Prepared by: Shraddha Rana UNIT 5: ORGANIZATIONAL ARCHITECTURE Prepared by: Shraddha Rana Organizational structure & architecture • • • • • Organizational structure is the hierarchical arrangement of various positions in an organization. Design of jobs and relationships Concerned with division of activities and coordination of efforts. It is through the structure that management practices can be practiced. Authorities, duties and responsibilities are distributed along with the structure. • • Organizational architecture constitutes the building block of an organization. Architecture is the combination of the organizational structure, control systems, culture and human resource management system that determines how efficiently and effectively organizational resources are used. Elements of Organizational Architecture Organizational structure: Concerned with three things: • The location of decision making responsibilities in the firm(centralized or decentralized) • The formal division of the organization into sub-units such as functions, production division etc. • The establishment of integrating mechanisms to coordinate the activities of the subunite(cross functional teams) 1. Control system: • Tools used to measure the performance of sub-units and judge how well managers are running those sub-units • Comparison with planned performance to take corrective measures. 1. 3. Incentive system: • Devices used to encourage desired employee behavior. • Incentives are closely tied to performance. • Example: the incentive of the manager in charge of an organization can be linked to the performance of that division. 4. Organizational culture: • Refers to the values and assumptions that are shared among the employees of an organization. • Have profound impact on how the organization performs. 5. People: • Human capital • Recruit, compensate, motivate and retain . • Skills , values and orientation required. The various elements of organizational architecture are not independent of each other. Each element shapes the others Designing structure Organizational structure can be divided into three dimensions: 1. Vertical differentiation 2. Horizontal differentiation 3. Integrating mechanism Vertical differentiation(Tall Vs Flat) Tall hierarchy or structure Characteristics: • It consists of several layers of management. • Centralization of authority and decision making. • It segregates different functions into departments. • It has clear cut demarcation of authority. • It has well defined reporting, relationship, a narrow span of control and close supervision of employees. • It practices unity of command that is directly from the top level management. Advantages: • It provides clarity and management control. • Narrow span of control allows close supervision. • Easier definition of roles and responsibilities. • More frequent opportunity for promotion. • Senior management maintains the greatest level of control. Disadvantages: • Costly than other business structure. • Communication problem if structure gets too tall. • Possibility of distortion of information, command and orders. • Due to close supervision, employees do not feel free. Tall structure Flat Hierarchy or structure: Characteristics: • Fewer or no level of management with each level controlling broad area or group. • Practices decentralization of authority and decision making. • Employees directly report to higher level managers. • There is a wide span of control. • The top management has the direct relationship with all the functional departments. Advantages: • Decision making occurs at the staff level. • Direct communication without intermediaries • More flexible and better able to adapt to changes. • Empowered and motivated staffs. Disadvantages: • Workload of employees may increase • Staff may not see a chance to improve. • Staff may not receive proper supervision. • May be stressful as there is wider delegation. • As company grows, it becomes difficult to remain flat. Flat structure Prepared by: Shraddha Rana Horizontal differentiation • Refers to the formal division of the organization into units. • Departmentalization • Combining related jobs together is called departmentalization. • It is dividing the large functional organization into smaller, flexible administrative units. • Types of organizational designs: 1. Functional structure 2. Divisional structure 3. Matrix structure 4. Strategic alliance & Network structure 5. Team based structure Prepared by: Shraddha Rana 1. Functional Organization structure • Focuses on work specialization • Based on grouping of activities by function • Every manager focuses on a particular function • Specialist is put in charge of each functional department Product Price Place Promotion Prepared by: Shraddha Rana • Advantages: • Specialization • Coordination(coordination within function, unity of effort) • Efficiency(wastage control) • Direction & control(functional specialist is the command authority) • Career progression(within functional area) • Disadvantages: • Lack of environmental adaption(suited for stable environment only) • Poor coordination(among functional departments) • Decision delays(decision making concentrated at the top) • Myopic focus(self-centered narrow focus) • Complicated(because of conflict) Prepared by: Shraddha Rana 2. Divisional structures a. Product market structure Managing director Food R&D Marketing Electronics Accounting Automobiles Production Prepared by: Shraddha Rana b. Market structure MD Large business customer R&D Purchase Small business customer Marketing Educational institutions Finance Individual customer Prepared by: Shraddha Rana c. Geographical structure Managing Director Northern division Function 1 Southern division Function 2 Western division Function 3 Eastern division Function 4 Prepared by: Shraddha Rana • Advantages: • In case of product and market structures, interaction and communication among employees who market or produce the same product becomes easy. • Full time commitment to a particular product, market, or region. • Promotes specialization and increases accountability of product, market and region. • Disadvantages: • Each area, market or product must have its own product and functional specialists. So it might be costly, sometimes even under utilized. • Coordination among division might be difficult. • Divisional heads might consider the short-term profit from their product, market or region at the expense of long range profitability of the organization. Prepared by: Shraddha Rana 3. Matrix organization structure • Also called project management structure • Matrix structure combines functional and project structure • Specialist from functional department are assigned to work on projects • Every project is headed by project manager Depts. Purchase Manager Projects Production Manager R&D Manager Finance Manager Project A Manager Purchase Unit Production Unit Project A Project A R & D Unit Finance Unit Project A Project A Project B Manager Purchase Unit Production Unit Project B Project B R & D Unit Finance Unit Project B Project B Project C Manager Purchase Unit Production Unit Project C Project C R & D Unit Finance Unit Project C Project C Prepared by: Shraddha Rana • Advantages: 1. Environmental adaptation 2. Flexibility(various skills brought together) 3. Efficiency(projects share specialized resources with departments, optimum utilization of resources) 4. Motivation & commitment(foster participative management) 5. Free time for top management(involves in planning & control) 6. Employee development(multi skill by multidisciplinary interactions) • Disadvantages: 1. Multiple command structure 2. Power struggle(between functional manager and project manager) 3. Duplication(project group tend to work as mini department as they can duplicate effort of departments) 4. Interpersonal skill Prepared by: Shraddha Rana 4. Strategic alliance and network structures • This is the structure pioneered by Japanese companies • A network structure is a series of strategic alliances that an organization creates with suppliers, manufacturers, and distributors to produce and market a product. • It is a new way to reduce cost, improve quality, and profitability • Strategic alliances and network has created the concept of boundary less organizations composed of people who are linked through computers, faxes, video conferencing etc. • Strategic alliance network is a contractual obligation. Prepared by: Shraddha Rana 5. Team-based structure • Teams are developed in all levels of organization • Most successful organizations are now realizing how the learning teams concept adds business value to the organization. • The various team based structures are: work groups, task force, staff groups, labor relation committee, quality circle Integrating mechanism For effective coordination and communication there should be effective integrating mechanisms. Such integrating mechanism can be: 1. Formal integrating mechanism 2. Informal integrating mechanism Formal Integrating mechanism: Tools designed by the organization formally. Follows the formal organizing principles, i.e. scalar chain of command. • Centralization: top management holds all the responsibilities and authorities of coordination and communication.Top management sets the preference. • Direct contact: Managers contacts other managers or concern employees based on the need and concern. • Liaison roles: a person(liaison) is selected for the coordination and communication in the organization. • Teams: team composed of individuals from the subunits that need to achieve coordination. It can be temporary or permanent. • Matrix structure: when the need of integration is very high. Project group or teams from different units are formed. Such structure work in close contact. Informal integrating mechanism: Follows the informal organization structure. Operate with the help of information technology. Knowledge network: A network for transmitting information within an organization that is based not on formal organization structure, but on informal contacts between managers within an enterprise and on distributed information system. Two techniques used to establish network: • Information system • Management development policies Rotating managers through various subunits on a regular basis Prepared by: Shraddha Rana Authority, power and responsibility • Authority • Authority is the right to act and the power to make decisions, issue orders, and allocate resources to achieve organizational goal. • Authority is based on organizational position, and anyone in the same position has the same power. • Since managers have the legitimate power to issue orders, subordinates must comply with the orders of their manager. • The authority flows down the vertical hierarchy. • Authority can be categorized into two types: i. ii. • Line authority Staff authority Prepared by: Shraddha Rana i. Line authority • Traditional approach, single and specific chain of command exists. • Authority flows from top to bottom • When a manager has line authority, he is called ‘line manager.’ • Based on scalar principle, so it is also called scalar or military type of structure. • Manager issues instructions to those who directly report to him/her. • Popular in military and police • Suitable for small and less complex and less changing organization Prepared by: Shraddha Rana Staff authority ii. • Members with staff authority are purely advisory. They do not have • • • • • decision making power. They assist and counsel line managers. However their advice may or may not be accepted. In existence of staff specialist, simple line authority is converted into line-staff organization. A manager with staff authority is called ‘staff manager.’ They have authority restricted to their functional area. In bigger and complex organization staff manager can be of great help for line managers in decision making. They are required for efficiency and economy of operation. General manager ______Line authority ……….Staff authority Legal Advisor ……………………....... Manager (Production) Manager (Marketing) Assistant to GM Manager (Finance) Manager (Personnel) Prepared by: Shraddha Rana • Power • An attribute of an individual’s influence over other individuals. • Power in an organization is enjoyed by the people having certain authority. • The superior has the legitimate power through the authority assigned to his position to influence his subordinate behavior. • There are five ways in which superior can influence subordinates: 1. Legitimate power • Comes from formal management position. • Subordinate must comply with it. 2. Reward power • Power comes from authority to reward and punish. • Pay increase, promotion, praise, attention, recognition… 3. Coercion • Power comes from authority to punish. • Managers have the authority to demote, criticize, withhold pay increase, make negative entries in employees files. 4. Referent power • When manager has a very positive impression about himself in employees mind, then manager can enjoy referent power. • Employees sees his manager as role model. • Referent power depends on employer’s personal characteristics rather than his formal position. 5. Expert power • If manager holds some special knowledge and skills regarding the task performed by followers, then manager can enjoy expert power. Prepared by: Shraddha Rana Responsibility • “The obligation of an individual to carry out assigned activities to the best of his or her ability.” Terry & Franklin • This concept of responsibility has changed now. • Responsibility is one’s obligation to achieve the results mutually determined by means of participation by one’s superior and himself. • Everyone working in an organization is responsible to his or her job. • CEO is responsible for overall objectives. • Middle and first-line managers accept their responsibility to accomplish their divisional or unit tasks. Prepared by: Shraddha Rana Delegation of Authority • Delegation is the downward transfer of authority from a • • • • • • manager to a subordinate to enable him or her to make decisions and use resources. Characteristics: It enables managers to function independently The superior does not delegate the total authority Manager cannot delegate what he or she does not possess Delegation does not mean giving away authority, he or she retains the right to recall. The superior, who delegates authority, cannot escape responsibility. Prepared by: Shraddha Rana • For effective delegation: 1. Decide which task can be delegated. 2. Decide who should get the assignment. 3. Provide resources for carrying out the delegated tasks. 4. Delegate the assignment. 5. Be prepared to run interference, if necessary. 6. Establish a feedback system. Prepared by: Shraddha Rana • Advantages of delegation of authority • Provides managers the opportunity to seek and accept increased responsibility from higher authority. • Reduces the workload of top manager. • Causes employees to accept accountability and exercise judgement. • Leads to better decision-making. • Speeds up decision-making. • Important method of developing managers and staffs. • Disadvantages of delegation of authority • Employees may try to avoid or accept additional responsibility. • Lack of trust on lower level might create hindrances. • The vague job descriptions often confuse the managers for delegation. • The fear of competition from lower level. Creating Accountability in Business Organizations “Accountability is the obligation to carry out responsibility and exercise authority in terms of performance standards established.” L. Allen • Accountability means holding an individual answerable for final results. • The subordinate is held accountable to superiors. • Accountability flows from bottom to top. • It is answerability for satisfactory performance of jobs. • It is neither shared not delegated. • It relates to assigned duty. Creating accountability in business organizations • Define results and expectations • • Assignment of jobs and roles • • Eliminate obstacles Provide resource and guidance • • Based on employees abilities, performance and awareness. Making inquiry about employees need • • Clear standards and goals Resource for completing the work successfully Share learning for team work • Sharing thoughts, perspectives, and expertise help to break down performance barriers. Emerging issues in organization design and architecture. 1. Information management • 2. Global organization • 3. 4. 5. 6. It has an impact on a span of management and number of levels in the organization.with the use of IT, managers can work with larger number of employees Because of internationalizations, business have to interact with suppliers, customers or competitors from another country. Adapting organization • Adaptive than before to cope with dynamic environment. • Empowered groups to make decisions • • • Virtual organization Network organization Modular organization Self managed teams The boundaryless organizations Learning organizations Nepalese practices in organizational structure 1. Practicing governance in structure • Every organization have their own governing structure defined by their rules and regulations. • BOD has the role to make policy-level decisions following certain meeting materials and guidelines. • Government ministries decision making roles are divided into different levels of administrative units from the central ministry to the local level units. 2. Purpose,policy and strategy driven practices • Every organization, specially in the formal sector has certain written purpose, policies and strategies. • In order to implement these policies and strategies, roles and responsibilities of departments and divisions are defines • Many organizations have developed job description and job specifications to define the roles and responsibilities of the employees. 3. Organizational culture and practices • Culture plays a vital role to produce employees behaviour that converts vision, mission, strategies into practice. • In private sector organization, family value system and BOD determine behavioural requirements to implement the practices. • In government, ministries act, rules and regulations guide the behaviour of bureaucrats. 4. Internal practices aligned to the core culture • In Nepales organization, the process of making decisions about recruitment, development, promotion, performance evaluation, recognition, appreciation, employment of technology, collective bargaining etc are all guided by the core culture of the organization. • Some organizations are performance based where decisions are made to apply meritocracy practices. 5. External practices aligned to the core culture • Nepalese organization interact with the customers with the help of email. Internet, public relation and the promotion of goods and services through various media. • They interact frequently with all the stakeholders and business partners with different processes. • Whatever processes they follow to develop the relations it is always based on their core culture. 6. Organizational structure • Tall organization structure common in Nepalese organizations. • Mostly power is concentrated in the top. • Organizational structure of Nepal army is based on line and staff. • Business organization in general, use functional designs. • Doner assisted development projects have matrix structure. • Lack team based design. 7. Authority delegation and responsibility • Centralized to the top management • Resources are allocated in the direction of powerful managers. • Delegation of authority and responsibility are done at the whim of top level managers rather than in the way to solve organizational goals. 8. Autonomy for planning and decision making • Generally, managers from the top management level are engaged in making planning, while middle and lower level managers decide their objectives and policies to work from their own levels. • Top level managers are very powerful and highly authorized, middle and lower level managers have to be dependent on top level managers in making decisions.
