‫بسم اهلل الرمحن الرحيم‬

GSB
Advanced HRM

5
Restructuring Organizations

Dr. Abdelnasser Ghanem

Dr. Abdelnasser ghanem (aahhg@hotmail.com)
 Objectives & Contents

1 What is an organization & its Functions

2 The process of organizing

3 Top Principles of Organizing

4 Types of Organization Structures

5 Main Features of a Good Structure

6 How to Build a Successful Structure

2
7 Downsizing
 What is an organization?
An organization is a social unit of people that is
structured & managed to meet a need and
achieve collective goals that is established for
(products and services).
Organization

Clear Suitable Effectiveness: achieve the right

Purpose Structure goals (high goals achievement).
Efficiency: achieve goals right
Suitable
People (Low resource waste)

Organizations are open systems, they affect and are affected by their environment.
Organizing is the process of developing the structures which arrange people and
other resources to work together in sub-divisions that perform all (necessary
activities) to achieve their goal.
Organization structure is the system of relationships, and communication channels
that link sub-divisions together, and determine responsibilities, and authority
required for each to carry out their assigned roles.
 What is an organization?
Organizational Structure

The organization structure includes units required to perform all activities

necessary to achieve its mission. Thus the process of organizing includes:
Identifying the Sorting types of work Establishing lines Establishing
work activities and working groups of authority, regulations, and
required to achieve into separate but responsibility and delegation rules,
the strategic integrated units hierarchy levels & communication
objectives of the (units, departments, of decision- channels
organization sectors) making

Higher Management (CEO)

Production Dept. Marketing Dept. Logistics Dept. HR Dept. Financial Dept.

Production Sales Warehouse Selection& hiring accounting
Maintenance Distribution Transport compensation Budgeting
 Organization Design

The process by which managers create a specific type of

organization structure and culture so that an organization
can operate in the most efficient and effective way

Environment: is the sum total

of all external and internal
factors that affect a business

People : types and

numbers of employees Strategy: the clearly
of an organization articulated long-
The organization
design process
term plans aiming to
should align achieve competitive
structures to advantage
situational
contingencies
Size: is represented in the
Technology: techniques
numbers of employees,
used in converting the
and the value of assets inputs to outputs
and the capital
 Functions of Organization

All organizations perform four core functions,

(sometimes six based on size and nature of
business). These core business functions are:
The process of transferring row materials into
products and services to meet customers expectations

The process of maintaining
future revenue through
developing new product
investigating markets &
customers.
The process of storing
managing, analyzing,
and exchanging
information across the
organization through The process of gaining and maintaining
hardware and software
Production
The process of delivering the
products to right customers,
retaining them and building
long term relationships with
them
IT
The process of
HR providing & managing
organization’s financial
resources in the most
efficient way.
the organization’s HR using human
capital investment techniques
 Top Principles of Organizing
Organizing is one of the five functions of management,
the function is based on major principles such as:
2. Organizational division 1. Specialization
It is composing tasks to organizational units. Here every individual is assigned a duty
The grouping of tasks is rationally done based according to his skills and qualifications.
on logical issues such as similarities of tasks Hence, individuals should continue in the
(such as maintenance department) or same (technical) area and gain accumulated
sequence (production department) or experience.
integration (financial affairs as accounts
section and audit section)

However, the (multi-

tasking) allows
This allows greater flexibility, as
This structure focus informal culture that employees to employees can
on the formal focuses on a greater become (highly handle a wider
position, regardless value for individuals skilled) in specific range of tasks
of individual personally, away from areas, which (instead specializing
performing it the formal role increases productivity. in one task).
 Top Principles of Organizing
4. Unity of command:
Unity of command: means that an
individual should follow only one boss,
else confusions and conflicts will happen.
This principle creates a sense of
responsibility to one person. The
commands come from top to bottom for
making the controlling lines clear.
3. Span of Control:
Span of Control: Numbers of employees
supervised by one director. This leads
to the hierarchical form of organization.
The scope of control is affected by
levels of interaction required among
different supervisory levels, where the
complexity of work narrow the scope,
and hence results in increasing
organizational levels.
 ‫‪Top Principles of Organizing‬‬
‫‪ - 5‬مبدأ السلطة‬
‫هي الصالحيات الالزم منحها لكل من يتحمل املسئولية عن اجناز عملل ملا ليمكنل‬
‫إجنازه‪ ،‬فإن السلطة هى حق التصرف واختلا الرلراتات ويرابللها املسلئولية‪ ،‬وإ ا‬
‫تركزت سلطة صنع الررات يف نرطة واحدة ‪ ،‬فإن اهليكل التنظيمي مركزي‪ .‬أما إ ا‬
‫انتشرت سلطة صنع الررات ‪ ،‬يكون اهليكل غري مركزي‪.‬‬
‫‪ .‬ويف حني أن البنية الالمركزية تعزز صنع الرلرات بطريرلة دميرراطيلة وأكثلر‬
‫مرونة‪ ،‬غري أنها قد تؤدى الختا الررات من قبل افراد أقل ختصصا مما قد يلؤرر‬
‫على كفاءة الررات‪ .‬بينما تتخذ الرراتات املركزية من االفراد االكثلر ختصصلا إال‬
‫أنها قد تبطئ العملية وترلل مستوى املرونة‬
Top Principles of Organizing
5. Authority and responsibility:
The scope of authority and responsibility should be clearly defined. Every person
should clearly know his work. Everybody’s responsibility will become nobody’s
responsibility. The relationship between different departments should also be
clearly defined to make the work efficient and smooth.

While the decentralized structure enhances decision-making in a more flexible

manner, it may lead to decision-making by less specialized individuals, which may
affect the efficiency of the decision. While central decisions are made by more
specialized individuals, they may slow down the process and reduce the level of
flexibility
 Types of Organization Structures
The organization chart identifies the following:
The divisions of work / Supervisory
relationships/ Communication channels /
Major subunits / levels of management. The
major types of organization structures are:
1- Functional structures is the most common where tasks are grouped by functional
area (production - marketing - finance ...)

Advantages: + Efficiencies by putting together similar specialties and people with

common skills, knowledge, and orientations.
+ Coordination within functional area.
+ In-depth specialization.
Disadvantages: – Poor communication across functional areas
– Limited view of integrated organizational goals
 Types of Organization Structures

2 - Product division If the organization operates

in more than one activity, departments can be
divided according to products
General Manager

Bakery Products Juices Products Milk Products

+ Managers become experts in their field – Duplication of functions

+ Closer to customers – Limited view of integrated Org. goals

3 - Geographical division is suitable for multi-branch organizations. Activities are

divided according to geographic location.
General Manager

Cairo Branch Alexandria branch Port Said branch

+ More effective and efficient handling of specific regional issues that arise
+ Serve needs of unique geographic markets better
– Duplication of functions
– Can feel isolated from other organizational areas
 Types of Organization Structures
4 - Customer structure Divided according to
consumers when there is a large dissimilarity
between consumers, which requires the provision
of service in a suitable manner for each type.

+ Customers’ needs and problems can be met by specialists

- Duplication of functions
- Limited view of organizational goals

Most organizations are built as a combined structure based on a combination of the

above mentioned bases.
Types of Organization Structures
Matrix structure

In some cases, traditional structures may not be SUITABLE and organizations may
require less centralized and more flexible structures. With increased dependence
of multi-functional team works and multi-activity organizations, it is reported that
one of the most successful structures is the matrix structure, where the matrix
structure divides its staff by function and product, The following

Higher Management (CEO)

HR manager Financial Sales Production

manager manager manager

HR unit Financial unit Sales unit Production unit Project (a) manager

HR unit Financial unit Sales unit Production unit Project (b) manager

HR unit Financial unit Sales unit Production unit Project (c) manager
Types of Organization Structures
Matrix structure

The advantages of the matrix include :

 Better cooperation across functions.
 Improved decision making.
 Increased flexibility in restructuring.
 Better customer service.
 Better performance accountability.
 Improved strategic management.
 Individuals selected and according to the project needs

Potential disadvantages of the matrix include :

 Two-boss system is subject to power conflict.
 Two-boss system can create task confusion and conflict in work priorities.
 Team meetings are time consuming.
 Increased costs due to adding Layers to structure.
 What is an Restructuring?

Organizations are dynamic entities like alive organisms,

they are affected by what is going on in the environment
around them and they do not work well if their internal
sub-entities are not harmonious.

During their lifetime, organizations are subject to changes (favourable or not) in

the external /internal environment, which affect them positively or negatively.
They are also exposed to diseases such as individuals. These diseases, if not
properly diagnosed and treated may lead to failure.

Restructuring is defined as bringing fundamental internal changes that adjust the

relationships between different elements of an organization to reduce costs and
improve the performance.
 What is an Restructuring?

Restructuring is also defined as a

set of activities and processes
designed to increase the
efficiency of organization and to
improve the organization's
competitiveness.
Restructuring may include decisions to terminate, liquidate or merge some
of the units, where reduction and/or increasing of employment are
considered a main instrument for restructuring.
The restructuring process is a strategic process that undertaken as reaction
to a new strategic direction of the organization.
Organizations conduct strategic reviews periodically, or in response to
significant changes in the internal/external environment..Managers usually
use the strategic tools like SWOT and PESTEL analysis aiming at identifying
the strategic direction to be adopted in accordance with the organization's
(internal) strengths /weaknesses and (external) opportunities /threats.
 The reasons for restructuring

The main focus of restructuring is the benefits of overall organization

including all stakeholders, not a particular group, Reasons for
restructuring include:
 Excessive employment problem resulted by previous policies.
 Technological development and a need to replace the technology used.
 States of economic decline / growth.
 Privatization projects for government organizations.
 Poor efficiency, low profitability and increased stakeholder pressure.
 Poor strategic performance and failure to achieve organization mission.
 After a quick business growth (which may not be pre-planed).
 How to build a successful organization?

Organizational design is deciding the shape, size and structure of the

organization required to meet its strategic objectives. These processes can
be a source of competitive advantage or sources of potential failure,
unnecessarily waste time, cost and resources.
These decisions about shape, size of the organization are taken to align
Structure with strategy, culture, and other factors.

Current Structural weaknesses offer an opportunity to repair any part of

the organization by identifying and making appropriate changes,
reductions in size or cost; or improvements to the quality of the operation.

Conversely, structural strengths are a signal to the HR team to support

organizational competences.
 How to build a successful organization?

There are no mathematical equations or pre-set patterns that lead to the

suitable organizational structure of any organization. However, there are
clear steps that can construct the proper structure:
Investigate the Investigate the Design the
internal Analysis of external organizational
the Organization environment of HRM structure and activities

I. Investigate the internal Analysis of the Organization

“Restructuring Team” should review the internal analysis conducted during
the strategic revision, focusing on issues that more likely to affect the
required structure such as:
1 - Current structure: organizational levels, date of preparation, and the
most significant problems that call for changes.
2 - The Patterns of the authorities : formal/informal authorities, pattern of
centralization and decentralization
 How to build a successful organization?

Investigate the internal Analysis of the Organization

3 - The range of products and services Produced by the organization: Diversity of
products, the production process used, and working conditions
4 – (Staff) : Human resources in terms of types, and Numbers of employees, how
they were recruited, and trained, how they are motivated and rewarded, what is
their age distribution curve, their financial cost, and their career levels, etc. It also
investigate skills, qualification, and talents employees have. This element can be
described as the organization’s “Human capital” .
5 - Corporate culture: is the collection of beliefs, and values learned and
shared by a corporation’s members and transmitted from a generation to
another. Two dimensions affect the ability of culture to guide behaviors :
Cultural intensity: the extent to which members accept the
values and other cultural content (depth of the culture).
Cultural integration: the extent to which all Sub-units throughout
the organization share the same culture (breadth of the culture)
 How to build a successful organization?

Investigate the Investigate the Design the

internal Analysis of external organizational
the Organization environment of HRM structure and activities
Organizational structures are affected by several environmental factors, the most
important of which are:

Activities and External

objectives environment
Organization
structure
and
Size and age of activities Technology
organization
 How to build a successful organization?

Impact of Environment

1. External environment:
“Restructuring Team” should
review the External analysis
conducted during the strategic Stability
revision, focusing on issues that Simple Complex
more likely to affect the required (A simple, unstable)
(Complex unstable)
Medium environment
structure. Such as

Unstable
(closer to organic
telecommunications
organization) suitable
companies,
As mentioned before, The
Complexity
for clothing factories
computers, mobile
stability, simplicity, and and all related to and high-tech devices
preference
nature of environment affect
(Stable complex)
the Designs and Dimensions (Simple stable) Medium environment
of the suitable structure An assured closer to mechanical
Stable

environment such as organization such as

government schools, universities
institutions and and pharmaceutical
necessary goods companies
 How to build a successful organization?
Impact of Environment

In addition to the “organization’s” external

environment, HRM has its own external factors,
which maybe internal for the whole organization:
2. Technology : is techniques used in converting the inputs
to outputs. These techniques, and levels of technology
have a great effect on the organizational structure, the
higher the level of the mechanism, the smaller the
numbers of individuals, and the higher the levels of skills
required. There are two types of technology as follows:

Non-typical technology: It is a Routine technology: It is characterized

composite technology that uses Non- by repetitive and semi-typical processes
repeated pattern methods such as such as large-scale production lines. This
shipbuilding or large scale construction. technological pattern is suited to
It requires flexible structures, mechanical organization, centralized
decentralized services, power lines and service, centralized power and decision-
decision-making. making.
 Impact of Environment

3. Size of the organization:

is represented in the
numbers of employees,
and value of capital.

The larger the size, the

more stable the
organization is, and the
more difficult to change
organization structure. The
smaller organization is the
more flexible and more
capable of change.

Age is the number of years the organization has gone through. The older the
organization, the more the work has emerged problems including:
By time, the Organization's activities are multiplied and new sub-units and
structures are created, and hence it becomes more complex.
By time, the staff settles on a consistent pattern of behaviour and more depth of
the culture, and hence more difficulty to change.
1-25
 How to build a successful organization?

Impact of Environment

4- Goals and activities

The number of activities curried out by the organization affects the organization
structure, where two types can be seen: (single) and (multiple) activity
organizations:

Multi-activity organizations have multi- Single-activity organizations such as

production lines like General Electric,
or Fargello with different production
lines (juices, bakery, meat). Their
structures depend on independent
sector and often decentralized.
Steel Companies , where they rely on
a mechanically structured that is often
simple, function-based structure and
often centralized.

1-26
 How to build a successful organization? Third: Design the organizational
structure and activities
Clearly Organization structures emerge from objectives which determine
define type and characteristics of the structure.
objectives
Then, in a professional way, identify activities, & functions
Identifying necessary to achieve objectives (industrial firm have production,
activities marketing dept. while no production activity in retail firm)
Tasks and activities are then grouped into consistent &
Grouping integrated sub-units (based on one of known organizing
into Units principles) responsibilities should be defined clearly to avoid
duplication and overlapping
Identify Establishing supervisory levels & structural
channels of
relationship among individuals and units. This ensure
supervision
between units control over working & coordination between units
toward achieving goals.
Job
Then a job analyses is conducted to identify job
Description &
Functional descriptions and specifications needed to run the
Structure work, and hence numbers of needed jobs are
described.

Steps to design the organizational

1-27 structure:
Key features of good organization structure

As noted before, there is no ideal structure for all organizations even in the same
industry. The good news is that there are certain key features of Good Organization
Structure:

1- Simplicity 2- Flexibility and 3- Clear Line of Authority

Continuity
4- Application of Ultimate 5- Proper Delegation of 6- Unity of Command and
Authority Authority Direction
7- Minimum Possible 8- Proper Emphasis on 9. Provision for Top
Managerial Levels Staff Management
Key features of good organization structure

1- Simplicity An organization structure should be basically simple. It

should have the simplest possible framework which will satisfy the purposes
intended and accomplish the objective of the organization.
This will ensure economy of effort, minimize overhead costs, and reduce all
possible difficulties .
2- Flexibility and Continuity Organizing is a strategic process, so structures should
be built for the distant future. Thus, its continuity must be maintained regarding
circumstances and changes over time. Hence, there is a need for the ability to
change and being adaptable enough.
3- Clear Lines of Authority Whatever the form of structure, there should be
clear lines of authority running from top to bottom. It implies that one should be
very clear about what he is expected to achieve and for whom he is officially
reporting.
Key features of good organization structure

4 - Ultimate Authority Managers are ultimately responsible for achieving of

the total work including their own work and work performed by their
subordinates. Due to this concept, every person carries dual responsibility for his
own work and that for his subordinates’ work. As a whole, a manager is responsible
for the total work assigned to his unit.
5- Delegation of Authority
The concept of ultimate authority will be effective
only when there is proper delegation of authority at various levels of organization.
A common problem in the organizational life happens when managers fail to
delegate adequate authority which result in various problems.
6- Unity of Command and Direction Unity of command is a principle of organizing
imply that any person should receive orders from one supervisor only. Every work
in an organization having the same objective must be assigned to a single person or
team. Thus, the activities of same type can be grouped together in one unit.
Key features of good organization structure

7- Minimum Possible Managerial Levels As far as possible, there should

be minimum managerial levels. Greater the number of managerial levels, longer is
the line of communication in the chain of command creating problems of delay.
Moreover, more managerial levels increase cost in the organization..

8- Proper Emphasis on Staff Managers A line activity is that which serves

the organizational objectives directly (production & Marketing). On the other hand,
contribution of staff activities is indirect through helping line activities. These staff
activities ( HRM, accounting etc), should be clearly supported due to its vital role in
running the organization smoothly.
9 - Provision for Top Management support Top management support is essential
for the success through linking the day-to-day operations to the strategic
objectives. sometimes the lines of organization result in a gap between the
strategies and daily operations.
 Downsizing

One of the most important restructuring

approach is downsizing, where the
reduction of the number of employees
within the organization is intended.
Downsizing refers to the process of reducing the size of workforce by
terminating employees. Downsizing is common in economic declining
situations where downsizing helps to cut costs. Some companies also
terminate a percentage of low performers every year to maintain a
competitive and efficient work force
Downsizing is a strategic direction aims to overcome organization’s
weaknesses and enhance efficiency. Organizations may tend to reduce the
its operations in one or more of the following ways :
 Reduce the number of products.
 Resolve overemployment problem.
 Merge or delete Some units .
 Reduce the number of branches.
 Reduce the numbers of organizational levels.
 Downsizing

Downsizing is a very risky process, it not only affects employees who have to exit,
but also the remaining employees who may fear to be in a similar situation later.
Within these transformations, the function of HR is very important through
participation in:

 Re-establish the organization structure in adaption with the strategic objectives.

 Redesigning jobs (Job analysis and design) according to the new structure.

 Re-develop training plans for remaining employees to acquire skills required for
their new jobs.

 Managing organizational and psychological conflicts that may be accompanied

with restructuring.

 Re-establish the compensation system to match and support the new structure
and strategy.
 Possible Strategies for Downsizing

1.Reduction of employment strategy

It focuses on reducing the number of employees, such as: - Early retirement and
transformation, which is a short term strategy. It has immediate and quick results
and depends on the performance of the same tasks with fewer people.
Disadvantages of this strategy
 High financial costs for the payment of compensations for early retirement.
 There may be problems as a result of increasing the workload on the
remaining group
 The organization may have to lose the skilled and talented employees

2. The strategy of redesigning the work

Aiming to reducing the workload as well as numbers of employees, and this can
be done through merging (jobs - administrative levels - sections - products). This
is a medium-term strategy.
The advantage here is avoiding the problems of doing the same tasks with less
employees which facilitates the work through restructuring, enhance work
process cycle and deleting unnecessary processes.
 Possible Strategies for Downsizing
3. System strategy
A strategy that focuses on bringing a fundamental
change in the organization's entire system, culture,
attitudes, and values of individuals. It is therefore a long-
term strategy that requires an investment in staff
development and process diagnostics and redesigning.
This strategy takes the process of downsizing as a continuous lifestyle, it seeks to
simplify all aspects of the organization, including internal and external factors:
Internally: - Reducing the size of employment and means of production,
eliminating unnecessary processes and reducing the costs, especially invisible cost
such as waiting time.
Externally: - Reducing customer size - Reducing the size of suppliers, etc..

This strategy has a positive impact on the remaining employees

According to this strategy, employees do not view themselves as being targeted to
get fired, but as they are helping downsizing process, everyone is responsible for
reducing costs, developing operations and improving productivity.

It should be noted that the three strategies are not alternative or contradictory but
can be used in an integrated manner as required by the situation
 Dr. Abdelnasser Ghanem
1-36
(aahhg@hotmail.com)