ORGANIZATION STRUCTURE AND DESIGN

LEARNING OUTLINE
• Defining Organizational Structure
• Discuss the organization design in traditional and
contemporary views of work specialization, chain of
command, span of control, authority, responsibility,
and unity of command.
• Contrast mechanistic and organic organizations
• Explain types of organization structure

10–1
 Defining Organizational Structure
• Organizational Structure
 The formal arrangement of jobs within an organization.
• Every organization has a Structure, But structures
can differ
Due to choice
Due to national laws
The words used to describe them e.g.
Organization chart, design, structure
The way they are drawn can differ e.g. pyramid,
rectangle, circle etc.

10–2
 The Structural pattern
• is the skeleton of the organization
• reflects corporate governance
• is intended to meet organizational
objectives
• arises out of strategic directions
• causes directors or managers to ask:
what structure will best aid us in meeting our
strategy and objectives?
 A plan of action designed to achieve a long-term or overall
3 aim
 The Structural pattern
• Much like a human skeletal structure,
determines what shape an organization will
take. We don't spend much time thinking about
our skeletal structure until something breaks,
and so it goes with organizations.
• How an organization is structured basically
means how the reporting relationships and
work teams are organized. It reveals a great
deal about the culture, function and leadership
of a company.
4
 Why Structural Choice is Important?
• It focuses attention on particular areas
• Shapes how resources will be used
• Directs communication flows
• Defines control and other processes
• Illustrates people’s roles relative to others’
roles

5
 How to Develop the Organizational Structure?
• You must start by determining the goals and
objectives for the overall company involved
 The functions and tasks that must be accomplished
• Depending on company complexity/size may
assume a pure functional model, a project or
product line orientation, a matrix approach, or
combination thereof
• Structure may change in context as the system
development evolves
• The ultimate goal is to achieve the most effective
utilization of human, material, and monetary
resources
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 Organizational Design
• A process involving decisions about six key
elements:
1. Work specialization
2. Departmentalization
3. Chain of command
4. Span of control
5. Centralization and decentralization
6. Formalization
10–7
 Elements of Organizational Design
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 from boredom, fatigue, stress,
poor quality, increased absenteeism, and higher
turnover.

10–8
 2. Departmentalization
• Grouping jobs into • Types of
logical units departmentalization
 Increases efficiency  Functional
through division of
labour  Customer
 Allows for better
control & coordination
 Product
 Top management can
more easily monitor
performance  Geographic
 Profit centres are
accountable  Process

10–9
 2. Departmentalization
• Functional • Process
 Grouping jobs by  Grouping jobs on the
functions performed basis of product or
• Product customer flow
 Grouping jobs by • Customer
product line  Grouping jobs by
• Geographical type of customer and
 Grouping jobs on the needs
basis of territory or
geography

10–10
 Functional Departmentalization

• Advantages
• Efficiencies from putting together similar
specialties and people with common skills,
knowledge, and orientations
• Coordination within functional area
• In-depth specialization
• Disadvantages
• Poor communication across functional areas
• Limited view of organizational goals

10–11
 Geographical Departmentalization

• Advantages
• More effective and efficient handling of
specific regional issues that arise
• Serve needs of unique geographic
markets better
• Disadvantages
• Duplication of functions
• Can feel isolated from other
organizational areas

10–12
 Product Departmentalization

+ Allows specialization in particular products and

services
+ Managers can become experts in their industry
+ Closer to customers

– Duplication of functions
– Limited view of organizational goals 10–13
 Process Departmentalization

+ More efficient flow of work activities

– Can only be used with certain types of
products

10–14
 Customer Departmentalization

+ Customers’ needs and problems can be met by specialists

- Duplication of functions
- Limited view of organizational goals

10–15
 3. Chain of Command
The continuous line of authority that
extends from upper levels of an
organization to the lowest levels of the
organization and clarifies who reports to
who.

10–16
 3. Chain of Command
• Authority
The rights inherent in a managerial
position to tell people what to do and to
expect them to do it.
• Responsibility
The obligation or expectation to perform.
• Unity of Command
The concept that a person should have
one boss and should report only to that
person. 10–17
 4. Span of Control
The number of employees who can be effectively
and efficiently supervised by a manager.
Width of span is affected by:
 Skills and abilities of the manager
 Employee characteristics
 Characteristics of the work being done
 Similarity of tasks
 Complexity of tasks
 Physical proximity of subordinates
 Standardization of tasks
 Sophistication of the system organization’s information
 Preferred style of the manager
10–18
4. Span of Control
• Tall vs. flat organizations
• Nature of work
Stability
Task similarity
Location
• Employees
Preferences
Skills
• Organization
Policies and procedures
Support for managers
Contrasting Spans of Control

10–20
5. Centralization vs Decentralization

• Centralization
 The degree to which decision-making is concentrated
at a single point in the organizations.
 Organizations in which top managers make all the decisions
and lower-level employees simply carry out those orders.
• Decentralization
 Organizations in which decision-making is pushed
down to the managers who are closest to the action.
• Employee Empowerment
 Increasing the decision-making authority (power) of
employees.

10–21
 6. Formalization
The degree to which jobs within the
organization are standardized and the
extent to which employee behavior is
guided by rules and procedures.
Highly formalized jobs offer little
discretion over what is to be done.
Low formalization means fewer
constraints on how employees do their
work.

10–22
 Organizational Design Decisions
• Mechanistic Organization • Organic Organization
 A rigid and tightly controlled  Highly flexible and
structure adaptable structure
 High specialization  Non-standardized jobs
 Rigid departmentalization  Fluid team-based
 Narrow spans of control structure

 High formalization  Little direct supervision

 Limited information  Minimal formal rules

network (downward)  Open communication
 Low decision participation network
 Empowered employees

10–23
 Common Organizational Designs
• Traditional Designs
 Simple structure
 Low departmentalization, wide spans of control, centralized
authority, little formalization
 Functional structure
 Departmentalization by function
– Operations, finance, human resources, and product
research and development
 Divisional structure
 Composed of separate business units or divisions with limited
autonomy under the coordination and control the parent
corporation.

10–24
Strengths and Weaknesses of Traditional Organizational Designs

10–25
 Contemporary Organizational Designs

Team Structure
• What it is: A structure in which the entire organization is made up of work
groups or teams.

• Advantages: Employees are more involved and empowered. Reduced barriers

among functional areas.

• Disadvantages: No clear chain of command. Pressure on teams to perform.

Matrix-Project Structure
What it is: A structure that assigns specialists from different functional areas
to work on projects but who return to their areas when the project
is completed. Project is a structure in which employees
continuously work on projects. As one project is completed,
employees move on to the next project.

• Advantages: Fluid and flexible design that can respond to environmental

changes. Faster decision making.

• Disadvantages: Complexity of assigning people to projects. Task and personality

10–26
conflicts.
 Contemporary Organizational Designs

Boundaryless Structure

What it is: A structure that is not defined by or limited to artificial

horizontal, vertical, or external boundaries; includes virtual
and network types of organizations.

• Advantages: Highly flexible and responsive. Draws on talent wherever it’s

found..

• Disadvantages: Lack of control. Communication difficulties..

10–27
 Most Common Structural Types

•Functional structure
•Divisional/Product or Project
structure
•Hybrid structures or matrix

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 1. Functional Organization Structure

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 Functional Organization Structure
• The intent is to perform similar activities within one
organizational component
• Well suited for a single project operation, large or
small. For example,
 All engineering work would be the responsibility of one
executive
 All production or manufacturing work would be the
responsibility of another executive, and so on
• Depth of the individual elements of the organization
will vary with type of project and level of emphasis
required
• There are advantages and disadvantages
associated with the pure functional approach
 Functional Organization Structure
• Employees within the functional divisions of an
organization tend to perform a specialized set of tasks,
e.g. engineering department would be staffed only with
engineers. This leads to operational efficiencies. However
it could also lead to a lack of communication, making the
organization slow and inflexible.

• Functional organization is best suited as a producer of

standardized goods and services at large volume and low
cost. Coordination and specialization of tasks are
centralized, which makes producing a limited amount of
products or services efficient and predictable. Moreover,
organizations integrate their activities vertically so that
products are sold and distributed quickly and at low cost
31
 Advantages of Functional Organization
• Enables development of a better technical capability for
the organization
Specialists grouped to share knowledge
• The organization can respond more quickly to a specific
requirement through the careful assignment of
personnel
Larger number of personnel with required skills in
given area
• Budgeting and cost control are easier because of the
centralization of areas of expertise.
Easier to estimate, monitor and control costs
• The channels of communication are well established
There is no question as to who is the “boss”
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The reporting structure is vertical
Disadvantages of Functional Organization
• It is difficult to maintain an identity with a specific
project
 No single individual is responsible for the total project
• Concepts and techniques tend to be functionally
oriented with little regard for project
requirements
• There is little customer orientation or focal point.
 Response to specific customer needs is slow
• Because of group orientation, there is less
personal motivation to excel
 Innovation concerning generation of new ideas is
lacking
• The main problem is that there is no strong central
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authority or individual responsible for the total project.
 2. Product/Project Organization Structure
• It groups together
either the resources
Company ABC
needed for each
product or service
group, or
Product Product Product
alternatively, those
Line
“X”
Line
“Y”
Line
“Z”
needed to serve a
particular
geographical
• Program Management • Program Management • Program Management
•
•
Systems Engineering
Electrical Engineering
•
•
Systems Engineering
Electrical Engineering
•
•
Systems Engineering
Electrical Engineering
market, in separate
• • •
divisions.
Mechanical Engineering Mechanical Engineering Mechanical Engineering
• Reliability Engineering • Reliability Engineering • Reliability Engineering
• Maintainability Engineering • Maintainability Engineering • Maintainability Engineering
• human Factors • human Factors • human Factors
• Components Engineering • Components Engineering • Components Engineering
• Integrated Logistic Support (ILS) • Integrated Logistic Support (ILS) • Integrated Logistic Support (ILS)

• Functions are
grouped together
according to the
specific demands of
products, markets or
customers
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Product organization with Project Subunits
In divisions in
President which large
Company ABC
systems are
being developed,
Vice President

Engineering
the product-line
responsibilities
may be
Director Director Director

Product Line “X” Product Line “Y” Product Line “Z”

subdivided into
Communications
Systems Division
Transportation
Systems Division
Test and Support
Systems Division projects, as
illustrated in this
Manager Manager Manager figure.
Project “A” Project “B” Project “C”

35
 Example of Product Structure

COSMETICS

BEAUTY BODY
HAIR LOTIONS SKIN LOTIONS
CREAM

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 Advantages of Project/Product Organization
• The lines of authority and responsibility for a
given project are clearly defined.
• There is a strong customer orientation, a
company focal point is readily identified
• Personnel assigned to the project generally
exhibit a high degree of loyalty to the project
• The required personnel expertise can be
assigned and retained exclusively on the project
• There is a greater visibility relative to all project
activities.
 Cost, schedule and performance can be easily
monitored
37
Disadvantages of Project/Product Organization
• The application of new technologies tends to
suffer without strong functional groups
• Usually duplication of effort, personnel, and use
of facilities and equipment
 The overall operation is inefficient and the results can
be quite costly.
• From a managerial perspective, it is difficult to
effectively utilize personnel in the transfer from
one project to another
 Good qualified workers assigned to projects are
retained by project managers for as long as possible.
• The continuity of an individual’s career, growth
potential, and opportunities for promotion are
38
often not as good
 3. Matrix Organization Structure

Company DEF

Project Design Integrated Production

Systems Design Assurance Logistics Software and
Management Engineering Engineering (R/M/HF) Support Engineering Test

Project “A” Project Responsibility

Program Manager

Functional Responsibility
• Program Management
• Planning and Scheduling
• Configuration Management
• Data Management
• Supplier Management
• Project Review and Control

Project “B”

Project “C”

Project “D”

39
 Matrix Organization

• The matrix structure groups employees by both

function and product. This structure can combine the
best of both separate structures.

• A matrix organization frequently uses teams of

employees to accomplish work, in order to take
advantage of the strengths, as well as make up for
the weaknesses, of functional and decentralized
forms

40
 Objectives of Matrix Organization
• Managers and workers alike must be committed to the
objectives in matrix management, as follows:
Good communication channels must be
accomplished to allow flow of information
Both project and functional department managers
should participate in the initial establishment of
companywide and program-oriented objectives
A quick and effective method for conflict resolution
must be established to be used in the event of
disagreement.
• For personnel assigned to a project, project and the
functional department manager should agree on
Duration of assignment
The tasks to be accomplished
The basis on which the individuals will be evaluated
41
 Types of Matrix Organization
• Weak/Functional Matrix: A project manager with only limited
authority is assigned to oversee the cross- functional aspects
of the project. The functional managers maintain control over
their resources and project areas.
• Balanced/Functional Matrix: A project manager is assigned
to oversee the project. Power is shared equally between the
project manager and the functional managers. It brings the
best aspects of functional and projectized organizations.
However, this is the most difficult system to maintain as the
sharing power is delicate proposition.
• Strong/Project Matrix: A project manager is primarily
responsible for the project. Functional managers provide
technical expertise and assign resources as needed.

42
 Advantages of Matrix Organization
• Project manager can provide the necessary strong controls
while having ready access to the resources from many diff
function-oriented departmnts.
• Functional organizations exist primarily as support
for projects
 Strong technical capability developed and made
available
• Authority and responsibility for task
accomplishment shared between project manager
and functional manager
• Key personnel can be assigned to work on a
variety of problems
 More effective utilization of technical personnel
 Program costs can be minimized
43
 Disadvantages of Matrix Organization
• A major disadvantage relates to the conflicts that arise on a
continuing basis as a result of power struggle among project
and functional managers
• Each project organization operates independently
 To maintain identity, separate OP are developed and
separate PR are identified
 Extreme care must b taken possible duplication of efforts
• May be more costly in terms of administrative requirements
 Both projects and functional areas require similar
administrative controls
• The balance of power between the project and the functional
organizations must be clearly defined and closely monitored
• From perspective of worker - a split in the chain of command
 Individual “pulled” between project boss and functional
44 boss
 Today’s Organizational Design Challenges

• Keeping Employees Connected

Widely dispersed and mobile employees
• Building a Learning Organization
• Managing Global Structural Issues
Cultural implications of design elements

10–45
 Summary of Lecture

• We discussed the basic philosophy of design that

it is a skeleton of organization which focus on
objectives, indicate flow of resources,
communication, number and responsibilities of
workers
• Organization design and six key elements
• Mainly we have three types of organization
namely: functional, project/product and matrix
• We discussed advantages and disadvantages of
each structure from a generic perspective

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