Chapter # 15: Foundation of Organization Structure

1. Identify the six elements of an organization’s structure

Exam Q: List six elements of organizational structure and explain three of them?(Two Times)
 Organizational structure is defined as how job tasks are formally divided, grouped, and coordinated.
 The key elements of organizational structure include:
I. Work specialization
 Work specialization refers to Division of Work.
 Work Specialization is the degree to which organizational activities are subdivided into separate
jobs (Individual specializes in doing part of an activity rather than the entire job).
Advantages and Disadvantages of Work Specialization
 Work Specialization makes efficient use of employee skills.
 Work Specialization increases employee skills through repetition and specialized training.
 Work Specialization increases efficiency and productivity of the employee.
 Work Specialization allows use of specialized equipment.
 Overspecialization can result in boredom, fatigue, stress, poor quality, increased absenteeism, and
higher turnover.
II. Departmentalization
 Departmentalization is defined as how the jobs are grouped together and common tasks can be
coordinated.
 When jobs are grouped, departments are formed.
 The jobs can be grouped and organized in the following categories:
i. Function
ii. Product
iii. Geography
iv. Process
v. Customer
III. Chain of command
 Chain of command is an unbroken line of authority that extends from Top to Lowest level and
clarifies who reports to whom.
 To understand the chain of command, it is necessary to understand three other following important
concepts:
a) Authority
 Authority is the rights inherent (inbuilt) in a managerial position to tell people what to do
and to expect them to do it.
b) Responsibility
 Responsibility is the obligation or expectation to perform.
c) Unity of Command
 Unity of command is the concept that a person should have one boss and should report
only to that person.
IV. Span of control
 Span of control is defined as the number of subordinates that a manager can effectively and
efficiently directs towards organizational goals.
 Wider spans are more efficient in terms of cost because fewer managers needed but they can reduce
the efficiency and performance of the employee.
 Narrow spans can allow manager to maintain the control over the employees but they are
expensive, make vertical communication in the organization and are more complex.
V. Centralization and Decentralization
Exam Q: Contrast Centralization and decentralization of organizational operations, which one is
better in your view. Explain.
 Centralization is the degree to which decision making is concentrated at a single point in the
organization.
 Decentralization is the degree to which decision making is spread throughout the organization.
  The difference between centralization and decentralization is one of the hot topics these days.
 Some people think that centralization is better while others are in favor of decentralization.
 In early times, people used to run their organization in a centralized manner, but now the scenario
has been changed completely due to rise in extreme competition where quick decision making is
required and therefore many organizations opted for decentralization.
 However, centralization still exists in some of the organizations.
 Coming to the point, no organization is completely centralized or decentralized; they are
centralized or decentralized only up to the extent of the delegation of authority.
VI. Formalization.
 Formalization is the degree to which jobs within the organization are standardized.
 When there is high formalization, workers have very little control over their work and they have to
follow rules and procedures.
 When there is low formalization, workers have more control over their work.

2. Common Organizational Designs

Exam Q: List various types of organizational structures and explain the characteristics of virtual
organization?( Three Times)
 Following are the most used organizational designs
I. The Simple Structure
 The first and most basic structure is the simple structure.
 Simple structure has Low degree of departmentalization.
 Simple Structure has wide spans of control
 Simple Structure has centralized decision making
 Simple Structure has low formalization in job design
 Simple structure is best suited for small business
Advantages
 Simple
 Flexible
 Inexpensive
 Accountability is clear
II. The Bureaucracy
 Bureaucracy is a system of organization.
  Bureaucracy is an organization structure in which highly routine operating tasks achieved through
work specialization and Rules (Formalized).
 Bureaucracy has narrow Span of control.
 Bureaucracy has Centralized Authority and decision making is through chain of command.
 In bureaucracy, Tasks are grouped into Functional departments
Advantages:
i. Standardized activities are performed effectively.
ii. Economy of Scale is achieved by putting specialist in department.
iii. Minimum duplication of equipment and personnel.
iv. Same language in each Department.
v. Less talent thus less costly Middle and Low management
vi. Rules replace Discretion
vii. Centralized Decision making due to Formalization
Disadvantages:
i. Specialization creates sub-unit conflicts and functional goals may override organization goals.
ii. Concerned with following rules. There is no room for modification when a case does not fit the
rules.
iii. It is efficient only in case of familiar problems with programmed decisions.

The Matrix Structure

 The Matrix Structure is a structure that creates dual lines of authority and combines functional and
product departmentalization.
Advantages:
 It gains the advantages of functional and product departmentalization while avoiding their
weaknesses
 It puts specialists together thus minimizes their number and allows sharing of resources
 It facilitates coordination for complex and interdepartmental activities.
Problems:
 Project Delay due to difficulty in coordinating the tasks of specialists on time and within budget.
 It breaks the unity of command principle
 It creates confusion and conflicts among managers
III. The Virtual Organization
Exam Q: What are the characteristics of virtual Organization? Explain
 Virtual organizations are developing as acceptable organizational structures.
 This structure offers a small core organization that outsources many of its major functions to
competent suppliers.
 Virtual organizations are highly centralized with virtually no departmentalization to provide
maximum flexibility, focusing on what the organization does best.
 This type of organization reduces control over some of the key parts of the business.
 It is also known as modular or network organization as shown in the following figure.
Characteristics of Virtual Organizations
 The virtual organizations have the following characteristics:
i. Flat organization
ii. Dynamic
iii. Informal communication
iv. Power flexibility
v. Multi-disciplinary (virtual) teams
vi. Vague organizational boundaries
vii. Goal orientation
viii. Customer orientation
ix. Home-work
x. Absence of apparent structure
xi. Sharing of information
xii. Staffed by knowledge workers
Advantages:
 Flexibility
Disadvantages:
 Constant state of flux & Reorganization
 Roles , Goals & responsibilities are not very clear
 Cultural alignment and shared goals can be lost
 Information and knowledge sharing is difficult
 Leadership presence is valuable

IV. The Boundary-less Organization

 It is an organization that seeks to eliminate the chain of command, has limitless span of control and
replaces departments with empowered teams.
 Replace departments with cross-functional teams & organize activities around process.
 It organizes more in what is called T-form concepts in order to eliminate vertical and horizontal
boundaries.
 It tries to break down external barriers to customers and suppliers through their structure and style
of communication.
V. The Leaner Organization: Downsizing
 The goal of this organizational form is to improve agility by creating a lean, focused, and flexible
organization.
 Downsizing is a systematic effort to make an organization leaner by closing locations, reducing
staff, or selling off business units that don’t add value.
Advantages:
 Cost reduction
 Return to Core competencies after costly acquisitions
Disadvantages:
 Employee commitment is low
 Stress results in absence, Low creativity, Low concentration on job
 High Turn - over
3. Two Extreme Models of Organizational Design

4. Why do Structure Differ?

 The following are the major causes or determinants of an organization’s structure
I. Strategies
 Following strategies are used in organizational structure:
A. Innovation Strategy
 It is a strategy that emphasizes the introduction of major new products & services.
 Innovative Organizations use competitive pay to attract talent.
 Innovative Organizations motivate employees to take risk.
 Innovative Organizations have well developed communication channels.
 Innovative Organizations have clear channel of authority.
 This strategy is used in Organic Model has a loose structure; low specialization, low
formalization and decentralized decision making.
B. Cost Minimization Strategy
 It is a strategy that emphasizes the tight cost controls, avoidance of unnecessary
innovations & marketing expenses and price cutting.
 This strategy is used in Mechanistic Model has tight control costs; extensive work
specialization, high formalization and high centralization in decision making.
C. Imitation
 It is a strategy that seeks to move into new products or new markets only after their
viability (feasibility) has already been proven. This strategy:
 Minimizes Risk
 Maximizes opportunity for profit
 Move into new product only after it is proved
 This strategy is used in both organic and Mechanistic Models has Mix of loose with
tight properties; tight controls over current activities and looser controls for new
undertakings.
II. Organization Size
 As organizations grow, they become more mechanistic, more specialized, with more rules and
regulations
III. Technology
 How an organization transfers its inputs into outputs.
 The more routine the activities, the more mechanistic the structure with greater formalization
 Custom activities need an organic structure.
 Cars : Assembly line
 College : Lecture, case studies Exercises
IV. Environment
 An organization’s environment includes institutions or forces outside the organization that
potentially affect the organization’s performance.
 The more dynamic the environment, the more organic the structure will need to be to facilitate
quick decisions and fast turnaround because dynamic environment creates departmental
uncertainty.
 Any organization’s environment has three dimensions:
a) Capacity
 Capacity refers to the degree to which the environment can support growth.
 Rich and growing environments generate excess resources.
b) Volatility
 Volatility describes the degree of instability in the environment.
 A dynamic environment with a high degree of unpredictable change makes it difficult
for management to make accurate predictions.
c) Complexity
 Finally, complexity is the degree of heterogeneity and concentration among
environmental elements.
 Simple environments—like the tobacco industry—are homogeneous and concentrated.
 Environments characterized by heterogeneity and dispersion—like the broadband
industry—are complex and diverse, with numerous competitors.