PMG1123 – FUNDAMENTALS OF MANAGEMENT CHAPTER 5

5.0 Organizational Structure & Design

5.1. Organizational Structure & Organizational Design

Organizing can be describes as;

1. Process of dividing jobs that are suitable with organizational goals and directions.

2. Process of forming an organizational structure.

3. As a function of management that creates the organization’s structure.

Organizational Structure can be describes as;

1. Organizational structure is the formal arrangement of jobs within organization.

2. Organizational structure shows the position of a unit or division in the organization

and the relationship between each division in the organization.

3. Organizational structure also shows the types of jobs performed in an organization

and the relationship between each jobs.

 This structure, which can be shown visually in an organizational chart.

Organizational Design can be describes as;

1. A process in which managers develop or change their organization’s structure.

2. It is a process that involves decisions about six key elements which are;
 Work specialization
 Departmentalization
 Chain of command
 Span of control
 Centralization and decentralization
 Formalization

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5.2 Six key elements

The six elements of organizational design help business leaders establish the company
departments, chain of command and overall structure. The aspects of organizational
structure most notably reviewed is the organizational chart. Consider these six key
aspects when creating the design elements of an organization.

5.1.1. Work Specialization

1. The degree to which tasks in the organization are divided into separate jobs
with each step completed by a different person. OR

2. The entire jobs being broken down into steps and each steps is completed
by a different persons.

3. It also known as division of labor.

4. The individual employee will specialize in doing a part of an activity rather

than the entire activities.

5. By using specialization; individual productivity increased, increasing each

workers skill and saving lost in changing task.

6. But overspecialization can result in human diseconomies from boredom,

fatigue, stress, poor quality, increased absenteeism, and higher turnover.

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5.1.2. Departmentalization

1. It is a basis by which jobs are grouped together.

2. There are five common forms of departmentalization.

5.1.2.1 Types of departmentalization

1. Functional Departmentalization
 Grouping jobs by functions performed.

(Sources: based on Robbins, Management 10th edition)

2. Geographical Departmentalization

 Grouping jobs on the basis of territory or geography.

(Sources: based on Robbins, Management 10th edition)

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3. Product Departmentalization

 Grouping jobs by major product areas. OR

 Grouping jobs by product line.

(Sources: based on Robbins, Management 10th edition)

4. Process Departmentalization

 Grouping jobs on the basis of product or customer flow.

(Sources: based on Robbins, Management 10th edition)

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5. Customer Departmentalization

 Grouping jobs by type of customer and needs.

(Sources: based on Robbins, Management 10th edition)

5.1.3. Chain of command

1. It is a line of authority extending from upper organization levels to lower level, which
clarifies who reports to whom.

 Managers need to consider it when organizing work because it helps

employees with question such as “Who do I report to?” or “Who do I go to if
I have a problems?”

 3 important concepts :

1. Authority

2. Responsibility

3. Unity of Command

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5.1.4. Span of control

1. The number of employees a manager can efficiently and effectively

manager.

2. Width of span is affected by:

 Skills and abilities of the manager

 Employee characteristics
 Characteristics of the work being done
 Similarity of tasks
 Complexity of tasks
 Standardization of tasks
 Sophistication of the organization’s information system
 Strength of the organization’s culture
 Preferred style of the manager

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5.1.5. Centralization and Decentralization

Centralization

1. The degree to which decision making is concentrated at upper levels of the

organization.

2. Organizations in which top managers make all the decisions and lower-level
employees simply carry out those orders.

Decentralization

1. The degree to which lower-level employees provide input or actually make

decisions.

2. Organizations in which decision making is pushed down to the managers

who are closest to the action.

5.1.6. Formalization

1. The degree to which jobs within the organization are standardized and the
extent to which employee behavior is guided by rules and procedures.

 Highly formalized jobs offer little discretion over what is to be done.

 Low formalization means fewer constraints on how employees do

their work.

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5.3. Traditional Organization Designs.

When designing a structure, managers may choose one of the traditional

organizational designs. These structures tend to be more mechanistic in nature.
Three organizational design options:

1. Simple structure
2. Functional structure
3. Divisional structure

5.3.1. Simple structure

An organizational design with little departmentalization, wide spans of control,

authority centralized in a single person and little formalization.

Most commonly used by small business in which the owner and the manager is the
same person.

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5.3.2. Functional Structure

An organization design that groups similar or related occupational specialties together.

This structure as functional departmentalization applied to the entire organization.

 For example, Revlon Inc. is organized around the functions of operations, finance,
human resources and [product research and development.

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5.3.3. Divisional Structure

Organizational structure made up of separate business units or division. Each division

has limited autonomy and parent corporation act as external overseer to coordinate
and control the various divisions.

 For example; Walmart has two divisions: Retail (Walmart Store, International, Sam
Sam’s clubs and other) and Support (distribution centers).

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5.4. Contemporary Organization Designs

Managers are finding that the traditional designs often aren’t appropriate for today’s
increasingly dynamic and complex environment. Instead, organizations need to be lean,
flexible and innovative – that is more organic.

5.4.1. Team Structure

Structure which the entire organization is made up of work teams that do the
organization’s work.
 In this structure, employee empowerment is crucial because there is no line of
managerial authority from top to bottom. Rather, employee teams design and do
work in the way they think is best, but are also responsible for all work performance
results in their respective areas.
 For example: Amazon, Boeing, Hewlett-Packard, Louis Vuitton, Motorola
extensively use employee teams to improve productivity.

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5.4.2. Matrix Structure

Structure that assigns specialists from different functional departments to work on

project led by a project manager. When employees finish work on an assigned project,
they go back to their functional department.

 One unique aspect of this design is that it create a dual chain of command
because employees in a matrix organization have two managers. Their
functional area manager and project manager – who share authority.
 Matrix structure is an appropriate design for the dynamic and complex
environment of construction projects.

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5.5 Boundaryless Organization

An organization whose design is not defined by, or limited to the horizontal, vertical or
external boundaries imposed by a pre-defined structure.

To minimize or eliminate these boundaries, manager might use virtual or network

design.

5.5.1. Virtual Organization

An organization consists of a small core of full-time employees and outside

specialists temporarily hired as needed to work on project.

 The inspiration for this structural approach comes from the film industry. There,
people are essentially “free agents” who move from project to project applying
their skills – directing, talent cast, costuming, makeup, set design and so forth –
as needed.

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5.5.2. Network Organization

An organization that uses its own employee to do some work activities and networks
of outside supplier to provide needed product components or work process.

 This organization form is sometimes called a modular organization by

manufacturing firms.
 This structural approach allows organizations to concentrate in what they do best.
 For example: Sweden’s Ericsson contracts its manufacturing and even some of its
research and development to more cost effective contractor in New Delhi,
Singapore, California and other global locations.

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5.6 Remote Work and Telecommuting

1. Remote Work
Doing work via virtual devices from any remote location, either work done on the
road or work done from home.
 Companies like Twitter have effectively announced a WFH “forever”
policy and 53% of U.S. survey respondents say they plan to continue
working from home at least part-time. It’s clear that the future of work will
involve remote, co-located, distributed, and borderless workforces using
digital tools to stay connected and productive.

2. Telecommuting
A work arrangement in which employees work at home and are linked to the
workplace by virtual device.
 For example Xerox Corporation has more than 8000 employees – 11
percent of its workforce who work from home full-time in a wide variety of
jobs including customer care, technical support, quality control and software
developer. Xerox believes that telecommuting opportunities results in
higher employee productivity and increased morale and job satisfaction.

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