Subject Category: Management Science

STRUCTURAL AND PROCESS CHARACTERISTICS OF ORGANIZATIONAL UNITS:

CASE OF CROATIAN COMPANIES

Tomislav Hernaus, Ph.D.

Department of Organization and Management
Faculty of Economics and Business
University of Zagreb
e-mail: thernaus@efzg.hr

Ana Aleksić, M.Sc.

Department of Organization and Management
Faculty of Economics and Business
University of Zagreb
e-mail: aaleksic@efzg.hr

Maja Klindžić, M.A.

Department of Organization and Management
Faculty of Economics and Business
University of Zagreb
e-mail: mklindzic@efzg.hr

Abstract

Organizations are open systems consisted of numerous units that interact with one another. Chemistry between
various organizational parts and units strongly determines their attainable capabilities and related organization-
wide performance. In order to be successful and to achieve a winning formula, organizations should align
vertical and horizontal dimensions of their structures in general and organizational units in particular. Such
thinking is along the line with contingency theory and it’s thriving to achieve an internal fit.

The aim of the paper was to show the interplay of organization design dimensions with a particular focus on
interfaces between structural and process issues present at the unit level. The survey was conducted on the cross-
sectional sample of 134 Croatian companies. Research findings outlined the need for an alignment of relevant
structural and process unit characteristics which set up an organization design practice as a source of competitive
advantage.

Keywords: organization design, structural variables, process variables, organizational units, Croatia

1
1 INTRODUCTION

Organization design has become an important and relevant topic in the field of organizational theory, as
well as in everyday business practice. The way in which management organizes and coordinates their employees
and processes in order to maximize their unique abilities over an extended period is what makes the difference
(Nadler and Tushman, 1997). It has an important role in achieving and sustaining business success so its good
practice can represent an organizational capability and potentially could become an important source of
competitive advantage.
Organization design presents a whole sequence of work that results in an alignment of vision/mission,
values/operating principles, strategies, objectives, tactics, systems, structure, people, processes, culture and
performance measures in order to deliver the required results (Stanford, 2007). It has important implications for
the organization's ability to cope with external contingency factors and effective management of diversity. By
doing so, it constantly increases organizational effectiveness and ability to innovate. As such, organization
design should be a permanent managerial activity and duty that has become a real value, challenge and
opportunity for creating additional value for all stakeholder groups.
Furthermore, organization design is a multi-level in nature. The process of designing organizations by
itself is extremely important and should be considered in all parts and at various levels of an organization. When
designing a new organizational arrangement or redesigning an existing one, it is necessary to take into account
all existing hierarchical levels, from the lowest level of work up to the highest, inter-organizational level.
According to Galbraith, Lawler III et al. (1993) the study and design of organizations has always been based on
basic building blocks - organizational units. Particularly large organizations have to be broken down into small
units so that employees will care about their products or services and also be able to identify with the success of
their organizational units (Lawler, 1996).
According to Van de Ven and Ferry (1980), organizational units represent the fundamental (and the
smallest) building blocks in collective behavior research and are defined as being comprised of the superior and
all the employees that are directly responsible to that superior. Grouping activities and positions into
organizational units establishes common focus by creating standard processes, access to information, and a
common chain of authority. It allows efficient use of organizational resources and provides employees with an
identifiable „home” within the larger organization (Galbraith, Downey and Kates, 2002).
Organizing people and work into departments certainly provided, and still provides, the following
benefits (Andersen, 1999; Tsai, 2001): (a) people are allowed to specialize within their field of expertise, thus
developing a highly refined set of skills; (b) costs from centralizing various functions (for example, finance,
personnel, maintenance) are lowered; (c) the workplace was made more secure; everyone know where they
belong and which tasks they are supposed to perform; (d) the organizational structure is more clearly defined and
could easily be drawn and presented; (e) inside a multiunit organization, units can learn from each other and
benefit from new knowledge developed by other units; (f) a network of interunit links enables organizational
units to gain critical competencies that contribute to their competitiveness in the marketplace.
Although there are numerous types of different organizational units in organizations (e.g., functions,
divisions, projects, processes, regions, etc.), they can be understood as the basic engines that deliver the value
and generate the revenues for the company. Decisions around identifying and structuring organizational units are
the first level of decisions managers make about the structure of work (Rummler, Ramias and Rummler, 2010).
Understanding organizational units in detail and the relationship between them makes unit design somewhat
easier. In addition, focusing first on their relationships places the emphasis on the organization’s results
(Schultheiss, 1988).
However, organizational units should be put into a wider context by applying a contingency theory of
organizations. The contingency theory of organizational structure currently provides the main framework for the
analysis of organization design (Donaldson, 1995, 2001). The essence of the theory paradigm is that
organizational effectiveness results from fitting characteristics of the organization, such as its structure, to
contingencies that reflect the situation of the organization. Theory tries to explore interdependence inside and
between subsystems, as well as interdependence between organization and its environment. It also tries to define
forms of relationship or variable configuration (Mealiea and Lee, 1979). By investigating relationships between
various dimensions of organizations and their related variables, interesting insights could be recognized and
offered. As there is a lack of empirical evidence in the literature regarding the relationship between structural
(vertical) and process (horizontal) dimensions of organizations, current research will tried to find an answer and
to determine how their interplay can influence organization design practice.
The paper consists of six main parts. After introduction, the next section reviews relevant literature about
structural and process characteristics in general, and their relationship in particular. In the third section, research
goals and proposed hypotheses are presented, while in the fourth a methodological framework is presented. The
fifth section reveals the results of data analysis while the last section concludes with a summary of main findings
and offers its limitations as well as future research possibilities.

2
2 LITERATURE REVIEW

Organizational structure and business processes as elements of organization design are in many ways
different, but they are also strongly connected with each other and complementary in nature. Nordsieck (1931)
and Henning (1934) were among the first who addressed a need for the alignment of a static structure and
dynamic processes. In the literature there exist various perspectives of their relationship. While some authors
historically strongly addressed mainly structural issues, nowadays, a business process management field is
mostly focused on process issues, especially a BPR literature which strongly dismissed or questioned a structural
part. However, Anthony, Dearden and Vancil (1972) have equaled their importance, while Kosiol (1962) has
observed their difference as a scientific gimmick with an intention to simplify an organizational analysis (in zur
Muehlen, 2002).
Understanding the organization as a whole requires an understanding of both structures and processes.
Despite the fact that there are different approaches and views on the relationship between organizational
structure and business processes, organization design should focus on analysis and design of both elements,
irrespective that the only visible is structure, while processes tend to be less visible (Bosilj Vukšić, Hernaus and
Kovačič, 2008). By addressing and developing them jointly, organization design will be a mean for achieving
organizational goals and gaining higher levels of performance.
The relationship between structural and process issues is particularly relevant and important at the unit
level. Organizational units, as main building blocks of an organization, offer a locus for each employee and they
significantly shape his or her behavior. Their nature and role should be understood by applying contingency
theory lenses where a few most important structural and process characteristics should be recognized in order to
empirically test the level of their alignment.
Traditionally, structural design was studied and investigated more in-depth. After almost 50 years of
empirical research the consensus was created about the most important dimensions of organizational structure.
Most authors emphasized complexity (level of differentiation), formalization, (de)centralization and
specialization as key structural characteristics (Hage and Aiken, 1967; Child, 1974; Van de Ven, 1976;
Blackburn, 1982). These dimensions affect the functioning of the organization and the possibility for easier or
harder adjustment to other factors of organization design. As such, they should be explained in more detail and
included in the study.
Complexity of the organization or its structural differentiation refers to a degree to which the organization
is split or divided into separate parts, both horizontally and vertically (Blau, 1970). In that sense it is possible and
necessary to distinguish between vertical and horizontal differentiation. Vertical differentiation is a way of
designing a hierarchy and authority in the organization. It presents division of the organization in depth, by the
levels of management. On the other hand, horizontal differentiation indicates a number of different tasks at the
same organizational level. It presents a division of tasks in width, into different subtasks at the same hierarchical
level.
Formalization can be described as a degree to which behavior is limited to work rules, regulations, policies,
and procedures. It is the degree to which organization specifies a set of rules or codes to govern how work is
done. One of the simplest ways to coordinate work is through formal rules and regulations that govern how work
is to be done, who is to do it, and under what circumstances or constraints (Burton, DeSanctis and Obel, 2006).
The other is by creating job descriptions for each particular position within an organization. The purpose and
importance of formalization is seen in the fact that it provides direction and guidance for behavior in certain
situations and brings order into an organization. Moreover, through the establishment and existence of rules,
regulations and procedures, management creates mechanisms that control employee behavior (Levinson, 2006).
Higher levels of formalization usually are connected with higher levels of job specialization. Job
specialization is a degree to which the work involves performing specialized tasks or possession of specialized
knowledge and skills. It is focused on determining the necessary depth of knowledge and skills required in a
particular area in order to carry out the associated work (Morgeson and Humphrey, 2006; Humphrey, Nahrgang
and Morgeson, 2007). An organization with many specialists tends also to have more standard routines, more
documentation, and a larger supportive hierarchy (Pugh et al., 1968).
Finally, centralization can be characterized as a degree to which decision making, coordination and control
are managed by a core person or level of an organization, usually by its corporate headquarters (Burton,
DeSanctis and Obel, 2006). In contrast to centralization, decentralization means that the authority for decision
making is delegated to the middle or lower hierarchical levels. The centralization-decentralization distinction
especially applies to operational kinds of decisions. Nowadays, decentralization is much more popular because it
is an effective way to deal with uncertainty and exceptions where the level of decision making is moved to where
information exists rather than to bring it upward in the hierarchy (Govindarajan, 1988).
Although structural issues have dominated for almost half a century, about 20 years ago, largely on the
wings of BPR (e.g., Davenport and Short, 1990; Hammer, 1990; Davenport, 1993; Hammer and Champy, 1993),
a process orientation has started to gain the momentum. Organizations and work have been increasingly defined

3
through the business processes, which are understood as a natural part of thinking about how to make things
work better (Hernaus, 2011a).
The process orientation is focused on the flow of work within organizations and offers a horizontal view of
business activities and alignment of various organizational systems (Hernaus, 2011a). Such horizontal approach
allows significant savings in terms of time, resources and money, while providing higher quality and better
customer and employee satisfaction. By acknowledging and applying the process orientation, traditional
functional barriers disappear and organizations are becoming more integrated. A very small number of
companies can still afford themselves to function in a vacuum, to produce low quality products or to have slacks
while doing business. So, with the desire to improve coordination across multiple, linked capabilities and
organizational units, as well as to address the need to reduce non-value-added activities, organizations are
turning to the process characteristics of their organization design. Even more, they are encouraged to align their
structures more closely with their internal business processes.
Process characteristics haven’t been so often empirically tested as their structural counterparts. They were
mostly observed through technology – a sequence of how the work is done. However, the process aspects of unit
design should be addressed through the following dimensions: unit interdependence, process time efficiency,
process interdependence, and unit focus.
Unit interdependence as a process characteristic shows a level of dependency or needed collaboration
between different organizational units in order to produce a product or offer a service (Parker and Wall, 1998). It
reflects through a work flow and exchange of necessary resources between units. Low unit interdependence
means that units can do their work independently of each other and have little need for interaction, consultation,
or exchange of materials. On the other hand, high unit interdependence means that they must constantly
exchange resources and that they cannot fulfill their goals without a common action (Daft, 2007).
Process throughput time, cycle time or process time efficiency represents a measure of process execution. It
is a total time a job spends in the process and it includes the time associated with value-adding and non-value-
adding activities. As one of the most important measures of performance of a business process, this value is
frequently the main focus when comparing the performance of alternative process designs (Laguna and
Marklund, 2005). Reduced cycle time is strongly related to achieving efficiency gains (Tenner and DeToro,
2000) and as such is interesting for further study.
Process interdependence variable is strongly related to Thompson’s classification of technology. Namely,
Thompson (1967) has argued that there exist three main types of technology: long-linked technology; mediating
technology; and intensive technology. His types represent a continuum of possible interdependencies between
various tasks. The level of interdependence between tasks regarding particular business process will strongly
influence both technology and organizational structure (Jones, 2007).
Finally, Andersen (1999) has argued that each unit seeks to maximize its influence and authority in the
organization while at the same time optimizes the unit`s performance level. Its unit focus usually has a
consequence that the whole is far from being more than the sum of the individual elements, and in the worst
case, far less. As a result, each organizational unit suboptimizes within its area of responsibility, which in turn
leads to conflicting objectives and conflicting, competitive actions between different departments.
Although relationships between structural characteristics have been already significantly investigated,
research regarding process characteristics has been very rare. Furthermore, there is particularly a lack of
empirical studies that put structural and process characteristics into the same research context at the unit level.
So, with the purpose of designing an organization that operates efficiently and effectively, structures and
processes must be discussed and developed collaboratively and interactively. In order to gain a better
understanding of those complex organizational issues, both structural and process aspects of organization design
were jointly observed. Their common ground and focus contributed to a better understanding of their current
interactions and showed necessary areas of alignment.

3 RESEARCH GOALS AND HYPOTHESES

Many authors have theoretically addressed a need for aligning structural (vertical) and process (horizontal)
characteristics of an organization. While the former offers differentiation and provides stability and authority, the
latter emphasizes integration through better coordination, communication and collaboration of various
organizational units. Both dimensions are important and necessary. Even more, as they are complementary in
nature, managers should take the best out of both and should strive towards their alignment.
In spite of a rich theoretical argument (e.g., Kosiol, 1962; Anthony, Dearden and Vancil, 1972; Telem,
1985; Holtham, 1997; etc.) there is a lack of empirical research regarding the issue. So, the main aim of the paper
is to empirically investigate and show the interplay of organization design dimensions with a particular focus on
interfaces between structural and process issues present at the unit level. We argue that their alignment, both

4
vertically and horizontally, will create internal organizational capability that represents a source of competitive
advantage. Aforementioned goal of the research led to proposing three hypotheses.

H1: Organization design cannot become a source of competitive advantage by strongly emphasizing
only its structural aspects.

Traditionally, organization design was understood as a narrow set of decisions related only to structural
issues. Structural dimensions like decentralization, standardization, differentiation and formalization were in a
focus of scientific research. Such understanding was rather limited and did not provide necessary results. As
global competitiveness and IT revolution have changed the world of work, a new philosophy of organization
design emerged. In the contemporary view, organization design is defined as a deliberate process of configuring
structures, processes, reward systems, and people practices, to create an effective organization capable of
achieving the business strategy (Kates and Galbraith, 2007). Although the broader perspective of organization
design has been strongly confirmed theoretically, there is a lack of clear empirical evidence that a partial focus
only on one of its elements – organizational structure – cannot create capabilities that represent a source of
competitive advantage.

H2: Organization design will become a source of competitive advantage when structural and process
characteristics are aligned.

The desire to improve coordination across multiple, linked capabilities and to reduce non-value-added
activities has encouraged organizations to align their structures more closely with their internal business
processes (Hernaus, 2011b). As Groth (1999) has argued, in order to achieve the best possible results, managers
should choose structures that match defined objectives, the nature of the required processes, and the systems
central to those processes. Because in the literature there are present numerous disputes regarding the
relationship and importance of organizational structures and business processes (e.g., Rummler and Brache,
1995; Oden, 1999; Spanyi, 2003; Hernaus, 2008), the issue should be empirically investigated more in-depth and
possibly confirmed.

H3: Structural and process characteristics of organization design are equally important for gaining a
competitive advantage.

In the literature there are numerous signs that indicate the importance of lateral integration in contemporary
organizations. The traditional organizational model, comprised of functional units integrated by top
management, is more often getting replaced by organizational models with capability of integrating a larger
number of business units with a common focus on customers, products, projects or processes (Galbraith, Lawler
III et al., 1993). The new lateral orientation and lateral integrative mechanisms (e.g., Mintzberg, 1979; Galbraith,
1994) have upgraded and, to a certain extent, have replaced the traditional hierarchical logic. However, this does
not mean that existing structural characteristics are no more valid. Quite contrary, the newly addressed process
characteristics should be equally important as their structural counterparts.

4 RESEARCH METHODOLOGY

In order to test the proposed hypotheses, the research methodology and instrument have been developed. A
survey questionnaire was created after a desk research and in-depth literature review. It consisted of several
structural and process variables describing vertical and horizontal dimensions of organizations and their units.
Questions asked were closed-ended with the opportunity to choose from one or more predetermined answers.
Such practice has enabled more standardized data and has shortened a needed time for providing answers. All
variables and questions have been tested for their validity and reliability. The measurement instrument is
described in the Table 1.

5
Table 1 Measurement Instrument Description
# Cronbach
Code Variable Type
of items Alpha
VERTDIF Vertical differentiation structural 1 -
AUTON Middle manager’s autonomy structural 6 .773
FORM1 Job descriptions structural 1 -
FORM2 Rules and procedures structural 2 .744
JOBSPEC Job specialization structural 1 -
UNITDEP Unit interdependence process 1 -
PROCESS1 Process time efficiency process 1 -
PROCESS2 Process interdependence process 1 -
UNITFOCUS Unit focus process 3 .785
ORGDESIGN Organization design impact outcome 1 -

Data collection process began in November 2008 and lasted until February 2009. The whole population of
small, medium-sized and large companies listed by Croatian Chamber of Economy was sampled. In order to get
a representative data, the questionnaires were distributed among 1200 sampled companies addressed on their
CEOs expecting only one answer per company. This means that we have distinguished between level of theory
and level of measurement. While in the theoretical argument we are focused on the unit level, the data were
collected aggregately at the organizational level.
After few months of data collection and two rounds of reminders, we have received 144 answered
questionnaires which counted for a return rate of 12.00%. Questionnaires were filled mostly by a key person in
an organization (by CEO himself or herself), or by their first associates who are experts in the area. The fact that
questionnaires were filled out by highly positioned incumbents stress their interest for observed research
problem, as well as current relevance of the issues studied.
However, due to missing data values for the dependent variable (ORGDESIGN) or because of a larger
amount of missing data for a particular case, 10 questionnaires have been dismissed which led to the final sample
consisted of 134 companies. Furthermore, the collected data have been subsampled along the values of the
dependent variable. In order to get better insights regarding best and mediocre practice of designing
organizations at the unit level, we have split the original sample on the basis of organization design impact.
Those companies which organization designs represent a significant source of competitive advantage were
grouped into the "upper sample”, while others, whose organization designs cannot be evaluated as contributive,
were represented in the "lower sample”. The following figures show independent characteristics of three samples
regarding their industry, size, and ownership structure (see Table 2).

6
Table 2 Independent sample characteristics
Total “Lower” “Upper”
Independent characteristics sample sample sample
(N=134) (N=80) (N=50)
Industry
Manufacturing 25.8% 21.5% 32.1%
Construction 14.4% 19.0% 7.5%
Wholesale and retail trade 12.1% 11.4% 13.2%
Tourism and catering 6.1% 7.6% 3.8%
Transport and communication 6.8% 8.9% 3.8%
Agriculture and forestry 2.3% 1.3% 3.8%
Finance, banking and insurance 2.3% 3.8% 3.8%
Electricity, gas, and water supply 9.1% 12.7% 3.8%
Services 5.3% 5.1% 5.7%
Other 15.9% 8.9% 26.4%
Size (number of employees)
50 or less 11.2% 10.0% 13.0%
51-250 42.5% 46.3% 37.0%
251-500 18.7% 21.3% 14.8%
501-1000 9.7% 6.3% 14.8%
1000+ 17.9% 16.3% 20.4%
Ownership structure
Public 11.9% 13.8% 9.3%
Private domestic 53.7% 52.5% 55.6%
Private foreign 14.2% 10.0% 20.4%
Mixed 14.9% 15.0% 14.8%
Other 5.2% 8.8% -

The samples were cross-sectional in nature. They are mostly represented by privately-owned, mid-sized
companies from manufacturing, construction, and sales. In “upper” sample there were significantly more private
companies and less public ones than in “lower” sample. Also, more than 35% of companies within “upper
sample” had more than 500 employees while the same category was represented with less than 23% in the
“lower sample”. Finally, in the “upper sample” there were significantly more manufacturing companies (32.1%)
than in the “lower” sample (only 21.5%), but on the other hand, and significantly less construction companies
(less than 8%) than in “lower” sample (19.0%). This means that companies from different industries understand
the importance of organization design quite differently.

5 DATA ANALYSIS AND RESEARCH FINDINGS

Adequate organization design has a task to create the optimal pattern of vertical and horizontal relationships
between organizational units. In order to determine wanted and unwanted practice, as we already explained, the
total sample have been split on two subsamples. The data gathered were analyzed using descriptive statistics,
independent samples t-test, correlation analysis and regression analysis.
Firstly, descriptive statistics for three observed samples (total, “lower”, “upper”) clearly showed that
average values for each structural and process variable were higher in the case of “upper” sample than in the
“lower” sample. These weren’t true for two variables (UNITFOCUS and PROCESS1) but that seemed
reasonable because those variables were inversely defined. Detailed results are shown in the Table 3.

7
Table 3 Descriptive statistics for three samples
Total sample (N=134) “Lower” sample (N=80) “Upper” sample (N=54)
Variable
Mean Std. Deviation Mean Std. Deviation Mean Std. Deviation
VERTDIF 2.639 1.093 2.653 1.140 2.656 1.082
AUTON 3.341 .646 3.228 .663 3.501 .616
FORM1 4.493 1.034 4.423 1.190 4.583 .800
FORM2 3.975 .733 3.865 .701 4.067 .774
JOBSPEC 3.832 .605 3.738 .545 3.924 .663
UNITDEP 3.839 .657 3.800 .719 3.879 .544
PROCESS1 2.688 1.183 2.772 1.154 2.571 1.256
PROCESS2 3.094 1.203 3.063 1.060 3.251 1.353
UNITFOCUS 2.288 .924 2.425 .906 2.120 .919
ORGDESIGN 3.172 1.015 2.525 .779 4.157 .365

Secondly, comparing two samples, t-test for Equality of Means has shown statistically significant
differences in three variables (AUTON, JOBSPEC, UNITFOCUS). This means that in companies, with value-
adding organization design practices, there is a higher level of decentralization, deeper job specialization and
smaller competition between organizational units than in companies in which organization design practices do
not make a difference (see Table 4).

Table 4 Independent Samples Test (“Upper” and “Lower” sample comparison)

Levene’s Test for
t-test for Equality of Means
Equality of Variances
Variables
Sig. Mean
F Sig. t df
(2-tailed) difference
VERTDIF .214 .645 -.089 122 .929 -.018
AUTON .004 .950 2.286 125 .024 .266
FORM1 4.274 .041 .810 130 .420 .151
FORM2 1.578 .211 1.393 130 .166 .181
JOBSPEC .034 .855 1.789 132 .076 .188
UNITDEP 4.188 .043 .609 132 .544 .070
PROCESS1 1.469 .228 -.796 130 .428 -.168
PROCESS2 9.375 .003 .777 131 .439 .164
UNITFOCUS .035 .851 -1.900 131 .060 -.306

Furthermore, a correlation analysis was conducted for each sample separately. The results have clearly
shown that in the case of companies in which organization design represents a competitive advantage there have
existed largely more significant relationships between two types of independent variables than in the opposite
sample. Additionally, relationships that have been present in both samples have been significantly stronger in
“upper” sample which means that in those companies there was a stronger emphasis on the alignment of vertical
and horizontal dimensions of organizations. Correlation matrix for two samples (“lower” sample results are
shown in bottom part, while “upper” sample results in upper part) analyzed is shown in the Table 5.

8
 Table 5 Correlation Matrix (Lower and Upper Sample Comparison)

VERTDIF AUTON FORM1 FORM2 JOBSPEC UNITDEP PROCESS1 PROCESS2 UNITFOCUS ORGDESIGN
VERTDIF .098 .197** .100 -.146* .029 .161* .187** .222** .257**
AUTON .021 .381** .311** .095 .005 -.238** .093 .012 .151*
FORM1 .128 -.083 .431** .347** .049 -.045 .330** -.081 .148*
FORM2 .018 -.044 .263** .378** -.120 -.209** .178** -.199** .362**
JOBSPEC .104 -.095 .097 .012 -.126 -.064 .161* -.163* -.043
**
UNITDEP .045 -.074 -.084 .059 .024 -.217 -.014 -.040 .210**
PROCESS1 .178* .006 -.149* -.307** -.087 .071 .134* .493** -.348**
PROCESS2 .131 -.161* -.234** -.093 -.179* -.042 .086 .192** .242**
UNITFOCUS .087 -.179* .024 -.283** -.080 -.110 .360** .124 .011
* **
ORGDESIGN .119 .064 .155 .334 .064 .006 -.137 .043 -.070
* Correlation is significant at the 0.05 level (2-tailed)
** Correlation is significant at the 0.01 level (2-tailed)

In the “lower” sample statistically significant relationships between structural and process variables with a
moderate degree were present in 27.78% of all possible relationships, while in the “upper” sample this
percentage was much higher counting 58.33%. In the latter was also present stronger and wider relationship
between independent and outcome variables which means that the proper mix of structural and process
characteristics of organizational units leads towards more significant organization design practice. The strongest
positive influence on the outcome variable had the existence of rules and procedures ( =0.362, p<.01, N=54) as
well as process time efficiency with a negative influence ( =-0.348, p<.01, N=54). Between independent
variables, the highest Pearson correlation coefficients have been noticed in the relationship between unit focus
and process time efficiency ( =0.493, p<.01, N=54) and between rules and procedures and job descriptions
( =0.431, p<.01, N=54) which is understandable because both variables tried to describe formalization as a
structural dimension.
Finally, multiple regression models were compared for three different samples, as well as for different types
of variables. Given results (showed in the Table 6) clearly emphasized the importance of process characteristics
and horizontal dimension of an organization. In organizations in which there is no understanding for the
importance of organization design practice, traditional approach is still dominated and partial focus primarily on
structural aspects is present. However, in more successful companies that acknowledged their organization
design and its value-adding nature, process characteristics were understood equally if not even more important
than their structural counterparts.

Table 6 Regression Model Fit Comparison

Total sample “Lower” sample “Upper” sample
Variables
R2 p-value R2 p-value R2 p-value
Structural .148 .002 .137 .000 .204 .000
Process .067 .065 .023 .342 .249 .000
Structural and Process .172 .008 .152 .001 .403 .000

6 DISCUSSION AND CONCLUSION

Data analysis revealed some interesting insights regarding the interplay between structural and process
characteristics of organizational unit nature and behavior. Conducted correlation analysis, in conjunction with
the results of the multiple regression analysis, indicated that both vertical and horizontal dimensions are
extremely important and should be designed together. In those companies that only addressed structural aspects
organization design was not considered as a source of competitive advantage. Their traditional understanding of
organization design concept has been a strong constraint to the development of this internal organizational
capability. The same is obvious from a comparison of coefficients of determination (R2) between “lower” and
“upper” samples where in the former process characteristics barely explains 2.3% of the variance in the

9
dependent variable, while in the latter their influence is much stronger with 24.9% of the variance explained. In
another words, first hypothesis should be accepted because, through the comparison of two samples, it is obvious
that in companies which strongly emphasized only its structural aspects, organization design did not become a
source of competitive advantage.
However, companies from the “upper” sample, with organization designs that represent a source of
competitive advantage, have their structural and process characteristics aligned while companies from the
“lower” sample have not reached such an alignment. This conclusion can be made from the results of a
correlation analysis where it was clear that higher and numerous relationships existed in the case of organization
design as value-adding activity than the other way. In another words, second hypothesis, which says that
organization design will become a source of competitive advantage when structural and process characteristics
are aligned, can be accepted.
Finally, the results of a multiple regression analysis also confirmed a third hypothesis that structural and
process characteristics of organizations are equally important for gaining a competitive advantage through
organization design. Namely, in the “upper” sample, structural and process characteristics explained very similar
amount of variance which means that they are both important for successful organization design. By only
emphasizing both dimensions managers can expect benefits and a fertile ground for creation of this internal
organizational capability.
In a nutshell, the results of the study reveal the importance of aligning vertical and horizontal dimensions of
organizations. Research findings strongly address a need for ingraining both structural and process
characteristics in an organizational solution. While structural characteristics are usually more often addressed,
process characteristics are those which make a difference. By emphasizing process orientation, lateral integrative
mechanisms, coordination and communication between people and units and the flow of work within business
processes, managers can make their organization design a key ingredient for achieving business success.
However, we should be aware of certain research limitations. Rather small subsamples can lead to
overgeneralization based on the very small amount of data. Furthermore, structural and process characteristics of
organizations are important, but they are not enough. They should be supplemented with other relevant macro-
organizational characteristics recognized in the literature such as strategic, cognitive, and social, and should be
related to their wider environment (e.g., Hernaus, 2010). Additionally, difference between level of analysis and
level of measurement could also be problematic as well as a choice of a measurement instrument.
In spite of mentioned limitations, the research findings have offered an insight into the core of organization
design – intertwined relationships between organizational structure and business processes at the unit level.
Future research activities should continue along the same path and try to investigate broader set of organization
design characteristics, as well as try to relate them with organizational effectiveness outcomes. More rigorous
conclusions will be possible if organizational units will represent both level of analysis and level of
measurement. By conducting research at the unit level, contingency theory of organizations will be further
advanced as the most influential organizational theory.

REFERENCES

Andersen, B. (1999), Business Process Improvement Toolbox, ASQ Quality Press, Milwaukee
Blackburn, R. S. (1982), Dimensions of Structure: A Review and Reappraisal, Academy of Management Review,
7(1), 59-66.
Blau, P. M. (1970), A Formal Theory of Differentiation in Organizations, American Sociological Review, 35,
201-218.
Bosilj Vukšić, V., Hernaus, T., Kovačič, A. (2008), Business Process Management: Organizational and IT
Approach, Školska knjiga, Zagreb [in Croatian]
Burton, R. M., DeSanctis, G., Obel, B. (2006), Organizational Design: A Step-by-Step Approach, Cambridge
University Press, Cambridge
Child, J. (1974), Managerial and Organizational Factors Associated with Company Performance, Journal of
Management Studies, 11, 174-189.
Daft, R. L. (2007), Understanding the Theory and Design of Organizations, Thompson South-Western, Mason
Davenport, T. H. (1993), Process Innovation: Reengineering Work through Information Technology, Harvard
Business School Press, Boston
Davenport, T. H., Short, J. (1990), The New Industrial Engineering: Information Technology and Business
Process Redesign, Sloan Management Review, 31(4), 11-27.

10
Donaldson, L. (1995), American Anti-Management Theories of Organization: A Critique of Paradigm
Proliferation, Cambridge University Press, Cambridge
Donaldson, L. (2001), The Contingency Theory of Organizations, Sage Publications, Thousand Oaks
Galbraith, J. R. (1994), Competing With Flexible Lateral Organizations, Addison-Wesley, Reading
Galbraith, J. R., Downey, D., Kates, A. (2002), Designing Dynamic Organizations, AMACOM, New York
Galbraith, J. R., Lawler III, E. E. et al. (1993), Organizing for the Future, Jossey-Bass Publishers, San Francisco
Govindarajan, V. (1988), A Contingency Approach to Strategy Implementation at the Business-Unit Level:
Integrating Administrative Mechanisms with Strategy, Academy of Management Journal, 31(4), 828-853.
Groth, L. (1999), Future Organizational Design – The Scope for the IT-based Enterprise, John Wiley & Sons,
Chichester
Hage, J., Aiken, M. (1967), Program Change and Organizational Properties: A Comparative Analysis, American
Journal of Sociology, 72, 503-519.
Hammer, M. (1990), Re-engineering Work: Don’t Automate, Obliterate, Harvard Business Review, 90(4), 104-
112.
Hammer, M., Champy, J. (1993), Reengineering the Corporation: A Manifesto for Business Revolution,
HarperCollins Publishers, New York
Hernaus, T. (2008), Process-Based Organization Design Model: Theoretical Review and Model
Conceptualization, Third International Workshop on Organization Design, 18-20 May, Aarhus, Denmark
Hernaus, T. (2010), Integrating Macro- and Micro-organizational Variables Through Multilevel Approach,
Faculty of Economics and Business, University of Zagreb [unpublished doctoral dissertation in Croatian]
Hernaus, T. (2011a), The Process-Based Face of Organizations. In Sarlak, M. A. (ed.), The New Faces of
Organizations in the 21st Century, Vol. 2, NAISIT Publishers, Toronto, 33-80.
Hernaus, T. (2011b), Business Trends and Tendencies in Organization Design and Work Design: Identifying
Cause-and-Effect Relationships, Business Systems Research, Vol. 2 No. 1 (in press)
Holtham, C. (1997), Business Process Re-engineering: Contrasting What It is With What It is Not. In Coulson-
Thomas, C. (ed.), Business Process Re-engineering: Myth or Reality, Kogan Page, London
Humphrey, S. E., Nahrgang, J. D., Morgeson, F. P. (2007), Integrating Motivational, Social, and Contextual
Work Design Features: A Meta-Analytic Summary and Theoretical Extension of the Work Design Literature,
Journal of Applied Psychology, 92(5), 1332-1356.
Jones, G. R. (2007), Organizational Theory, Design, and Change, Prentice Hall, New Jersey
Kates, A., Galbraith, J. R. (2007), Designing Your Organization: Using the Star Model to Solve 5 Critical
Design Challenges, Jossey-Bass, San Francisco
Laguna, M., Marklund, J. (2005), Business Process Modeling, Simulation, and Design, Prentice Hall, New
Jersey
Lawler III, E. E. (1996), From the Ground Up – Six Principles for Building the New Logic Corporation, Jossey
Bass, San Francisco
Levinson, H. (2006), Organizational Assessment: A Step-by-Step Guide to Effective Consulting, APA,
Washington
Mealiea, L. W., Lee, D. (1979), An Alternative to Macro-Micro Contingency Theories: An Integrative Model,
The Academy of Management Review, 4(3), 333-346.
Mintzberg, H. (1979), The Structuring of Organizations: A Synthesis of the Research, Prentice Hall, Englewood
Cliffs
Morgeson, F. P., Humphrey, S. E. (2006), The Work Design Questionnaire (WDQ): Developing and Validating
a Comprehensive Measure for Assessing Job Design and the Nature of Work, Journal of Applied Psychology,
91(6), 1321-1339.
Nadler, D. A., Tushman, M. L. (1997), Competing by Design - The Power of Organizational Architecture,
Oxford University Press, New York

11
Oden, H. W. (1999), Transforming the Organization: A Social-Technical Approach, Quorum books, Westport
Parker, S. K., Wall, T. D. (1998), Job and Work Design, Sage Publications, London
Pugh, D. S., Hickson, D. J., Hinings, C. R., Turner, C. (1968), Dimensions of Organization Structure,
Administrative Science Quarterly, 13, 65-105.
Rummler, G. A., Brache, A. P. (1995), Improving Performance: How to Manage the White Space on the
Organization Chart, Jossey-Bass, San Francisco
Rummler, G. A., Ramias, A., Rummler, R. A. (2010), White Space Revisited: Creating Value through Processes,
Pfeiffer, San Francisco
Schultheiss, E. E. (1988), Optimizing the Organization: How to Link People and Technology, Ballinger
Publishing Co., Cambridge
Spanyi, A. (2003), Business Process Management is a Team Sport, Anclote Press, Tampa
Stanford, N. (2007), Guide to Organisation Design, Profile Books, London
Telem, M. (1985), The Process Organizational Structure, Journal of Management Studies, 22(1), 38-52.
Tenner, A. R., DeToro, I. J. (2000), Process redesign: The Implementation Guide for Managers, Prentice Hall,
New Jersey
Thompson, J. D. (1967), Organizations in Action, McGraw-Hill, New York
Tsai, W. (2001) Knowledge Transfer in Intra-organizational Networks: Effects of Network Position and
Absorptive Capacity on Business Unit Innovation and Performance. The Academy of Management Journal,
44(5), 996-1004.
Van de Ven, A. H. (1976), A Framework for Organization Assessment, Academy of Management Review, 1(3),
64-77.
Van de Ven, A. H., Ferry, D. L. (1980), Measuring and Assessing Organizations, John Wiley & Sons, New York
zur Muehlen, M. (2002), Workflow-based Process Controlling, Logos Verlag, Berlin

12