Approaches to Organizational Design

NED 504: Human Behavior in Health Care Organization

Leaning Objectives:

After 1hour of discussion the class will be able to:

1. Define organizational design

2. Identify the components of organizational design
3. Identify and differentiate common organizational design
4. Know different approaches to organizational design

ORGANIZATION
A management function that involves determining what tasks are to be done, who is to do
them, how the tasks are to be grouped, who reports to whom, and where decisions are to be
made.

ORGANIZATIONAL STRUCTURE
Is the arrangement of people and tasks to accomplish organizational goals. The structure is
usually indicated on the organizational chart, along with specifying of who reports to whom.

ORGANIZTIONAL DESIGN
 refers to the way in which a company functions.
 defined as decisions about such configurations as formal and informal structures,
systems and processes.
 Poor design can be most easily identified when a company utilizes traditional methods
of organization rather than looking for innovative solutions. An organization's design is
set to achieve business goals which are directly linked to the organization's strategy,
mission and vision. The most effective way to organize a company depends entirely
upon the company's specific needs, functions, and goals. When considering the best
design, one must first define the purpose of the company.
 According to Sargent and McConnell, “Organizational design can be defined as a process
for improving the probability that an organization will be successful by assessing and re-
shaping structure and positions to better meet (business) goals”. . .

Features of Organizational Design

Following are some of the main features of organization design:

1. Getting Work Done: It is about how work gets done. It examines the link between the goals
of the corporation and how managers and staff are working to achieve those objectives.
2. Accomplishing Organizational Goals: It is a process for improving the probability that an
organization will be successful by assessing and re-shaping structure and positions to better
meet (business) goals.

3. Way of Integration: It is a formal, guided process for integrating the people, information,
and technology of an organization.

4. Matching Strategic Actions: It is used to match the form of the organization as closely as
possible to the purpose (s) the organization seeks to achieve.

5. Determining Organizational Structure: It is about determining the configuration of formal

organizational arrangements, including the formal structures; processes, and systems that
make-up an organization.

6. Resource Allocation: It deals with the allocation of tasks, reporting relationships and levels to
provide a means of achieving full organizational alignment between the “people” aspects and
the “function”.

COMPONENTS OF ORGANIZATIONAL DESIGN

1. Chain of Command:

The chain of command is the continuous line of authority that extends from upper
organizational levels to the lowest levels and clarifies who reports to whom. It helps employees
answer questions such as “Who do I go to if I have a problem?” or “To whom am I responsible?”

 Authority- the right of decision and commands. An individual with authority has the right to
make decisions about his or her own responsibilities. Responsibility and authority are
delegated down the scalar chain.
 Responsibility- is the obligation to do, to the best of one’s ability, the task that has been
assigned, or delegated. In any organization, responsibility begins with the overall objective
of the organization. For example, for nurses in a hospital, service or patient care is the
responsibility.
 Accountability- is answering to someone for what has been done. It is related with
responsibility
 Delegation- is the process of assigning duties or responsibilities along with corresponding
authority to another person. Authority must be delegated with the responsibility.
2. Span of Control

Span of control refers to the number of subordinates a superior can effectively manage. The
higher the ratio of subordinates to superiors, the wider the span of control.

3. Centralization and Decentralization

Centralization describes the degree to which decision making is concentrated at a single point
in the organization. If top managers make the organization’s key decisions with little or no input
from below, then the organization is centralized. In contrast, the more that lower-level
employees provide input or actually make decisions, the more decentralization there is.

CENTRALIZATION
 Environment is stable
 Lower-level manager are not ad capable
or experienced at making decisions as
upper-level managers
 Lower level managers do not want to have
a say in decisions
 Decisions are significant
 Organization is facing a crisis or the risk of
company failure
 Company is large
 Effective implementation of the company
strategies depends on managers’ retaining
DECENTRALIZATION
 Environment is complex, uncertain
 Lower-level managers are capable and
experienced at making decisions
 Lower-level managers want a voice in
decisions
 Decisions are relatively minor
 Corporate culture is open to allowing
managers have to say what happens.\
 Company is geographically dispersed
 Effective implementation of company
strategies depends on managers having
involvement and flexibility to make
 say over what happens decisions

4. Specialization

Also known as division of labor, specialization is the degree to which activities or tasks in an
organization are broken down and divided into individual jobs. High specialization can be
beneficial for an organization, as it allows employees to become “masters” in specific areas,
increasing their productivity as a result. However, low specialization allows for more flexibility,
as employees can more easily tackle a broader array of tasks (as opposed to being specialized
for a single task).

5. Formalization

Similar to specialization, formalization deals with how jobs are structured within an
organization. The key differentiator here is that formalization also takes into account the
degree to which an employee’s tasks and activities are governed by rules, procedures, and
other mechanisms. A formal organizational structure seeks to separate the individual from the
role or position, as the role or position stays the same regardless of who’s holding it. An
informal organization, on the other hand, places more value on the individual. It allows for the
evolution of a role or position based on an individual’s preferences, skill set, etc., and places
less importance on what team or department that individual is part of.

6. Departmentalization

It refers to the process of grouping jobs together in order to coordinate common activities and
tasks. If an organization has rigid departmentalization, each department or team is highly
autonomous, and there is little (or no) interaction between different teams. In contrast, loose
departmentalization entails that teams have more freedom to interact and collaborate. It’s
worth noting that the way in which an organization departmentalizes is often used as a proxy
for the overall type of organizational structure that organization has. For example, an
organization that departmentalizes by function (i.e. marketing, sales, services), is said to have a
functional organizational structure.

Common Organizational Designs

In designing a structure to support the efficient and effective accomplishment of organizational
goals, managers may choose to follow more traditional organizational designs. These designs—
the simple structure, functional structure, and divisional structure—tend to be more
mechanistic.

Simple Structure

 Most organizations start as entrepreneurial ventures with a simple structure consisting of

owners and employees. A simple structure is an organizational structure with low
departmentalization, wide spans of control, authority centralized in a single person, and little
formalization. This structure is most commonly used by small businesses in which the owner
and manager are one and the same. Most organizations do not remain simple structures. As an
organization grows, it generally reaches a point where it has to add employees. As the number
of employees rises, the structure tends to become more specialized and formalized. Rules and
regulations are introduced, work becomes specialized, departments are created, levels of
management are added, and the organization becomes increasingly bureaucratic. At this point,
a manager might choose to organize around a functional structure or a divisional structure.

Functional Structure 

A functional structure is an organizational structure that groups similar or related occupational

specialties together. It is the functional approach to departmentalization applied to the entire
organization. Revlon, for example, is organized around the functions of operations, finance,
human resources, and product research and development.

Divisional Structure 

The divisional structure is an organizational structure that consists of separate business units or
divisions. In this structure, each unit or division has relatively limited autonomy, with a division
manager responsible for performance who has strategic and operational authority over his or
her unit. In divisional structures, however, the parent corporation typically acts as an external
overseer to coordinate and control the various divisions, and often provides support services
such as financial and legal.

Strengths and Weaknesses of Common Traditional Organizational Designs

STRUCTURE STRENGHTS WEAKNESSES
SIMPLE STRUCTURE Fast; flexible; inexpensive Not appropriate as
to maintain; clear organization grows;
accountability reliance on one person is
risky
FUNCTIONAL STRUCTURE Cost-saving advantages Pursuit of functional goals
from specialization can cause managers to lose
(economies of scale, sight of what is best for the
minimal duplication of overall organization;
people and equipment), functional specialists
and employees are grouped become insulated and have

DIVISIONAL STRUCTURE
with others who have
similar tasks
Focuses on results—
division managers are
responsible for what
happens to their products
and services
little understanding of what
other units are doing
Duplication of activities and
resources increases costs
and reduces efficiency

Contemporary Organizational Designs

Managers in contemporary organizations often find that traditional hierarchical designs are not
appropriate for the increasingly dynamic and complex environments they face. In response to
marketplace demands to be lean, flexible, and innovative, managers are developing creative
ways to structure and organize work and to make their organizations more responsive to the
needs of customers, employees, and other organizational constituents.

Team structure

In a team structure, the entire organization is made up of work groups or teams that perform
the organization’s work. Employee empowerment is crucial in a team structure, because there
is no line of managerial authority from top to bottom. Rather, employee teams are free to
design work in the way they think is best. However, the teams are also held responsible for all
work and performance results in their respective areas.

Matrix and Project Structure

The matrix structure is an organizational structure that assigns specialists from different
functional departments to work on one or more projects led by project managers. Once a
project is completed, the specialists return to their functional departments. Each project is
managed by an individual who staffs his or her project with people from each of the functional
departments. Adding this vertical dimension to the traditional horizontal functional
departments in effect “weaves together” elements of functional and product
departmentalization, creating a matrix arrangement. Another unique aspect of this design is
that it creates a dual chain of command, which explicitly violates the classical organizing
principle of unity of command.

Boundaryless Organizations 

Another approach to contemporary organizational design is the boundaryless organization, an

organization whose design is not determined by a predefined structure. Instead the
organization seeks to eliminate the chain of command, places no limits on spans of control, and
replaces departments with empowered teams. The term boundaryless organization was coined
by Jack Welch, former chair of General Electric (GE), who wanted to eliminate vertical and
horizontal boundaries within GE and break down external barriers between the company and
its customers and suppliers. This idea may sound odd, but many successful organizations are
finding they can operate more effectively in today’s environment by remaining flexible and
unstructured: The ideal structure for them is not having a rigid, predefined structure. Instead,
the boundaryless organization seeks to eliminate the chain of command, to have limitless spans
of control, and to replace departments with empowered teams.

Structure Description Advantages Disadvantages

Team A structure in which Employees are No clear chain of
the entire more involved and command.
organization is empowered. Pressure on teams
made up of work Reduced barriers to perform
groups or teams among functional
areas
Matrix–Project Matrix is a structure Fluid and flexible Complexity of
that assigns design that can assigning people to
specialists from respond to projects. Task and
different functional environmental personality
areas to work on changes. conflicts.
projects but who Faster decision
return to their areas making.
when the project is
completed. Project
is a structure in
which employees
continuously work
on projects. As one
project is
completed,
employees move on
to the next project.
Boundaryless A structure that is Highly flexible and Lack of control.
not defined by or responsive. Communication
limited to artificial Draws on talent difficulties.
horizontal, vertical, wherever it is
or external found.
boundaries;
includes virtual and
networked types of
organizations.
Virtual Organizations 

A virtual organization has elements of a traditional organization, but also relies on recent
developments in information technology to get work done. Thus, the organization could consist
of a small core of full-time employees plus outside specialists hired on a temporary basis to
work on opportunities that arise. The virtual organization could also be composed of employees
who work from their own home offices—connected by technology but perhaps occasionally
getting together face to face.

Network Organizations 

Another structural option for managers wanting to minimize or eliminate organizational

boundaries is the network organization, which is a small core organization that outsources
major business functions.This approach allows organizations to concentrate on what they do
best and to contract out other activities to companies that specialize in those activities. Many
large organizations use the network structure to outsource manufacturing.

Approaches of Organizational Design

Process Approach: Process approach to designing of an organization structure is related to

identification of sequences of activities involved and then deciding the various units of
organization, combining various units, and placing them at appropriate placesso that activities
are performed properly. The main emphasis is put on following things:

i. All necessary activities for achieving objectives are performed.

ii. There is no unnecessary duplication of performance of activities.

iii. All necessary activities are performed in a synchronised way. Thus, various organizational
units may be created based on the activities to be undertaken, their relationships will be based
on the sequence of activities performed by these units, and their relative position will depend
on the relative importance of activities performed by them.

Result Approach: Organizational design that focuses on results is more effective in those
situations where strategy innovation is a prime need. The focal point for developing the
structure through a result approach involves the following steps:

i. Defining the business on the basis of potential area of market opportunities;

ii. Establishing the objectives to be accomplished;

iii. Determining the requirements for success and functional skills needed to meet them; and

iv. Determining the degree of authority keeping in mind the degree of centralization best suited
to decision-making.

Decision Approach: Decision approach of organizational design mechanism puts certain

questions about the decisions and the answers of these questions become the basis for
designing structure.

These questions are:

i. What decisions are needed to obtain results for achieving organizational objectives?

ii. What is the nature of such decisions?

iii. At what levels of the organization should such decisions be made?

iv. What are the activities involved in or affected by such decisions?

REFERENCES:

Slocum, J.W., Hellriegel, D. (2011), Principles of Organizational Behavior (13 th

edition).South Western Cengage Learning

Osland, J.S., Turner, M. E., (2011), The Organiztional Behavior, (Ninth Edition). Pearson

Dubrin, A.J., (2011), Fundamentals of Organizational Behavior, (4th Edition). Cengage

learning