Organizational Structure
LEARNING OBJECTIVES
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Explain the roles of formalization,
centralization, levels in the hierarchy, and
departmentalization in employee attitudes
and behaviors.
Describe how the elements of organizational
structure can be combined to create
mechanistic and organic structures.
Understand the advantages and
disadvantages of mechanistic and organic
structures for organizations
Introduction
How individual and team work within an
organization are coordinated.
 Organizations can function within a
number of different structures, each
possessing distinct advantages and
disadvantages
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Building Blocks of Structure
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1.
2.
3.
4.
Four aspects of structure that have been
frequently studied in the literature:
Centralization
Formalization
Hierarchical levels
Departmentalization
Centralization
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Centralization is the degree to which
decision-making authority is concentrated at
higher levels in an organization
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In centralized companies, many important
decisions are made at higher levels of the
hierarchy, whereas in decentralized
companies, decisions are made and problems
are solved at lower levels by employees who
are closer to the problem in question
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Decentralized companies give more
authority to lower-level employees,
resulting in a sense of empowerment
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Many companies find that the
centralization of operations leads to
inefficiencies in decision making
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Hitting the right balance between
decentralization and centralization is a
challenge for many organizations
Advantages of Centralization
1.Reduced cost—The standardized procedure and method helps in considerably
reduction of office cost.
2. Uniformity in action — Uniformity in action is established throughout the
organization because of central administrative control. The same executive
supervises the work and same type of office equipments are used which ensure
uniform performance of activities.
3. Personal leadership— Centralization encourages and permit personal leadership.
4. Flexibility — Centralization permits flexibility and adaptability of the organization to
the changed circumstances.
5. Improved quality of work—Improved quality of work is possible because of
standardized procedure, better supervision and use of improved- machinery.
6. Better co-ordination — Centralization facilitate better coordination among various
operations. Direct control and supervision are facilitated which results in less
likelihood of conflict of authority and duplication of work.
Disadvantages of Centralization
1. Delay in work— Centralization creates loss of man-hours
and delay in performance of work because of transmission of
records from and to the central control room.
2. Remote control—Better supervision is not possible as the
executives are under heavy pressure of work.
3. No loyalty—Workers work like machine which results in no
involvement in work and absence of zeal.
4. No Secrecy
5. No special attention—In centralization no special attention is
given to special work as all works are done at one place.
Advantages of Decentralization
1. Secrecy of departmental affairs is well maintained.
2. Delay in performing the operation is avoided because it is performed at the
department where it is needed.
3. Staff attached to the department develops a sense of loyalty to it, and also
develops personal interest in the work.
4. Since a worker is working, in a functional department, work can be
performed promptly.
5. Higher levels of job satisfaction on the part of employees
- Departmental employees are conversant with the problems of the
department and have knowledge of technicalities of the department.
Therefore staff can perform the work more quickly and in a better way.
Disadvantage of Decentralization
1. The total workload of the office cannot be distributed among the personnel of
different departments.
2. The quality of work may be poor because of lack of specialization and
specialized machines.
3. There will be duplication of efforts, equipment's and machines etc., this leads
to uneconomical operations.
4. There may not be uniformity of office procedure followed in different
department.
5. Standardization of the office procedure and equipment is not possible. The
work may be done in different departments in different way and with different
equipments.
6. Decentralization creates problems of co-ordination of work among the
different departments.
Formalization
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Formalization is the extent to which an
organization’s policies, procedures, job
descriptions, and rules are written and
explicitly articulated
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An advantage of formalization is that it
makes employee behavior more
predictable ; this leads to consistency of
behavior
A high degree of formalization may
actually lead to:
1. Reduced innovativeness because
employees are used to behaving in a
certain manner
2. Reduced motivation and job satisfaction
3. Slower pace of decision making
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Hierarchical Levels
- Keeping the size of the organization constant,
- Authority is Obvious
- Managers are Skilled in Specific Area
- Departmental Loyalty
Tall structures have several layers of management
between frontline employees and the top level,
while Flat structures consist of only a few layers
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In tall structures, the number of employees reporting
to each manager tends to be smaller, resulting in
greater opportunities for managers to supervise and
monitor employee activities.
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In contrast, flat structures involve a larger number of
employees reporting to each manager leading to
greater levels of freedom of action for each
employee.
 In
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flat structures
Employees experience greater levels of role ambiguity
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Advancement opportunities will be more limited because there are
fewer management layers
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Employees and work groups in flat organizations tend to be more
adaptable in changing or unique circumstances, due to their smaller
hierarchies and lack of bureaucracy.
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More Innovation and Creativity
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In tall structures
employees feel a greater sense of job security
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Departmentalization
Organizational structures differ in terms of
departmentalization,( functional or divisional).
Functional structures
Organizations using functional structures ,group
jobs based on similarity in functions
 Such structures may have departments such as
marketing, manufacturing, finance, accounting, human
resources, and information technology.
 In these structures, each person serves a specialized
role and handles large volumes of transactions
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Divisional
structures
In organizations using divisional structures,
departments represent the unique products, services,
customers, or geographic locations the company is
serving
 Each unique product or service the company is
producing will have its own department.
 Within each department, functions such as marketing,
manufacturing, and other roles are replicated
 Employees will be in charge of performing many
different tasks in the service of the product
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Functional structures tend to be effective when an
organization does not have a large number of
products and services requiring special attention
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Functional structures are more effective in stable
environments that are slower to change.
Pharmaceutical Company with a Functional
Departmentalization Structure
Pharmaceutical Company with a Divisional
Departmentalization Structure
Two Configurations: Mechanistic and
Organic Structures
Mechanistic structures are those that
resemble a bureaucracy.
 These structures are highly formalized and
centralized.
 communication tends to follow formal
channels and employees are given specific
job descriptions delineating their roles and
responsibilities
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Mechanistic organizations are often rigid
and resist change, making them unsuitable
for innovativeness and taking quick action
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The main advantage of a mechanistic
structure is its efficiency
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The presence of a mechanistic structure
has been shown to be related to firm
performance in new ventures
Organic structures are
 flexible and decentralized, with low levels of
formalization
 communication lines are more fluid and
flexible
 Employee job descriptions are broader
 Employees are asked to perform duties based
on the specific needs of the organization at
the time as well as their own expertise levels
 Higher levels of job satisfaction on the part of
employees
EXERCISES
What are the advantages and disadvantages of
decentralization?
 would you prefer to work in a tall or flat
organization? Why?
 What are the advantages and disadvantages of
departmentalization by product?
 would you prefer working in a Mechanistic
organization or Organic structure organization?
Why? /why not?
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