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.