Organizational Structure and
Design
Upul Abeyrathne
Dept. of Economics,
University of Ruhuna
Matara
Think About ICBT Campus
• It is composed of various groupings and
Departments to serve special functions.
• There are individuals and groups dedicated to
various functions such as teaching, providing
financial services etc.
• Even within you can distinguish between jobs
people perform.
• It is however, not a collection of individuals. They
work purposefully to achieve goals of ICBT.
Organizational Structure
• It refers to the formal configuration between
individuals and groups with respect to the allocation of
tasks, responsibilities and authority within
organization.
• In the strict sense of the term, one cannot see the
structure of an organization. It is an abstract concept.
• However, various clusters of functions of which an
organization is composed can be represented in the
form of diagram known as organization chart. In other
words, organization chart can be considered as
organization’s internal structure.
Organizational Chart
• It is a useful tool for avoiding confusion within
organization regarding how various task or
functions are interrelated.
What organizational chart reveals?
• There are five basic dimensions of
organizational structure.
• 1. It provides information about various task
performed within an organization and the
formal interconnections between them.
(It reveals who answer to whom)
2. It provides information about who reports to
whom (It is known as the hierarchy of
authority)
What organizational chart reveals?
• 3. Standard organizational charts make clear
that the many task to be performed within an
organization are divided into specialized jobs.
(It is a process known as the division of
labour)
• 4. Span of Control: The number of
subordinates in an organization who are
supervised by an individual.
What organizational chart reveals?
• 5. Line versus staff positions
Line positions: Positions in organizations in
which people can make decisions related to
doing its basic work.
Staff Positions: Positions in organizations in
which people make recommendations to
others but who are not themselves in making
decisions concerning the organization’s dayto- day operations.
Decentralization
• It refers to the extent to which authority and
decision making are spread throughout all
levels of an organization rather than being
reserved exclusively for top management.
• It is said that it would improve managerial
efficiency and employees’ satisfaction.
• Decentralization is not always an ideal step for
an organization to take.
Departmentalization: Ways of
Structuring Organizations
• Departmentalization is the process of breaking
up organizations into coherent units.
There are different ways of departmentalization
1. Functional Organization
2. Product Organization
3. Matrix Organization
Functional Organization:
Departmentalization by task
• Type of departmentalization based on the
activities or functions performed (e.g. sales
or finance).
• They organized individuals according to the
functions they performed.
• Debarments may be created or deleted as
need arises.
• It allows individuals to specialize
• It allows economies of scale(by allowing
employee
Limitations
• Functional organizational structures promote
separate units to develop their own narrow
perspectives at the cost of overall organizational
goals.
• It discourage innovation because they channel
individual efforts toward narrow functional
areas and do not encourage coordination and
cross-fertilization of ideas between areas.
• They are slow to responds to opportunities and
challenges in and from environment.
Product Organization
• It is the Departmentalization by type of
output.
• Organizations do not stand still. They
constantly change in scope and size.
• This type of departmentalization create self
contain divisions, each of which is responsible
for everything to do with a certain product.
Limitations
• Loss of economies of scale stemming from
duplication of various departments within
operating units.
• Problem of coordination
Matrix Organization
• It is the departmentalization by both Function
and product.
• Employees in matrix organization have two
bosses (They are under dual authority).
• In matrix organization there are three major
roles
Three Major Roles
1.Top Leader: He has authority over both lines (one
based on function and the other based on
product or goal).His duty is to keep a balance of
power between functional and product managers
2. There are matrix bosses. It is because neither
functional nor product manager has full control
over subordinates. They must work together.
3. There are two boss managers
These form of organizations achieve economies of
scale.
Key advantages
• They provide for efficient use of human
resources.
• It offers mechanism to respond to change
quickly.
• It enhance communication among managers
Disadvantages
• Stress for employees because they have to
report to two bosses.
Organizational Design
• It is the coordinating the structural elements
of an organization in the most appropriate
manner.
• Organizational design needs changes
• Organizations that are poorly designed and
inflexible cannot survive.
Classical and Neo-Classical Approaches
• Classical theorists have sought to establish the
ideal form for all organizations under all
conditions- Universal Design.
• They believed that effective organizations
were ones that had a formal hierarchy, a clear
set of rules, specialization of labour, highly
routine task and highly impersonal working
environment.
Classical Theory is disfavoured
• 1. It is insensitive to human needs
• 2. not suited to changing environment
Apparently what is ideal is not realistic.
Neo-classical approach
• With the inspiration of hawthorne studies,
bureaucratic model of organization has given
way to a human relation orientation.
• The theorist lik Mcgregor, Argyris iand Likert
have attempted to improve on Classical
Model.
• They have argued that not only economic
effectiveness but also the employee
satisfaction should be goals of an organization.
Neo-classical approach
• Macgregor opposed the rigid hierarchy
imposed by Webber because it is based on
negative assumptions about people. Classical
Bureaucratic theory assumes that workers
would not work unless coerced and lack
ambitions.
• He argued that the workers seek satisfaction
by working responsibly.
Contingency Approach to Organization
Design
• The best design for an organization depends
on the nature of environment in which it is
operating.
External Environment and its
Connection with Organization Design
• It is widely assumed that most appropriate
organizational design depends on external
environment.
n
Mechanistic and Organic Organization
Design
Mechanistic
Change unlikely
Many Specialist
Rigid
Centralized
Organic
Change likely
Many Generalists
Flexible
Decentralized
Mintzberg’s Framework
• Operating Core: employees who perform the basic
works related to the organization’s product or service
• Strategic Apex: Top level executives responsible for
running the entire organization
• Middle line: Managers who transfer information
between strategic apex and the operating core
• The techno-structure: Those specialists responsible for
standardizing various aspects of organization activities.
• Support staff: Individuals who provide indirect support
services to the organization.