Topic 3: Organizing

LEARNING OUTCOMES

1. Describe six key elements in organizational design

2. Contrast mechanistic and organic structures
3. Discuss the contingency factors that favor either the mechanistic model or the organic
model of organizational design
4. Describe traditional organizational designs

3.1 Definition of organizing

3.1.1 Organize

Organize refers to
– arrange systematically
– make arrangements or preparations for (an event or activity):

3.1.2 Organizing

Organizing can be defined arranging and structuring work to accomplish an organization’s

goals.

3.1.3 Organizational structure

Organizational structure refers to the formal arrangement of jobs within an organization.

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3.1.4 The organizing process

Detailing of Work - The various tasks of the organization must first be

determined. For example, as a restaurant owner,
before he/she could operate a new restaurant he/she
must detailed the number of persons involved, the
type of cooking equipments to be used, etc

Division of Work / Labor Definition: Divide complex task into components that
can logically and comfortably performed by individuals
and groups. It is also known as work specialization.

Advantages/important of division of work/work specialization:

1. It increases productivity of organization by encouraging specialization →
specialization allows each person becomes expert in certain job.
2. It fosters specialization because it creates simplified tasks that are easily
understood and completed very quickly.
3. It is easy to assign task to individuals based upon their talents, interests and
position.
Disadvantages/drawbacks of division of work/work specialization:
1. Alienation – The sense of control felt by managers will be different because
of specialization.
2. Boredom and dissatisfaction - Incurred due to repetitive and specialized task.

Departmentalization - Definition: The grouping of work activities into

departments that is similar and logically connected.
- There are 6 types of departmentalization
a) departmentalization by function
b) departmentalization by product
c) departmentalization by customer
d) departmentalization by geography/territory/area/location
e) departmentalization by process

Coordination of Work - Sometimes the overall goals of the organization may become
merged or conflicts between organization members.

- For example, there is a need for the various departments within the
organization to increase the number of staff due to expansions and
demands. Instead of each department calls for an increase in its
staff, it is ideal for the Human Resource Department to look into the
actual requirements, as this department is specialized for this kind
of job

Monitoring and Reorganizing - Since organizing is an ongoing process, periodic

reassessment of the four preceding steps is necessary.
-
- As the organization grows, the structure of the
organization must be re-evaluated to be sure it is
consistent with the current requirements and see that it is
still effective and efficient.

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3.2 Key elements in organizational design

Organizational design is defined as a process step by step of identifying and designing the
organizational structure. It reflects the efforts of a company to integrate new and modern
elements, respond to various changes, enable flexibility and ensure collaboration.

There are six (6) key elements in organizational design

3.2.1 Work specialization

– The degree to which tasks in the organization are divided into separate jobs with each step
completed by a different person.
– Overspecialization can result in human diseconomies such as boredom, fatigue, stress,
poor quality, increased absenteeism, and higher turnover.

3.2.2 Departmentalization

3.2.2.1 Departmentalization by function

– Members of the organizations are grouped according to the function they perform within
the organization.
– It is mainly used by companies that offer limited line of products because it makes efficient
use of specialized resources.
– Advantages:
1. It makes supervision easier since each manager is expert in only a narrow range of skill
2. Encourage development of expertise.
3. It makes it easier to organize specialized skills and bring them to bear where they are
needed.
4. It requires little coordination and fewer interpersonal skills within each department.
– Disadvantages:
1. It is difficult to determine accountability and measure performance in a functional
structure. For example, if product fail who is to be blamed – production, research and
development (R&D) or marketing?
2. It does not encourage innovation due to narrow perspective.
3. It does not encourage development of general manager because of the narrow range of
scope.

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 4. Coordinating the functions of members of the entire organization may become a problem
→ members of each department may feel isolated from those in other department. Thus
workers may have difficulty working with others in a unified way to achieve organization’s
goals.
5. It makes it more difficult to get quick decisions or action on a problem because functional
managers have to report to central headquarters.

President

Vice President Vice President Vice President Vice President

Production Marketing Finance Human Resource

3.2.2.2 Departmentalization by product

– It involves grouping the activities and tasks on the basis of products manufactured by the
company.
– Advantages:
1. It places attention and focuses on product line.
2. It replaces responsibility for profits at the division level → product head is responsible
for profit and loss.
3. It allows growth and diversity of products and services.
– Disadvantages:
1. The maintenance of central services becomes more difficult since each division
manager will want his/her services.
2. Top management will face difficulty in controlling → division manger are fairly
independent.
3. It is costly.
President

General Manager Pharmaceutical Products General Manager Personal Care Products

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3.2.2.3 Departmentalization by geographical

– In this system, a company is organized around the place where operations are located.
– It is commonly used by firms with international operations where unique culture and
requirement of particular regions need to be addressed.
– Advantages:
1. It offers better services at low cost.
2. It places responsibility for profits at the lower level → The division head is accountable
for profit and loss.
3. It places emphasis on local markets and problems.
4. It offers better faced to face communications with local interests.
– Disadvantages:
1. It requires more staff with general abilities.
2. Top management has less control of the regional managers since they are fairly
independent.

President

Vice president of Vice President of Vice President of Vice President of

Asia North America Latin America Europe

3.2.2.4 Departmentalization by process

– Departmentalization by process or process departmentalization is when the creation of

departments is based on the production process of a product. Based on the process, the
activities are grouped.
– The process departmentation is applicable in those organizations where production
activities need some distinct process. Especially, this method is used in large scale
manufacturing concerns such as textile, cement, chemical, medicine, etc.
– For example, based on the process, the department of a textile industry may be formed
into ginning, spinning, weaving, dyeing, and finishing departments. The
departmentalization by the process as follows:

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– Advantages:
1. Departmentalization by process creates job specifications as departments are prepared
according to process.
2. Department managers become more loyal as the process responsibility is fixed.
3. It ensures effective utilization of specialized skills and types of equipment.
4. It helps to make proper utilization of resources and facilities.
– Disadvantages:
1. This method is not suitable for service organizations where processes cannot be
identified clearly. Thus, it is only appropriate in manufacturing companies.
2. Delay in process or wrong production of one department affects the performance of all
departments also.

Source: https://tyonote.com/departmentalization_by_process/

3.2.2.5 Departmentalization by customer

– The organization is divided according to the different ways customers use products
– Manufacturing companies with a highly diversified line of products tend to organize by
customer to satisfy to a particular class of customer.
– Advantages:
1. It encourages concentration on customers’ needs.
2. It gives customers the feeling that firms understand them.
3. It develops expertise in the customer handling.
– Disadvantages:
1. It may be difficult to coordinate operations while competing customer demands.
2. It requires managers and staff expert in customer’s problems.
3. The customer groups may not always be clearly defined.

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 President

Vice President Industrial Vice President Consumer Vice President Military

Product Product Product

3.2.3 Chain of command

Definition of chain of command

- The continuous line of authority that extends from upper levels of an organization to the
lowest levels of the organization - clarifies who reports to whom.
- An unbroken line of authority that links all individuals in the organization and specifies who
report to whom.
- Chain of command is associated with two underlying principles which are:
1. Unity of command
- Each employee is accountable to only one supervisor.
2. Scalar principle
- A clearly defined line of authority in the organization that includes all employees.
- This clear line of authority will make it easier for the organization members to
understand
a) to whom they can delegate
Authority - the rights inherent in a managerial
b) who can delegate to them position to tell people what to do and to expect
them to do it.
c) to whom they are accountable
Delegate - The act of assigning formal authority
and responsibility for completion of specific
activities to a subordinate.

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Authority can be divided into 2:
1) Line authority
- The authority of managers directly responsible for achieving organizational goals.

2) Staff authority
- Definition: Authority of those groups of individuals who provide line manager with advice
and services.

President

Legal Research and development

Manufacturing Finance Marketing

Line authority Staff authority

Differences between a line authority and staff authority

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3.2.4 Span of control

- Sometimes is also referred as `span of management’

- Span of management/control can be defined as the number of employees (subordinates)
reporting to a given supervisor/manager (boss).

3.2.4.1 Tall / narrow span of control

- The narrow span shows only few subordinates are under the supervision of a given
manager.

An organization with tall/narrow span of management

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3.2.4.2 Lean / wide span of control

- The wide span indicates the manager supervises many subordinates

An organization with a wide span management

3.2.5 Centralization and decentralization

3.2.5.1 Centralization

– Centralization is a process of retaining power and authority in the hands of top-level

manager of an organization
– Advantages:
1. It provides absolute control over the organization and ensures adherence to laid down
policies because the concentration of authority are at the top.
2. It is administratively convenient and focal point as each function is perceived clearly.
3. It is possible to have common standards throughout the organization. For example,
salary and wage scales can be standardized.
4. It is possible to engage very highly qualified functional experts whose high salaries can
be justified as centralization allows them to engage exclusively in their area of
specialization.
– Disadvantages:
1. The control can be autocratic and inflexible.
2. It can lead to frustration where members of staff, particularly the manager and
supervisors are unable to use their discretion but are forced to operate according to
inflexible rules.
3. Bureaucratic control methods may result rigid procedures slowing down the operations
of the organization.

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 4. Managers may see themselves not as independent decision makers but rather as order-
taking subordinates. This will cause frustration among managers when they feel that
those giving orders are not aware of what is needed at operating level.

3.2.5.2 Decentralization

– Definition: The dispersion of authority to make decisions throughout all organization levels.
– Advantages
1. Organization can respond to environmental changes more rapidly and effectively.
2. Speed up decision making as decisions are being made by the people closest to the
situation
3. Unburdening the top manager.
4. Better training, morale and initiative at the lower level.
– Disadvantages
1. Efficiency through standardization may be more difficult to accomplish.
2. May result in loss of some control by upper-level managers.
3. Difficult to have uniform policies.

3.2.6 Formalization

– Formalization refers to the degree to which jobs within the organization are standardized
and the extent to which employee behavior is guided by rules and procedures.
1. Highly formalized jobs offer little discretion over what is to be done.
2. Low formalization means fewer constraints on how employees do their work.

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3.3 Mechanistic vs. organic structure

3.3.1 Mechanistic

3.3.2 Organic

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3.4 Contingency factors affecting structural choices

3.4.1 Overall strategy of the organization

1) Strategy Frameworks:
– Innovation
• Pursuing competitive advantage through meaningful and unique
innovations favors an organic structuring
– Cost minimization
• Focusing on tightly controlling costs requires a mechanistic structure for
the organization

2) Strategy and structure

– Achievement of strategic goals is facilitated by changes in organizational
structure that accommodate and support change.

3.4.2 Size of the organization

– As an organization grows larger, its structure tends to change from organic to

mechanistic with increased specialization, departmentalization, centralization, and
rules/regulations.

3.4.3 Technology use employed by the organization

– Technology and Structure:

– Organizations adapt their structures to their technology.
– Woodward’s classification of firms based on the complexity of the technology
employed:
• Unit production of single units or small batches
• Mass production of large batches of output
• Process production in continuous process of outputs
– Routine technology = mechanistic organizations
– Non-routine technology = organic organizations

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3.4.4 Degree of environmental uncertainty

– Mechanistic organizational structures tend to be most effective in stable and simple

environments.
– The flexibility of organic organizational structures is better suited for dynamic and
complex environments.

3.5 Traditional organizational design

3.5.1 Simple structure

– Low departmentalization, wide spans of control, centralized authority, little

formalization

3.5.2 Functional structure

– Departmentalization by function
– Operations, finance, marketing, human resources, and product research and
development

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3.5.3 Divisional structure

– Composed of separate business units or divisions with limited autonomy under the
coordination and control of the parent corporation
– Example : McDonald’s Corporation

3.6 21st century organization designs

3.6.1 Contemporary organizational designs

• Team Structure - an organizational structure in which the entire organization is made

up of work teams
• Matrix Structure - an organizational structure that assigns specialists from different
functional departments to work on one or more projects
• Project Structure - an organizational structure in which employees continuously work
on projects
• Boundaryless Organization - an organization whose design is not defined by, or
limited to, the horizontal, vertical, or external boundaries imposed by a predefined
structure.
• In boundaryless hierarchies, employees are empowered to make decisions;
therefore, decisions are made by people closest to the root of the problem and
who have to live with the consequences.
• Virtual Organization - an organization that consists of a small core of full-time
employees and outside specialists temporarily hired as needed to work on projects.
• A firm that contracts out almost all functions. The only function retained by the
organization is the name and the coordination among the parties. A virtual
organization might not have even have a permanent office.
• Network Organization - an organization that uses its own employees to do some work
activities and networks of outside suppliers to provide other needed product
components or work processes.

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 • Learning Organization - an organization that has developed the capacity to
continuously learn, adapt, and change
• Learning organizations and the people in them learn constantly from everything
they do. They use their own experience and that of others to improve their
performance. They learn from their successes and also from their failures.
Continuous learning is systemically built into the organization’s DNA and
infrastructure.
• Further, senior leaders demonstrate they are learning constantly by
communicating what they are learning as they learn; people are rewarded for
learning with recognition, growth jobs, promotions and even financial
compensation, and people who don’t learn are managed out of the organization.

3.6.2 Internal collaboration

• Cross-functional team - a work team composed of individuals from various functional

specialties.
• Task force (or ad hoc committee) - a temporary committee or team formed to tackle
a specific short-term problem affecting several departments.
• Communities of practice - groups of people who share a concern, a set of problems,
or a passion about a topic, and who deepen their knowledge and expertise in that area
by interacting on an ongoing basis.

3.6.3 External collaboration

• Open innovation - opening up the search for new ideas beyond the organization’s
boundaries and allowing innovations to easily transfer inward (inside your mind and
not expressed to other people) and outward (obvious and easy to see).
• Strategic partnerships - collaborative relationships between two or more
organizations in which they combine their resources and capabilities for some
business purpose.

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3.6.4 Flexible Work Arrangements

• Telecommuting - a work arrangement in which employees work at home and are

linked to the workplace by computer.
• Compressed workweek - a workweek where employees work longer hours per day
but fewer days per week
• Flextime (or flexible work hours) - a scheduling system in which employees are
required to work a specific number of hours a week but are free to vary those hours
within certain limits.
• Job sharing - the practice of having two or more people split a full-time job.

3.6.5 Contingent Workforce

• Contingent workers - temporary, freelance, or contract workers whose employment

is contingent upon demand for their services.

Additional Information:
https://fourweekmba.com/toyota-organizational-structure/

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