CHAPTER 11

Designing Organizational Structure

Organizing is one of the four functions of management, which involves arranging and structuring
work to achieve organizational goals. Organizing includes designing and creating the organizational
structure, which is the formal arrangement of jobs, tasks, and reporting relationships within an
organization.

These are the key elements of organizational design, which managers use to create an effective
organizational structure. Let's briefly define each of these elements:

1. Work specialization: This refers to the degree to which tasks in an organization are
divided into separate jobs. Work specialization allows employees to focus on specific
tasks, which can increase efficiency and productivity.
2. Departmentalization: This refers to how jobs are grouped together. There are several
ways to group jobs, such as by function, product, geography, or customer.
Departmentalization helps to create clear lines of communication and accountability
within the organization.
3. Chain of command: This refers to the formal authority relationships within the
organization. It specifies who reports to whom and who is responsible for making
decisions. The chain of command helps to establish clear lines of authority and
communication within the organization.
4. Span of control: This refers to the number of employees who report to a single manager.
A narrow span of control means that a manager has a small number of direct reports,
while a wide span of control means that a manager has a large number of direct reports.
The span of control can impact communication, decision-making, and efficiency within
the organization.
5. Centralization-decentralization: This refers to the degree to which decision-making is
centralized or decentralized within the organization. In a centralized organization,
decisions are made by a small group of people at the top of the hierarchy, while in a
decentralized organization, decisions are made by employees at all levels of the
organization.
6. Formalization: This refers to the degree to which rules, procedures, and processes are
formalized within the organization. Formalization can help to create consistency and
reduce variability in work processes, but it can also limit flexibility and innovation.

An organization's structure should be aligned with its strategy, as the structure determines how
work is organized and coordinated within the organization. The structure should support the
organization's goals and objectives, and should enable the organization to effectively execute its
strategy.

If the organization's strategy changes, the structure should also change to ensure that it continues to
support the new strategy. For example, if an organization shifts from a focus on product innovation
to a focus on cost reduction, it may need to restructure to align its resources and processes with this
new strategy. This may involve changing the departmentalization, span of control, or centralization-
decentralization of decision-making.

In addition to changes in strategy, changes in external factors such as the market, technology, or
competition may also require changes to the organizational structure. For example, if a company
faces increased competition, it may need to restructure to become more agile and responsive to
customer needs.

Overall, organizational structure is not a static concept, and should be regularly reviewed and
adjusted to ensure that it continues to support the organization's goals and objectives.