You are on page 1of 14

Organizational Structure

Toqeer Ahmed

Organizational Structure
Organizational Structure defines how job tasks are formally divided, grouped and coordinated
The organization structure determines reporting relationships and helps to clarify individuals responsibilities

When designing an organization structure, managers consider 6 elements

Work specialization Departmentalization Chain of command Span of control Centralization/decentralization formalization

Work Specialization
Work can be performed more efficiently if employees are allowed to specialize Henry Ford was the first to really explore specialization, allowing him to turn out many new cars a day from it Specialization is the degree to which tasks are subdivided into separate jobs (the task of assembling an engine)
Allows employees to improve through repetition

Pay scales often reflect the degree of skills required for a job. Employees acquire new skills to earn more Specialization also encourages the development of specialized tools to further drive efficiency Specialization can lead to boredom, fatigue, stress, and lower productivity and quality Building teams of interchangeable skills can help to reduce boredom

Departmentalization is a basis on which jobs re grouped to coordinate common or linked tasks 5 Key Types of Departmentalization
Functional orienting groups by similar task (engineering dept) Product operating a group oriented around a complete product (Business Units are similar when the group owns the P&L) Geographic Common in Sales organizations, organizing by territory Process Orienting around a portion of a process (most common in a manufacturing firm, such as finishing dept, procurement dept) Customer Orienting around types of customers (Corel organizes around retail, small business, corporate, government, legal)

You can have more than one type of departmentalization in a business

Sales by territory, Marketing by product, Manufacturing by process

Chain of Command
Chain of command the unbroken line of authority from the top to the bottom of the organization Defines who has the right to give out orders and expect them to be obeyed Currently, this element of structuring organizations is used less Teams have been empowered to carry out specific tasks

Span of Control
Span of Control refers to the number of levels and managers an organization has All things equal, generally, the wider or larger the span, the more efficient. Wider spans also encourage more employee empowerment However, managers cannot manage an infinite number of employees effectively (general rule is 6 to 18 employees)

Centralization the degree to which decision making is concentrated at a single point in the organization The more decisions made by top brass without consulting employees, the more centralized Decentralization is a growing trend to leverage front line employees proximity to the action.
Increases empowerment and job satisfaction Improves quality of decision making Allows senior management to concentrate on more strategic matters

Formalization the degree to which jobs within the organization are standardized Formalization provides structure and can build quality but takes away control and decision making Formalization is used most often in the food, airline, automotive industries

Common Organization Structures

Now that we know the elements that are considered when designing an organization, what are the 3 most common structures used 3 Most commonly used structures are
The Simple Structure (for small businesses) The Bureaucracy (for large or government organizations) The Matrix (for agile companies)

The Simple Structure

Most commonly used in small structures, it is almost the default structure when no specific thought is put into it Characterized by
low degree of departmentalization, wide spans of control, authority centralized to one person (the owner), with little formalization

The outcome is a flat structure, fast, simple, clear, flexible This structure gives a small company that small company feel.
But it is very difficult to maintain once the company grows and owners cannot directly impact every decision

The Bureaucracy
Characterized by
Standardization of tasks and processes (filling out forms, you guessed it, paper forms!!!, aaahhh) Highly routine tasks, specialization with formalized rules Centralized authority and clear vertical communication lines

This structure strives for efficiency, economies, minimum duplication of tasks It does well when individual employees leave the organization as it is easy to train new staff on established processes

A very popular organization structure in the high-tech world Combines the benefits of functional and product departmentalization forms Functional specialists are grouped together to forma pool of resources (developers, testers, documentation specialists) Product departments (or Business Units), responsible for the complete product, draft individuals from their pools onto product teams Employees end up with 2 bosses Ads: Promotes product ownership and specialization

Structural Designs of the

The Team

st 21


Usually cross-functional teams with a specific set of goals, helps to break down barriers and decentralizes decision making to the team level

The Modular Organization

A small core organization which outsources major business functions, relying on a network at the organizational level Teams are assembled for a finite period, then disband Ex: an ad agency which outsources its printing, accounting, purchasing to concentrate on creative design

The Virtual Organization

Similar to a modular organization, except that in this case, business partners also seek to share skills, costs and tap into each others markets Akin to developing alliances to provide full service solutions

Why do Organization Structures differ?

Strategy structures are a means through which organizations try to achieve their goals
It is also a means through which they respond to environmental change

Organization Size As organizations grow, different stresses are placed on the organization, as a result it might respond with a reorganization of resources Environment The organizational environment is made up of institutions or forces outside the organization that affect its ability to perform Chapter 13