Organizational Structure….
How the organization is divided into parts and the parts coordinated, in order to
achieve the organization’s goals
……..and Design
Represents the outcomes of a decision making process that encompasses
environmental forces, technological factors, and strategic choices.
Creating a Structure
The existing structure and design of an organization is the culmination of the vision of
management to make the best use of resources (both human and material) to generate the
most efficient (profitable) organization possible. The “production” component of the
organization is divided horizontally into the different essential activities germane to the
product and the “management” component is divided vertically into supervisory
components responsible for each related group of activities. This vision of management
is the basis for defining tasks, allocating resources, and arranging resources and tasks into
productive combinations. Organizational structure is the result of managerial decisions
concerning the five major attributes of the organization:
 The division of labour
 Unity of command
 The bases for departmentalization
 The span of control
 The delegation of authority and responsibility
These five basic organizational principles have been proposed for decades. During the
passage of time they have been modified to reflect the increasing complexity and
changing nature of modern organizational activities.
Division of Labour – rather than an individual or group performing one complete job, the
job is reduce component steps to allow separate individuals to perform each step. Early
proponents of a multi-step process say efficiencies in production, training of personnel,
types of machinery needed, and the basic skill level required by the worker.
Inefficiencies in the human equation began to surface as the concept was carried too far.
Boredom, fatigue, high absenteeism, poor quality, and high turnover began to exceed the
economic advantages. The more contemporary view now sees an increase in productivity
through an increase in job scope. Increased responsibility and increased skill variety
generates an increase in productivity and individual motivation.
Unity of Command – Original philosophies dictated a “unity of command” that had a
subordinate report to one and only one supervisor. This is a sound philosophy and still
adhered to today in many organizations. Circumstances, however, are evolving where
reporting to mare than one supervisor is not only necessary but also an effective
construct.
Authority and Responsibility – the classical theorists believed that authority over workers
was inherent in the title of the manager and that that position was the single source of
influence in the department. Reality and a valued work force have altered that type of
thinking. The organization itself has turned to worker participation, teams, and
decentralized decision-making in order to decrease the hierarchical structure, recognize
the strengths of the workforce, and raise motivation to an intrinsic level within each
member of the organization.
Span of control – the same theorists that believed in the inherent authority in a title
believed in small ratios of workers to supervisors. This narrow span of control was (in
their minds) necessary to maintain control, however, supporting that type of hierarchy
was costly. Wider spans of control became efficient in terms of administrative salary but
had the effect of lessening the effectiveness of the organization. To compensate for the
potential loss, other aspects of the workforce were examined in order to establish an
appropriate worker- manager ratio. Contingency variables such as worker training,
education, experience, complexity of task, and preferred leadership style of the manager
helped to determine an appropriate ratio.
Departmentalization – the consideration for departments within an organization have not
changed significantly from forty years ago to today. Departmentalization by function,
product, geography, or process is still valid depending on the needs of the organization.
What is changing is the focus of the organization from a concern for the product to a
concern for customer needs. Refocusing has lead to the integration of some existing
designs and, in some instances, the establishment of dual leadership models.
Organizational Structure
Task Requirements
Technology
Job Design Factors
Managerial
Decisions
1. Division of
Labour
2. Bases for
Departmentalization
3. Size of
Departments
4. Delegation of
Authority
Tecnology
Environmental
Uncertainty
Ability/Skill
Decisions of
Organizational Structure
Organizational
Effectiveness
1. Formalization
1. Production
2. Complexity
3. Centralization
2. Satisfaction
3. Efficiency
Organizational
Design Factors
4. Adaptiveness
5. Development
6. Survival
Strategy
Managerial
Choices
The structure of an organization is the formal system of working relationships that both
divide and coordinate the tasks of multiple people and groups to serve a common
purpose. Typically, the structure of an organization is represented in the form of an
organizational chart. From the chart, pertinent information can be extrapolated
pertaining to the organization’s basic structure and mode of operation.
Basic Organizational Information (from and organizational chart)
 The division of work
 The type of work performed
 Supervisor-subordinate relationships
 Sub-unit groups or components
 The levels of management
 Communication channels
Mechanistic and Organic Systems
Three key components of organizational structures are formalization, centralization, and
complexity. Formalization refers to the extent to which job activity is defined and
controlled by rules. The more rules there are about how work is done and how decisions
are made the more the organization is formalized. The degree to which an organization is
formalized directly impacts on the amount of discretion available to employees in the
performance of their jobs. Highly formalized organizations have standardized job
descriptions resulting in consistent and uniform output. Generally, the narrower the
required skill set for a particular job the higher the formalization of that job.
Centralization refers to the “location” within the organization where decisions are made
and is in reference to formal authority only. Vertical Centralization is high if decisions
are made from top management; whereas, vertical centralization is low if employees at
the lower end of the hierarchy are given authority to make decisions. Horizontal
decentralization occurs when workers in many different organizational units are allowed
to make decisions without referring to a more central authority. Complexity is a
reference to the amount of vertical, and spatial differentiation within an organization.
Horizontal differentiation refers to the extent to which work unit members differ in the
nature of the tasks to perform and their level of education and training. The larger the
number of different department occupations within an organization the more horizontally
complex it is. Vertical departmentalization measures the depth of the structure.
Differentiation amd complexity increase as the number of hierarchial levels increases.
The taller the structure the more difficult communication and coordination of decisionmaking become. Spatial differentiation measures the geographical distance separating
offices, production plants, and personnel within the organization. The greater the
separation the more complex the operation of the organization becomes.
These two components of formalization and centralization can be expanded into two
broad categories of organizational structure: mechanistic – having structure appropriate
for an unchanging environment; and organic – having a structure appropriate for a
changing environment.
The Importance of Organizational Structure
The study of organizational structure has been a central topic in organizational theory
right from its origins in the work of Max Weber. This is because it is primarily through
the design of structure that managers try to ensure that work is performed and acceptable
outcomes achieved. The emphases throughout the 1980’s and the 1990’s on such topics
as empowerment, transformational leadership, total quality management (TQM), and
teams are all part of “restructuring” attempts to change the was organizations are
structured. Structure will remain important as a topic because these ideas about
organizational process come to fruition through structures. TQM, for example, demands
that the division of work between units is examined, that procedures are reviewed, that
the distribution of authority is altered, and so on. Similarly, changing the structure of an
organization is often the starting point for trying to revitalize the way the company is
managed. Managers will decide to divisionalize, to redraw the relationships between
headquarters and local branches, to emphasize marketing more, etc. All of these mean
that we have to examine the basics of organization structure.
Structure, then, is central, and interconnected with all aspects of the organizational
functioning. We are living in an era of constant restructuring and there foes not seem to
be and end in sight. Through restructuring managers try to change the behaviors and
attitudes of people in organizations. And when a manager starts organizational change by
trying to deal with motivations and leadership, there are always consequences for
structure. So, structure has been, is, and will continue to be important in understanding
organizations.
Guidelines to Organizational Design
Two key factors in organizational design are “environmental forces” and “technological
forces”. These factors, in combination, frame the most likely design for a successful
organization. Each factor, in degree on complexity, ranges from stable (simple) to
dynamic (complex).
One end of the continuum represents stability in customer base, and uniformity in
technology and markets while the other end reflects customer diversity, and changing
technologies and markets. As the complexity of the organization’s environment changes
some version of the designs noted in the model will best meet the needs of the
organization. Recent trends in organizational design suggest that organizations are
moving, from a bureaucratic (mechanistic) design to a flexible (organic) design. The
trend reflects, a change in decision-making (from centralized top-down direction to
decentralized localized autonomy), a widening span of control (a flatter organizational
hierarchy), and a redesign of job responsibilities (less routine, more variety and
responsibility). While the trend in organizational design is a flatter hierarchy, there are
many issues to consider. The arrangement of hierarchial authority (chain of command)
will ultimately determine the shape of the organization. Some organizations are desribed
as “tall”, other’s “flat”. In “tall” organizations there are many layers but few people
reporting to an individual supervisor. In “flatter” organizations there are fewer layers and
more people reporting to an individual supervisor.
Mechanistic Organizations
Mechanistic organizations are characterized by highly specialized tasks that tend to be
rigidly defined. The authority and control are hierarchical and communication is
generally from the top down. Obedience to superiors would, at least on the surface, be a
facit of the culture. Mechanistic organizations are very highly formalized and centralized.
Members tend to view their responsibilities in terms of their immediate role descriptions,
are less adaptive to change, and rarely will be creative in the task to be done.
Characteristics
Attributes
Reliance on formal rules and regulations
Rules and regulations designed to control
behaviour
Fit the mould mentality
Centralization of decision-making
Extensive impersonal rules around employee
decision-making
Decisions made from within higher
departments for lower departments
Narrowly defined job responsibilities
Jobs are in specified areas of expertise with
strictly defined parameters
Routine/simplistic tasks (promotes
boredom)
Rigid hierarchy of authority
The “position” about tightly controls the
“position” below
Many levels of authority
Smaller group of workers to control
(narrower span of control)
Promotion follows a ladder and climbing it
depends on seniority and the judgement of
superiors
Organic Organizations
Organic Organizations are characterized by a flexible approach to tasks where roles are
interdependent and continually adjusted and redefined through interaction with
organizational members. Control depends less on formal job description and more on
expertise relevant to the task to be performed. Communication is both vertical and
horizontal depending on the needed information. Members will accept responsibility for
task accomplishment beyond their role description, are more likely to adapt to change,
and be creative in their approach to task accomplishment.
Characteristics
Low to moderate use of formal rules
and regulations
Attributes
Rules and regulations designed to encourage
behaviour beyond the norm
Encourages innovation
Decentralized and shared decisionmaking
Coordination and communication are easier
Decisions are made within and across levels
Broadly defined job responsibilities
Task scope and task variety are enhanced
Multiple skills are an expectation
Flexible authority structure
More autonomy to make decisions within
Departments
“Decision approval” is not a prerequisite
Fewer levels of authority
Wider span of control (fewer managers for
more workers)
Promotion reflects “best person for the job”
mentality
Organizational design structures very according to the needs of the organization as
perceived by the management of the organization. Each design structure has advantages
and disadvantages and no one design more suitable than another.
Design by Function
Organizations designed by function focus their structure around the key functions (tasks
and activities) to be performed. Each department is responsible for performing a unique
activity, such as marketing, promotion or distribution. Divisional managers would be
responsible for the supervision of departments reporting to them.
Advantages
Work best if company has single product
line
Disadvantages
Specialization promotes tunnel vision
Encourages specialization
“Turf” protection becomes an issue
Employees strive to maintain latest
technical knowledge related to field of
expertise
Decisions are slowed as bureaucracy
becomes more layered
High functional efficiency
Resistance to change often occurs
Reduces duplication of activities
Resistance to change often occurs
Encourages technical expertise
Maintaining overall quality is difficult
Allows task assignments consistent
with technical training
Many employees do not see the “big
picture”
Promotes high quality technical problemsolving
Creating broad based managerial sills is
difficult
Department goals favoured over
organizations’ goals
Design by Geography
Organizations that are designed based on geographical considerations tend to do so as a
consequence of size or manufacturing needs. Cultures within the organization will differ
because of the difference in the cultural backgrounds of the workers. Management
actions will reflect diversity of the organization’s host country or cluster of countries.
Advantages
Emphasizes local adaptation to market
and/or supplier conditions
Especially suited to local businesses
Regional structures allow local personnel
to apply and respond to local customer
service needs
Local managers become responsible for
both revenue and expenses
Provides a training ground for managerial
personnel
Disadvantages
Difficult to maintain consistency of image
and customer service
Head office managers struggle with amount
of autonomy to give local managers
Size of each operation can dictate the
amount of autonomy allowed each manager
Design by Product Line
Organizations that have several product lines have organizations generally designed with
the product as the focus. This type of design generates self-contained units each capable
of developing, producing, and marketing its own goods and service. Design by product
encourages pooled interdependence among different divisions but often uses specialpurpose technology or equipment.
Advantages
Reduces complexity that managers face
Promotes initiative and autonomy
Promotes entrepreneurial behaviour
Promotes decentralization of decision
making
Beneficial design when environmental and
technological factors are different for each
product line
Focuses on results
Disadvantages
Difficult to coordinate related business
activities
Rivalry inside and outside the organization
can exist
Economy of scale could be lost if
information not shared
Certain degree of redundancy
Increased organizational costs with
potential reduction in efficiency
Design by Customer/Market Venue
Organizations designed by customer needs or market segments usually combine one or
more of the designs within its structure. Customer needs based organization can adapt
readily to market feedback concerning their products and the customers preferences
towards those products.
Advantages
A beneficial design when the product is
marketed to a distinct population
Quality service is a focus throughout the
organization
Quick response to market feedback
Disadvantages
Many aspects of the organization are in
constant flux
Personnel must be comfortable in an ever
changing environment
Design by Matrix
Organizations that utilize a matrix design integrate functional and product designs
through the use of dual authority, information, and reporting systems. The matrix system
contains three distinct levels, the CEO, two managers for the functional and product
departments (each reporting to the CEO, each other, and sharing staff), and the managers
of specialized functions who report to both department managers. A matrix designed
organization strives to achieve a balance by overlaying a horizontal structure of authority,
influence, and communication on the vertical structure. Personnel belong to the product
and function department.
Advantages
Employees are highly responsive to both
function and product line
Flexibility of employee assignment
Works well for organizations with many
product lines but limited resources
Employees must integrate work with each
of the department
Makes best use of specialists who would
not normally be full-time in one area
Specialized resources
Disadvantages
Constant tension between functional
specialty and product line
Dual authority structure difficult to
maintain
Employees have a difficulty adjusting to
the dual command
Demands substantial management support
Increases potential for power conflicts
Special training may be needed to
implement the design
Multinational Organizations that use a multinational design maintain coordination across
product, function, and geographic areas. Because the logistics of such a design are
complex, most organizations using this design focue on the needs of product and place
design. The most prevalent departmental basis is “territory”. Generally, national and
regional managers will report to “headquarters” in the same national or regional area.
Each national or regional area has the same resources necessary to produce and market
the product or service.
Advantages
Suitable for limited product lines
If the organization is product based then
world-wide responsibility can be assigned
to one corporate office
Disadvantages
Coordination is difficult
Departmentalization is the key in the
organization’s design
If an organization is function based then
corporate offices for each function can be
established with responsibility world-wide
Decisions on a manager’s span of control is
another key issues
The Network Structure
Network Structure is one of the newest developments in organizational structure which
has been made possible by the advances in connecting interorganizational computers.
The structure is a small centralized organization that relies on other organizations to
perform marketing, manufacturing, distribution, and other business functions n a contract
basis. The network structure is an organization of relationships. Unlike traditional
organizational structures that maintain research and development, production, sales and
marketing all in-house, the network structure will contract with outside organizations for
the functions that they required. The necessary operations are coordinated through
interfacing computer networks. The contractual nature of the organization allows the
management to concentrate on what the organization does best, typically design and
marketing. While not a structure suitable to all organizations, it fits industrial firms
which, require low cost labour, and must be able to adjust rapidly to evolving market
conditions.
Span of Control
“the number of individuals who report to a specific manager”
As noted previously the trend in organizational structure is to a leaner, flatter structure.
Widening the “span of control” (increasing the ration of the number of employees
reporting to one supervisor) not only has an effect on the structural shape of the
organization but also a profound effect on the type of organization that evolves (organic
or mechanistic). The key question that must be answered when considering a change in
supervision is “Will the organization be more effective if the span of control is narrow or
wide?”
Tall organizations (many levels) are suites to a type of work that is routine in nature
(repetitive and narrow in scope), time (connected in production flow), and whose
workforce required a minimal variety of skill. The nature of the work does not permit or
need creativity/insight into effectiveness. In many instances the workforce itself may
need close supervision, especially if the members are not highly educated. Formalization
of rules and vertical centralization of power will frame the existence of a tall
organization. Flatter organizations (fewer levels) are suited to work that requires
planning, thought and decision-making on a continuing basis. Less formalization of rules
and horizontal decentralization of decision-making are distinctive traits of a flatter
organization. Individuals and teams are expected to pursue continuous improvement.
Task roles and responsibilities will change as members encompass and adopt on-going
necessary changes. Individuals are expected to be highly involved in the organization
and its future.
What shape best suits the Organization?
The fundamental reason for the establishment of an organizational structure is to
accomplish work that cannot be accomplished by one individual on their own. No one
organizational structure can be perfect for all situations. The prime target of the
organization is to create a structure that merges task specialization with task integration
under an appropriate chain of command. An appropriate chain of command is a
reflection of the competency of the members of the organization. The greater the ability
of the individual to perform a task and the more willing the individual to accept
responsibility, the higher the chances are of success for a “widened span of control”.
Inherent in tall organizations is the underutilization of the worker’s potential as well as a
low level of motivation. Control by the supervisor is high, a product of constant
interaction and a small workforce. Widening the span of control promotes autonomy,
higher involvement in task, and in increase in motivation. It also lessons the amount of
control supervisors have over workers. Interaction is decreased, increasing the necessity
for localized departmental day-to-day decision-making.
Narrow spans of control are indicative of bureaucratic organizations depicted in
pyramidal from. Highly specialized functions, clearly defined departmental boundaries,
“routine” job descriptions, and close supervisory control make sure that work is
completed. The characteristics of this type of structure are outlined on page 4. They are
designed to control the employee’s behaviour and decrease empowerment creating an
organizational culture that is generally passive/aggressive in nature with an
aggressive/defensive leadership style. The narrower the pyramid, the smaller the span of
control ratio. The smaller the ration the greater the expense that the organization has in
administrative costs to maintain that ration. If the ration is 1:5 then a four layer
pyramidal system could employ 125 workers. If the ration were increased to 1:8 then in
the same four layer structure 512 workers could be employed. The increase in personnel
supervised is exponential and can represent a significant cost reduction to the
organization by raising the ratio even slightly. As the organization flattens the human
limitations of leadership will spawn attributes of an organic structure. Individuals and
teams, lacking supervision will begin to make decisions on their own. Assuming the
workers are positively motivated, the decisions will be made with the betterment of
production in mind.