ORGANIZATIONAL DESIGN, CHANGE AND

TRANSFORMATION
DR. SANGEETA SAHNEY, PROFESSOR, VGSOM, IIT KHARAGPUR
Module 3 Lecture 1
Basic challenges of organizational design; Designing organizational structure: Authority and control;
Organizational structures; Types of structures; Contemporary design structures; Why do structures differ?;
Information sharing perspective on structure.
ORGANIZATIONAL DESIGN,
CHANGE AND TRANSFORMATION

Organizational Structure
 Basic Challenges of Organizational Design
BASIC CHALLENGES OF ORGANIZATIONAL DESIGN
 Managers must continuously assess the manner in which their
organizations are designed.

 Environmental changes may require changes in the design and

structure of an organization.

 While designing an organization, managers may face challenges,

they may have to make difficult choices.
Differentiation

 As the organization grows, managers need to decide on issues

pertaining to control, and must coordinate the activities for
maximum value creation.

 The major design challenge is about managing differentiation.

 Organizational roles are the fundamental building blocks of

differentiation.

 Differentiation into job roles leads to clarity of authority and

responsibility expectations and requirements for each of the roles in
an organization.
o Differentiation may be defined as the process by which an
organization allocates resources including people to various
organizational tasks, and creates task and authority relationships so
that organizational objectives can be achieved.

o Differentiation refers to creating and managing the division of

labour, or the degree of specialization.

 Simple organization: Characterized by few employees who

perform all tasks; differentiation is low as the division of labour
is low.

 Complex organization: Characterized by many employees;

differentiation is high as the division of labour is high.
Organization

Division

Function

Role
Redrawn. Source.
Jones, G. R. (2013).
Organizational
Theory, Design, and
Change. Seventh
edition, Pearson
Education Limited,
UK.
Organizational role:
 An organizational role is a person's expected set of task-related
behaviours owing to the position he/she occupies in an organization.
 Such identifiable and clearly distinct tasks and responsibilities
make an employee accountable for the duties and responsibilities
that he must perform because of that position.
 A person who can hold another person accountable possesses
authority over him/her.

Authority:
 Authority is the power vested in a person to hold another person
responsible for his actions.
 The power also extends to making decisions about allocation of
organizational resources, and their use.
Subunits: Functions and Divisions
 In an organization, there exist subunits wherein people with
similar and related roles are brought together and grouped.
 The major subunits in organizations pertain to functions (or
departments) and divisions.
o Function: A function is a subunit that comprises a group of individuals
who possess similar skills, work as a unit and share knowledge,
resources, or methods to perform their duties.
o Division: A division is a subunit that comprises several departments or
functions that work together to produce a particular good or service.
 If the number of different subunits in an organization is high, it
denotes high organizational complexity.
 Differentiation into functions and divisions increases
organizational control and enables the effective
accomplishment of tasks.
Vertical and Horizontal Differentiation
 Based on the authority vested in an organizational role, the
organizational chart differentiates organizational roles in a vertical
manner.
 Hierarchy:
o A categorization of people according to the relative authority
that they possess and the rank that they hold is termed a
hierarchy.
o The top management roles own more authority and
responsibility than the roles down in the organizational hierarchy,
with each lower role being under the control or supervision of
the higher role above.
 While designing organizations, managers must decide on the extent
of vertical differentiation in the organization, i.e., the Number of
levels from top to bottom.
o Vertical differentiation:
 The manner in which an organization designs its hierarchy and reporting
relationships to link to the various organizational roles and subunits is
known as vertical differentiation.
 It creates the distribution of authority among levels, thereby providing
the organization with greater control over people’s activities.

o Horizontal differentiation:
 The manner in which an organization groups organizational tasks into
roles and further the roles into subunits, i.e. Functions and divisions, is
known as horizontal differentiation.
 Roles are differentiated according to task responsibilities.
 Horizontal differentiation encourages division of labour, which enables
specialization and productivity.
 Balancing
Differentiation Integration

Balancing
Centralization Decentralization

Balancing Mutual
Standardization
Adjustment

Redrawn. Source.
Organizational Design Challenges Jones, G. R. (2013).
Organizational Theory,
 Balancing Differentiation and Integration
Design, and Change.
 Balancing Centralization and Decentralization Seventh edition,
 Balancing Standardization and Mutual adjustment Pearson Education
Limited, UK.
A Balancing Differentiation and Integration
• It is expected that horizontal differentiation results in
specialization, thus leading to higher productivity.

• However, it has been seen that specialization restricts

communication among subunits and thwarts subunits from
learning from one another.

• Members of various functions or divisions tend to develop a

subunit orientation as a result of horizontal differentiation.
• A subunit orientation is a predisposition to view one's role in
the organization solely through the lens of one's subunit's time
frame, goals and objectives, and interpersonal perspectives.
Integration and Integrating Mechanisms

 The integration of organizational subunits is essential.

 Integration: It is defined as the coordination of various tasks, roles,

functions, and divisions to ensure that they cooperate rather than
compete, and can work together.
 Managers may use several integrating mechanisms, like the
hierarchy of authority, direct contact, liaison roles, task force,
teams, integrating roles, and integrating departments.
 Redrawn. Source.
Jones, G. R. (2013).
Research and Organizational
o Hierarchy of authority: The authority hierarchy
Development Theory, Design, and
dictates "who reports to whom”; it differentiates
Change. Seventh
employees by the amount of authority that they
edition, Pearson
own.
Education Limited,
UK.
o Direct contact: Managers meet and coordinate
activities face-to-face; the problem is that manager in
one function has no authority over a manager in the
other function. Production Marketing

o Liaison roles: A manager is tasked with coordinating

with managers of other subunits on behalf of his/her
subunit.
Liaison Roles
 Redrawn. Source.
o Task force: A task force is a Jones, G. R. (2013).
temporary committee formed to Organizational
Sales Theory, Design, and
address a specific problem; members
of the task force are responsible for Change. Seventh
edition, Pearson
bringing coordinating solutions back
Education Limited,
to their respective functions for
UK.
further input and approval; in a task R&D Task
force, managers meet to coordinate Force Production
cross-functional activities.

o Teams: A permanent task force

formed to address long term
strategic or administrative issues; in Marketing Engineering
a team, managers meet regularly to
coordinate activities.
Task force or Teams
o Integrating role: A new role,
and a full-time position is
created to manage activities Computer
of two or more functions or Software
Division
divisions, and to improve Integrating Computer
communication. Role or Hardware
Department Division
o Integrating department: A
Applications
new department is created
Division
to manage the activities of Integrating Role or Department
the various functions or
divisions; when a large
number of employees play Redrawn. Source. Jones, G. R. (2013).
integrating roles, a new Organizational Theory, Design, and Change.
department is created. Seventh edition, Pearson Education Limited, UK.
Differentiation versus Integration

 Achieving a level of integration that equals the organization's level of

differentiation is a design challenge for managers.

 Managers must ensure that organizations are not very high on both
differentiation or integration.

 Why?
o Differentiation and integration are expensive. One, in terms of the
number of managers employed; and two in terms of the time spent on
coordination of organizational activities.
 While deciding how to differentiate and integrate, and the extent,
managers must pay attention to the following:
i. Managers must carefully direct the differentiation process so that
an organization develops core competencies, and gains a
competitive advantage.
ii. They must judiciously integrate the organization by selecting
suitable coordinating mechanisms so that the various subunits
can work together, and enhance their core competences.

 A proper balance between integration and differentiation must be

created.
 Complex, highly differentiated organizations require a high level of
integration.
 Simple integrating mechanisms are adequate when an organization has
a straightforward, clearly defined role structure.
B Balancing Centralization and Decentralization
Centralized structure:
• A centralized structure is an organizational structure in which
managers at the top of the hierarchy possess and retain the
authority to make crucial decisions.

Decentralized structure:
• A decentralized structure is an organizational structure in which
managers at all levels of the hierarchy have the authority to make
important decisions about organizational resources.

A proper balance between centralization and decentralization is

essential but challenging.
 The ideal situation is a balance between both such that it allows
middle and lower managers who are close to the action field can
make decisions at the point of action, while top managers’
responsibilities lie in long term decision making.

 As a result, lower level managers can act promptly to issues and

alterations in the environment, and the top management can plan for
the long term strategic direction for the organization.
C Balancing Standardization and Mutual Adjustment
Standardization:
• Standardization is adherence to defined sets of rules and norms
which manifest in the form of specific models or examples, deemed
appropriate in a given situation.
o Formalization: To standardize operations, written rules and procedures are
used, and this is termed formalization; a high level of formalization means
centralization of authority.
o Rules: Rules are formal written statements stating the appropriate way to
achieve desired goals.
o Norms: Norms are styles of behaviours considered acceptable by a group; The
process by which employees learn about organizational norms and assimilate
these unwritten rules of conduct is known as socialization.
Mutual adjustment:
• When instead of standardized rules, people use their
judgment to solve a problem, it is termed as mutual
adjustment.
• In such cases, decision making and coordination are
regarded as evolutionary processes.
Standardization versus Mutual Adjustment
 Managers must work out the best ways to standardize behaviour
using rules and norms while also permitting for mutual adjustment
to let employees find new and more effective ways to accomplish
organizational goals.
 People at higher levels in the management hierarchy, and who are
involved in functions that involve complex, uncertain tasks, rely
majorly on mutual adjustment as compared to standardization.
 Managers can also endorse norms and values that prioritize change
over stability.
 But for all organizational roles, the ideal ratio of these two factors
should encourage both innovative and responsible employee
behaviour and organizational effectiveness.
 Individual Specialization in a Mechanistic
Impact of Design Challenges Structure
Design Challenges result in Mechanistic or Organic A Person in a role specializes in a specific
task or set of tasks.
Structures Roles
Mechanistic structures: A B C Tasks
 Appropriate for organizations that operate in stable
environments.
 Characteristics: centralized decision making authority; clearly
defined tasks; close supervision of subordinates; information X Y Z
flows downwards vertically; each function is separate, and
responsibility for communication and coordination lies with the Redrawn. Source. Jones,
top management. G. R. (2013).
 Designed such that people behave in predictable and Organizational Theory,
accountable ways. Design, and Change.
 Integrating mechanisms both within and between functions lies Seventh edition, Pearson
in hierarchy, and complex integrating mechanisms are not Education Limited, UK.
required.
 Control is exercised through hierarchy and standardization.
 Joint Specialization in an Organic Structure
Organic structures: A person in a role is assigned to a specific task or set of
 Appropriate for organizations that operate in tasks.
However, the person is able to learn new tasks and develop
unstable environments.
new skills and capabilities
 Characteristics: decentralized decision making
authority; roles are weakly defined, and
A B C Roles
people perform changing tasks and develop
new job skills; cross-functional approach to Tasks
problem solving.
 Designed such that people can adapt quickly
to the changing environment and can initiate X Y Z
change; promotes flexibility.
 Higher level of integration is required, which is
achieved through task forces and teams. Redrawn. Source. Jones, G. R.
 The key to coordination lies with mutual (2013). Organizational Theory,
Design, and Change. Seventh
adjustment and informal rules and norms.
edition, Pearson Education
Limited, UK.
 MECHANISTIC STRUCTURES RESULT WHEN ORGANIC STRUCTURES RESULT WHEN AN
Redrawn. Source. Jones, G.
AN ORGANIZATION MAKES THESE CHOICES. ORGANIZATION MAKES THESE CHOICES.
R. (2013). Organizational
Individual specialization Joint Specialization
Theory, Design, and
Employees work independently and Employees collaborate and coordinate Change. Seventh edition,
specialize in a single, well defined task. their actions to determine the best way Pearson Education Limited,
to complete a task. UK.
Simple Integration Mechanisms Complex Integrating Mechanisms
The authority hierarchy is clearly defined Task forces and teams are the primary
and serves as the primary integrating integrating mechanisms.
mechanism.
Centralization Decentralization
The organization's authority to control People at all levels of the organization
tasks is maintained at the top. The have the authority to control tasks. Most
majority of communication is vertical. communication is lateral.
Standardization Mutual Adjustment
To coordinate tasks, rules and SOPs are Face-to-face contact is frequently used to
extensively used, and the work process is coordinate tasks, and the work process is
predictable. relatively unpredictable.
Contingency Approach to Organizational Design
o Contingencies or sources of uncertainty affect the choice of an
organizational design.
o According to the Contingency Approach to organizational design,
the uncertainty facing an organization is a determinant of
organizational structure.
o An organization must design a structure such that it is a good fit, and
in congruence with the environment in which the organization
exists and functions.
o The organizational structure must be adapted to meet the degree of
uncertainty in their environment.
o Studies by Paul Lawrence and Jay Lorsch and by Tom Burns and G.
M. Stalker support the contingency theory.
Redrawn. Source. Jones, G. R. (2013). Organizational Theory, Design, and Change. Seventh
edition, Pearson Education Limited, UK.
Relationship between Environmental Uncertainty and Organizational Structure
Redrawn. Source. Jones, G.
Low Environmental Uncertainty High R. (2013). Organizational
Theory, Design, and
Mechanistic Organic Change. Seventh edition,
Structure Structure Pearson Education Limited,
UK.
Simple Structure Complex Structure
Low Differentiation High Differentiation
Low Integration High Integration
Centralized Decision Decentralized Decision
Making Making
Standardization Mutual adjustment
References
• Daft, R. L. (2008). Organizational Theory and Design, Tenth edition. South-Western, Cengage
Learning, USA.
• Davis, S.M. and Lawrence, P.R. (1977) Matrix (Reading, Mass.: Addison-Wesley, 1977).
• Greenberg, J. (2013), Behavior in Organizations, Tenth Edition, Prentice Hall of India, Delhi.
• Jones, G. R. (2013). Organizational Theory, Design, and Change. Seventh edition, Pearson
Education Limited, UK.
• Luthans, F. (2011). Organizational Behavior: An Evidence-based Approach, Published by
McGraw-Hill/Irwin, Twelfth edition, New York.
• Robbins, S.P. and Judge T.A. (2017). Organizational Behaviour, Seventeenth edition, Pearson
Education UK.
• Robbins, S.P., Judge T.A. and Vohra, N. (2018). Organizational Behavior, Eighteenth edition,
Pearson Education India.
• Weber, M. (1946), From Max Weber: Essays in Sociology. in H. H. Gerth and C.W. Mills, eds.
(New York: Oxford University Press, 1946);
• Weber, M. (1978), Economy and Society, in G. Roth and C.Wittich, eds. (Berkeley: University of
California Press, 1978).
CONCLUSION
This brings us to the end of the first lecture of Module 3.

We shall continue with the topic in the next lecture.

ORGANIZATIONAL DESIGN, CHANGE AND
TRANSFORMATION
DR. SANGEETA SAHNEY, PROFESSOR, VGSOM, IIT KHARAGPUR
Module 3 Lecture 2
Basic challenges of organizational design; Designing organizational structure: Authority and control;
Organizational structures; Types of structures; Contemporary design structures; Why do structures differ?;
Information sharing perspective on structure.
ORGANIZATIONAL DESIGN,
CHANGE AND TRANSFORMATION
Organizational Structure

 Designing Organizational Structure: Authority and Control

DESIGNING ORGANIZATIONAL STRUCTURE:
AUTHORITY AND CONTROL
 An organization’s hierarchy is based on the number of levels of
authority that exist within.

 The shape of an organization is a determinant of how effective the

organization is in terms of decision making and communication.
A Authority: How and Why Vertical Differentiation Occurs

 Vertical differentiation in an organization is based on (i) the shape of

the organizational hierarchy; and (ii) the balance between centralized
and decentralized decision making.

 Hierarchy in an organization arises when:

o The organization increases in size.
o Employee size expands in number and employees begin to
specialize and perform a wide range of tasks.
o Level of differentiation rises; managers find it difficult to manage
the employees effectively.
 The organization addresses challenges regarding coordination and
motivation by:
i. Increasing the number of managers to supervise, evaluate, and
control employees.
ii. Increasing the number of levels in the managerial hierarchy,
resulting in a taller hierarchy of authority over time.
Both (i) and (ii) help increase vertical differentiation, resulting in direct
supervision and control.

 Selecting the right number of managers and deciding on appropriate

hierarchical levels is vital because the decision affects organizational
effectiveness.
Height and size restrictions Flat Structure Tall
Structure
 Scenario: 1
1
o Two organizations; with an equal
2
number of employees; one
organization has 3 levels in its 3
2
hierarchy, and the other has 7.
4

• Organization with 7 levels: Tall organization 3 5

• Tall organization: the hierarchy has many
levels as compared to the size of the
organization; greater number managers to
direct and control employees.
• Organization with 3 levels: Flat organization
• Flat organization: the hierarchy has few
levels compared to the size of the
organization; few managers to direct and
control employees.
6
7
Redrawn. Source. Jones, G. R.
(2013). Organizational Theory,
Design, and Change. Seventh
edition, Pearson Education
Limited, UK.
Relationship between Organizational Size
and the Height of the Vertical Hierarchy
 As an organization grows to a size of 1000 employees,
it is likely to have four levels in its organizational
hierarchy.
 At a size of 3000 employees, it is likely to have seven
levels.
 At a size of 10000 or even 100000 employees, it would
not have more than 9-10 levels.
 The growth in size of the managerial component is
less than proportional to the organization's size in Redrawn. Source. Jones, G.
terms of its employee strength. R. (2013). Organizational
 Why? Theory, Design, and
Change. Seventh edition,
o As the organizational hierarchy becomes taller, Pearson Education Limited,
managers face huge challenges. UK.
 Communication problems: Taller structures may slower
communication flow; information may get distorted; the tendency
to manipulate information or selectively transmit information to
promote self-interests is high.

 Motivation problems: Managers of a tall organization possess

relatively lesser authority and responsibility as compared to a flat
one, and this impacts motivation negatively; also there is a
tendency to evasion of responsibility to the manager above them.

 Bureaucratic costs: Taller structures are expensive; costs associated

with operating them are high.
Parkinson’s Law Problem
 C. Northcote Parkinson, a former British civil servant, examined the
administrative processes in the British Navy.
 He found out that in the period 1914-1928:
• the number of ships which were in operation decreased by 68%.
• the number of officials in the dockyard to maintain the fleet had increased by
40%, and the number of top navy officers in London to manage the fleet had
increased hugely by 79%.
 Parkinson concluded that growth in the number of managers, as well as the
hierarchical levels, is governed by two principles:
• Officials want to multiply subordinates, not rivals.
• Officials create work for one another.
 More managers lead to more work, and Parkinson stated that his principles
apply to all organizational hierarchies.
 “Work expands so as to fill the time available.” That is Parkinson’s law.
Ideal Number of Hierarchical Levels

Principle of minimum chain of command:

o Keeping in mind the goals as well as the environment in which it operates,

an organization must choose the fewest number of hierarchical levels.

o The minimum number of hierarchical levels must be consistent with

organizational goals as well as the environment.
Span of Control
 It is the number of subordinates that a
manager can effectively and efficiently
manage.
o The number of direct reports managed by
a manager, i.e., the number of
subordinates each manager directly
manages and controls defines the span.
 There is a limit to how broad a manager's span Redrawn. Source. Jones, G. R.
(2013). Organizational Theory,
of control can be. Design, and Change. Seventh
 A critical factor inhibiting the span of control is edition, Pearson Education
the inability on the part of a manager to Limited, UK.
adequately supervise an increasing number of
subordinates.
• Factors affecting the span of control are:
o Task complexity:
• Complex and dissimilar tasks - Narrow (small) span of control
• Routine and similar tasks (e.g., mass production) – Broad (wide) span
of control
o Task interrelatedness:
• Closely interrelated tasks: Narrow (small) span of control
• Not closely interrelated tasks: Broad (wide) span of control
 An organization can prevent itself from becoming too tall by
increasing the span of control of its managers.
o When the span of control is broad, there is more horizontal
authority dispersion, resulting in flat organizations.
 Today, organizations are developing flat structures with broad
spans of control in recent years.
 Redrawn. Source. Jones,
Increasing Complexity with Span of Control
G. R. (2013).
Organizational Theory,
Design, and Change.
Seventh edition,
Pearson Education
Limited, UK.
 Factors Affecting
B Control: Factors affecting the Shape of the Hierarchy the Hierarchy
Redrawn. Source.
Jones, G. R. (2013).
Organizational
Theory, Design,
and Change.
Seventh edition,
Pearson Education
Limited, UK.
Horizontal Differentiation
 In horizontal differentiation, an organization is
divided into subunits - functions or divisions, each
of which has multiple hierarchies rather than just
one.
 Each division, function, or department inside a function
has its hierarchy and follows the principle of minimum
chain of command: Increases vertical differentiation.
 Members in a function perform the same kind of task.
Roles are subdivided into small tasks.
Redrawn. Source. Jones, G. R.
 While horizontal differentiation helps avoid the pitfalls (2013). Organizational Theory,
of tall hierarchies, it can also lead to coordination and Design, and Change. Seventh
motivation problems. edition, Pearson Education
 Such challenges can be dealt with by making prudent Limited, UK.
choices regarding centralization, standardization, and
the influence of informal organizations.
C The Principles of Bureaucracy
 Max Weber, a German sociologist, is credited with formulating
principles for designing a hierarchy, which would ensure the effective
allocation of decision making authority and control over resources.

 Weber was drawn towards developing an organizational structure

that would improve organizational operation and make it more
productive and effective.
o Bureaucracy is defined as a type of organizational structure wherein individuals
can be held answerable for their actions and behaviours as they must adhere to
rules and standard operating procedures.
 Weber proposed six principles of bureaucratic structure, viz.,
rationality, hierarchy, expertise, rules-based decision making,
formalization, and specialization, which according to him, underlie
effective organizational structure.
 The bureaucratic organizing principles provide clear directions on how
to build and differentiate organizational structures that would
maximize organizational effectiveness.
 Features of a bureaucratic structure:
o Centralized authority
o Narrow spans of control
o Formalized rules and regulations
o Decision making that follows the chain of command
o Tasks grouped into functional departments
o Highly routine operating tasks achieved through specialization
Principle 1: A bureaucracy is founded on the notion of rational-legal Weber’s Six
authority. Principles
 Rational-legal authority stems from a person’s position in an organization.
 Obedience is not a function of personal qualities that a person may possess,
but because of the authority and responsibility vested in the position that
he/she occupies.
 The principle implies that choices regarding the design of organizational
hierarchy must depend on the task requirements and not on the needs of an
individual.
 People are appointed to positions, and there is a clear difference between
positions and people.

Principle 2: Organizational roles are held on the basis of technical

competence.
 People occupy roles because they are competent to do so and not because
of heredity, kinship, social status, and networks.
Principle 3: The task responsibility of a role and decision making
authority and its relationship to other roles must be stated clearly.

 The basis of organizational effectiveness lies in the clarity of and

pattern consistency of decision making authority (vertical
differentiation) and task responsibility (horizontal differentiation).
o Clarity regarding limits of authority and control for a role helps a person
understand the extent of power that his position wields.
o Clarity regarding tasks associated with a role helps a person understand what
is expected of him.
 This reduces role conflict and role ambiguity.
o When there is clarity, the outcome is a stable system.
 In such a system, people know what is expected from them, the power
they wield, and the influence they can exercise over others, as well as
reporting relationships.
Principle four: The organization of roles in a bureaucracy is such Weber’s Principles
that each lower office in the hierarchy is under the control of a Principle 1 and 2:
higher office. Organizational role (and
 The organization is arranged hierarchically; well defined chain of command. not the person) as the
basic component of
Principle Five: Rules, standard operating procedures, and norms bureaucratic structure.
Principle 3,4, and 5:
should be used to control the behaviour and the relationship Control of the process
among roles in an organization. of differentiation.
 Such guidelines help enhance the efficiency of employees.
 They also help enhance the integration and coordination of roles.

Principle six: Administrative acts, decisions, and rules should be

formulated and put in writing.
 Anything in written form becomes an official guide.
 A written form also ensures continuity.
Advantages of Bureaucracy:
 Bureaucracy establishes the basic rules for creating an organizational
hierarchy that governs interactions among members of the
organization, and between the various organizational levels.
 Clarity of vertical authority and horizontal task relationships leads to
effective functioning; helps improve communication and coordination;
provides stability to the organization.
 Accountability is specified, and employees can be held accountable for
what they do.
 Role specification, and the use of rules, SOPs, and norms to regulate
tasks performance help enhance efficiency and also increase
integration within the organization.
 Bureaucracy separates the person from the position.
Problems with Bureaucracy:
In a bureaucracy, a few problems emerge over time.

 Failure to control the development of the organizational hierarchy

results in tall, centralized, and inflexible structures, and slow
decision making, etc.

 Huge reliance on rules and SOPs slows down decision making and
makes the organization slow and unresponsive to stakeholder needs.

However, the following needs to be noted:

• Bureaucracy is not bad; the slip-up lies with the people who run them.
D The Influence of the Informal Organization
 The hierarchy of authority serves as a framework for how things should
work.
 However, at all levels in an organization, decision making and coordination
frequently occur outside the formally prescribed channels when people
interact informally and coordinate among themselves.
 Also, many of the rules and norms that employees use emerge from
informal communication rather than the formal written rules established
by managers.
 Hence, while a formal structure of interconnected roles is created, there
also emerges an informal social structure that influences the behaviour of
individuals and groups in organizations; the informal network can be used
to enhance organizational performance and achieve goals.
E IT, Empowerment, and Self-managed teams
 With technological advancements, there has been a rise in the use of
empowered workers, self-managed teams, cross-functional teams,
and contingent or temporary workers.

 Information technology has enabled the design of cost-effective

structures, coordinating mechanisms, and control systems, all of
which help managers in being better informed about subordinates’
activities and better equipped to assess functional performance, and
exercise control.
• Empowerment refers to granting employees the authority to make
important decisions and be accountable for the results.

• Self-managed teams are formal work groups wherein the members

are provided with the authority to lead themselves and are jointly
responsible for ensuring that the team's goals are achieved.

• Cross-functional teams are formal work groups of employees from

various functional areas; they have the freedom and power to direct
and coordinate value creation activities necessary to work on
different projects.

• Contingent workers are those who are hired by an organization on a

temporary basis and for a limited time.
References
• Daft, R. L. (2008). Organizational Theory and Design, Tenth edition. South-Western, Cengage
Learning, USA.
• Davis, S.M. and Lawrence, P.R. (1977) Matrix (Reading, Mass.: Addison-Wesley, 1977).
• Greenberg, J. (2013), Behavior in Organizations, Tenth Edition, Prentice Hall of India, Delhi.
• Jones, G. R. (2013). Organizational Theory, Design, and Change. Seventh edition, Pearson
Education Limited, UK.
• Luthans, F. (2011). Organizational Behavior: An Evidence-based Approach, Published by
McGraw-Hill/Irwin, Twelfth edition, New York.
• Robbins, S.P. and Judge T.A. (2017). Organizational Behaviour, Seventeenth edition, Pearson
Education UK.
• Robbins, S.P., Judge T.A. and Vohra, N. (2018). Organizational Behavior, Eighteenth edition,
Pearson Education India.
• Weber, M. (1946), From Max Weber: Essays in Sociology. in H. H. Gerth and C.W. Mills, eds.
(New York: Oxford University Press, 1946);
• Weber, M. (1978), Economy and Society, in G. Roth and C.Wittich, eds. (Berkeley: University of
California Press, 1978).
CONCLUSION
This brings us to the end of the second lecture of Module 3.

We shall continue with the topic in the next lecture.

ORGANIZATIONAL DESIGN, CHANGE AND
TRANSFORMATION
DR. SANGEETA SAHNEY, PROFESSOR, VGSOM, IIT KHARAGPUR
Module 3 Lecture 3
Basic challenges of organizational design; Designing organizational structure: Authority and control;
Organizational structures; Types of structures; Contemporary design structures; Why do structures differ?;
Information sharing perspective on structure.
ORGANIZATIONAL DESIGN,
CHANGE AND TRANSFORMATION

Organizational Structure
 Organizational Structure
 Types of Structures
ORGANIZATIONAL STRUCTURE
 An organization structure indicates the number of levels in the
hierarchy, the span of control, and illustrates the formal reporting
relationships.
 It is the formal division, grouping, and coordination of job tasks.
 It illustrates the grouping together of individuals into units or
departments, and the departments into the total organization.
 Also known as situational structure, the organization structure
indicates what an organization is (departments, functions,
responsibilities, reporting relationships, span of control).

 According to Robbins and Judge (2017), “an organizational structure

defines how job tasks are formally divided, grouped, and
coordinated.”
• The organization structure delineates the formal configuration of job
holders' positions, their roles and responsibilities, the system's lines
of authority, patterns of horizontal and vertical specializations, and
relationships among members.
• Vertical specialization depicts the hierarchical layers that formal authority
flows through and decisions are made, whereas Horizontal specialization
indicates the division of labour between departments.

• Organizational structures vary in terms of the degree of autonomy,

centralization, complexity, and formalization.

• The structure of an organization must be designed such that

communication, coordination and control is effective, and
integration of efforts across departments are ensured.
Elements of an organization structure:
o Work specialization

o Departmentalization

o Chain of command

o Span of control

o Centralization and decentralization

o Formalization

o Boundary spanning
 Key Questions The Answer is provided by Redrawn. Source.
1. To what degree are activities Work Specialization Robbins, S.P. and Judge
subdivided into separate jobs? T.A. (2017).
Organizational
2. On what basis will jobs be grouped Departmentalization Behaviour, Seventeenth
together? edition, Pearson
3. To whom do individuals and groups Chain of command Education UK.
report?
4. How many individuals can a manager Span of control
efficiently and effectively direct?
5. Where does decision-making authority Centralization and Decentralization
lie?
6. To what degree will there be rules and Formalization
regulations to direct employees and
managers?
7. Do individuals from different areas Boundary spanning
need to regularly interact?
Work Specialization Economies and
Diseconomies
of Work
 Work specialization is the extent to which Specialization
organizational tasks are subdivided into
distinct jobs.
 The job is divided into a number of stages
or steps, each of which is completed by a
separate individual.
 It results in the division of labour; ensures
effective usage of worker skills; promotes
worker skill enhancement via repetition; Source. Robbins, S.P. and Judge
leads to specialization; the reduced T.A. (2017). Organizational
downtime between jobs boosts Behaviour, Seventeenth
edition, Pearson Education UK.
productivity.
Departmentalization
 The basis of grouping jobs so that common and/or similar tasks
can be coordinated is called departmentalization.

 The various basis on which activities can be grouped are:

o Function performed: Functional departmentalization

o Product or service produced: Product departmentalization

o Geography or territory: Geographic departmentalization

o Process involved: Process departmentalization

o Customer served: Customer departmentalization

Chain of Command
• An unbroken line of authority that runs from the top to the bottom of
the organization, and clearly defines who reports to whom, is termed as
the chain of command.
o Authority: The inherent right of a manager to issue orders and expect
obedience to the same is termed authority.
o Unity of Command: A subordinate must have only one superior to whom he or
she reports directly and is responsible; it helps safeguard the unbroken and
continuous line of authority.
Classical view:
• A subordinate should have only one supervisor to report directly.
Contemporary view:
• In today’s day and age, strict adherence to the unity of command
creates rigidity; and inflexibility impedes organizational
performance.
Span of Control

 The span of control is the number of subordinates that can be

effectively and efficiently directed by a manager.

 It is indicative of the number of levels and managers an organization

comprises of.

 Wide or large versus Narrow or small.

 Wide or large versus Narrow or small.
o A wider or large span means more
employees at each level and fewer levels –
this leads to efficiency in the organization.
o Wider spans are more cost efficient;
However, when the manager or the
supervisor is unable to manage the
subordinates due to constraints of time,
employee performance suffers.
o Narrow or small spans help maintain close
control. However, a narrow span suffer
drawbacks; one, the more the levels, the Source. Robbins, S.P. and Judge
T.A. (2017). Organizational
more expensive it is; two, it results in Behaviour, Seventeenth
increased complexity of vertical edition, Pearson Education UK.
communication and decision making gets
slowed; three, there is strict supervision
which discourages employee autonomy.
Classical view:
• All else being equal, the greater the span, the more efficient the
organization.

Contemporary view:
• Today, organizations have created flat structures with broad spans of
control; empowered employees.
Centralization and Decentralization
Centralization:
 Centralization refers to the extent to which decision making is
centered at a single level/point.
 Decisions are taken by the top managers and executed by the
lower levels.

Decentralization:
 Decentralization refers to the extent to which an organization's
decision making is distributed across the organization.
 Decisions are taken by employees closest to the action points.
 Quick decision making and participative.
Formalization

 Formalization is the magnitude to which jobs in a company are

standardized.

 It relates to clear and explicit job descriptions, rules and regulations,

policies, and procedures.

o High formalization means minimal freedom and discretion over

what, how, and when to do, resulting in consistency and
uniformity of output.
o Low formalization means freedom to exercise discretion.
Boundary Spanning
 When people form relationships with others outside their formally
assigned groups, it is referred to as boundary spanning.

 Boundary spanning helps enhance organization and team creativity.

 It also helps prevent formal structures from becoming too rigid.

 Formal mechanisms to encourage boundary spanning include formal

liaison roles or cross-functional teams and committees.

 Boundary spanning activities are not restricted to within an

organization but may also occur between organizations.
TYPES OF STRUCTURES
I SIMPLE STRUCTURE:
• A simple structure is one wherein there is a low
level of departmentalization, broad spans of
control, centralized authority, very limited task
specialization, and few rules and least
formalization.

• It is a flat structure with just 2-3 vertical levels.

Source. Adapted from Robbins,
• The decision making power and authority S.P. and Judge T.A. (2017).
Organizational Behaviour,
vests in one person; usually, the owner-manager Seventeenth edition, Pearson
makes the decisions. Education UK.
Advantages:
 Simplicity is the biggest advantage.
 The structure offers high flexibility.
 Decision making is quick.
 It is inexpensive to manage.
 There is clear accountability.

Disadvantages:
 Once the organization grows in size, the structure is unsuitable; low
formalization and high centralization create problems because
responsibility for decision making lies with one or few persons.
 Also, it is risky, as everything depends on one person.
II FUNCTIONAL STRUCTURE:
The organizational structure is based on different
functional areas that exist in organizations, i.e.,
the different functions performed by different
departments.
o Activities are grouped by common function;
employees may share common skill sets and
perform the same functions.
o The structure is suitable when:
o In-depth expertise is required for meeting
organizational goals.
o Efficiency is important, and more of vertical, and Source. Adapted from
less of horizontal coordination is required. Jones, G. R. (2013).
o Functional structures are commonly used by Organizational Theory,
Design, and Change.
large organizations, and the structure is suitable Seventh edition, Pearson
for organizations that offer just one or two Education Limited, UK.
products or services.
Advantages:
 The structure enables a firm to achieve its functional goals
efficiently. It allows for economies of scale within functional
departments.
 Knowledge, skills, and expertise regarding specific activities are
consolidated, and enhance learning even further; this also helps in
coordinating with and controlling each other’s behaviour.
 Specialization leads employees to gain expertise quickly, and
employees’ skills and abilities improve further; they become
aware of a range of functional activities, and this increases the
scope for in-depth knowledge and skill development, resulting in a
competitive advantage for the organization.
 Employees are motivated to perform well and climb the ladder
specific to their specialties; they exhibit higher commitment.
Disadvantages:
 The structure slows down an organization’s response to
environmental change.
o The hierarchy leads to rigid, formal communication, which
delays decision making.
o Also, the vertical hierarchy may get overloaded, and managers
may not respond fast.
 Lesser of horizontal coordination within departments stifles
innovation.
 Also, conflict, as well as problems of coordination within the unit
and between units, may cause reduced motivation.
 Employee perspective gets restricted and narrowed to their
functions, and this results in a restricted view of the
organizational goal.
 Redrawn. Source.
Control Problems in Jones, G. R. (2013).
Functional Structures Organizational
Theory, Design, and
Change. Seventh
Coordination and edition, Pearson
control problems Education Limited,
associated with a UK.
functional structure
can be minimized
through:
 Increasing vertical
differentiation
 Increasing horizontal
differentiation
 Increasing integration
III DIVISIONAL STRUCTURE:
 The divisional structure is based on different units by product, service,
customer, or geographical market area; highly departmentalized.
o Product/service organizational structure
o Customer organizational structure
o Geographic organizational structure
 The divisions can be organized based on products, services, product
groups, projects or programs, and businesses or profit centers.
o The grouping is based on any form of organizational output.

 The structure is suited for large organizations which offer multiple

product lines or cater to several segments in various locations. It
provides high visibility to its offerings.
 It is also apt for organizations that operate in unstable environments.
Advantages:
 The division structure allows for unit-specific concerns to be
addressed, and enables coordination across functional
departments within a division; units can be managed effectively.

 It allows organizations to make adjustments to differences in

products, regions, and customers.

 It promotes flexibility and change, and the organization is able to

adapt quickly to environmental needs.

 The structure also leads to decentralized decision making.

Disadvantages:
 Economies of scale are lost.
 There is duplication of activities across units, leading to wastage of
resources and an increase in costs.

 Coordination across product lines can be a complex task, and each

division may perceive itself to be separate and distinct from the other;
Integration across product lines is difficult.
o Similarly, the focus is on horizontal coordination within a region rather
than linkages across regions or with the corporate office.

 Employees identify with the product line rather than a functional

specialty, and this results in a dilution of in-depth competence and
technical specialization.
o Similarly, in the case of a geographical spread across countries, employees
identify with the region’s goals.
Product Divisional Structure Source. Adapted from
Daft, R. L. (2008).
Organizational Theory
and Design, Tenth
edition. South-
Western, Cengage
Learning, USA.
Geographic structures
 The geographic structure is
a kind of divisional
structure based on
geographic location.
 Divisions for each location
are created according to
the needs of the different
locations.

Redrawn. Source. Jones, G. R. (2013).

Organizational Theory, Design, and Change.
Seventh edition, Pearson Education Limited, UK.
Market Structures
The market structure is
a kind of divisional
structure based on the
specific needs of
diverse customer
groups to which an
organization serves.

Redrawn. Source. Jones, G. R. (2013).

Organizational Theory, Design, and Change.
Seventh edition, Pearson Education Limited, UK.
IV MATRIX STRUCTURES
 The matrix structure is an organizational structure that combines
two different departments, for example, functional and product
departmentalization, functional and geographic departmentation,
or product and geographic departmentation, etc.
 The organization integrates two or more structural grouping
alternatives simultaneously, and this results in a strong linkage.
o It formalizes horizontal teams along with vertical hierarchy and
allows equal balance to both.
 It breaks the principle of unity of command and creates dual lines
of authority; an employee reports to two superiors.
 The structure is appropriate for organizations that operate in
unstable environments and must take complex decisions and adapt
quickly and frequently to change.
Advantages:
 The structure helps facilitate coordination when an organization is
involved in a number of complex and interrelated activities and must
cope with rapid environmental change.
 Interaction between different departments that must work together
to achieve goals leads to faster information sharing and effective
communication.
 Instead of living in ‘silos’, confined to their departments, people
interact with each other; it allows the use of specialists across
departments to ensure that they are effectively and efficiently used;
it also allows opportunities for skill development.
 The matrix helps achieve economies of scale.
 The structure also allows flexible sharing of resources.
Disadvantages:
 The structure can cause confusion and stress in employees, who
must report to two bosses.
 There is a dual authority. Conflicting and contradictory expectations
and demands placed by the two bosses can lead to role conflict and
role and task ambiguity, and the work environment can be stressful.
 The desire for adherence to orders and obedience by the
subordinates may lead to conflict and power struggle between the
two departments and the managers.
 A huge effort is required to maintain a power balance.
 In the absence of information and power sharing, the matrix would
fail to produce results; instead of relying on vertical authority,
employees must learn to collaborate.
Conditions for Matrix:
According to Stanley and Davis (1977), a matrix structure is
appropriate under certain conditions:

i. The organization requires a flexible use of resources like people

and equipment etc. across product lines.
ii. Environmental pressure exists for more than one critical output,
like the need for in-depth technical knowledge as well as products;
the dual pressure implies a balance of power between the units
producing the critical output and the need for a dual-authority
structure so that the balance can be maintained.
iii. The organization is faced with a complex and uncertain
environmental domain. This necessitates a huge amount of
coordination and information processing both vertically and
horizontally.
Matrix Structure Source. Adapted from
Daft, R. L. (2008).
Organizational Theory
and Design, Tenth
edition. South-
Western, Cengage
Learning, USA.
References
• Daft, R. L. (2008). Organizational Theory and Design, Tenth edition. South-Western, Cengage
Learning, USA.
• Davis, S.M. and Lawrence, P.R. (1977) Matrix (Reading, Mass.: Addison-Wesley, 1977).
• Greenberg, J. (2013), Behavior in Organizations, Tenth Edition, Prentice Hall of India, Delhi.
• Jones, G. R. (2013). Organizational Theory, Design, and Change. Seventh edition, Pearson
Education Limited, UK.
• Luthans, F. (2011). Organizational Behavior: An Evidence-based Approach, Published by
McGraw-Hill/Irwin, Twelfth edition, New York.
• Robbins, S.P. and Judge T.A. (2017). Organizational Behaviour, Seventeenth edition, Pearson
Education UK.
• Robbins, S.P., Judge T.A. and Vohra, N. (2018). Organizational Behavior, Eighteenth edition,
Pearson Education India.
• Weber, M. (1946), From Max Weber: Essays in Sociology. in H. H. Gerth and C.W. Mills, eds.
(New York: Oxford University Press, 1946);
• Weber, M. (1978), Economy and Society, in G. Roth and C.Wittich, eds. (Berkeley: University of
California Press, 1978).
CONCLUSION
This brings us to the end of the third lecture of Module 3.

We shall continue with the topic in the next lecture.

ORGANIZATIONAL DESIGN, CHANGE AND
TRANSFORMATION
DR. SANGEETA SAHNEY, PROFESSOR, VGSOM, IIT KHARAGPUR
Module 3 Lecture 4
Basic challenges of organizational design; Designing organizational structure: Authority and control;
Organizational structures; Types of structures; Contemporary design structures; Why do structures differ?;
Information sharing perspective on structure.
ORGANIZATIONAL DESIGN,
CHANGE AND TRANSFORMATION
Organizational Structure
 Contemporary Design Structures
CONTEMPORARY DESIGN STRUCTURES
 With a rising trend toward flatter structures, organizations prefer
structures with fewer layers of hierarchy and a focus on removing
organizational boundaries.
 Structures that manifest such characteristics include:
 Horizontal structures
 Virtual structures
 Team structures
 Circular structures
 Hybrid structures
 Boundaryless organizations
 Network structures
 E-commerce
HORIZONTAL STRUCTURES
 The horizontal structure organizes employees around core
processes.

 The shift to such a structure generally occurs during reengineering.

o Reengineering, also termed business process reengineering
(BPR) is defined as the restructuring of a vertical organization
along horizontal workflows and processes.

o In reengineering, the focus is on core processes that cut across

horizontally throughout the organization; teams are formed
that work together to serve customers.
 A horizontal structure is characterized by the following:
o Individuals are not dominant players; self-directed teams are, eg.
Cross-functional teams and task forces.
o The structure is built on cross-functional processes, and not functions,
products, or geography.
o Vertical hierarchy and departmental boundaries are eliminated.
o Decision making regarding team functioning and the core process
handled by the team is delegated to team members.
o Process owners are fully accountable for the core process they
handle.
o The culture is characterized by openness, trust, and collaboration,
with an emphasis on continuous improvement.

 The structure is suitable when customer needs and demands are

changing rapidly and when learning and innovation are crucial.
These provide flexibility to the organization.
Advantages:
 The structure leads to increased coordination; it also helps increase
flexibility, and the organization can be more responsive to
environmental changes.

 Breaking down boundaries between functional departments

enables employees to have a more holistic approach; they develop a
broader view of the organizational goals.

 The structure emphasizes teamwork, cooperation, and

collaboration; people are committed to meeting common
objectives.

 Employees are provided with opportunities to share responsibility

and participate in decision making.
Disadvantages:

 Identifying and defining core processes is critical. It is complex and

time consuming, and in case not done properly, it can lead to a huge
loss for the organization.

 Shifting from traditional structures to a horizontal one requires a

change in management orientation and philosophy, coordination,
and control mechanisms, and this can be challenging; resistance to
change can be high.

 The structure also requires training regarding work orientation and

styles.
Redrawn. Source.
Daft, R. L. (2008).
Organizational
Theory and Design,
Tenth edition.
South-Western,
Cengage Learning,
USA.
VIRTUAL STRUCTURES
 A virtual structure is a small company that outsources the primary
functions of its business.
o Outsourcing: It is contracting out certain tasks, activities, or
functions to other organizations.
o Today, outsourcing is on the rise.

 Organizations sub-contract most of their major functions or

processes to other organizations, and the various activities are
coordinated from the headquarters.

 The philosophy behind such a structure is that an organization must

concentrate on activities where it holds a core competence; the rest
must be outsourced to contract partners who can do it better.
 A small number of executives form the core of
the organization, and their job is restricted to
monitor in-house activities (if any), and to
coordinate and control relationships with
other external organizations to whom the major
business functions like manufacturing and
distribution are outsourced.
o It is similar to a central hub surrounded by
external specialists, and electronically
connected.
 The dotted lines in the figure illustrate the
contractual relationships typically maintained
under contracts.
 Each project or team comprises staff that is
Source. Adapted from Robbins, S.P.
qualified for the job; long term risks and costs
and Judge T.A. (2017). Organizational
are reduced as the concept of ‘long term’ is
Behaviour, Seventeenth edition,
missing, and a team has a finite life; once the Pearson Education UK.
task is over, it gets disbanded.
Advantages:
 The structure has the scope of being purely global, in the sense
that inputs (resources) can be obtained at the best price from all
across the world; output can also be sold through partners
anywhere across the world.
 For new and/or small companies, the structure is highly suitable
as it enables both procurement of inputs and sale of outputs
without huge investments in facilities and infrastructure.
 Also, administrative expenses can be reduced; It is cost-saving as
it eliminates the need for permanent offices and staff, and
hierarchical roles.
 The structure enables extreme flexibility and prompt response to
the changing environment.
Disadvantages:
 There is extreme decentralization which results in managers losing out on
control of a lot of operations.
 These organizations are in a state of perpetual fluidity and require
reorganization, the reason being unclear goals, and unclear roles and
responsibilities, often resulting in conflict, power struggles, and political
behaviour.
 A lot of time and energy goes into coordination with external partners, as
well as in managing relationships and resolving conflicts.
 Also, due to dependence on external partners, a manager may have to face
situations of exigencies.
 It is difficult to earn employee loyalty and commitment; and creating a
corporate culture is difficult.
 Owing to lesser interaction between people, shared goals may get diluted,
and information sharing would be lesser, which would ultimately hurt
creativity and innovation.
• Companies today extend outsourcing to an extreme end, and create
virtual network structures, also called modular structures; connected
electronically.
• The virtual network is highly centralized, with minimal or no
departmentalization; the organization is a loosely connected group of
separate parts or components; the virtual network organization acts
as a hub for contracted experts.
• The various departments are distinct organizations spread within or
outside the country, and are electronically connected for information
sharing and task completion.
TEAM STRUCTURES
 The team structure is an organizational structure wherein
departments are replaced with empowered teams.

 The chain of command is eliminated, and so are the vertical and

horizontal boundaries.
o Removal of vertical boundaries leads to the flattening of the
hierarchy and reduction of status and rank.
o Cross-hierarchical teams and participative decision making
practices can be used.

 External barriers between the company and its stakeholders

(vendors and suppliers, and customers) are also eliminated, and so
are geographic and cultural barriers.
Advantages:
 Cross-functional composition of teams leads to sharing of
knowledge and expertise and improved decision making.
 There is an increased motivation at work.

Disadvantages:
 Frequent meetings are time consuming.
 Individuals tend to think with their functional/departmental
perspective.
CIRCULAR STRUCTURE

 An organization structure in which the top executives form the

core at the center and are surrounded outwardly in rings
grouped by function (managers, then specialists, then workers)
is termed as a circular structure.

 The top management is at the heart of the organization and

spreads the vision outward.

 The structure holds attraction for creative entrepreneurs.

 Source. Adapted from
HYBRID STRUCTURE Daft, R. L. (2008).
Organizational Theory
• A hybrid and Design, Tenth
edition. South-
structure is a
Western, Cengage
combination of Learning, USA.
different
structural
approaches.
• In rapidly
changing
environments,
it is frequently
used.
BOUNDARYLESS ORGANIZATIONS
 A boundaryless organization is one with networks characterized by
the elimination of the chain of command, flatter hierarchies,
participative decision making, and teamwork.

 Internal barriers (horizontal and vertical) between departments and

horizontal levels, as well as external barriers between the company
and customers, are eliminated, and tasks are performed by
empowered teams.

 Coordination is achieved through Information Technology: e-mails, e-

meetings, e-conferences, etc.

 A boundaryless organization uses virtual, network, and modular

organizational structures to get closer to stakeholders.
NETWORK STRUCTURES
 A network structure is a collection of various organizations whose
activities are coordinated and managed through contracts and
agreements.
 The organization outsources various functions and concentrates on
what it can do best.
 As an organization enters into strategic alliances and strategic
contracts and agreements with a wide range of vendors and suppliers,
manufacturers, and dealers and distributors to outsource many of the
value creation activities, network structures can become extremely
complex.
 Coordination is achieved through Information Technology: e-mails, e-
meetings, e-conferences, etc.
E-COMMERCE
 E-commerce is the use of IT and the Internet to
conduct business between companies and between
companies and individual customers.

o Business-to-business (B2B) commerce

o Business-to-consumer (B2C) commerce

References
• Daft, R. L. (2008). Organizational Theory and Design, Tenth edition. South-Western, Cengage
Learning, USA.
• Davis, S.M. and Lawrence, P.R. (1977) Matrix (Reading, Mass.: Addison-Wesley, 1977).
• Greenberg, J. (2013), Behavior in Organizations, Tenth Edition, Prentice Hall of India, Delhi.
• Jones, G. R. (2013). Organizational Theory, Design, and Change. Seventh edition, Pearson
Education Limited, UK.
• Luthans, F. (2011). Organizational Behavior: An Evidence-based Approach, Published by
McGraw-Hill/Irwin, Twelfth edition, New York.
• Robbins, S.P. and Judge T.A. (2017). Organizational Behaviour, Seventeenth edition, Pearson
Education UK.
• Robbins, S.P., Judge T.A. and Vohra, N. (2018). Organizational Behavior, Eighteenth edition,
Pearson Education India.
• Weber, M. (1946), From Max Weber: Essays in Sociology. in H. H. Gerth and C.W. Mills, eds.
(New York: Oxford University Press, 1946);
• Weber, M. (1978), Economy and Society, in G. Roth and C.Wittich, eds. (Berkeley: University of
California Press, 1978).
CONCLUSION
This brings us to the end of the fourth lecture of Module 3.

We shall continue with the topic in the next lecture.

ORGANIZATIONAL DESIGN, CHANGE AND
TRANSFORMATION
DR. SANGEETA SAHNEY, PROFESSOR, VGSOM, IIT KHARAGPUR
Module 3 Lecture 5
Basic challenges of organizational design; Designing organizational structure: Authority and control;
Organizational structures; Types of structures; Contemporary design structures; Why do structures differ?;
Information sharing perspective on structure.
ORGANIZATIONAL DESIGN,
CHANGE AND TRANSFORMATION

Organizational Structure
 Why do Structures Differ?
 Information Sharing Perspective On Structure
WHY DO STRUCTURES DIFFER?
Two basic models:
Mechanistic and Organic
Mechanistic Model:
 A structure characterized by centralization, high standardization,
strict formalization, managerial hierarchy, extensive stratification,
departmentalization, limited information network, narrow span of
control, and a tall structure.

Organic Model:
 A structure characterized by decentralization and participative
decision making, low standardization, low formalization, lesser
specialization and stratification, large and free-flowing and
comprehensive information networks, a broad span of control, and
a flat structure with cross-hierarchical and cross-functional teams.
Redrawn. Source.
Robbins, S.P. and Judge
T.A. (2017).
Organizational
Behaviour, Seventeenth
edition, Pearson
Education UK.
Why do some organizations structure themselves on the
mechanistic model, and why do others follow the organic
model?
Determinants of an organization’s structure:
 Strategy

 Size

 Technology

 Environment

 Institutions
I STRATEGY
 The organization’s strategy is an important determinant of the
organizational structure.
 The strategy dimensions which affect structural design are innovation, cost
minimization, and imitation.
o Innovation strategy is a strategy that focuses on the creation and launch of
new product offerings.
 Question: To what extent does an organization innovate?
o Cost-minimization strategy is a strategy that strongly controls costs and
does not allow unnecessary expenses to be related to R&D, marketing, or
others.
 Question: To what extent does an organization minimize costs?
o Imitation strategy is a strategy wherein a company tries to minimize risk
and maximize profit opportunities by selling new products or venturing
into new markets only after the innovator or the first mover has done so
and attained success.
 Question: To what extent is the organization an imitator?
Porter’s Generic Strategies:
1. Low-cost business-level strategy:
- Exerts stringent controls over existing and current activities and
weaker controls over new ventures.

2. Differentiation business-level strategy:

- Creates expensive, high-quality products aimed at specific market
segments.

3. Focus strategy:
- Entails concentrating all of the organization's resources on a single
market segment.
 Strategy Structural Option The Strategy–
Structure
Innovation Relationship
Organic: A loose structure; low specialization, low
Redrawn. Source.
formalization, decentralized Robbins, S.P. and Judge
T.A. (2017).
Cost minimization Mechanistic: Tight control; extensive work
Organizational
Behaviour, Seventeenth
specialization, high formalization, high centralization edition, Pearson
Education UK.

Imitation Mechanistic and organic: Mix of loose with tight

properties; tight controls over current activities and
looser controls for new undertakings
Characteristics of Organizational Structure Associated with Redrawn. Source.
Jones, G. R. (2013).
Business-Level Differentiation and Low-Cost Strategies Organizational Theory,
Design, and Change.
Seventh edition,
Pearson Education
Limited, UK.
II SIZE
 The size of the organization affects the structure.

o Organizations with a larger number of employees will have more

specialization and more departments.
o Also, the number of vertical levels will be high, and there will be more
rules and regulations.

 However, as the organization begins to expand more and more, size

becomes less important.
III TECHNOLOGY
 Technology is indicative of the manner in which inputs are
transformed into outputs.

 Organizational structures must be designed keeping technology

in mind.

 Also, existing structures must be adapted to changes in

technology.
o Routine technology = mechanistic organizations
o Non–routine technology = organic organizations
IV ENVIRONMENT
 An organization’s environment refers to forces or institutions
external to an organization that affect its functioning.

 The environment in which an organization operates affects its

structure; and as forces in the environment change, organizations would
require a restructuring.

 The organizational structure would vary across stable and dynamic

environments.

 There are three dimensions of organizational environment, viz.,

capacity, volatility, and complexity.
o Capacity: Capacity refers to the extent to which the environment
helps and facilitates growth.
o Rich and growing environments help create extra resources, which can be
used during shortage.
o Volatility: Volatility refers to the extent of instability prevailing in
the environment.
o A dynamic environment coupled with unpredictable change creates
difficulty in making accurate predictions; today, because of rapid change,
environments are becoming highly volatile.
o Complexity: Complexity is the extent of heterogeneity and
concentration among environmental forces.
o Simple environments (homogeneous and concentrated) versus complex
(heterogeneity and dispersion) environments.
Three-dimensional model of the environment

 Scenario:
A) Environment is characterized
by scarcity, dynamism, and
complexity: Organic structure.
B) Environment is characterized
by abundance, stability, and
non-complexity (simple):
Mechanistic structure.

Redrawn. Source. Robbins, S.P. and Judge T.A. (2017).

Organizational Behaviour, Seventeenth edition,
Pearson Education UK.
V INSTITUTIONS

 Institutions refer to cultural factors that act as codes for acceptable and
appropriate behaviour.

 The structure of an organization is also affected by institutions.

 Examples: regulatory pressures, fads, and trends, etc.

 Redrawn. Source.
Organizational Structure: Its Determinants and Outcomes Robbins, S.P. and Judge
T.A. (2017).
Organizational
Behaviour, Seventeenth
edition, Pearson
Education UK.
INFORMATION SHARING PERSPECTIVE ON STRUCTURE
Linkage is defined as "the extent to which organizational elements
communicate and coordinate with one another."

• Organizations must be designed such that there exists a mechanism

for information flow, both vertically and horizontally, as this would
enable the achievement of goals.
• However, in reality, there exists an inherent tension between the
vertical and horizontal mechanisms.
• Vertical linkages: Objective: Increase control
• Horizontal linkages: Objective: Coordination and collaboration
(reduction of control)
Choice between:
Traditional organizational orientation versus Contemporary learning
organization

 Traditional organizational orientation:

 Goal: Efficiency; importance to vertical communication and
control.

 Contemporary learning organization:

 Goal: Learning and adaptation; importance to horizontal
communication and coordination.
 Redrawn. Source.
The Relationship of Organization Design to Efficiency vs. Learning Daft, R. L. (2008).
Outcomes Organizational
Theory and Design,
Tenth edition.
South-Western,
Cengage Learning,
USA.
The Relationship of Organization Design to Efficiency versus
Learning Outcomes
Efficiency versus Learning Outcomes
Vertical Information Sharing:
• Information linkages are created to facilitate coordination and
control between the various levels in an organization.

Vertical linkages:
 Linkages that exist between the top and bottom levels in the
organizational hierarchy for facilitating coordination of activities
and for control are referred to as vertical linkages.
 Mechanisms for vertical linkage: hierarchical referral (chain of
command), rules, and vertical information systems (memos, periodic
reports etc.).
Horizontal Information Sharing:
• Information linkages are created to facilitate communication and
coordination between different departments in an organization.

Horizontal linkages:
 Linkages that exist horizontally across organizational departments
for facilitating the coordination of activities and communication
are referred to as horizontal linkages.
 Such linkages help overcome departmental barriers, such that the
employees across different departments work together to achieve
organizational goals.
 Mechanism for horizontal linkage: cross-functional information
systems, direct contact, task forces, full-time integrators, teams,
etc.
Ladder of Mechanismsfor Horizontal Linkage and Coordination Redrawn. Source.
Daft, R. L. (2008).
Organizational
Theory and Design,
Tenth edition.
South-Western,
Cengage Learning,
USA.
Relationship of Structure to Organization’s Need for Redrawn. Source.
Efficiency versus Learning Daft, R. L. (2008).
Organizational
Theory and Design,
Tenth edition.
South-Western,
Cengage Learning,
USA.
Structure to Organization’s Need for Efficiency vs. Learning
• Structural Alignment:
 Managers must rightly balance between vertical control and
horizontal coordination.
 Vertical control: Goal: efficiency and stability
 Horizontal control: Goal: Learning, innovation, and flexibility

Symptoms of Structural Deficiency:

 Managers monitor the environment from time to time and
determine if there are any structural deficiencies.
 Delayed decision making, absence of innovations, lower
performance of employees, and conflict are symptoms of structural
deficiency .
 Necessary changes must be made to the organization structure to
create a good-fit with the environment.
References
• Daft, R. L. (2008). Organizational Theory and Design, Tenth edition. South-Western, Cengage
Learning, USA.
• Davis, S.M. and Lawrence, P.R. (1977) Matrix (Reading, Mass.: Addison-Wesley, 1977).
• Greenberg, J. (2013), Behavior in Organizations, Tenth Edition, Prentice Hall of India, Delhi.
• Jones, G. R. (2013). Organizational Theory, Design, and Change. Seventh edition, Pearson
Education Limited, UK.
• Luthans, F. (2011). Organizational Behavior: An Evidence-based Approach, Published by
McGraw-Hill/Irwin, Twelfth edition, New York.
• Robbins, S.P. and Judge T.A. (2017). Organizational Behaviour, Seventeenth edition, Pearson
Education UK.
• Robbins, S.P., Judge T.A. and Vohra, N. (2018). Organizational Behavior, Eighteenth edition,
Pearson Education India.
• Weber, M. (1946), From Max Weber: Essays in Sociology. in H. H. Gerth and C.W. Mills, eds.
(New York: Oxford University Press, 1946);
• Weber, M. (1978), Economy and Society, in G. Roth and C.Wittich, eds. (Berkeley: University of
California Press, 1978).
CONCLUSION
This brings us to the end of the last lecture of Module 3.

We shall start with a new topic next week.