Organizational Processes

UNIT 9
 WHAT IS ORGANIZATIONAL DESIGN
• What is Organisation Design Pascale, Milleman and
Gioja (2000: 197) consider organisation design as
the invisible hand that brings organisations to life
and life to organisations.
• It is the process of constructing and adjusting an
organization’s structure to achieve its goals.
• Perspectives on Organizations According to Daft
(2007), there are various ways to look at and think
about organizations and how they function. Two
important perspectives are the open-systems
approach and the organizational-configuration
framework.
 Open-systems approach
• An open system, however, must interact with the
environment to survive; it both consumes
resources and exports resources to the
environment. It cannot seal itself off. It must
continuously adapt to the environment.
• The organization has to find and obtain needed
resources, interpret and act on environmental
changes, dispose of outputs, and control and
coordinate internal activities in the face of
environmental disturbances and uncertainty.
• Every system that must interact with the
environment to survive is an open system.
 Organizational Configuration
• Various parts of the organization are designed to
perform the key subsystem functions.
• One framework proposed by Henry Mintzberg
suggests that every organization has five parts.
These five parts of an organization are as follows.
• Technical Core/Operating core: This includes
people who do the basic work of the organization.
• This is where the primary transformation from
inputs to outputs takes place.
• The technical core is the production department in
a manufacturing firm, the teachers and classes in a
university, and the medical activities in a hospital.
 Organizational Configuration Cont…

• Technical Support/techno structure: This helps

the organization adapt to the environment.
• Technical support employees such as engineers
and researchers scan the environment for
problems, opportunities, and technological
developments.
• Technical support is responsible for creating
innovations in the technical core, helping the
organization change and adapt.
• Examples of the technical support includes
departments such as technology, research and
development (R&D), and marketing research.
 Organizational Configuration Cont…

• Administrative Support/Support staff: This is

responsible for the smooth operation and upkeep of
the organization, including its physical and human
elements.
• This includes human resource activities such as
recruiting and hiring, establishing compensation and
benefits, and employee training and development,
as well as maintenance activities such as cleaning of
buildings and service and repair of machines.
• Administrative support functions in an organization
might include the human resource department,
organizational development, the employee cafeteria,
and the maintenance staff.
 Organizational Configuration Cont…
• Top Management/Strategic apex: Management is
a distinct subsystem, responsible for directing and
coordinating other parts of the organization. Top
management provides direction, strategy, goals,
and policies for the entire organization or major
divisions.
• Middle management/Middle line is responsible
for implementation and coordination at the
departmental level. In traditional organizations,
middle managers are responsible for mediating
between top management and the technical core,
such as implementing rules and passing
information up and down the hierarchy
Mintzberg’s Five Basic Parts
of an Organization
Strategic
Apex

Middle
Line

Operating Core
 Organizational Configuration Cont…

• Managers are the people to whom

management task is assigned, and it is
generally thought that they achieve the
desired organizational goals through the four
key functions of (1) planning, (2) organizing,
(3) directing, and (4) controlling. Some would
include leading as a managing function, but
for the purposes of this discussion, leading is
included as a part of directing.
 Dimensions of Organization Design

• Managers consider both structural and

contextual dimensions as well as make sure the
various parts of the organization work together
to achieve important goals
• Dimensions of Organization Design Dimensions
describe specific organizational design traits.
• These dimensions describe organizations in
much the same way that personality and
physical traits describe people.
• They fall into two types: structural and
contextual
 Dimensions of Organization Design Cont…

• Structural dimensions provide labels to

describe the internal characteristics of an
organization.
• They create a basis for measuring and
comparing organizations.
• 1. Formalization pertains to the amount of
written documentation in the organization.
• Documentation includes procedures, job
descriptions, regulations, and policy manuals.
• These written documents describe behavior
and activities.
Dimensions of Organization Design Cont…

• Formalization is often measured by simply counting

the number of pages of documentation within the
organization.
• Large state universities, for example, tend to be high
on formalization because they have several volumes
of written rules for such things as registration,
dropping and adding classes, student associations,
dormitory governance, and financial assistance.
• A small, family owned business, in contrast, may have
almost no written rules and would be considered
informal.
 Dimensions of Organization Design Cont…
• 2. Specialization is the degree to which organizational
tasks are subdivided into separate jobs.
• 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.
• If specialization is extensive, each employee performs only
a narrow range of tasks.
• If specialization is low, employees perform a wide range of
tasks in their jobs.
• Specialization is sometimes referred to as the division of
labor.
 Dimensions of Organization Design Cont…

• 3. Hierarchy of authority describes who reports

to whom and the span of control for each
manager.
• The hierarchy is depicted by the vertical lines on
an organization chart.
• The hierarchy is related to span of control (the
number of employees reporting to a supervisor).
• When spans of control are narrow, the hierarchy
tends to be tall. When spans of control are wide,
the hierarchy of authority will be shorter.
Dimensions of Organization Design Cont…

• The fewer the people, the smaller the span of control.

• Tall organizations have a large number of managers,
each with a small number of people reporting to
them resulting in a narrow span of control.
• Flat hierarchies give a small number of managers a
wide span of control over many employees.
• In a general pyramid shaped structure, the span of
control gets wider, the farther you move from top
management.
Dimensions of Organization Design Cont…

A flat hierarchy - span of control

Dimensions of Organization Design Cont…

A tall hierarchy - span of control

 Dimensions of Organization Design Cont…
• 4. Centralization and decentralization:
• Centralization refers to the hierarchical level that has
authority to make a decision.
• It is the degree to which decision making is concentrated at
upper levels in the organization.
• When decision making is kept at the top level, the
organization is centralized.
• When decisions are delegated to lower organizational
levels, it is decentralized
• Organizational decisions that might be centralized or
decentralized include purchasing equipment, establishing
goals, choosing suppliers, setting prices, hiring employees,
and deciding marketing territories. Centralization
 Dimensions of Organization Design Cont…
• 5. Professionalism is the level of formal
education and training of employees.
• Professionalism is considered high when
employees require long periods of training to
hold jobs in the organization.
• Professionalism is generally measured as the
average number of years of education of
employees, which could be as high as twenty
in a medical practice and less than ten in a
construction company.
 Dimensions of Organization Design Cont…
• Contextual dimensions characterize the whole organization,
including its size, technology, environment, and goals.
• They describe the organizational setting that influences and
shapes the structural dimensions.
• Contextual dimensions can be envisioned as a set of
overlapping elements that underlie an organization‘s
structure and work processes.
• To understand and evaluate organizations, one must
examine both structural and contextual dimensions. Key
issues under the contextual dimensions are:
• 1. Size: This is the organization‘s magnitude as reflected in
the number of people in the organization and can be
measured for the organization as a whole or for specific
components, such as a plant or division.
 Contextual dimensions

• Because organizations are social systems, size is

typically measured by the number of employees.
Other measures such as total sales or total assets
also reflect magnitude, but they do not indicate
the size of the human part of the system.
• 2. Environment: This includes all elements
outside the boundary of the organization such as
the industry, government, customers, suppliers,
and the financial community.
• The environmental elements that affect an
organization the most are often other
organizations.
 Contextual dimensions

• 3. Organizational technology: This refers to

the tools, techniques, and actions used to
transform inputs into outputs.
• This may include such things as flexible
manufacturing, advanced information
systems, and the Internet.
• An automobile assembly line, a college
classroom, and an overnight package delivery
system are technologies, although they differ
from one another.
 Contextual dimensions
• 4. Organization‘s goals and strategy: Goals
are often written down as an enduring
statement of company intent.
• A strategy is the plan of action that describes
resource allocation and activities for dealing
with the environment and for reaching the
organization‘s goals.
• Goals and strategies define the scope of
operations and the relationship with
employees, customers, and competitors.
 Contextual dimensions

• 5. An organization‘s culture: This is the

underlying set of key values, beliefs,
understandings, and norms shared by
employees.
• These underlying values may pertain to ethical
behavior, commitment to employees, efficiency,
or customer service, and they provide the glue
to hold organization members together.
• An organization culture is unwritten but can be
observed in its stories, slogans, ceremonies,
dress, and office layout.
 Contextual dimensions

• Contextual and structural dimensions discussed

here are interdependent.
• For example, large organization size, a routine
technology, and a stable environment all tend to
create an organization that has greater
formalization, specialization, and centralization.
• These dimensions provide a basis for the
measurement and analysis of characteristics that
cannot be seen by the casual observer, and they
reveal significant information about an
organization.
 Information sharing perspective on the
structure of the organization
• The organization should be designed to provide both
vertical and horizontal information flow as necessary
to accomplish the organization’s overall goals. There
are two ways of sharing information in the org:
• VERTICAL INFORMATION SHARING
• Vertical org are organizations designed for efficiency
and control. - specialized tasks, a hierarchy of
authority, rules and regulations, and centralized
decision making, which means problems and
decisions are funneled to top levels of the hierarchy
for resolution.
 Information sharing perspective on the
structure of the organization
• Managers create information linkages to facilitate
communication and coordination among organizational
elements.
• Vertical linkages are used to coordinate activities between
the top and bottom of an organization and are designed
primarily for control of the organization. Employees at lower
levels should carry out activities consistent with top-level
goals, and top executives must be informed of activities and
accomplishments at the lower levels.
• Organizations may use any of a variety of structural devices
to achieve vertical linkage, including hierarchical referral,
rules, plans, and formal management information systems.
 Information sharing perspective on the
structure of the organization
• Hierarchical Referral. The first vertical device is the
hierarchy, or chain of command. If a problem arises
that employees don’t know how to solve, it can be
referred up to the next level in the hierarchy. When
the problem is solved, the answer is passed back
down to lower levels. The lines of the organization
chart act as communication channels.
• Rules. To the extent that problems and decisions are
repetitious, a rule or procedure can be established so
employees know how to respond without
communicating directly with their manager.
 Information sharing perspective on the
structure of the organization
• Rules and procedures provide a standard
information source enabling employees to be
coordinated without actually communicating
about every task.
• At PepsiCo’s Gemesa cookie business in Mexico,
for example, managers carefully brief
production workers on goals, processes, and
procedures so that employees themselves do
most of the work of keeping the production
process running smoothly, enabling
 Information sharing perspective on the
structure of the organization
• Vertical Information Systems. Vertical information
systems include the periodic reports, written information,
and computer-based communications distributed to
managers. Information systems make communication up
and down the hierarchy more efficient.
• HORIZONTAL INFORMATION SHARING: Emphasis on
learning and adaptation is associated with shared tasks, a
relaxed hierarchy, few rules, face-to-face communication,
many teams and task forces, and informal, decentralized
decision making. Decentralized decision making means
decision-making authority is pushed down to lower
organizational levels.
 Information sharing perspective on the
structure of the organization
• Horizontal communication overcomes barriers
between departments and provides opportunities
for coordination among employees to achieve
unity of effort and organizational objectives.
• Horizontal linkage refers to communication and
coordination horizontally across organizational
departments.
• Its importance is articulated by comments made
by Lee Iacocca when he took over Chrysler
Corporation in the 1980s:
 Information sharing perspective on the
structure of the organization
• “What I found at Chrysler were thirty-five vice
presidents, each with his own turf . . . I couldn’t believe,
for example, that the guy running engineering
departments wasn’t in constant touch with his
counterpart in manufacturing. But that’s how it was.
Everybody worked independently. I took one look at that
system and I almost threw up. That’s when I knew I was
in really deep trouble . . . Nobody at Chrysler seemed to
understand that interaction among the different
functions in a company is absolutely critical. People in
engineering and manufacturing almost have to be
sleeping together. These guys weren’t even flirting!”
 Information sharing perspective on the
structure of the organization
• Horizontal linkage mechanisms often are not
drawn on the organization chart, but
nevertheless are a vital part of organization
structure. The following devices are structural
alternatives that can improve horizontal
coordination and information flow. Each
device enables people to exchange
information.
 Information sharing perspective on the
structure of the organization
• Information Systems.. Computerized information systems
enable managers or frontline workers throughout the
organization to routinely exchange information about
problems, opportunities, activities, or decisions.
• For example, Siemens uses an organization-wide
information system that enables 450,000 employees
around the world to share knowledge and collaborate on
projects to provide better solutions to customers. The
information and communications division recently
collaborated with the medical division to develop new
products for the health care market
 Information sharing perspective on the
structure of the organization
• Direct Contact. A higher level of horizontal linkage is direct contact
between managers or employees affected by a problem. One way to
promote direct contact is to create a special liaison role. A liaison person
is located in one department but has the responsibility for communicating
and achieving coordination with another department.
• Task Forces. Liaison roles usually link only two departments. When
linkage involves several departments, a more complex device such as a
task force is required. A task force is a temporary committee composed of
representatives from each organizational unit affected by a problem. Each
member represents the interest of a department or division and can carry
information from the meeting back to that department. Task forces are an
effective horizontal linkage device for temporary issues. They solve
problems by direct horizontal coordination and reduce the information
load on the vertical hierarchy. Typically, they are disbanded after their
tasks are accomplished.
 Organization Structure
• What is Organization structure?
• It has three key components in its definition. These
components are:
• 1. Organization structure designates formal reporting
relationship, including the number of levels in the
hierarchy and the span of control of managers and
supervisors.
• 2. Organization structure identifies the grouping together
of individuals into departments and of departments into
the total organization .e.g. NIPA
• 3. Organization structure includes the design of the
systems to ensure effective communication, coordination
and integration of effort across departments.
 TYPES OF STRUCTURAL DESIGNS
• There two broad categories in which organizations
fall.
• These are mechanistic and organic structures.
• Mechanistic structures
• These exist in organizations in which tasks are
broken down into specialized separate tasks, tasks
are rigidly defined, there is a strict hierarchy of
authority and control and there are many rules
and standard operating procedures, knowledge
and control of tasks are centralized at the top of
the organisation and communication is vertical.
 Mechanistic structures
• Mechanistic structures assume a variety of forms.
These include the following:
• Functional
• divisional
• geographical and;
• conglomerate designs
Functional structure
• In a functional structure, activities are grouped
together by common function from the bottom to the
top of the organization. All engineers are located in the
engineering department, and the vice president of
engineering is responsible for all engineering activities.
 Mechanistic structures
Conditions for the functional Structure
• This structure is most effective when in-depth expertise is critical to
meeting organizational goals; (Specialization)
• When the organization needs to be controlled and coordinated
through the vertical hierarchy, (centralization)
• When efficiency is important.
• Strengths
• It promotes economy of scale within functions. Economy of scale
results when all employees are located in the same place and can
share facilities. Producing all products in a single plant, for example,
enables the plant to acquire the latest machinery.
• The functional structure also promotes in-depth skill development
of employees. Employees are exposed to a range of functional
activities within their own department
 Mechanistic structures
Weaknesses
• The main weakness of the functional structure is a
slow response to environmental changes that require
coordination across departments. The vertical
hierarchy becomes overloaded. Decisions pile up, and
top managers do not respond fast enough.
• Other disadvantages of the functional structure are
that innovation is slow because of poor coordination,
and each employee has a restricted view of overall
goals. E.g. accountants may just focus on their goals
and not on the goals of purchasing department for
example.
 Divisional Structure
• The term divisional structure is used here as
the generic term for what is sometimes called a
product structure or strategic business units.
• With this structure, divisions can be organized
according to individual products, services,
product groups, major projects or programs,
divisions, businesses, or profit centers.
• The distinctive feature of a divisional structure
is that grouping is based on organizational
outputs.
 Divisional Structure

Product Divisional President

Structure

Motion Magazine & Internet

Music
Pictures & TV Book Products
Division
Division Division Division

Customer Divisional President

Structure

Consumer Mortgage Business Agriculture

Loans Loans Loans Loans

Geographic Divisional President

Structure

Western Northern Southern Eastern

Region Region Region Region
42
 Divisional Structure
• The difference between a divisional structure and a
functional structure is that a functional structure can be
redesigned into separate product groups, and each group
contains the functional departments of R&D, manufacturing,
accounting, and marketing. Coordination across functional
departments within each product group is maximized.
• The divisional structure promotes flexibility and change
because each unit is smaller and can adapt to the needs of its
environment.
• Moreover, the divisional structure decentralizes decision
making, because the lines of authority converge at a lower
level in the hierarchy.
• The functional structure, by contrast, is centralized, because it
forces decisions all the way to the top before a problem
affecting several functions can be resolved.
 Divisional Structure
Conditions for the Divisional structure
• The divisional organizational form of structure
is excellent for achieving coordination across
functional departments.
• It works well when the organization can no
longer be adequately controlled through the
traditional vertical hierarchy and when goals
are oriented towards adaptation and change.
 Divisional Structure Cont…
Strengths
• Suited for fast changing and unstable
environments
• Leads to client satisfaction because product
responsibility and contact points are clear.
• Involves higher coordination across functions
• Allows units to adapt to differences in products,
regions, clients
• Best in large organizations with several products
 Divisional Structure Cont…
Weaknesses
• Eliminates economies of scale in functional
departments
• Leads to poor coordination across product
lines
• Eliminates in depth competence and technical
specialization
 Geographical Structure

• Another basis for structural grouping is the organization‘s

users and customers and the most common structure in
this category is geography. Each region of the country may
have distinct tastes and needs.
• Each geographical unit includes all functions required to
produce and market products in that region.
• For Multination corporations, self contained units are
created for different countries and parts of the world. E.g.
Shoprite Zambia, Standard Chartered Bank etc.
• The strengths and weaknesses of a geographical
divisional structure are similar to that of the divisional
organizational characteristics listed above.
 Conglomerate
• This is composed of a diverse set of companies that are
completely independent except that they pull resources
together.
• Conglomerates are like divisionalised structures except
that companies in a conglomerate are even more
independent and they are created to provide diversity in
business. E.g. ZCCM-IH with 77.7% shareholders held by
the Government of the Republic of Zambia (GRZ), while
institutions and individuals, have 22.3% of shares
• The corporate headquarters of a conglomerate provides
financial support, strategic planning capability and
managerial expertise that might otherwise be unavailable
if these companies were independent.
 Conglomerate Cont…

Strengths
• A conglomerate structure can provide financial
economies of scale and balance risks. For instance
under ZIMCO Group of Companies, all companies
that made profits were often subsidized by those
that made losses in the same group. This therefore
entails that the risk of other companies can be
balanced by other companies in the same group.
• Operating companies in a conglomerate can be
bought and sold independently with little or no
effect on the whole conglomerate or other units
within the conglomerate.
 Conglomerate Cont…

Weaknesses
• There is duplication of activities because
there is no sharing of skilled personnel
sophisticated equipment and facilities across
company lines. Each company operates
independently with its own facilities,
personnel and skills.
• The conglomerates top management cannot
be experts in each of the industries they are
operating. It becomes practically impossible to
supervise the operations
 ORGANIC STRUCTURES
• The following are the characteristics of Organic structures
• Less formalization,
• more decentralization
• Informal communication
• Many teams or task forces
Under organic structure there are three categories of
structures that one would find. These include the
following:
• Simple structure
• The Matrix Structure and
• The Task Force Structure
 Simple structure

• There is only one hierarchical level of

management beneath the owner

Owner of company

Assistant
 Simple structure

ADVANTAGES
• It is flexible
• It is inexpensive to maintain
• Thirdly accountability is clear
DISADVANTAGES
• This structure is only applicable to small business or businesses
of a simple nature
• It has got low formalization e.g. it has no documents that
govern the conduct of individuals in the organization
• High centralization at the top will result in information overload
• As a simple structure increases in size, the single executive will
find it very difficult to make quick decisions, thus the
organization may become slow and inflexible.
 Characteristics of Mechanistic
& Organic Organizations

Mechanistic organizations Organic organizations

Centralized hierarchy of authority Decentralized hierarchy of authority

Many rules and procedures Few rules and procedures

Specialized tasks Shared tasks

Formalized communication Informal communication

Few teams or task forces Many teams or task forces

Narrow span of control, taller Wider span of control, flatter

structure structure
 Matrix Structure
• It is an organization design that attempts to
maximize the strengths and minimize the
weaknesses of both functional and product bases
• This is the organizational design that super-
imposes product based design on existing
function based design.
• In practical terms the matrix design combines
functional and product bases. Companies such as
Prudential Insurance, BMW and Boeing all use
matrix designs
 Matrix Structure Cont…
• The unique characteristic of the matrix
organization is that both product divisions and
functional structures (horizontal and vertical)
are implemented simultaneously
• The product managers and functional
managers have equal authority within the
organization, and employees report to both of
them.
 Matrix Structure Functional
President Structure
Project
structure
Vice Vice Vice Vice
President, President, President, President.
Engineering Finance Production Marketing
Project
Manager,
Taurus

Project
Manager,
Mustang
Subordinate
Project reports to
Manager, both Vice
Explorer President of
marketing &
Project
Manager, to project
Expedition Manager for
Mustang
Example of Ford Motor Company 57
 CONDITIONS FOR THE MATRIX STRUCTURE

• A dual hierarchy may seem an unusual way to design

organizations, but the matrix is the correct structure
when the following conditions are met (Daft, 1995):
• Condition 1: Pressure exists to share scarce resources
across product lines. The organization is typically
medium sized and has a moderate number of product
lines.
• It feels pressure for the shared and flexible use of
people and equipment across those products. For
example, the organization is not large enough to
assign engineers full-time to each product line, so
engineers are assigned part-time to several products
or projects.
 CONDITIONS FOR THE MATRIX STRUCTURE Cont…

• Condition 2: Environmental pressure exists for

two or more critical outputs, such as for in-
depth technical knowledge (functional
structure) and frequent new products
(divisional structure).
• This dual pressure means a balance of power
is needed between the functional and product
sides of the organization, and a dual-authority
structure is needed to maintain that balance.
 CONDITIONS FOR THE MATRIX STRUCTURE Cont…

• Condition 3: The environmental domain of the

organization is both complex and uncertain.
• Frequent external changes and high
interdependence between departments require a
large amount of coordination and information
processing in both vertical and horizontal directions.
• Strengths and Weaknesses
• The matrix structure is the best when environmental
change is high and when the goals reflect a dual
requirement, such as for both product and
functional goals.
 Strengths and Weaknesses
• The dual authority structure facilitates
communication and coordination to cope with
rapid environmental change and enables an
equal balance between product and functional
bosses. The matrix facilitates also discussion
and adaptation to unexpected problems. It
tends to work best in organizations of
moderate size with few product lines. The
matrix is not needed for only a single product
line and too many product lines make it
difficult to coordinate both directions at once.
 Strengths and Weaknesses
• This structure also provides an opportunity for
employees to acquire either functional or
general management skills, depending on
their interests.
• One disadvantage of the matrix is that some
employees experience dual authority,
reporting to two bosses and sometimes
juggling conflicting demands. This can be
frustrating and confusing, especially if roles
and responsibilities are not clearly defined by
top managers.
THANK YOU