CHAPTER 2

DESIGNING THE ORGANIZATIONAL STRUCTURE

ORGANIZATIONAL STRUCTURE

 It is reflected in chart or drawn in boxes representing different departments and sections.

 It is a visible representation of the total company set-up and the underlying processes.

THREE COMPONENTS OF ORGANIZATION STRUCTURE:

1. Organization structure designates formal reporting relationship.

2. Organization structure identifies the grouping together of individuals according to
functions into departments.
3. Organization structure includes the design of communication linkages.

TYPES OR OGANIZATIONAL STRUCTURE:

 Designing the organizational structure is ordinarily considered as a matter of choice

among large number of alternatives.
 After considering the major jargons of organizational design, we have to look back to the
purpose and objectives that shall be suited to the needs of the company to be competitive
in its industrial world.
 Looking on many companies’ organizational structure, we all find them that there are
line, line and staff and staff type organizations.

THE LINE ORGANIZATION:

CEO

M M M M

S S S
S S S

THE FEATURES OF THE LINE ORGANIZATION:

1. The Line Authority

 Managers identified in the line are getting direct command from the top line.
 The line within the company is the relationship that identifies and connects people
in the chain of command.
 Decision has to be approved on the next higher level unless minor decisions are
authorized.

2. The Line as the Chain of Command

 The command relationship exists between each superior and subordinates.
 In accepting the line responsibility, it is clear that the line managers serve only as
staff assistant to the top of the line.
 They are subordinates to his superior’s authority and responsibility.
 The manager obligates himself to obey his command.
 3. The Chain of Communication
 The members of the organization are connected thru a line communication.
 There is the existence of vertical line direct from top executive to the line
managers.
 The horizontal lines indicate the process of horizontal communication between
line managers.
 The development of line relationship is the channel through which managers can
proceed most effectively in coordinating company.

4. The Line as Carrier of Accountability

 The line element is the means of establishing the manager’s functions of
accountability for results.
 He is the accountable for the results of his operating decisions.
 He has to maintain the integrity of his define work and held responsible for doing
it properly.

ADVANTAGES OF LINE ORGANIZATION:

1. Organizational problems are solved quickly as top management is in control of decision-

making. The red tape is at minimum level as there is centralization of authority.

2. Responsibility is well-defined. The simple line of communication is present. Single

accountability can be maintained and better organizational of authority.

3. Less overhead expenses on additional staff as line managers also provide functional
activities to the top executives.

DISADVANTAGES OF LINE ORGANIZATION:

1. There will be an increase in the load of line managers. They will be overburden with the
conceptual and technical activities. It will result in the loss of effectives unless they are
highly talented and dedicated.

2. The chain of command becomes longer as instruction has to pass through channels. The
layer of supervision and actions create red tape.

3. There will be the existence of inadequacy of managerial specialization. The company’s

expansion program maybe at stake.

4. Over centralization of decision and authority tends to develop dependent managers and
supervisors. This will hamper the development of managerial creativity and initiative.

ORGANIZATIONAL CHANGE:
As the company starts to grow infancy to more advance stage, it begins to find changes necessary
in its structure.
The following elements must be present:
1. Need- It occurs when managers or top management become dissatisfied with the present
performance. When present clients are not satisfied with the products, quality or service.
Dissatisfaction is necessary to unfreeze management from the current ways of doing things.
 2. Idea Generation- A new idea is generated due to felt need for change. It is encouraged by open
communication from the top management level up to operating departments. It encourages
creativity to solve present problems.
3. Adoption of the Idea- After considering the proposed idea, the top management has to adapt
new policy guidelines to implement the proposed change.
4. Idea Implementation- When top management makes a go signal and managers are ready to
assume responsibility, the implementation stage begins. Training new employees would be
necessary or a more modern machine or equipment will be put in place.
5. Availability of Human Resources- A new idea implementation would require new breed of
employees. The employees must have a great perception on the change/s necessary and the skills
to implement it.

THE GROWTH OF LINE AND STAFF ORGANIZATION:

CEO

S S

M M M M

FEATURES OF THE LINE AND STAFF STRUCTURE:

1. The line managers are still directly responsible to the top executives or those above the line in the
organizational structure.
2. The specialist positions are created and given recommendatory functions.
3. The influence of the staff executive is mainly one of the ideas and recommendation.
4. The recommendation of staff executive should have the prior approval of the line managers above
him before implementation.
5. The staff executive has to coordinate closely with his line managers in carrying out plans,
programs and other activities inherent to the department.

ADVANTAGES OF LINE AND STAFF ORGANIZATION:

1. The accountability for the object and the end results could still be carried from the heads of the
departments.
2. The internal lines could be traced in each of the staff departments with the functions of study,
research and advisory in nature.
3. The line continues through functional groupings which represent the primordial activities and
department.
4. The line executives will be free of study and research activities which he could delegate to staff
executives, thus, improve performance on basic department functions.
5. The line and staff organization has the best features of the line and functional type as the
effectiveness of control, operating efficiency and economy.

THE BIRTH OF FUNCTIONAL STRUCTURE:

CEO

M M M
FEATURES OF THE FUNCTIONAL STRUCTURE:

1. Creation of a New Division to produce and market new products or services.

2. Assignment of Staff Specialists from the ranks of staff executives who are assets in the
company’s expansion program.
3. Functional structure could be the results of decentralization and specialization to facilitate the
ease of establishing control.
4. Create profit centers and delegate authority and responsibilities to where the action takes place.
5. The Central Management makes overall decisions in planning, organizing, directing and
controlling to proceed towards uniformity and effective coordination.

ADVANTAGES OF FUNCTIONAL STRUCTURE:

1. Functional structure unburdens top executives of details of product diversification.

2. It encourages the development of managerial talents and provides motivation to excel.
3. It provides products and markets emphasis creating more sales volume through systematized
marketing system.
4. It gets more action at the right place and time.
5. It stimulates the function of small cohesive group of managers that plans operational details.
6. Managerial talents are developed. Team effort is the center of the game.
7. It demands a high degree of group efforts to communicate effectively with subordinates.

DISADVANTAGES OF FUNCTIONAL STRUCTURE:

1. Assignments of favored personnel staff may create feeling of jealousy among executives.
2. Accounting and auditing system must be effectively implemented to assure operational viability
and profitability.
3. Over staffing is not economical in functional set up.

THE BUREAUCRATIC STRUCTURE:

 Bureaucratic dimension provides standardized and impersonal way to control organization.

 The ability of the bureaucratic structure to function efficiently depends upon its authority
structure.

FEATURES OF BUREAUCRATIC ORGANIZATION:

1. There are standard operation procedures to follow bounded by rules.

2. Specific duties and responsibilities are specified in job description and job specifications.
3. There is division of labor and its job holder has to be given the necessary authority.
4. There exists a hierarchy of authority. It follows a chain of command in the organization ladder.
5. Technical competence should be the basis in hiring key positions. They should be equipped with
the necessary training and eligibility.
6. All actions must be in writing. Record keeping must be in place and made part of the functions
and knowledge base on specific jobs.

ADVANTAGES OF BUREAUCRATIC ORGANIZATION:

1. It provides a standardized and impersonal system of control.

 2. The traditional control the fundamental idea.
3. There is a system of mechanism in the hiring of qualified.
4. Managers are provided with specific guidelines in decision making.
5. Standardized procedures are set in place.

DISADVANTAGES OF BUREAUCRATIC ORGANIZATION:

1. Too much paper work is involved.

2. Records are always necessary.
3. Hiring of personnel is usually based on favoritism.
4. Friends and family connection is the name of the game in any transaction.
5. Graft and corruptions are prevalent at all levels.
6. Rules could be twisted to favor few individuals with connection.

THE MATRIX STRUCTURE:

 Matrix structure could be the answer when organization finds that functional structure should be
combined with horizontal linkages.

FEATURES OF MATRIX STRUCTURE:

1. Product development is given priority.

2. Profit centers are created with careful budgeting and planning.
3. Formal delegation of authority and responsibility.
4. Coordination is established with product or functional managers.
5. Objectives and goals are properly defined.

ADVANTAGES OF MATRIX STRUCTURE:

1. It achieves adaptability to changing environmental conditions.

2. There is effective coordination in the functional or product divisions.
3. Efficiency in the centralized functional division.
4. Results in better alignment between corporate and division levels.
5. Achieves effective coordination both within and between product lines.

DISADVANTAGES OF MATRIX STRUCTURE:

1. Develops potential for excessive administrative overhead.

2. When authority and responsibility are not properly put in place, it develops conflicts between
functional and operating divisions.
3. Organizational structure may change from time to time due to uncertainty of operation.