Organizational Structure

Definition

• Organizational structure is defined as the framework of tasks,

reporting and authority relationships within which an
organization functions

• It defines how job tasks are formally divided, grouped and

coordinated

• It represents skeletal framework for organizational behavior

 Bureaucratic Model
• Work specialization and division of labor: The duties and
responsibilities of all employees should be clearly defined

• Abstract rules: An organization should have well defined rules

and regulations

• Impersonality of managers: A manager should be immune to

feelings like affection, enthusiasm, hatred and passion towards
his subordinates

• Hierarchy: Activities of employees at each level are monitored

by employees at higher levels
 Elements to design Organizational Structure
• Centralization

• Decentralization

• Tall Structure

• Flat Structure

• Departmentalization

• Chain of Command

• Formalization
 Centralization
It refers to concentration of power and authority at topmost
level. The types are:
• Geographic Centralization: All the operations of an
organization are performed in one geographic region

• Functional Centralization: There is a separate department for

each function and it carries out that function for all the
business units of the organization

• Analytical Centralization: It is the extent to which

centralization is actually implemented in the organization
 Decentralization
It refers to delegation of authority and decision-making power
to different levels of the organization. The types are:
• Geographic Decentralization: Business units in each
geographical region perform all the operations related to the
firm

• Functional Decentralization: All functions are performed by

the subsidiaries and business units

• Analytical Decentralization: It depends on the nature of

managers rather than the formal policy of the organization
 Span of Control- Tall and Flat Structure

• Span of control refers to the ratio of managers to immediate

subordinates

• Tall structure: When the span of control in organizations is

very small, i.e each manager is assigned very limited number
of subordinates (usually not more than five), the structure is
called as Tall structure

• Flat structure: When the span of control in organizations is

large, i.e each manager has to manage a large number of
subordinates, the structure is called as Flat structure
 Departmentalization
The process in which jobs are grouped together to bring
coordination among the organizational tasks is called
departmentalization. The bases are:
• Departmentalization by function: Grouping people with
similar skills into one unit
• Departmentalization by product: Breaking down an
organization into small, independent units(SBU) each of
which produces a particular product or service
• Departmentalization by Geography: Grouping of jobs on the
basis of territory
• Departmentalization by process: Organization is divided into
departments based on processes performed there
• Departmentalization by customer: Dividing the organization
into different departments based on the types of customers
they serve
 Chain of Command and
Formalization

• Chain of Command: It is the unbroken line of authority that

extends from the top of the organization to the lowest level
and clarifies who reports to whom

• Unity of Command: It is the idea that a subordinate should

have only one superior to whom he or she is directly
responsible

• Formalization: It is the degree to which jobs within an

organization are standardized
 Organizational Designs

• Project Design

• Matrix Design

• Horizontal organizations

• Network Designs

• Virtual organizations

• Boundary less organizations

 Project Designs
Project Design lends itself well to those organizations which
tend to channelize huge amounts of their resources(both
physical and human), into a certain project goal for a certain
period of time. The types are:
• Individual project structure: There is no employee who reports
directly to a project manager
• Staff project structure: Some employees assist the project
manager in carrying out the project related tasks
• Intermix project structure: Some staff as well as a few
functional heads are under the direct control of the project
manager
• Aggregate project structure: The project manager is provided
with sufficient number of personnel and functional heads to
complete the project
Project Design
 Matrix Design
• It combines the features and strengths of a project design and
functional departmentalization

• Functional departmentalization helps the organization gather

specialized resources from each function and makes them
available for all projects

• Project design facilitates coordination among various

specialists by identifying employees with the requisite skills
and bring them to work together to achieve on-time
completion of tasks

• Mostly, an employee in matrix structure has to report to two

bosses
Matrix Structure
 Horizontal Organizations
It plays a very important role in facilitating communication
between employees at same hierarchical level, enhancing
cooperation among them and fostering teamwork. The
characteristics are:
• It gives more importance to process than task
• It reduces the hierarchical levels in organization
• It attaches importance to customer satisfaction than profits
• It empowers teams to manage various projects
• It rewards team performance
• It helps in optimizing contact with suppliers and customers
• It lays stress on clear communication
 Network Designs
• Different business units of an organization act as independent units

• Each unit establishes linkage with various other units that

supplement their skills and competencies

• Each business unit develops its own capabilities and core

competencies

• They perform those activities that add value to the value chain

• They may interact with each other in the same way as they would
with external organizations

• They may provide services to each other at the same price as they
would to outsiders
Network Design
 The Virtual Organizations
• It is a temporary network of companies each having expertise in certain skills and
specialized operations in which different organizations come together for a specific
purpose to accomplish a specific goal

• The relationships are based on mutual trust and cooperation

• Different organizations with varying skills and core competencies enter into short-
term partnership to exploit market opportunities

• Organizations located at different geographical locations enter into partnership and

use it for transactions

• Customers, suppliers and even competitors sometimes collaborate with each other

• Companies share critical information with each other as they work together on a
project

• Virtual companies may produce superior quality products and services

Virtual Organization
 Boundary-less organizations

• It is an organization that seeks to eliminate the chain of

command, have limitless spans of control and replace
departments with empowered teams

• By removing vertical boundaries, management flattens the

hierarchy and minimizes status and rank

• It is an effort to eliminate vertical and horizontal boundaries

within it and break down external barriers between the
company and its customers and suppliers