Organization
Structure & Design
Organizations strive to be effective through various
structural configurations
Restructuring and reorganizing an integral part of any
organization’s activities
Structural changes reflect changes in organization's
strategies and / or a response to change in
environment, culture, technology, size, life-cycle stages
‘Superstructure’ :
depicted by the organization chart depicting
departments and important reporting relationships in
the organization
hierarchy
‘Infrastructure’ :
- roles performed by various organizational members
Extent of formal authority, extent of centralization, extent of
formalization, extent of specialization
Essential for ensuring reliability and quality of work, accountability
of various role performers
Organization structure :
- the formal decision-making framework by
which job tasks are divided, grouped, and
coordinated.
Elements of Structure
Complexity Formalisation
Centralisation
Structural configurations among
organizations would differ mainly
based on differences in degrees of
these three dimensions.
Complexity
Refers to the degree of differentiation that exists within an
organization.
Horizontal differentiation – degree of differentiation between units
based on orientation of members, nature of tasks, qualifications (e.g.
specialization, departmentation)
Vertical differentiation – depth in structure, number in hierarchical
levels
Spatial differentiation – geographical dispersion of organization’s
offices, plants, personnel
Greater the differentiation, greater the complexity within the
organization.
Greater need and difficulty of coordinating activities of diverse
groups of employees
Horizontal differentiation
Specialization: particular grouping of activities performed by an
individual
Functional : jobs broken down into simple and repetitive
tasks (division of labour)
Social : individuals are specialized. Possess professional skills
that cannot be routinized.
Greater the specialization, greater the complexity
Requires more sophisticated and expensive methods for co-ordination
and control
Departmentation: grouping of specialists; may be based on
simple numbers, function, product or service, client, geography, or process.
Greater the departmentation, greater the complexity
Vertical differentiation
A response to an increase in horizontal
differentiation
Span of control: number of subordinates that a manager
can effectively direct
Smaller the span, taller the organization
16 1
64 8
256 64
1024 512
4096 4096
Span : 4 Span : 8
Choosing the span: 4-8 at upper levels,
8-15 or more at lower levels
Problem with organizational levels:
Expensive. As levels , effort and money for
managing the additional staff.
Complicates communication through omission, filtering
& misinterpretation as information passes up and down
the line.
Complicates planning and control.
Narrow vs. Wide spans:
Advantages and Disadvantages
Organizations with Narrow Spans : Tall structures
Advantages Disadvantages
Close supervision Superiors tend to get too involved in
subordinates’ work
Close control Many levels of management
Fast communication between High costs due to many levels
subordinates and superiors
Excessive distance between lowest level
and top level
Organizations with Wide Spans: Narrow Structures
Advantages Disadvantages
Superiors are forced to delegate Tendency of overloaded superiors to
become decision bottlenecks
Clear policies must be made Danger of superior’s loss of control
Subordinates must be carefully selected Requires exceptional quality of managers
Factors influencing span of management
Factor Narrow spans (great deal of time spent Wide spans (less time spent with
with subordinates) subordinates)
Training of Little or no training Thorough training of subordinates
subordinates
Clarity of Inadequate or unclear authority Clear delegation to undertake well-defined
delegation of delegation tasks
authority
Clarity of plans Unclear plans for non-repetitive Well-defined plans for repetitive operations
operations
Use of objective Non-verifiable objectives and standards Verifiable objectives used as standards
standards
Rate of change Fast changes in internal and external Slow changes in external and internal
environments environments
Communication Use of poor or inappropriate Use of appropriate techniques, such as
techniques communication techniques, including proper organization structure, written and
vague instructions oral communication
Incompetent and untrained manager Competent and trained manager
Amount of Complex task Simple task
personal contact
needed Subordinates’ unwillingness to assume Subordinates’ willingness to assume
responsibility and reasonable risks responsibility and reasonable risks
Immature subordinates Mature subordinates
Vertical vs. Horizontal Structures: Efficiency vs. Learning
Vertical Organization designed Horizontal Organization
for efficiency designed for learning
Horizontal structure is dominant:
• Shared tasks, empowerment
• Relaxed hierarchy, few rules
• Horizontal communication, face
to face
• Many teams and task forces
• Decentralized decision-making
Dominant
Structural
Approach
Vertical structure is dominant:
• Specialized tasks
• Strict hierarchy, many rules
• Vertical communication and reporting
systems
• Few teams, task forces, or integrators
• Centralized decision-making
Importance of complexity
Greater the complexity, greater the need for
effective communication, coordination and
control devices.
Hence, creates different demands and
requirements on managers’ time.
Paradox : economies created by complexity
counterbalanced by the increased burden of
keeping organization together
Formalization
Refers to the degree to which jobs within the organization are
standardized.
Individual discretion on job inversely proportional to extent of
formalization.
Formalization can be explicit (written), or implicit (unwritten…perceived)
Degree of formalization can vary among and within organizations, and
type of jobs (e.g. production jobs more formalized than research, in same
organization)
Greater the professionalization of the job, lesser the likelihood of it being
highly formalized
Formalization inversely related to level in hierarchy.
Importance of formalization
Standardization reduces variability in behavior
Standardization promotes coordination
Formalization economy
Formalization :externalized behavior;
Professionalization : internalized behavior
Formalization techniques
Selection
Role requirements
Rules, procedures, policies
Training
Rituals
Formalization & Complexity
Strong association between specialization,
standardization and formalization
Higher functional specialization
High formalization
Higher social specialization
low formalization
Centralization
Refers to the degree to which the formal
authority to make discretionary choices is
concentrated in an individual, unit, or level
(usually high in the organization)
Importance of the centralization-decentralization
issue
Decentralization helps counter information overload
Decentralization facilitates speedy action and response
Decentralization can provide more input into decision-making
Decentralization motivates employees
Decentralization provides training opportunities for lower level
managers
Centralization benefits whole organization, not any special-
interest group
Some activities are done more efficiently when centralized.
Situational factors will determine the “right” amount of
centralization required
Centralization, Complexity and
Formalization
Centralization and Complexity
Inversely related
Centralization and Formalization
Ambiguous relationship
CONTINGENCY VARIABLES AFFECTING
ORGANISATIONAL STRUCTURE
Strategy
Environment Technology
Structure
Culture • Formalization
• Complexity Size
• Centralization
Environment -Structure relationship
Systems perspective
Different levels of environmental
uncertainty
Structural redesign to control
environmental uncertainty
Open systems
Recognizes dynamic interaction of system
with its environment
Environment
System
Transformation
Inputs Outputs
process
Environment
Environment : Everything outside the
organization’s boundaries
General environment : conditions that may have an impact
on the organization,but their relevance is not overtly clear .
Specific environment : that part of the environment that is
directly relevant to the organization in achieving its goals.
(strategic constituencies)
Varies depending on domain chosen by organization.
Domain: the claim that the organization stakes out for itself
with respect to the range of products or services offered and
markets served.
The domain of an organization determines its
specific environment.
The organization and its specific environment
Customers
Suppliers
Public
Pressure
groups
Organization Competitors
Trade
associations
Government
Labour
unions
Environment – Structure relationship
A dynamic environment has more influence on structure than a
static environment does
Environment and Complexity
environmental uncertainty complexity
Environment and Formalization
Low formalization for boundary activities
Environment and Centralization
environmental complexity, decentralization
However, extremely hostile environment drives organizations
to temporarily centralize their structures (e.g wildcat strike by
employees, unions)
Strategies for managing environment
Resource dependence theory
1. Domain choice
Changing domain of operation to change operating environment
2. Recruitment
Based on professional competence, experience in operating in similar
environment
3. Vertical Integration
To extend organization's control over input and output ends of the
environment and reduce supply and distribution uncertainties
4. Buffering
Cost-effective alternative to vertical integration. e.g. maintaining high
inventories of input (raw materials, spare parts) and output (finished
goods)
5. Smoothening
To counter environments where demands are predictable but extreme. By
Strategies for managing environment (contd.)
6. Advertising
To create brand loyalty / lure away customers / reduce competitive
pressures / stabilizing demand
7. Contracting
Long-term contracts with input / output agencies to protect
organization from input / output related uncertainties
8. Mergers / Acquisitions / Strategic alliances
Horizontal integrations
9. Lobbying
Type of political behavior. Attempting to get favorable treatment
from government and regulatory bodies: often through
consortiums, business forums etc.
Strategy-Structure relationship
Strategic dimension Characteristic features Structural design
Innovation Meaningful and unique Flexible structure
strategy / innovations Low routinization and mechanization
prospector Decentralization
strategy
Low in formalization
Defender Strategy Turf protection, focus on More functional specialisation
cost, efficiency, limited Centralized control
product range Elaborate formal hierarchy for communication
Analyser strategy “Second mover” Mix of standardization and adaptiveness
Moderate centralization
Marketing Advertising, market Flexible structure
differentiation segmentation, prestige Decentralization
pricing Low in formalization
Breadth strategy Scope of market, variety of Divisional Structure
customers, geographic Decentralized control
range, number of products
Cost-control No unnecessary marketing More functional specialisation
strategy / cost- or innovation expenses, Centralized control
leadership tight control on expenses Elaborate formal hierarchy for communication
strategy
Technology and Structure
Technology and Complexity
Routine technology low complexity
Non-routine technology high complexity
Technology and Formalization
Routine technology high formalization
Non-routine technology Low formalization
Technology and Centralization
Routine technology high centralization, if
formalization is low.
Routine technology decentralization, if
formalization is high.
Non-Routine technology decentralization
Size – Structure relationship
Size – complexity
Size –vertical differentiation
Size – spatial differentiation
Size – Formalization
Direct surveillance vs formalized regulations
size, formalization
Size – Centralization
Organizational Configurations
Defined work activities
Reporting relationships
Simple
flat hierarchy, single head for coordination
Organizational Configurations
(contd.)
Functional
Divisional
Self-contained autonomous unit groups, coordinated by a
HQ unit
Matrix
Multiple reporting relationships
Ad Hoc
High horizontal diff, low vertical diff, high spatial diff, low
forml, decentralization, flexibility
Bureaucracy
Organizational Configurations
(contd.)
Virtual
High spatial diff
International
Global versions of functional, divisional, matrix
