09 BDPP1103 T5

Topic  Basic
Organisational
5 Design
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe the six structural elements of organisational design;
2. Describe the five departmentalisation methods that can be practised
by organisations;
3. Explain the six differences between mechanistic and organic
organisations;
4. Explain the four contingency factors that influence organisational
structure; and
5. Elaborate on the six organisational design structures.
 INTRODUCTION
Over the past several centuries, we have witnessed how managers attempted to
establish their organisational structure based on a hierarchical structural
framework which encouraged efficient mass production, promoted uniformity in
rules and was centrally controlled.
However, as the organisation expanded, multiple managerial layers had to be

included in the existing structure. The question was whether the existing structure
could cope with the increased manpower and whether this structure could
perform at the optimum level? Could the organisation continue to compete
actively in a dynamic environment?
Copyright © Open University Malaysia (OUM)

TOPIC 5 BASIC ORGANISATIONAL DESIGN  53
When the organisations expanded in size, a re-evaluation of the existing structure

became necessary so as to enable the organisation to achieve optimum
effectiveness and efficiency levels. The reorganisation would become necessary if
it was found that the existing structure was no longer effective. This activity refers
to the organising process. The organising process is the manner in which work
could be redesigned and reallocated among the members of the organisation so
that the goals of that organisation could be achieved more effectively.
After corporate strategy decisions have been made, an effective structure must be
put in place to facilitate the achievement of organisational goals. When a manager
becomes involved in re-establishing and rearranging the organisational structure,
he is said to be involved in the organisational design process. The organisational
design is normally carried out by top management and it encompasses all types of
organisations.
5.1 STRUCTURAL ELEMENTS

When we discuss aspects of organisational design, we must focus on six structural
elements; specialisation, a chain of command, a span of control, authority and
responsibility, centralisation and decentralisation and finally departmentalisation.
We will discuss these further in the next subtopics.
5.1.1 Specialisation
In Topic 1, we have covered the aspect of specialisation, which was put forward
by an economist whose contributions remain significant to this day. In the 1700s,
Adam Smith, in his book, entitled „The Wealth of Nations‰, emphasised the
breakdown of labour into several divisions.
This meant that work had to be divided into various stages and each work step be
undertaken by a different person. Every individual specialised in a particular area
of activity. Specialisation required multiskilled and competent workers.
5.1.2 Chain of Command

The pioneers of management were of the opinion that workers should only have
one leader. A worker who has more than one leader often receives conflicting
instructions and priorities from different bosses. When the principle of the chain
of command is violated, the pioneers of management proposed a clear division of
activities and appointment of one leader for each level of activity.

54  TOPIC 5 BASIC ORGANISATIONAL DESIGN
The concept of chain of command is logical at the structural level of an

organisation. Many organisations are still guided by this principle, but rigid
adherence to this principle will give rise to a rigid environment and will adversely
affect organisational performance.
5.1.3 Span of Control

The span of control principle discusses the number of workers that can be
effectively controlled by a manager. There is no agreement on specific numbers
but the pioneers favoured a smaller span of control or a number of workers of less
than six.
In general, top managers required a smaller span of control compared to middle

managers, and middle managers needed to have a smaller span of control
compared to first-line managers.
There have been changes in thinking about the effective span of control. Many
organisations are increasing their respective spans of control. This span is
becoming more and more dependent on factors beyond the control of the
organisation.
This is because it is believed that workers who have more training are more
experienced and need less direct supervision. The factors taken into consideration
are the workersÊ tasks, the complexity level of the task, the distance between
workers, level of uniformity of tasks and other factors.
5.1.4 Authority and Responsibility

Authority refers to the rights enshrined in a managerÊs position to give instructions
with the hope that those instructions will be adhered to. Authority was the guiding
principle of management pioneers who believed that authority would glue the
organisation together. Authority was usually a top-down function, i.e. from the
top to a lower management level. Authority was linked to the post without taking
into consideration the personal characteristics of the holder of the post. This meant
that when a person vacated a post, the authority remained in the post and was not
taken away by that person.
When managers disburse authority, they must also allocate equivalent

responsibilities. When workers are given certain rights, they are also expected to
carry out the relevant tasks. The distribution of authority without responsibility
will only give rise to coercion. No one should be given responsibility for something
without being given the corresponding authority.

5.1.5 Centralisation and Decentralisation

Centralisation depends on the degree of decision-making authority that is
allocated to the lower levels in an organisation. Centralisation and
decentralisation are phenomena related to decision-making authority. It must be
remembered here that no organisation practises ideal centralisation and
decentralisation policies. However, the ultimate objective is the efficient and
optimum utilisation of manpower.
Traditional organisations are normally in the form of a pyramid, that is, power and
authority are vested in the top layers. In such an organisational structure,
centralised decisions are obviously practised.
Current organisations are becoming more and more complex and faced with
dynamic changes in the environment. On this basis, more and more managers
believe that decisions should be made by those who are in proximity to the
problem. Managers of today will select the level of centralisation or
decentralisation based on their capacity to make decisions so as to achieve
organisational objectives.
One form of empowerment is by distributing authority to workers to make

decisions on daily tasks but this does not mean senior managers are totally free
from decision-making.
5.1.6 Departmentalisation
The pioneers of management proposed that organisational activity should be
specialised and grouped together. Specialisation gave rise to experts who needed
to be coordinated. The coordination work could be done by placing the experts
together in one department under one manager. Methods of departmentalisation
are shown in Table 5.1.

Table 5.1: Methods of Departmentalisation
Departmentalisation
Explanation
Method
Functional This method divides manpower according to the main
Departmentalisation functions of the organisation. It can be used by all types of
(see Figure 5.1) organisations.
Product Every product is placed under a senior manager who is an
Departmentalisation expert and responsible for all matters related to that product.
(see Figure 5.2)
Customer This method is used on the assumption that the customers in
Departmentalisation each department have common problems and needs which
(see Figure 5.3) can be managed by one expert.
Geographical This method is very valuable if the companyÊs customers
Departmentalisation span a wide area.
(see Figure 5.4)
Process This method groups all activities based on work-flow or
Departmentalisation customers.
(see Figure 5.5)
Figures 5.1 to 5.5 show the departmentalisation methods.
Figure 5.1: Functional departmentalisation

Figure 5.2: Product departmentalisation
Figure 5.3: Customer departmentalisation
Figure 5.4: Geographical departmentalisation

Figure 5.5: Process departmentalisation
SELF-CHECK 5.1
We have discussed six important elements in organisational design.

Please select and match the six elements which have been discussed
with the explanation in the left column.
Departmentalisation, Span of Control, Chain of Command, Specialisation,

Authority, Centralisation and Decentralisation
Description Element
1. A worker who has more than one boss often receives
conflicting instructions and priorities. As such, a worker
should have only one boss.
2. The rights enshrined in an organisational position to
give instructions with the hope the instructions are
adhered to.
3. Coordination work can be done by placing the experts
together in one department under the direction of a
single manager.
4. Tasks are divided into several stages and each step is
carried out by a different person.
5. The functions of several decision-making authorities are
distributed to lower levels in the organisation.
6. Discusses how many workers can be controlled by a
manager effectively.

5.2 CONTINGENCY FACTORS THAT INFLUENCE

STRUCTURE
The most appropriate structure for an organisation depends on contingency factors.
Among the popular contingency factors are strategy and size of the organisation, the
technology used and the environment surrounding the organisation.
5.2.1 Mechanistic Organisations

A mechanistic organisation is an organisation that is characterised by specialised
jobs and responsibilities, precisely defined, unchanging roles, and a rigid chain of
command based on centralised authority and vertical communication. This type of
organisation works best in a stable, unchanging business environment. Mechanistic
organisations are the result of the integration of the six structural elements.
The chain of command ensures that there is a formal hierarchy of authority. A

narrow span of control creates a tall and impersonal structure, i.e. the top
management ensures control through the imposition of rules. Besides this, a high
degree of specialisation also allows tasks to be carried out easily, routinely and
uniformly. Departmentalisation causes the situation to be very impersonal, which
in turn necessitates multiple managerial layers.
5.2.2 Organic Organisations

Organic organisations are organisations which can adapt to various situations.
They are characterised by broadly defined jobs and responsibility, loosely defined,
frequently changing roles, and decentralised authority and horizontal
communication based on task knowledge. This type of organisation works best in
a dynamic, changing business environment.
This type of organisation contrasts significantly with mechanistic organisations. Its

unique structure enables it to be flexible according to its needs. Under this
structure, there are competent and trained technicians who can handle problems.
They need minimum supervision and control. In addition, organic organisations
are more decentralised.

Now, let us look at Figure 5.6 which shows the differences between mechanistic
and organic organisations.
Figure 5.6: Mechanistic organisation versus organic organisation
SELF-CHECK 5.2
List the differences between mechanistic and organic organisations.
Now, let us look at the contingency factors that influence organisational structure.
5.2.3 Strategy
The organisational structure is one method that can assist management to achieve
its objectives. As such, structure follows strategy. In fact, the organisational
structure is based on strategy. If management makes a decision to change
strategies, changes must also be made to the organisational structure. Research
also supports the relationship between strategy and structure.
5.2.4 Size
There is historical evidence that an organisationÊs size has an impact on the creation
of its structure. Big organisations which employ more than 2,000 workers will be
more inclined towards work specialisation, differentiation, and the use of rules
compared to smaller organisations. However, this relationship is not linear as the
impact of size will become less important as the organisation keeps expanding.

5.2.5 Technology
Every organisation utilises some form of technology to transform resource input into
organisational output. To achieve this objective, the organisation uses tools,
materials, human expertise and experience, arranged according to specific activities.
Researchers have concluded that to achieve high levels of effectiveness, technology
must complement the organisational structure. A lot of research focuses more on the
methods of transforming input to output and the differences in the routine levels of
carrying out the tasks. The more routine a task, the greater is the need for a
uniformed structure. Organic organisations need less routine technology.
5.2.6 Environment
Mechanistic organisations are most effective in stable environments. On the other
hand, organic organisations function better in an uncertain and fluid environment.
The relationship between structure and environment is the main reason why
managers restructure their organisations to ensure responsiveness and flexibility.
Aspects of competition at the global level, for example, frequent product

innovation and increased customer demand, are examples of dynamic
environmental forces. Mechanistic organisations will face a dead-end if hit by the
waves of change.
SELF-CHECK 5.3
What are the four contingencies that influence the structure of an
organisation? Explain.
5.3 ORGANISATIONAL DESIGN APPLICATION

In this subtopic, we will look into the different organisational structures, such as
the simple structure, bureaucracy, team and borderless structure.
5.3.1 Simple Structure

Most organisations start off as simple-structured entrepreneurship. The owner of
the company is the president and all workers report directly to him. The level of
work specialisation is low with minimum operational control procedures.
Centralised authority is vested in one person, i.e. the owner. This kind of simple

structure is a horizontal organisation that practises centralised decision making. It

is mostly used by smaller organisations.
Among the strengths of this simple structure are that decisions can be made
quickly as they only involve one person, and it is more flexible as coordination
work can be carried out easily. Operational costs are also low due to the small
number of workers and the question of accountability is also clear.
The weakness of this structure is it only works well for small organisations. Its
effectiveness becomes weaker when the organisation grows. The lack of policies
and rules to guide its operations and a high degree of centralisation result in
information overload at the top level. When the size of the organisation increases,
decision-making is delayed and comes to a standstill. Finally, all decisions depend
on one person only.
5.3.2 Commencement of Bureaucracy

Many organisations cannot survive for long with a simple organisational structure.
When the number of workers increases, less formal work procedures are replaced
by more formal procedures. Rules are implemented, departmentalisation is
established and managerial layers are increased to coordinate tasks in the
respective departments. At this stage, bureaucracy comes into existence. Two
bureaucratic designs that are most popular are the functional structure and the
divisional structure.
(a) Functional Structure

The advantage of the functional structure is work specialisation. It facilitates
economies of scale and reduces duplication of personnel and equipment. The
weakness is that it focuses more on the achievement of functional objectives
over organisational objectives.
(b) Divisional Structure

The divisional structure consists of fully-equipped units or divisions. In
principle, each division is autonomous with a divisional manager who is
responsible for overseeing the performance and who has full authority to
make operational decisions and formulate strategies.
The headquarters provides support services to the divisions. The

headquarters functions as an external observer which coordinates and
controls all divisions.
The main advantage of a divisional structure is its emphasis on decisions.

The divisional managers are fully responsible for the services and products

that are offered. This kind of structure also frees the headquarters from
dealings and problems on a daily basis. Duplication of functions which
involve high costs makes this kind of structure less efficient and is the main
disadvantage of this structure.
(c) Matrix Structure

The matrix structure integrates the advantages of both the functional and
divisional structures, i.e. the specialisation practised by functional structures
and clear focus and accountability of the divisional structure. Refer to Figure 5.7
on the example of the matrix structure.
Figure 5.7: Example of matrix structure
The unique feature of this structure is that workers have at least two
managers above them: a functional manager and a product or project
manager. The project manager has authority over the functional members
who are a part of his team.
However, authority is jointly shared between the functional and project

managers. Normally, the project manager has authority over the project
workers for issues related to the project; whereas decisions on promotions,
remuneration adjustments and yearly evaluation are the responsibility of the
functional manager.

To function effectively, the divisional and project managers must always

communicate and coordinate with one another. The advantage of this matrix
structure is that it can coordinate interconnected complex tasks and projects
and at the same time maintain the functional expertise that has been put
together. The weakness is that confusion occurs as a result of power struggles
among the managers.
ACTIVITY 5.1
The simple structure cannot continue to exist without bureaucracy.
However, we always hear complaints from the people that bureaucracy
delays work procedures. Does this mean we have to eliminate
bureaucracy? Share your opinion in the myINSPIRE online forum.
5.3.3 Team Structure

The whole organisation comprises work groups or teams. The team members have
the authority to make decisions which impact them, in the absence of a chain of
command. Bureaucracy delays decision-making and hampers innovation. One
step to overcoming this problem is by making the organisational structure more
horizontal and creating work teams among disciplines.
5.3.4 Borderless Structure

The final structure is the borderless structure. This structure is not obstructed by
boundaries or categorisation as practised by traditional organisations. It obscures
the boundaries of the organisation by increasing its dependency on the
environment. It is also known as a network organisation, unobstructed learning
organisation, modular or virtual organisation.
A borderless structure encompasses all the aspects of the organisation. It aims to

eliminate obstructions which exist within and outside the organisation. This kind
of organisation needs work groups from various disciplines who have the
authority to make decisions, undertake the tasks and are accountable for
decisions made.

Among factors which encourage the increase of borderless organisations are

markets and competition at the global level and the need for the organisation to
act and adapt in a complex and fluid environment. Technological changes also
contribute to the growth of the borderless structure.
The borderless structure provides flexibility, which enables an organisation to take

action quickly as well as take advantage of available opportunities.
ACTIVITY 5.2
Draw a mind map of all the organisational structures that you have just
studied. Then, state what is the structure practised by your organisation
in myINSPIRE online forum for sharing and comparing.
5.4 ORGANISATIONAL CULTURE

Organisational culture is a system of shared values. Every organisation has a
culture which reflects workersÊ behaviour. It is a system of values, symbols,
practices and beliefs. The shared values shape what the workers perceive and how
they will respond to their „world‰.
5.4.1 Where does Culture Originate From?

Organisational culture normally is the product of the vision and mission of the
organisational founders who were not restricted by any specific practice or
ideology. Most organisations which started off small allowed their founders to
implement their vision.
5.4.2 How does Culture Influence Organisational

Structure?
Organisational culture influences the structure of an organisation but the
organisation also depends on the influences of that culture. An organisation that has
strong core values will ensure that the dominant values guide the behaviour of the
organisation members. Sometimes, culture can replace rules, as has been said
before; culture is a reflection of the behaviour of the individual. A strong culture will
create the ability to forecast, and set behavioural standards and consistency without
the need for written documentation. As such, it can be said that the more influential
the organisational culture, the less the need for formal procedures.

 The dynamics of the business environment forces organisations to regularly

review their structure in order to sustain effective and efficient operations.
 The reorganisation process involves redesigning the organisational structure

and reallocating resources to fit into the new organisational structure as a
result of changes that have taken place in the environment.
 Organisational redesigning involves modification of relevant organisational

structural elements. However, appropriateness of the structure is very much
influenced by the organisationÊs contingency factors such as the organisational
strategy, size, technology and environment.
 The six structural of organisational design are:
– Specialisation;
– Chain of Command;
– Span of Control;
– Authority and Responsibility;
– Centralisation and Decentralisation; and
– Departmentalisation.
 Departmentalisation can be carried out based on the following:
– Functional;
– Product;
– Customer;
– Geographical; and
– Process.
 The most appropriate structure for an organisation depends on contingency

factors such as strategy and size of the organisation, the technology used and
the environment surrounding the organisation. An organisation can opt for
Mechanistic or Organic Structure.

 The mechanistic organisation works best in a stable, unchanging business

environment.
 Mechanistic organisations are the result of the integration of the six

structural elements.
 The organic structure works best in a dynamic, changing business

environment.
 Every organisation has a culture which reflects its workersÊ behaviour. It is a

system of shared values, symbols, practices and beliefs. They shape what the
workers perceive and how they will respond to their „world‰.
Authority and Responsibility Mechanistic Organisation

Centralisation and Decentralisation Organic Organisation
Chain of Command Span of Control
Departmentalisation Specialisation
Smith, A. (1776). The wealth of nations, Books 1-3. On Division of Labor.

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Topic  Basic

However, as the organisation expanded, multiple managerial layers had to be

Copyright © Open University Malaysia (OUM)

When the organisations expanded in size, a re-evaluation of the existing structure

5.1 STRUCTURAL ELEMENTS

5.1.2 Chain of Command

Copyright © Open University Malaysia (OUM)

The concept of chain of command is logical at the structural level of an

5.1.3 Span of Control

In general, top managers required a smaller span of control compared to middle

5.1.4 Authority and Responsibility

When managers disburse authority, they must also allocate equivalent

Copyright © Open University Malaysia (OUM)

5.1.5 Centralisation and Decentralisation

One form of empowerment is by distributing authority to workers to make

Copyright © Open University Malaysia (OUM)

Table 5.1: Methods of Departmentalisation

Figures 5.1 to 5.5 show the departmentalisation methods.

Figure 5.1: Functional departmentalisation

Copyright © Open University Malaysia (OUM)

Figure 5.2: Product departmentalisation

Figure 5.3: Customer departmentalisation

Figure 5.4: Geographical departmentalisation

Copyright © Open University Malaysia (OUM)

Figure 5.5: Process departmentalisation

We have discussed six important elements in organisational design.

Departmentalisation, Span of Control, Chain of Command, Specialisation,

Copyright © Open University Malaysia (OUM)

5.2 CONTINGENCY FACTORS THAT INFLUENCE

5.2.1 Mechanistic Organisations

The chain of command ensures that there is a formal hierarchy of authority. A

5.2.2 Organic Organisations

This type of organisation contrasts significantly with mechanistic organisations. Its

Copyright © Open University Malaysia (OUM)

Figure 5.6: Mechanistic organisation versus organic organisation

List the differences between mechanistic and organic organisations.

Copyright © Open University Malaysia (OUM)

Aspects of competition at the global level, for example, frequent product

5.3 ORGANISATIONAL DESIGN APPLICATION

5.3.1 Simple Structure

Copyright © Open University Malaysia (OUM)

structure is a horizontal organisation that practises centralised decision making. It

5.3.2 Commencement of Bureaucracy

(a) Functional Structure

(b) Divisional Structure

The headquarters provides support services to the divisions. The

The main advantage of a divisional structure is its emphasis on decisions.

Copyright © Open University Malaysia (OUM)

(c) Matrix Structure

Figure 5.7: Example of matrix structure

However, authority is jointly shared between the functional and project

Copyright © Open University Malaysia (OUM)

To function effectively, the divisional and project managers must always

5.3.3 Team Structure

5.3.4 Borderless Structure

A borderless structure encompasses all the aspects of the organisation. It aims to

Copyright © Open University Malaysia (OUM)

Among factors which encourage the increase of borderless organisations are

The borderless structure provides flexibility, which enables an organisation to take

5.4 ORGANISATIONAL CULTURE

5.4.1 Where does Culture Originate From?

5.4.2 How does Culture Influence Organisational

Copyright © Open University Malaysia (OUM)

 The dynamics of the business environment forces organisations to regularly