Unit 4: The Organisation System

● Organisation Structure- Work specialization;

● Departmentalization;
● Chain of command;
● Span of control;
● Centralization and decentralization;
● Formalization;
● Organisational design- The simple structure, the bureaucracy, the matrix structure;
Organisational culture - Definition and Characteristics;
● Strong and Weak Culture;
● OCTAPACE;
● Power Model of Organisational Culture;
● Hofstede's framework of Organisational culture;
● Building and maintaining Organisational culture;
● Corporate values and social responsibility:
● Organisational climate- Definition; Litwin and Stringer model

Organizational structure
Organizational structure aligns and relates parts of an organization, so it can achieve its
maximum performance. The structure chosen affects an organization's success in carrying out its
strategy and objectives. Leadership should understand the characteristics, benefits and limitations
of various organizational structures to assist in this strategic alignment.

This article addresses the following topics related to organizational structure:

The case for aligning organizational structure with the enterprise's business strategy.
Key elements of organizational structure.
Types of organizational structures and the possible benefits and limitations of each.
The impact of an organization's stage of development on its structure.
Communications, technology, metrics, global and legal issues.

Organizational structure is the method by which work flows through an organization. It allows
groups to work together within their individual functions to manage tasks. Traditional
organizational structures tend to be more formalized—with employees grouped by function
(such as finance or operations), region or product line. Less traditional structures are more
loosely woven and flexible, with the ability to respond quickly to changing business
environments.

Organizational structures have evolved since the 1800s. In the Industrial Revolution, individuals
were organized to add parts to the manufacture of the product moving down the assembly line.
Frederick Taylor's scientific management theory optimized the way tasks were performed, so
workers performed only one task in the most efficient way. In the 20th century, General Motors
pioneered a revolutionary organizational design in which each major division made its own cars.

Today, organizational structures are changing swiftly—from virtual organizations to other

flexible structures. As companies continue to evolve and increase their global presence, future
organizations may embody a fluid, free-forming organization, member ownership and an
entrepreneurial approach among all members. See Inside Day 1: How Amazon Uses Agile Team
Structures and Adaptive Practices to Innovate on Behalf of Customers.

Key Elements of Organizational Structures

Five elements create an organizational structure:
job design, departmentation, delegation, span of control and chain of command.

These elements comprise an organizational chart and create the organizational structure itself.
➢ "Departmentation" refers to the way an organization structures its jobs to coordinate
work.
➢ "Span of control" means the number of individuals who report to a manager.
➢ "Chain of command" refers to a line of authority.
The company's strategy of managerial centralization or decentralization also influences
organizational structures.
➢ "Centralization," the degree to which decision-making authority is restricted to higher
levels of management, typically leads to a pyramid structure.
Centralization is generally recommended when conflicting goals and strategies among
operating units create a need for a uniform policy.

➢ "Decentralization," the degree to which lower levels of the hierarchy have decision-
making authority, typically leads to a leaner, flatter organization. Decentralization is
recommended when conflicting strategies, uncertainty or complexity require local
adaptability and decision-making.

Types of Organizational Structures

Organizational structures have evolved from rigid, vertically integrated, hierarchical, autocratic
structures to relatively boundary-less, empowered, networked organizations designed to respond
quickly to customer needs with customized products and services.

MATRIX ORGANIZATIONAL STRUCTURES

A matrix structure combines the functional and divisional structures to create a dual-command
situation. In a matrix structure, an employee reports to two managers who are jointly responsible
for the employee's performance. Typically, one manager works in an administrative function,
such as finance, HR, information technology, sales or marketing, and the other works in a
business unit related to a product, service, customer or geography.

A typical matrix organizational structure might look like this:

A matrix organizational chart with the president at the top, departments listed below and product
managers on the left axis

Advantages of the matrix structure include the following:

➢ It creates a functional and divisional partnership and focuses on the work more than on
the people.
➢ It minimizes costs by sharing key people.
➢ It creates a better balance between time of completion and cost.
➢ It provides a better overview of a product that is manufactured in several areas or sold by
various subsidiaries in different markets.

Disadvantages of matrix organizations include the following:

➢ Responsibilities may be unclear, thus complicating governance and control.
➢ Reporting to more than one manager at a time can be confusing for the employee and
supervisors.
➢ The dual chain of command requires cooperation between two direct supervisors to
determine an employee's work priorities, work assignments and performance standards.
➢ When the function leader and the product leader make conflicting demands on the
employee, the employee's stress level increases and performance may decrease.
➢ Employees spend more time in meetings and coordinating with other employees.

These disadvantages can be exacerbated if the matrix goes beyond two-dimensional (e.g.,
employees report to two managers) to multidimensional (e.g., employees report to three or more
managers).

Matrix structures are common in heavily project-driven organizations, such as construction

companies. These structures have grown out of project structures in which employees from
different functions formed teams until completing a project, and then reverted to their own
functions. In a matrix organization, each project manager reports directly to the vice president
and the general manager. Each project is, in essence, a mini profit centre, and therefore, general
managers usually make business decisions.

The matrix-structured organization also provides greater visibility, stronger governance and
more control in large, complex companies. It is also well suited for the development of business
areas and the coordination of complex processes with strong dependencies.
Matrix structures pose difficult challenges for professionals charged with ensuring equity and
fairness across the organization. Managers working in matrix structures should be prepared to
intervene via communication and training if the structure compromises these objectives.
Furthermore, leadership should monitor relationships between managers who share direct
reports. These relationships between an employee's managers are crucial to the success of a
matrix structure.

Centralisation and Decentralisation

Centralization is said to be a process where the concentration of decision-making is in a few
hands. All the important decisions and actions at the lower level, all subjects and actions at the
lower level are subject to the approval of top management.
According to Allen, “Centralization” is the systematic and consistent reservation of authority at
central points in the organization.

The implication of centralization can be:-

➢ Reservation of decision-making power at the top level.
➢ Reservation of operating authority with middle-level managers.
➢ Reservation of operation at the lower level at the directions of the top level.

Under centralization, the important and key decisions are taken by the top management and the
other levels are implemented as per the directions of the top level.
For example, in a business concern, the father & son being the owners decide about the
important matters and all the rest of functions like product, finance, marketing, and personnel,
are carried out by the department heads and they have to act as per instruction and orders of the
two people. Therefore, in this case, decision-making power remain in the hands of father & son.

On the other hand,

Decentralization is a systematic delegation of authority at all levels of management and in all of
the organization.
According to Allen, “Decentralization refers to the systematic effort to delegate to the lowest
level of authority except that which can be controlled and exercised at central points.
In a decentralization concern, authority is retained by the top management for taking major
decisions and framing policies concerning the whole concern.
The rest of the authority may be delegated to the middle level and lower level of management.

Decentralization is not the same as delegation. Decentralization is all extension of delegation.

The decentralization pattern is wider in scope and the authorities are diffused to the lowest most
level of management.
Delegation of authority is a complete process and takes place from one person to another. While
decentralization is complete only when fullest possible delegation has taken place. For example,
the general manager of a company is responsible for receiving the leave application for the
whole of the concern. The general manager delegates this work to the personnel manager who is
now responsible for receiving the leave applicants. In this situation delegation of authority has
taken place. On the other hand, on the request of the personnel manager, if the general manager
delegates this power to all the departmental heads at all level, in this situation decentralization
has taken place.

There is a saying that “Everything that increasing the role of subordinates is decentralization and
that decreases the role is centralization”. Decentralization is wider in scope and the subordinate’s
responsibility increase in this case. On the other hand, in delegation the managers remain
answerable even for the acts of subordinates to their superiors.

Implications of Decentralization
➢ There is less burden on the Chief Executive as in the case of centralization.
➢ In decentralization, the subordinates get a chance to decide and act independently which
develops skills and capabilities. This way the organization is able to process reserve of
talents in it.
➢ In decentralization, diversification and horizontal can be easily implanted.
➢ In decentralization, concern diversification of activities can place effectively since there
is more scope for creating new departments. Therefore, diversification growth is of a
degree.
➢ In decentralization structure, operations can be coordinated at divisional level which is
not possible in the centralization set up.
➢ In the case of decentralization structure, there is greater motivation and morale of the
employees since they get more independence to act and decide.
➢ In a decentralization structure, co-ordination to some extent is difficult to maintain as
there are lot many department divisions and authority is delegated to maximum possible
extent, i.e., to the bottom most level delegation reaches.

Centralization and decentralization are the categories by which the pattern of authority-
relationships becomes clear. The degree of centralization and de-centralization can be affected
by many factors like nature of operation, volume of profits, number of departments, size of a
concern, etc. The larger the size of a concern, a decentralization set up is suitable in it.
The degree of centralization and decentralization will depend upon the amount of authority
delegated to the lowest level.
Formalisation
Organizations are basically clasified on the basis of relationships. There are two types of
organizations formed on the basis of relationships in an organization

Formal Organization -
This is one which refers to a structure of well defined jobs each bearing a measure of authority
and responsibility. It is a conscious determination by which people accomplish goals by adhering
to the norms laid down by the structure. This kind of organization is an arbitrary set up in which
each person is responsible for his performance. Formal organization has a formal set up to
achieve pre- determined goals.
Informal Organization -
It refers to a network of personal and social relationships which spontaneously originates within
the formal set up. Informal organizations develop relationships which are built on likes, dislikes,
feelings and emotions. Therefore, the network of social groups based on friendships can be
called as informal organizations. There is no conscious effort made to have informal
organization. It emerges from the formal organization and it is not based on any rules and
regulations as in case of formal organization.

Relationship between Formal and Informal Organizations

For a concerns working both formal and informal organization are important. Formal
organization originates from the set organizational structure and informal organization originates
from formal organization.
For an efficient organization, both formal and informal organizations are required. They are the
two phase of a same concern.
Formal organization can work independently. But informal organization depends totally upon the
formal organization.

Formal and informal organization helps in bringing efficient working organization and
smoothness in a concern.
Within the formal organization, the members undertake the assigned duties in co-operation with
each other. They interact and communicate amongst themselves.
Therefore, both formal and informal organizations are important. When several people work
together for achievement of organizational goals, social tie ups tends to built and therefore
informal organization helps to secure co-operation by which goals can be achieved smooth.
Therefore, we can say that informal organization emerges from formal organization.

Organisational Design- The simple structure, the bureaucracy, the matrix structure
Simple Org
Strengths of a Simple Organizational Structure
The strength of a simple organizational structure is that it enables a business owner to have tight
control over her company’s operation. No decisions are made without her approval, and she is
aware of every important decision made. There is no hesitation on the part of employees in a
simple structure because their orders come directly from the top, not a department head or mid-
level manager a subordinate might question. Companies make decisions quicker with a simple
structure because there are no layers of management that ideas or requests need to climb before
approval.

Weaknesses of a Simple Organizational Structure

Many of the problems of using a simple organizational structure revolve around the workload of
the owner, or that of the person at the top. An owner might become swamped with work, if he
has to approve every decision at a company. Companies that use simple organizational
structures, even after they’ve added many employees with specialized jobs often do so because
the owner can’t bring himself to delegate, making staff members wait for approval on actions
they are qualified to take themselves. If an owner is sick, in a meeting or on a business trip, the
entire company can become paralyzed, because no one can move forward to take advantage of an
opportunity or to solve a problem until the owner is available again.

Type Of Organizational Design And Structure

There are two major categories of organizations- formal and informal.

The formal organizational structure includes a well-defined structure of jobs that clears
authority, functions, and responsibility in organizations. Plans, processes, and policies are
already defined in these types of organizations and the teams need to follow and perform their
tasks based on these. Its main focus is on jobs and functions rather than the employees. Jobs in
the formal organizations are divided into sub-tasks and employees are assigned these tasks as per
their skills. It demands the intervention of different departments, which is based on a grouping of
sub-tasks of common jobs. For example, organizations have different departments based on their
functioning i.e. production, marketing, purchase, etc. Delegation of work is from top to the
bottom level which means that supervisors assign work to the subordinates. Supervisors are
responsible for the coordination of activities of their subordinates as well as their performance.

Informal Organizations focus more on humans or employees as compared to jobs. In this,

humans or employees formally interact with each other to share their ideas, thoughts, beliefs,
hobbies, etc. There is no formal structure of these types of organizations. Also, there is no
existence of a superior-subordinate relationship.

Matrix Organizations
These types of organizations work on dual relationships in terms of responsibilities ushered over
the employees. Employees in such organizations report to both- functional head and project
head. For example, in matrix organizations, HR team members will report to the project
manager, i.e., Hiring Manager of real-estate recruitment project and the HR head for their
functional tasks.

the pros and cons of matrix organization

In contrast, the organizational design represents the dynamic view of an organization. It is more
of processes and methods which help in organizational structuring and restructuring for smooth
and effective functioning. It is also based on change management whereby the organizational
demands change their structure and functioning to meet needs for technological advancements,
market factors, meeting regulations, customer needs and expectations, etc. With the help of the
organizational design, weaker systems of an organization can be identified and corrective steps
can be taken to strengthen them.

Elements Of Organizational Design

A well-designed organizational structure not only defines functions, hierarchy, roles, and
responsibilities but also the alignment of organizational goals of staff/teams. Poor organizational
design or structure may result in serious downfalls in organizations i.e. ambiguity of roles, lack
of trust in team and superiors, rigid work environment, slow and ineffective decision-making,
etc. The above-mentioned factors are further responsible for low productivity and turnover.
So, it is important to look for organizational design and structure as per a company’s
requirement. Also, there are certain segments of organizational design which are known as the
key elements. Largely, there are 6 elements of organizational design and structure:

1. Chain Of Command/Line Of Command

In this, the authority and power are delegated from top to bottom i.e. in an organization top
management gives instructions to the bottom team and all the employees at each level. Further,
the accountability of an employee’s job flows upward to the management. It gives clarity of the
reporting structure in an organization. Let us have a look at the chain of command with a visual
diagram:

Line of command pros and cons

2. Span Of Control
“Span Of Control” demonstrates how wide is the area of the direct control of supervisors over
their subordinates which is directly related to how many subordinates (in numbers) report to a
senior or supervisor; which, in turn, depends on the number of tasks performed at different
levels. In case of more tasks, the span of control will be wider. It also depends on other aspects
like geographical location, the ability of the team and superior, the complexity of tasks, etc.

The pros and cons of wide span of control

Organizational Culture?
Organizational culture refers to a system of shared assumptions, values, and beliefs that show
employees what is appropriate and inappropriate behavior.These values have a strong influence
on employee behavior as well as organizational performance. In fact, the term organizational
culture was made popular in the 1980s when Peters and Waterman’s best-selling book In Search
of Excellence made the argument that company success could be attributed to an organizational
culture that was decisive, customer oriented, empowering, and people oriented. Since then,
organizational culture has become the subject of numerous research studies, books, and articles.
However, organizational culture is still a relatively new concept. In contrast to a topic such as
leadership, which has a history spanning several centuries, organizational culture is a young but
fast-growing area within organizational behavior.

Culture is by and large invisible to individuals. Even though it affects all employee behaviors,
thinking, and behavioral patterns, individuals tend to become more aware of their organization’s
culture when they have the opportunity to compare it to other organizations. If you have worked
in multiple organizations, you can attest to this. Maybe the first organization you worked was a
place where employees dressed formally. It was completely inappropriate to question your boss
in a meeting; such behaviors would only be acceptable in private. It was important to check your
e-mail at night as well as during weekends or else you would face questions on Monday about
where you were and whether you were sick. Contrast this company to a second organization
where employees dress more casually. You are encouraged to raise issues and question your boss
or peers, even in front of clients. What is more important is not to maintain impressions but to
arrive at the best solution to any problem. It is widely known that family life is very important,
so it is acceptable to leave work a bit early to go to a family event. Additionally, you are not
expected to do work at night or over the weekends unless there is a deadline. These two
hypothetical organizations illustrate that organizations have different cultures, and culture
dictates what is right and what is acceptable behavior as well as what is wrong and unacceptable.
Why Does Organizational Culture Matter?
An organization’s culture may be one of its strongest assets, as well as its biggest liability. In
fact, it has been argued that organizations that have a rare and hard-to-imitate organizational
culture benefit from it as a competitive advantage. In a survey conducted by the management
consulting firm Bain & Company in 2007, worldwide business leaders identified corporate
culture as important as corporate strategy for business success. This comes as no surprise to
many leaders of successful businesses, who are quick to attribute their company’s success to
their organization’s culture.

Culture, or shared values within the organization, may be related to increased performance.
Researchers found a relationship between organizational cultures and company performance,
with respect to success indicators such as revenues, sales volume, market share, and stock prices.
At the same time, it is important to have a culture that fits with the demands of the company’s
environment. To the extent shared values are proper for the company in question, company
performance may benefit from culture. For example, if a company is in the high-tech industry,
having a culture that encourages innovativeness and adaptability will support its performance.
However, if a company in the same industry has a culture characterized by stability, a high
respect for tradition, and a strong preference for upholding rules and procedures, the company
may suffer as a result of its culture. In other words, just as having the “right” culture may be a
competitive advantage for an organization, having the “wrong” culture may lead to performance
difficulties, may be responsible for organizational failure, and may act as a barrier preventing the
company from changing and taking risks.

In addition to having implications for organizational performance, organizational culture is an

effective control mechanism for dictating employee behavior. Culture is in fact a more powerful
way of controlling and managing employee behaviors than organizational rules and regulations.
When problems are unique, rules tend to be less helpful. Instead, creating a culture of customer
service achieves the same result by encouraging employees to think like customers, knowing that
the company priorities in this case are clear: Keeping the customer happy is preferable to other
concerns such as saving the cost of a refund.

Levels of Organizational Culture

Organizational culture consists of some aspects that are relatively more visible, as well as aspects
that may lie below one’s conscious awareness. Organizational culture can be thought of as
consisting of three interrelated levels.

Figure 15.3 Organizational culture consists of three levels. Source: Adapted from Schein, E. H.
(1992). Organizational culture and leadership. San Francisco: Jossey-Bass.
At the deepest level, below our awareness lie basic assumptions. Assumptions are taken for
granted, and they reflect beliefs about human nature and reality. At the second level, values exist.
Values are shared principles, standards, and goals. Finally, at the surface we have artifacts, or
visible, tangible aspects of organizational culture. For example, in an organization one of the
basic assumptions employees and managers share might be that happy employees benefit their
organizations. This assumption could translate into values such as social equality, high quality
relationships, and having fun. The artifacts reflecting such values might be an executive “open
door” policy, an office layout that includes open spaces and gathering areas equipped with pool
tables, and frequent company picnics in the workplace. For example, Alcoa Inc. designed their
headquarters to reflect the values of making people more visible and accessible, and to promote
collaboration. In other words, understanding the organization’s culture may start from observing
its artifacts: the physical environment, employee interactions, company policies, reward systems,
and other observable characteristics. When you are interviewing for a position, observing the
physical environment, how people dress, where they relax, and how they talk to others is
definitely a good start to understanding the company’s culture. However, simply looking at these
tangible aspects is unlikely to give a full picture of the organization. An important chunk of what
makes up culture exists below one’s degree of awareness. The values and, at a deeper level, the
assumptions that shape the organization’s culture can be uncovered by observing how employees
interact and the choices they make, as well as by inquiring about their beliefs and perceptions
regarding what is right and appropriate behavior.
The Organisation System

Organizational Structure & Culture

Organization Structure
The way in which job tasks are formally divided, grouped, and coordinated.

Org Design

➢ Work Specialization - The degree to which tasks in an organization are subdivided into
separate jobs.

➢ Departmentalization - The basis by which jobs in an organization are grouped together.

➢ Chain of Command - The unbroken line of authority that extends from the top of the
organization to the lowest echelon and clarifies who reports to whom.

➢ Span of Control - The number of subordinates a manager can efficiently and effectively
direct.

➢ Centralization - The degree to which decision making is concentrated at a single point in

an organization.
 ➢ Formalization - The degree to which jobs within an organization are standardized.

➢ Boundary Spanning - When individuals form relationships outside their formally

assigned groups.

Common Structures
Simple Structure - An organization structure characterized by a low degree of
departmentalization, wide spans of control, authority centralized in a single person, and little
formalization.

Bureaucracy - An organization structure with highly routine operating tasks achieved through
specialization, very formalized rules and regulations, tasks that are grouped into functional
departments, centralized authority, narrow spans of control, and decision making that follows the
chain of command

Matrix - An organization structure that creates dual lines of authority and combines functional
and product departmentalization.

Organizational Culture
A system of shared meaning held by members that distinguishes the organization from other
organizations.
7 Key Characteristics of Culture
1. Innovation and risk taking - The degree to which employees are encouraged to be innovative
and take risks.

2. Attention to detail - The degree to which employees are expected to exhibit precision,
analysis, and attention to detail.

3. Outcome orientation. - The degree to which management focuses on results or outcomes

rather than on the techniques and processes used to achieve them.

4. People orientation - The degree to which management decisions take into consideration the
effect of outcomes on people within the organization.

5. Team orientation - The degree to which work activities are organized around teams rather
than individuals.

6. Aggressiveness - The degree to which people are aggressive and competitive rather than
easygoing.
7. Stability - The degree to which organizational activities emphasize maintaining the status quo
in contrast to growth.

Org A
This organization is a manufacturing firm. Managers are expected to fully document all
decisions, and “good managers” are those who can provide detailed data to support their
recommendations. Creative decisions that incur significant change or risk are not encouraged.
Because managers of failed projects are openly criticized and penalized, managers try not to
implement ideas that deviate much from the status quo. One lower-level manager quoted an
often-used phrase in the company: “If it ain’t broke, don’t fix it.” There are extensive rules and
regulations in this firm that employees are required to follow. Managers supervise employees
closely to ensure there are no deviations. Management is concerned with high productivity,
regardless of the impact on employee morale or turnover. Work activities are designed around
individuals. There are distinct departments and lines of authority, and employees are expected to
minimize formal contact with other employees outside their functional area or line of command.
Performance evaluations and rewards emphasize individual effort, although seniority tends to be
the primary factor in the determination of pay raises and promotions.

Org B
This organization is also a manufacturing firm. Here, however, management encourages and
rewards risk taking and change. Decisions based on intuition are valued as much as those that are
well rationalized. Management prides itself on its history of experimenting with new
technologies and its success in regularly introducing innovative products. Managers or
employees who have a good idea are encouraged to “run with it.” And failures are treated as
“learning experiences.” The company prides itself on being market driven and rapidly responsive
to the changing needs of its customers. There are few rules and regulations for employees to
follow, and supervision is loose because management believes that its employees are
hardworking and trustworthy. Management is concerned with high productivity but believes that
this comes through treating its people right. The company is proud of its reputation as being a
good place to work. Job activities are designed around work teams, and team members are
encouraged to interact with people across functions and authority levels. Employees talk
positively about the competition between teams. Individuals and teams have goals, and bonuses
are based on achievement of these outcomes. Employees are given considerable autonomy in
choosing the means by which the goals are attained.

Strong Vs. Weak Culture

If most employees have the same opinions about the organization’s mission and values, the
culture is strong; if opinions vary widely, the culture is weak
Strong Culture - A culture in which the core values are intensely held and widely shared.

OCTAPACE Profile
Hofstede’s cultural dimensions
Denison Culture Model

Culture Formation
Culture is transmitted to employees in a number of forms, the most potent being stories, rituals,
material symbols, and language.
Organizational Structure
• Work specialization
• Departmentalization
• Chain of Command
• Span of Control
• Centralization
• Simple Structure
• Bureaucracy
• Matrix

Organizational Culture
• Definition & characteristics
• Strong & Weak Culture
• OCTAPACE
• Hofstede’s Framework
• Denison’s Culture Model
• Culture Formation
• Org Change

Organizational Climate
Employees’s subjective perceptions of an organization’s work environment which are
descriptive and these perceptions could lead to affective responses which govern employee’s
behavior.

Culture vs. Climate

Culture is the basic assumptions, values of an organization which are held for a relatively long
time while climate is surface manifestations of those assumptions and values in the form of
practices, policies and procedures which are consciously perceived by organizational members.

Litwin and Stringer Model

According to Litwin & Stringer (1968), the nine dimensions of
organizational climate are as follows –
1. Structure
2. Responsibility
3. Reward
4. Risk
5. Warmth
6. Support
7. Standards
8. Conflict
9. Identity
Corporate Moral Development
An organization moves through different stages on the path towards improved ethical behavior
➢ Amoral – the only value is greed
➢ Legalistic – if an action is legal, then it can be done
➢ Responsive – decisions are guided by enlightened self- interest
➢ Emerging ethical – we want to do the right thing
➢ Ethical – we will do the right thing (i.e. actual implemented policies are based on core
values)

Business Moral Compass

• Service Orientation
• Value Creation
• Right to Fair Return