIPLES OF GOOD ORGANIZATIONAL

DESIGN
A good organization design should go along with the following principles:
The various parts of the structure should be divided into specialist areas.
These specialist areas need to be interlinked.
The number of levels in the structure, sometimes referred to as the scalar
chain, should be as few as possible.
The span of control, i.e, the number of subordinates directly managed, will
vary according to the nature of the jobs and the organization, but it should
not be so narrow that it results in a structure with too many levels, or too
broad to allow effective management.
There should be what has been described as unity of command. For this the
reporting positions and authority need to be clearly defined.
Every post in the structure should have a clear role and add value to the
way the organization functions.
The extent to which the organization should be centralized or decentralized
will need to be determined by reference to a number of factors. These
include, the nature and type of industry, geographical dispersion, history,
environment, resources available etc.
The structure must be designed to take account of changes in the
environment, which can include the economy, legislation, markets, technological
developments, geography, cultural environment, and social environment.
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Understanding
Organizations 2.5 THEORIES OF ORGANIZATION DESIGN
Basically, there are two theories of organization design : universalistic &
contingency theories. The universalistic theory assumes that there is “one best
way” to organize. It means the maximum organizational performance comes
from the maximum level of a structural variable, for instance, specialization
(Taylor, 1947). Classical management is an earlier organizational theory that
argue that maximum organizational performance results from maximum
formalization and specialization and it is therefore a universalistic type of theory.
Similarly, neo-human relations is also an earlier universalistic type of
organizational theory, which claims that organizational performance is maximized
by maximizing participation (Likert, 1961).

Contingency theory differs from all such universalistic theories in that it sees
maximum performance as resulting from adopting, not the maximum, but rather
the appropriate level of the structural variable that fits the contingency.
Therefore, the optimal structural level is seldom the maximum, and which level
is optimal is dependent upon the level of the contingency variable.

A contingency is a variable that moderates the effect of an organizational

characteristics on organizational performance. At the most abstract level, the
contingency approach says that the effect of the variable on another depends
upon some third variable. The third variable moderates the relationship between
two variables and can therefore be called a moderator of the relationship or a
conditioning variable of the relationship (Galtung 1967). In the contingency
theory of organizations, the relationship is between some characteristic of the
organization and effectiveness. Thus the contingency factor determines which
characteristic produces high levels of effectiveness of the organization (or some
part of it, such as a department of individual member).

As much of the contingency theory research has studied organizational

structure this tradition is referred to as structural contingency theory. Structural
contingency theory contains three core elements that together form its core
archetype.

First, there is an association between contingency and the organizational structure.

Second, contingency determines the organizational structure, because an

organization that changes its contingency then, in consequence, changes its
structure.
Third, there is a fit of some level of the organizational structural variable to
each level of the contingency, which leads to higher performance, whereas
misfit leads to lower performance. This fit-performance relationship is the heart
of the contingency theory paradigm. It provides the theoretical explanation of
the first two points.

2.6 KEY FACTORS AFFECTING ORGANIZATION

DESIGN
The selection of an appropriate design is reliant upon several factors.
However the primary factors that often affect organization design are : size,
environment, strategy, and technology. Table 1 identifies some indicators for
each of the four primary factors.

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 Table 1: Factors in Organization Design Decisions Factors Affecting
Organization Design
Factors Indicators
Size Large Small
Environment Degree of complexity
Degree of dynamism
Strategy and Goals Low cost
Differentiation
Focused
Technology Task interdependence

I. Size and Organization Design

Size is a main contingency factor that affects several aspects of structure.
The size contingency refers to the total number of employees who are to be
organized.

Size as a key structural variable is subject to two schools of thought. The first
approach, often called the “bigger is better” model, presupposes that the per-
unit cost of production decreases as the organization grows. In effect, bigger
is said to be more efficient. The second approach i.e. “small is beautiful”
revolves on the law of diminishing returns. This approach asserts that
oversized organizations and subunits tend to be beleaguered by costly behavioral
problems. Large and impersonal organizations are said to trigger apathy and
alienation, with resulting problems such as turnover and absenteeism. Two
strong promoters of this second approach are Peters and Waterman, the
authors of the best-selling In Search of Excellence

Recent research hints that when designing their organizations, managers should
stick to a middle ground between “bigger is better” and “small is beautiful”
because both models have been oversold. In reality, a newer viewpoint says
complexity, not size, is the central issue. A meta-analysis of 31 studies
(Gooding and Wagner III, 1985) conducted between 1931 and 1985 that related
organizational size to performance found:
Larger organizations (in terms of assets) tended to be more productive (in
terms of sales and profits).
There was “no positive relationship between organizational size and
efficiency, suggesting the absence of net economy of scale effects.”
There was zero to slightly negative relationship between subunit size and
productivity and efficiency.
A more recent study examined the relationship between organizational size
and employee turnover over a period of 65 months. Turnover was unrelated
to organizational size.

Striving for Small Units in Big Organizations : In summary, bigger is not

essentially better and small is not essentially beautiful. Hard-and-fast numbers
regarding precisely how big is too big or how small is too small are hard to
obtain. The best that managers can do is check the productivity, quality, and
efficiency of divisions, departments, and profit centers.

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Understanding Activity A
Organizations
In your opinion, whether a small or big organization is more effective? Give
reason for your stand.
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II. Environment and Organizational Design

Organizations, as open systems, need to receive various inputs from the
environment and to sell various outputs to their environment. Therefore, it is
important to comprehend what the environment is and what elements are likely
to be important.

The environment of an organization may be defined as general or specific. The

general environment is the set of cultural, economic, legal-political, and societal
conditions within the areas in which the organization operates. The specific
environment constitutes its owners, suppliers, distributors, government agencies,
and competitors with which an organization must interact to grow and survive.
A firm, typically, much more concerned over the composition of its specific
environment than of its general environment.

Environmental Complexity
Environmental complexity is an estimate of the magnitude of the problem and
opportunities in the organization’s environment. This is identified by three
main factors: the degree of richness, the degree of interdependence, and the
degree of uncertainty stemming from both the general and the specific
environment.

a) Environmental Richness
For business, a richer environment means the economic conditions are
improving, customers are spending more money, and suppliers (such as banks)
are willing to invest in the future of the organization. A richer environment is
also filled with more opportunities and dynamism, i.e., the capability for change.
The organizational design must enable the company to be proverbial with these
opportunities and capitalize on them. The opposite of richness is decline.

b) Environmental Interdependence
The link between external interdependence and organizational design is often
restrained and indirect. The organization may choose powerful outsiders by
including them. For instance, many large corporations have financial
representatives from banks and insurance companies on their boards of
directors. The organization may also adjust its overall design strategy to absorb
or safeguard the demands of a more powerful external element.

c) Uncertainty and Volatility

Environmental uncertainty and unpredictable volatility can be particularly
damaging to large bureaucracies. The obvious organizational design response to
uncertainty and volatility is to go for a more organic form. However at the
extremes, that ensures flexibility and is more adaptive to environment movement
toward an adhocracy may be important.
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Using Alliances Where Environmental Factors Dominate Factors Affecting
Organization Design
In high-tech areas, such as robotics, semiconductors, and advanced materials
(ceramics and carbon fibers), a single company often lacks all the knowledge
essential to bring new products to the market. In this case, the organizational
design must go beyond the boundaries of the organization and enter into an
inter-firm alliances, which means announcing cooperative agreements or joint
ventures between two independent firms. In Japan, alliance amount well
established firms in many industries are quit common. The network of
relationship is called a Keiretsu.

Keiretsu is a Japanese word which, translated literally, means headless

combine. It is the name given to a form of corporate structure in which a
number of organizations link together, usually by taking small stakes in each
other and usually as a result of having a close business relationship, often as
suppliers to each other. The structure, frequently likened to a spider’s web
was very much admired in the 1990s.
Activity B
In recent years strategic emphasis is laid upon joint ventures or corporate
alliances. Write the rationale behind it.
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Differentiation and Integration: The Lawrence and Lorsch Study

In their classic text, Organization and Environment, Harvard researchers
Paul Lawrence and Jay Lorsch explained how two structural forces
simultaneously disintegrate the organization and combine it together. They
cautioned that an imbalance between these two forces could hold back
organizational effectiveness.

Differentiation occurs through division of labor and technical specialization.

Integration occurs when specialists cooperate to achieve a common goal. In
the Lawrence and Lorsch model, integration can be achieved through various
combinations of the following six mechanisms: (1) a formal hierarchy;
(2) standardized policies, rules, and procedures; (3) departmentalization;
(4) committees and cross-functional teams; (5) human relations training, and
(6) individuals and groups acting as liaisons between specialists. When
Lawrence and Lorsch studied successful and unsuccessful companies in three
industries, they concluded that: As environment complexity increased,
successful organizations exhibited higher degree of both differentiation
and integration.
Activity C
Do you find any evidence of integration in your current (or last) place of
employment ?.
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Understanding Dynamism
Organizations
Dynamism relates to the stability or instability of the environment. Several
authors have identified dynamism as one of the major environmental
contingencies of organizations (Child 1975; Duncan 1972; Thompson 1967).
Dess and Beard (1984) emphasize that dynamism is not simply the rate of
change, which itself could be constant, thereby rendering the environment
predictable, but rather the degree of unpredictability. As they state, “Dynamism
should be restricted to change that is hard to predict and that heightens
uncertainty for key organizational members”. This corroborates the significance
of uncertainty as a strategic element of dynamism.

It is presumed that when the task and environmental uncertainty contingency

is low, the mechanical structure and when the task and environmental
uncertainty contingency is high, an organic structure produces high
effectiveness.

Mechanistic versus Organic Organizations A landmark organization design

study was reported by a pair of British behavioral scientists, Tom Burns and G
M Stalker. In the course of their research, they drew a very instructive
distinction between what they called mechanistic and organic organizations.
Mechanistic organizations are rigid bureaucracies with strict rules, narrowly
defined tasks, and top-down communication. Organic organizations are flexible
networks of multitalented individuals who perform a variety of tasks.
Importantly as illustrated in Table 2, each of the mechanistic-organic
characteristics is a matter of degree. Organizations tend to be relatively
mechanistic or relatively organic.

Table 2: Characteristics of Mechanistic and Organic Organization

Characteristic Mechanistic Organic

Organization Organization

Task definition and knowledge required Narrow; technical Broad; general

Linkage between individual’s contribution Vague or indirect Clear or direct
and organization’s purpose
Task flexibility Rigid; routine Flexible; varied
Specification of techniques, obligations, Specific General
and rights
Degree of hierarchical control High Low (self-control
emphasized)
Primary communication pattern Top-down Lateral (between
peers)
Primary decision-making style Authoritarian Democratic;
participative
Emphasis on obedience and loyalty High Low

Source: Burns and Stalker (1961)

Types of Environment
Figure 1 illustrates the basic classification of task environments. The four
“pure” types of task environments are : uniform-stable, varied-stable, uniform-
unstable, and varied-unstable.

The simplest organization design can be effective in a uniform-stable

environment (box 1). Although the environment is relatively stable, these firms
do face some uncertainties because of competitors’ actions, customers’
26 changing preferences, and potential substitutes for their products and services.
 Factors Affecting
Low Uncertainty Moderate Uncertainty
Organization Design
* Few environmental factors exist. * Many environment factors exist.
* Factors are similar to each other * Factors are not similar to each other.
Stable
Degree of Dynamism
* Factors remain basically the same * Factors remain basically the same
Example: Salt manufacturers, Printing Example : Registrars’ offices in
firms universities Gasoline refining/
distribution firms

Moderately High Uncertainty High Uncertainty

* Few Environment factors exist. * Many environmental factors exist.

Unstable

* Factors are similar to each other * Factors are not similar to each other.
* Factors are continually changing. * Factors are continually changing.
Example: Fast-food firms consumer Example: Telecommunications firms
products firms Biotechnology firms.

Uniform Varied
Degree of Complexity

Figure 1. Basic Types of Task Environments

The varied-stable environment (box 2) poses some risks for managers and
employees, but the environment and the alternatives are fairly well understood.
The environment is relatively stable, but employees may need considerable
training and experience to understand it and make it work.

The uniform-unstable environment (box 3) requires managers, employees, and

organization designs to be flexible. Rapid response to sudden changes in market
demand or technologies means that companies need organization designs that
allow for considerable flexibility and speed in allocating resources to new
product.

The varied-unstable environment (box 4) represents the most challenging

situation for an organization because the environment presents numerous
uncertainties. This environment requires the most managerial and employee
sophistication, insight, and problem-solving abilities.

Differentiation Cost Leadership

Strategy Strategy
Strategic Target

Focused Strategy

Narrow
Uniqueness Low Cost

Figure 2: Porter’s Strategic Model 27

Understanding III. Strategy and Organization Design
Organizations
Organizational strategy refers to the way the organization positions itself in its
setting in relation to its stakeholders, given the organization’s resources,
capabilities, and mission. Basically two types of strategies are popular at
present: Generic and Competence- based strategies.

Generic Strategies
These are in terms of cost focus and product focus. According to Michael
Porter, companies need to differentiate and place themselves differently from
their competitors in order to build and sustain a competitive advantage.
Organizations have attempted to build competitive advantages in various ways,
but three underlying strategies appear to be essential in doing so: low cost,
differentiation, and focused. These strategies are shown in Figure 2.

Low Cost
A low-cost strategy is based on an organization’s ability to provide a product or
service at a lower cost than its rivals. The organization’s design is functional,
with accountability and responsibility clearly assigned to various departments.

Differentiation
A differentiation strategy is based on providing customers with something that is
unique and makes the organization’s product or service distinctive from its
competition. An organization that chooses a differentiation strategy typically
uses a product organization design whereby each product has its own
manufacturing, marketing, and research and development (R&D) departments

Focused
A focused strategy is designed to help an organization target a specific niche
within an industry, unlike both the low-cost and the differentiation strategies,
which are designed to target industry-wide markets. An organization that
chooses a focused strategy may utilize any of a variety of organization designs,
ranging from functional to product to matrix to network, to satisfy their
customers’ preference

Competency-Based Strategies
Although the list of generic strategies provides a quick general guide for many
senior managers, it is apparent that a firm needs the skills and abilities to get
the most out of the intended generic strategy. Eventually, the firm may develop
specific administrative and technical competencies to achieve the purpose. As
middle and lower-level managers bring about minor modifications and
adjustments to solve specific problems and capitalize on specific opportunities,
they and their firms may learn new skills. These skills may be recognized by
senior management and give them the opportunity to adjust, modify, and build
upon a generic strategy to develop a so-called competency strategy. In the
process of building upon its capabilities, the firm may actually move generic
strategies and/or combine elements of two generic strategies.

Strategic choice refers to the idea that an organization interacts with its
environment instead of being totally determined by it. In other words,
organizational leaders should take steps to define and manipulate their
environments, rather than let the organization’s fate be entirely determined by
external influences.

The notion of strategic choice can be traced back to the work of Alfred
Chandler in the early 1960s. Chandler’s proposal was that structure follows
28 strategy. He observed that organizational structures should follow the growth
 Factors Affecting
Organizational
Organization Design
Objectives

Strategic
decisions
Environmental Organizational Organizational
made by
constraints Structure effectiveness
dominant
coalition Target markets
Capital
sources/uses
Human resources
Technology
Decision Total quality
makers’ management
personal
beliefs,
attitudes,
values, and
ethics
Corrective action

Source: Kreitner, Robert and Kinicki, Angelo (1998), Organizational Behavior, Irwin
McGraw-Hill, USA

Figure 3: The Relationship Between Strategic Choice And Organizational Structure

strategy developed by the organization’s decision makers. But the Model

gained popularity only in 1972, when British sociologist John Child rejected the
environmental imperative approach to organizational structure and proposed
strategic choice model based on behavioral rather than rational economic
principles. According to the strategic choice model , an organization’s structure
is determined largely by a dominant coalition of top-management strategists.

As Figure 3 illustrates, specific strategic choices or decisions reflect how the

dominant coalition perceives environment constraints and the organization’s
objectives. These strategic choices are tempered by the decision minor
modifications and adjustments to solve specific problems and capitalize on
specific opportunities, they and their firms may learn new skills. These skills
may be recognized by senior management and give them the opportunity to
adjust, modify, and build upon a generic strategy to develop a so-called
competency strategy. In the process of building upon its capabilities, the firm
may actually move generic strategies and/or combine elements of two generic
strategies.

In summary, strategy influences structure and structure influences strategy.

Strategic choice theory and research teaches managers at least two practical
lessons. First, the environment is just one of many co determinants of
structure. Second, like any other administrative process, organization design is
subject to the byplays of interpersonal power and politics.

IV. Technology and Organization Design

Two important technological contingencies that influence the type of
organizational structure are the variety and analyzability of work activities.
Variety refers to the number of exceptions to standard procedure but can occur
in the team or work unit. Analyzability refers to the extent that the
transformation of input resources to outputs can be reduced to a series of
standardized steps. 29
Understanding Some jobs are routine, meaning that employees perform the same tasks all of
Organizations
the time and rely on set rules (standard operating procedures) when exceptions
do occur. Almost everything is predictable. These situations, such as
automobile assembly lines, have high formalization and centralization as well as
standardization of work processes. When employees perform tasks with high
variety and low analyzability, they apply their skills to unique situations with little
opportunity for repetition. Research project teams operate under these
conditions. These situations call for an organic structure, one with low
formalization, highly decentralized decision-making authority, and coordination
mainly through informal communication among team members.

High-variety and high-analyzability tasks have many exceptions to routines, but

these exceptions can usually be resolved through standard procedures.
Maintenance groups and engineering design teams experience these conditions.
Work units that fall into this category should use an organic structure, but it is
possible to have somewhat greater formalization and centralization due to the
analyzability of problems.

Thompson’s view on the Impact of Technology

Thompson (1967) argues that task and technology are major contingency
factors of organizational structure. He offers a typology of types of technology
and their respective organizational structures. Three different types of
technologies are distinguished: mediating, long-linked, and intensive. These
correspond to three types of task interdependence between organizational
subunits: pooled, sequential, and reciprocal.

Mediating technology refers to the linking of customers, such as a bank

linking lenders and borrowers, and involves pooled interdependence. Pooled
independence means that two organizational subunits (e.g., branches of a bank)
have not direct connection, so that their interdependence is indirect, residing in
their both drawing resources from some central pool.

Long-linked technology refers to sequential interdependence where task A is

the input to task B. Sequential interdependence means that the subunits have a
direct connection, so that the output of one subunit is an input to the other subunit.

Intensive technologies use varying techniques according to feedback from the

object worked upon .For example, a hospital using various diagnostic and
treatment techniques according to the condition of the patient, and involve
reciprocal interdependence. Reciprocal independence means that the subunits
have a two-way connection, in which the output of each subunit is an input to
the other subunit, so that they transact back and forth in an unpredictable manner.

The three types of interdependence (pooled, sequential, and reciprocal) are

each fitted by varying degrees of mechanistic or organic structures. Thus task
interdependence can be considered to be a contingency of organic structures.

Woodward’s view on the Impact of Technology

Joan Woodward proposed a technological imperative in 1965 after studying
100 small manufacturing firms in southern England. She found distinctly
different structural patterns for effective and ineffective companies based on
technologies of low, medium, or high complexity.

Effective organizations with either low or high-complexity technology tended to

have an organic structure. Effective organizations based on a technology of
medium complexity tended to have a mechanistic structure. Woodward concluded
that technology was the overriding determinant of organizational structure.
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Since Woodward’s landmark work, many studies of the relationship between Factors Affecting
Organization Design
technology and structure have been conducted. Unfortunately, disagreement
and confusion have prevailed. A statistical analysis of those studies bring about
the following conclusions.

The more the technology requires interdependence between individuals and/or

groups, the greater the need for integration (coordination).

As technology moves from routine to non-routine, subunits adopt less formalized

and [less] centralized structures.

2.7 OTHER FACTORS

History
The organization’s present structure may have developed over a number of
years, as functions have been added, changed or deleted. Obviously, the older
the organization, the more significant history is likely to be. It is also more
likely to have determined the current structure if there have been relatively
little pressures on the organization to adapt to changing circumstance, either
because it has monopolistic power or because the industry in which it operates
is relatively slow-moving.

Customers and Markets

The organization structure is also affected by the type of market and customers
it serves, and in a customer-responsive environment this should be one of the
main determinants of structure. If the organization is providing services to a
broad range of customers in a large number of locations, it may need to have
many branch officers, as do Banks, the Post Office and so on.
The advantages of a customer-based structure are as follows.
meeting customers’ requirements is more likely to lead to long-term success
for the organization;
it gives a clear focus to the organization; and
it enables an emphasis to be put on the requirements of different customers
groups, thereby improving overall service quality.
The main disadvantages are as follows:
there is a need to keep a close eye on market requirements which could
require a lot of research;
to be responsive to customer requirements the organization needs to be very
adaptable so that it can respond quickly to change;
in many cases the provision of different services for different customer
types may not allow for the most effective use of resources or for
economies of scale;
it may not always be economical or profitable for the organization to provide
some of the services required by customers, yet failure to do so will result
in loss of goodwill; and
in some environment, the need to provide services outside normal working
hours or around the clock will mean that shift working, stand-by and call-out
arrangements will need to be introduced which will affect the way the
organization is structured

Processes
The processes used within the organization also affect the structure. A
production line process consists of a number of distinct tasks carried out by 31
Understanding people specializing in those tasks at different stages of the process. The
Organizations
underlying principle behind this approach is that specialization means people can
develop high skills and speed, resulting in high output at low cost. There are
of course disadvantages to this approach, primarily in terms of maintaining the
motivation and morale of production line operatives. The advantages of
organization of the basis of process or technology are that:
it allows for task specialization which means that people can develop a high
degree of skill:
the emphasis on the outputs from a particular process can result in high
productivity;
the structure is easy to understand and manage and there is likely to be
little ambiguity in the outputs to be achieved;
a structure that is driven by the organization’s processes is likely to require
less supervisory input; and
processes that are particularly dirty, noisy or hazardous can be grouped
together.
The main disadvantages are that:
there is a risk that by concentrating on processes the organization could lose
sight of the inputs required;
there is a greater need for the company’s various processes to be integrated
to ensure that they work towards the company’s overall objectives; and
there is less focus on the customer.

People
People in the organization affect the structure in a number of ways. Structures
do not just appear, they are the result of people’s views and beliefs and their
approach to managing the organization. The structure is also be affected by
the types of jobs and people within the organization. Structures with a large
number of professionals are more likely to involve team working, and therefore
to be relatively flat compared with an organization that has to accommodate a
range of jobs from the production line operative to the chairman.

Geography
The geographical spreading of an organization affects its structure mainly
because of its need to be near raw materials or customers,. Where there is a
significant degree of geographical distribution, there is likely to be more need
for careful co-ordination and control than with a single site location.

When there is a strong need to provide products or services within a particular

geographical area, the organization may be divided into regions or areas, with
each being a fully self-contained, miniature version of the parent organization.

In many cases, understanding the particular needs and requirements of the local
area is of sufficiently fundamental importance for location to be the most
significant factor in organization design.
The advantages of a geographically based structure are:
Responsiveness to local needs;
It makes firm able to provide a complete service at one location;
A degree of autonomy can provide for more efficient decision-making and
increase job satisfaction; and
The organization can recruit locally based staff; it can facilitate the training
and development of managers who can quickly gain varied experience in
32 smaller branch offices before moving to larger jobs.
Products and Services Factors Affecting
Organization Design
The structure may be determined by the particular products and services
provided. Large and diverse organizations have separate divisions because they
are dealing with very different products and services. Similarly, the Post Office
has separate organizations for the various services it provides such as mail
delivery (Royal Mail), parcel delivery (Parcel force) and counter services (Post
Office Counters Limited).

The advantages of product specialization are that:

it provides a focus on a specific area and encourages the development of
expertise in the provision of that product or service; and
it is likely to provide a service that is more responsive to customer
requirements.
The disadvantages are that:
too much focus on the product may overlook customers’ real needs; and
it may not make the best use of the organization’s resources.

2.8 ORGANIZATIONAL EFFECTIVENESS

Organizations are constructed to be the most effective and efficient social units.
The actual effectiveness of a specific organization is determined by the degree
to which it realizes its goals. The efficiency of an organization is measured by
the amount of resources used to produce a unit of output. Output is usually
closely related to, but not identical with, the organizational goals. For instance,
Ford produces automobiles (its output), but its goal seems to be profit-making.
The unit of output is a measurable quantity of whatever the organization may
be producing.

Organizational effectiveness can have a broad meaning that includes efficiency,

profitability (Child 1975), employee satisfaction (Dewar and Werbel 1979),
innovation rate (Hage and Dewar 1973), or patient well-being (Alexander and
Randolph 1985). Organization effectiveness can be defined as the ability of the
organization to attain the goals set by itself (Parsons 1961), or by its ability to
function well as a system (Yuchtman and Seashore 1967), or by its ability to
satisfy its stakeholders (Pfeffer and Salancik 1978; Pickle and Frieddlander
1967).

In its annual Most Admired Corporations survey, Fortune Magazine applies the
following eight effectiveness criteria:
quality of management.
quality of products/services.
innovativeness.
long-term investment value.
financial soundness.
ability to attract, develop, and keep talented people.
responsibility to the community and the environment.
wise use of corporate assets.

For a better understanding of this complex subject, four generic approaches to

assessing an organization’s effectiveness may be considered. These
effectiveness criteria employ equally well to large or small and profit or not-for-
profit organizations. Moreover, the four effectiveness criteria can be used in
various combinations (Refer Figure 3). 33
Understanding Goal Accomplishment: Goal accomplishment is the most widely used
Organizations
effectiveness criterion for organizations. Key organizational results or outputs
are compared with previously stated goals or objectives. Productivity
improvement, involving the relationship between inputs and outputs, is a
common organization-level goal.

Resource Acquisition: This second criterion related to inputs rather than

outputs. An organization is deemed effective in this regard if it acquires
necessary factors of production such as raw materials, labor, capital, and
managerial and technical expertise.

Internal Processes: Some refer to this third effectiveness criterion as the

“healthy systems” approach. An organization is said to be a healthy system if
information flows smoothly and if employee loyalty, commitment, job
satisfaction, and trust prevails. Goals may be set for any of these internal
processes. Healthy systems, form a behavioral standpoint, tend to have a
minimum of dysfunctional conflict and destructive political maneuvering.

Strategic Constituencies Satisfaction: Organizations both depend on people

and affect the lives of people. Consequently, many consider the satisfaction of
key interested parties to be an important criterion of organizational
effectiveness. A strategic constituency is “any group of individuals who have
some stake in the organization-for example, resource providers, users of the
organization’s products or services, producers of the organization’s output,
groups whose cooperation is essential for the organization’s survival, or those
whose lives are significantly affected by the organization” (Cameron. 1980).

Strategic constituents or stakeholders can be identified systematically through a

stake holder’s audit. A stakeholder audit enables management to identify all
parties significantly impacted by the organization’s performance.

Managers need to identify and seek input from strategic constituencies. This
information, when merged with the organization’s stated mission and philosophy,
enables management to derive an appropriate combination of effectiveness
criteria. The following guidelines are helpful in this regard:
the goal accomplishment approach is appropriate when “goals are clear,
consensual, time-bounded, measurable (Cameron, 1986).
the resource acquisition approach is appropriate when inputs have a
traceable impact on results or output The internal processes approach is
appropriate when organizational performance is strongly influenced by
specific process (e.g., cross-functional teamwork).
the strategic constituencies approach is appropriate when powerful
stakeholders can significantly benefit or harm the organization.

The key thing to remember is “no single approach to the evaluation of

effectiveness is appropriate in all circumstances or for all organization types.

2.9 SUMMARY
Organization design broadly includes how the organization is structured, the
types and numbers of jobs , formal system of communication, division of labor,
coordination, control, authority, and responsibility essential to attain an
organization’s goals. An organization is designed to realize a number of
objectives. Mainly, there are two theories of organization design : universalistic
& contingency theories. The universalistic theory assumes that there is “one
best way” to organize. The contingency theory assumes that maximum
34 performance results from the appropriate level of the structural variable that fits
the contingency. The primary factors that often affect organization design are : Factors Affecting
Organization Design
size, environment, business strategy, and technology. However several other
factors such as history of the organization, its products and services, processes,
coverage of customers, people, geographical spreading etc. also affect the
organization design.

Organization effectiveness denotes the degree to which it realizes its actual

goals. There are four generic organizational effectiveness criteria : goal
accomplishment, resource acquisition, internal processes and strategic
constituencies satisfaction. As no two organizations are alike, managers need to
mix and match effectiveness criteria in a manner apposite to the situation.

2.10 SELF ASSESSMENT QUESTIONS

1. Discuss the meaning and the theories of organisational design.
2. What are the key factors that affect organisation design.
3. Describe the concept of organisational effectiveness.

2.11 FURTHER READINGS

Alexander, Judith W., and W. Alan Randolph ( 1985), “The Fit Between
Technology and Structure as a Predictor of Performance in Nursing Subunits,”
Academy of Management of Journal, 28:844-859.

Burns,Tom, and G.M.Stalker (1962),The Management of Innovation, London: Tavistock.

Cameron, K. (1980), “Critical Question in Assessing Organizational

Effectiveness”, Organizational Dynamics, Autumn, P.67.

Cameron, K. L. (1986), “Effectiveness as Paradox: Consensus and Conflict in

Conceptions of Organizational Effectiveness”, Management Science, May, P. 542.

Child, John (1975), “Managerial and Organisational Factors Associated with

Company Performance, Part 2: A Contingency Analysis”, Journal of
Management Studies,12:12-17.

Cushway, Barry and Lodge, Derek (2001), Organisational Behaviour and

Design, Crest Publishing House, New Delhi.

Dess, Gregory G., and Donald W. Beard (1984), “Dimensions of Organisational

Task Environments”, Administrative Science Quarterly, 29:52-73.

Dewar, Robert,and James Werbel (1979), “Universalistic and Contingency

Predictions of Employee Satisfaction and Conflict,” , Administrative Science
Quarterly, 24:426-448.

Donaldson, Lex ( 2001), The Contingency Theory of Organizations,

Foundation for Organizational Science, Sage Publications, New Delhi

Duncan, Robert B. (1972), “Characteristics of Organizational Environment and

Perceived Environmental Uncertainty”, Administrative Science Quarterly,
17:313-327.

Galtung,Johan(1967),Theory and Methods of Social Research,

Oslo,Norway:Universitetslaget..

Hage, Jerald, and Robert Dewar (1973), “Elite Values Versus Organisational
Strusture in Predicting Innovation”, Administrative Science Quarterly,18:279-290.

Hellriegel , Don, Jr., John W. Slocum, and Woodman, Richard W. (2001),

Organization Behaviour, Thomson Asia ptv. Ltd., Singapore. 35