Basic Organizational Design

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Introduction
Organisational structure was established based on
hierarchical structural framework which encouraged
1. Efficient mass production
2. Promoted uniformity in rules
3. Centrally controlled
4. As organizations expand in size, re-evaluation of
existing structure is necessary to enable the
organization to achieve optimum effectiveness and
efficiency levels

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Structural Elements
There are six structural elements which affect
organizational design
1. Specialization
2. Chain of command
3. Span of control
4. Authority and responsibility
5. Centralization and decentralization
6. Departmentalization

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Specialization
In 18th century, Adam Smith emphasized the
breakdown of labour into several divisions, as
illustrated in his book The Wealth of Nations
Work had to be divided into various stages and each
work step be undertaken by a different person
Every individual specialized in a particular area of
activity
Specialization required multi-skilled and competent
workers.

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Chain of Command
Workers should only have one leader
This is to avoid conflicting instructions and priorities
from different bosses
Essential to have a clear division of activities and
appointment of one leader for each level of activity
Organizations are guided by principle of the chain of
command, only one leader to lead a team

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Span of Control
Number of workers that can be effectively controlled
by a manager
Pioneer management favored a maximum of six
workers
Top managers require a smaller span of control
compared to middle managers
Middle managers need to have a smaller span of
control compared to first-line managers
Workers’ tasks, the complexity level of the task, the
distance between workers, level of uniformity of tasks
and other factors affect span of control
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Authority and Responsibility
Authority refers to the rights enshrined in a
manager’s position to give instructions with the hope
that those instructions will be adhered to
Authority is a top-down function, instructions from
top management to middle and lower level
management
Authority is linked to the post without taking into
consideration the personal characteristics of the
holder of the post

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Authority and Responsibility
When position is vacant, the authority remains with
the post
Authority and responsibility go hand in hand
When workers are given certain rights (authority),
they are also expected to carry out the relevant tasks
(responsibility)

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Centralization and Decentralization
Centralization and decentralization are phenomena
related to decision-making authority
Traditional organizations are of pyramid structure,
power and authority are vested in the top layers
In such an organizational structure, centralized
decisions are obviously practised
Current organisations are becoming more and more
complex and faced with dynamic changes in the
environment

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Centralization and Decentralization
Decisions should be made by those who are in
proximity to the problem
Modern managers will select the level of centralization
or decentralization based on their capacity to make
decisions
Branch staff are empowered for decision making in daily
operations except Finance and HR related matter
i.e. budget and financial matters are centralized, payroll
and claim processed by HR department in the HQ

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Departmentalization
Organizational activities should be specialized and
grouped together
Specialization gives rise to experts who need to be
coordinated
The coordination work could be done by placing the
experts together in one department under one
manager
Thus, different departments with their own unique
roles and responsibilities arise

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Methods of Departmentalization
1. Functional Departmentalization
2. Product Departmentalization
3. Customer Departmentalization
4. Geographical Departmentalization
5. Process Departmentalization

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Functional Departmentalization

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Product Departmentalization

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Customer Departmentalization

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Geographical Departmentalization

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Process Departmentalization

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Mechanistic Organizations
specialized jobs and responsibilities
precisely defined and unchanging roles
rigid chain of command
centralised authority
vertical communication
works best in a stable, unchanging business
environment

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Organic Organizations
organizations can adapt to various situations
broadly defined jobs and responsibility
loosely defined and frequently changing roles
decentralised authority
horizontal communication
works best in a dynamic, changing business
environment
contrasts significantly with mechanistic organizations

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Differences Between Mechanistic
and Organic Organizations

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Strategy
structure follows strategy – organizational
structure is based on strategy
management makes a decision to change
strategies, changes must also be made to the
organisational structure
Responsive strategy: structure which allows swift
transfer of information from bottom up and then
top down; allows quick market response

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Size
size has an impact on the creation of its structure
big organizations which employ more than 2,000
workers will be more inclined towards work
specialization and use of rules compared to smaller
organizations
this is for better control and coordination effort
among different departments and work teams
rule ensures consistency in large organizations

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Technology
organization utilizes some form of technology to
transform resource input into organizational output
researchers have concluded that to achieve high
levels of effectiveness, technology must complement
the organizational structure
the more routine a task, the greater is the need for a
uniformed structure
organic organizations need less routine technology as
changes happen often and organizations adapt to it
quickly with new set of technology
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Environment
relationship between structure and environment is
the main reason managers restructure their
organizations to ensure responsiveness and flexibility
intensive innovations and global competition give
rise to fluid and dynamic business environment
organic organizations perform better under this
circumstances
mechanistic organizations often meet a dead-end in
the waves of change

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Organizational Design Application
1. Simple structure
2. Bureaucracy
 Functional structure
 Divisional structure
 Matrix structure
3. Team structure
4. Borderless structure

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Simple Structure
owner equals president, workers report directly to him
level of work specialization is low with minimum
operational control procedures
horizontal organisation that practises centralized
decision making
quick decision making, low cost, flexible to run, clear
accountability
works well for small organizations, lack of policies
and rules to guide its operations, decisions depend on
one person only
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Functional Structure
high degree of work specialization
capitalizes on economies of scale and reduces
duplication of personnel and equipment
focuses more on the achievement of functional
objectives over organisational objectives

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Divisional Structure
consists of fully-equipped units or divisions
each division is autonomous with a divisional
manager
managers with full authority to make operational
decisions and formulate strategies
headquarters as external observer who provides
support services to the divisions
duplication of functions which involve high costs
makes this kind of structure less efficient and is the
main disadvantage of this structure.
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Matrix Structure

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Matrix Structure
workers have at least two managers above them
a functional manager and a product or project
manager
authority is jointly shared between the functional
and project managers
the project manager has authority over the project
workers for issues related to the project
decisions on promotions, remuneration adjustments
and yearly evaluation are the responsibility of the
functional manager
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Matrix Structure
both functional and project manager must always
communicate and coordinate with one another
Pro: able to coordinate interconnected complex tasks
and projects and maintain the functional expertise
that has been put together
Con: confusion occurs as a result of power struggles
among the managers
Matrix structure violates the principle in chain of
command

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Team Structure
The whole organization comprises work groups or
teams
members have the authority to make decisions which
impact them, in the absence of a chain of command
Bureaucracy delays decision-making and hampers
innovation
Team structure approach is more to horizontal
communication and create work teams among
disciplines

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Borderless Structure
network organization, unobstructed learning organization,
modular or virtual organization
work groups from various disciplines with authority to
make decisions, undertake the tasks and accountable for
decision made
rock solid technological structure to link and coordinate
global operations
decentralized structure for teams to make decision based
on local market environment
take action quickly as well as take advantage of available
opportunities
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Organizational Culture
a system of shared values
a culture reflects workers’ behaviour
organizational culture is the product of vision and
mission of the organization
strong core values will ensure dominant values guide
the behaviour of the organization members
Culture can replace Rules: the more influential the
organizational culture, the less the need for formal
procedures

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 The End

prepared by: Liu Ching Ching PT Academic