FUNDAMENTALS OF ORGANIZATION STRUCTURE

CHAPTER 3

Organization Structure

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There are three components in the definition of organization structure (OS): (OS) designates formal reporting relationships including span of control and number of levels in the hierarchy. (OS) identifies grouping of individuals. (OS) includes the design of systems to ensure effective communication, coordination, and integration across departments.

The three elements of structure pertain to both horizontal and vertical aspects of organization. The first two are the structural framework which is the vertical hierarchy. The third element pertains to the pattern of interaction among employees. Organization structure is reflected in the organization chart.

Information-Processing perspective

The organization should be designed to provide both vertical and horizontal information flow as necessary to accomplish the organization’s overall goals. If the structure does not fit the information requirements of the organization, people either will have too little information or will spend time processing information that is not vital to their tasks, thus reducing effectiveness.

There is inherent tension between vertical and horizontal mechanisms in the organization. Vertical linkages are designed primarily for control( exercised by top management), horizontal linkages are designed for coordination and collaboration, which usually means reducing control. Organizations can choose whether to orient toward a traditional organization designed for efficiency, which emphasizes vertical communication and control, or

toward a contemporary learning organization, which emphasizes horizontal communication and coordination. Emphasis on efficiency and control is associated with specialized tasks, a hierarchy of authority, rules and regulations, formal reporting systems, few teams or task forces, and centralized decision making, which means problems and decisions are funneled to top levels for resolution.

Emphasis on learning is associated with shared tasks, a relaxed hierarchy, few rules, face-to-face communication, many teams and task forces, and informal, DECENTRALIZED decision making. Organizations may have to experiment to find the correct degree of centralization or decentralization to meet their needs.( do you think the environment has to be taken into consideration?).

Vertical Information Linkages

Linkages is defined as the extent of communication and coordination among organization members. Vertical linkages are used to coordinate activities between the top and bottom of an organization and are designed primarily for control . Employees at lower levels should carry out activities consistent with top-level goals, and 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 linkages, hierarchical referral( chain of command), rules, plans, and formal management information systems.

Horizontal Information Linkages

Horizontal communication overcomes barriers between departments and provides opportunities for coordination among employees to achieve unity of effort and organizational objectives. Horizontal linkage mechanisms often are not drawn on the organization chart, but are part of organization structure.

The following devices are alternatives that can improve horizontal coordination and information flow: Cross-functional information systems. Direct contact between managers and employees involved in a problem. A one way is to create a special liaison role located in one department to solve problems in two departments.

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Task Forces: when linkage involves several departments, a more complex device as a task force is required. A task force is a temporary committee composed of representatives from each department affected by the problem. Each member represents the interest of his department and carries information from the meeting back to the department ( but he should be a decision maker).

4. Full time integrators: A stronger horizontal linkage device is to create a full-time position or department solely for the purpose of coordination. Unlike the liaison person, the does not report to one of the functional departments , he is located outside the departments and has the responsibility for coordinating several departments. Integrators need excellent people skills.

5. Teams: Project teams tend to be the strongest horizontal linkage mechanism. Teams are permanent task forces and are often used in conjunction with a full-time integrator. When activities among departments require strong coordination over a long period of time, a cross-functional team is often the solution.

Amount of horizontal coordination required

high

teams Full-time integrator Task force Direct contact

low

Information system

low

high Cost of coordination in time and human resources

Departmental Grouping Options

Options for departmental grouping, including functional grouping, divisional grouping, multi focused grouping, horizontal grouping, and modular grouping. Functional grouping: places employees together to perform similar functions or work processes. Divisional grouping: means people are organized according to what the organization produces.

Multi-focused grouping: means organization embraces two structural grouping alternatives simultaneously. These are often called matrix or hybrid. An organization may need to group by function and product division simultaneously or perhaps by product division and geography.

Horizontal grouping: Means employees are organized around core work processes, the end-toend work, information, and material flows that provide value directly to customers. All the people who work on a core process are brought together in a group rather than being separated into functional departments.

Modular grouping: Is the most recent approach to departmental grouping, the organization is a loosely connected cluster of separate components. Departments are separate organizations that are electronically connected for the sharing of information and completion of tasks.

Functional, Divisional, And Geographical Designs

FUNCTIONAL STRUCTURES: All activities are grouped together by common function from the bottom to the top of the organization. The human knowledge and skills with respect to specific activities are consolidated, providing valuable depth of knowledge to the organization. This structure is effective when the organization needs to be controlled and coordinated through the vertical hierarchy and when efficiency is important.

Strengths and weaknesses of functional organizational structures: Strengths Allows economy of scale within functional departments. Enables in-depth knowledge and skill development. Is best with only one or few products.

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Weaknesses: Slow response time. Hierarchy overload. Poor horizontal coordination. Restricted view of organizational goals ( why?).

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Very few of today’s successful organizations can maintain a strictly functional structure. It compensate for the vertical hierarchy by installing horizontal linkages, information systems, direct contact between departments, full-time integrators or project managers, task forces, or teams.

DIVISIONAL STRUCTURE: (strategic business unit) , divisions can be organized according to individual products, services, major projects or programs, divisions, or profit centers. Grouping is based on organizational outputs. The divisional structure promotes flexibility and change because each unit is smaller and can adapt to the needs of its environment. It also promotes decentralization.

STRENGTHS: Suited for fast change in unstable environment. Leads to customer satisfaction. Involves high coordination between functions. Best in large organizations with several products. Decentralizes decision making.

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WEAKNESSES: Eliminates economies of scale . Leeds to poor coordination across product lines. Eliminates in-depth technical specialization. Makes integration an coordination across product lines difficult.( why?).

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MATRIX STRUCTURE: Sometimes, an organization structure needs to be multi-focused in that product and function or product and geography are emphasized at the same time. The matrix can be used when both technical expertise and product innovation and change are important for meeting organizational goals.

The matrix structure often is the answer when organizations find that the functional, divisional, and geographical structures combined with horizontal linkage mechanisms will not work.  The matrix is a strong form of horizontal linkage. Conditions for the matrix:  Condition 1: pressure exists to share scarce resources across product lines. Medium-sized organization and a moderate no. of product lines.

Condition 2: Environmental pressure exists for two or more critical outputs. Condition 3: The environmental domain of the organization is both complicated 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.

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Strengths and Weaknesses: Strengths: Achieves coordination necessary to meet dual demand from customers. Flexible sharing of HR across products. Suited to complex decisions and frequent changes. Best in medium-sized organizations with multiple products.

Weaknesses: Causes participants to experience dual authority . Participants need good interpersonal skills. Is time consuming.. Frequent meetings and conflict resolution sessions. Requires great effort to maintain power balance.

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Horizontal Structures

Organizes employees around core processes. The shift to horizontal structure takes place during a REENGINEERING PROCESS basically means the redesign of vertical organization along its horizontal workflows and processes. ( what is a process?). When the organization is reengineered to a horizontal structure all the people throughout the organization who work on a process have easy access to one another to communicate and coordinate their efforts.

The horizontal structure basically eliminates both the vertical hierarchy and old departmental boundaries. CHARACTARESTICS: Structure is created around cross-functional core processes rather than tasks, functions, or geography.

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Self-directed teams, not individuals, are the basis of organizational design and performance. Process owners have responsibility for each core process in its entirety. People in the team are given the skills, tools, motivation, and authority to make decisions to teams performance. Teams have freedom to think creatively and respond flexibly to new challenges.

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Customers drive the horizontal corporation. The culture is one of openness, trust, and collaboration, focused on continuous improvements. The culture values employee empowerment, responsibility, and well being.

Strengths: 1. Promotes flexibility and rapid response in customer needs.

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Directs the attention of everyone toward the production and delivery of value to the customer. Each employee has a broader view of organizational goals. Promotes focus on team work and collaboration. Improves quality of life for employees by offering them the opportunity to share responsibility, make decisions, and be accountable for results.

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Weaknesses: Determining core processes is difficult and time consuming. Requires changes in culture, job design, management philosophy, and information and reward system. Traditional managers may balk when they have to give power and authority.

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Requires significant training of employees to work effectively in horizontal team environment. Can limit in-depth skill development. IT CAN HARM RATHER THAN HELP ORGANIZATIONAL PERFORMANCE UNLESS MANAGERS CAREFULLY DETERMINE WHICH CORE PROCESSES ARE CRITICAL FOR BRINGING VALUE TO CUSTOMERS.

 Modular

Structure:

Extends the concept of horizontal coordination and collaboration beyond the boundaries of the traditional organization. With a modular structure, the firm subcontracts many or most of its major processes to separate companies and coordinates their activities from a small headquarters organization.

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HOW THE STRUCTURE WORKS: The modular organization may be viewed as a central hub surrounded by a network of outside specialists. Rather than being housed under one roof or located within one organization, services such as accounting, design, manufacturing, marketing and distribution are outsourced to separate companies that are connected electronically to the central office.

Subcontractors may flow into and out of the system as needed to meet changing needs. With modular structure, the hub maintains control over processes in which it has difficult-to- imitate capabilities and then transfers other activities- along decision making and control over them- to other organizations. These partner organizations organize and accomplish work using their ideas assets, and tools.

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STRENGTHS AND WEAKNESSES: Strengths: Gives a company immediate scale and reach without huge investments. Enables organization to be highly flexible and responsive to change. Reduces administrative overhead costs. Enables organizations to obtain worldwide talent and resources.

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Weaknesses: Managers don’t have hands-on control over many activities. Requires great deal of time to manage relationships and potential conflicts. Risk of organizational failure if a partner fails to deliver. Employees loyalty and corporate culture might be weak.

HYBRID STRUCTURE: Many structures in the real world do not exist in the pure forms outlined previously. Organizations often use hybrid structure that combine characteristics of various approaches tailored to specific strategic needs. One type is to combine functional and divisional structures.

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A second hybrid approach is to combine characteristics of functional and horizontal structures. Applications of Structural Design Each type of structure is applied in different situations and meets different needs. Each represents a tool that can help managers make an organization more effective, depending on the demands of its situation.

STRUCTURAL ALIGNMENT: Ultimately, the most important decision that managers make about structural design is to find the right balance between vertical control and horizontal coordination. Vertical control is associated with goals of stability and efficiency, while horizontal coordination is associated with learning, innovation, and flexibility.

SYMPTOMS OF STRUCTURAL DEFICIENCY:
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Decision making is delayed . The organization does not respond innovatively to a changing environment. Too much conflict is evident.

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