Lesson-9
Organizing-II
Different Types of Organizational Design, Their Advantages and Disadvantages
Learning Objectives
The lesson is an insight into the following topics related to organizational design:
•
•
The different types of organizational design, their advantages and disadvantages
The organizational structure and its dimensions
Different Types of Organizational Design and Their Advantages and Disadvantages
Before we proceed to look into the different types of organizational designs it would do
good to understand the formal and the informal organizational set up that exists in any
given enterprise.
Formal Organization
Informal Organization
Chess Club
Informal Organization
Football
Informal Organization
Children studying in the same school
Figure 9.1: Formal and Informal Organization
From the figure 9.1 it would be clear as to what is meant by formal and informal
organization. By formal organization we mean the structure created intentionally.
Whenever a formal organization is created, generally an informal organization also
comes into being. An informal organization as per Keith Davis of Arizona State
University can be defined as a network of personal and social relations not established or
required by the formal organization but arising spontaneously as people associate with
one another. Thus informal organization might include the people who play chess, whose
children study in the same school etc.
The process of organizing is departmentalization. By department we mean a distinct area,
division or branch of an enterprise for the performance of specified job over which a
manager has control and authority.
Another purpose for organization is the limit of the number of people a manager can
supervise effectively. Studies have shown that at the upper level of management it is
usually four to eight and at the lower level it is eight to fifteen subordinates. None of the
studies however, have conclusively indicated the actual span of management. It can span
of management is arrived at through trial and error due to varying conditions.
X
X
S S
S S
X
X
X
X
S S
S S
S S
S S
Figure 9.2: Narrow Span Organization
X X X X X X X X
X X X X X X X X
X X X X X X X X
Figure 9.3: Wide Span Organization
Narrow Span Organization
Advantages
1. Close control
2. Quick Communication (No
Communication Gap)
Disadvantages
1. Too much of supervision
2. High costs due to many levels
Wide Span Organization
Advantages
1. Delegation of work is a must
2. Subordinates selection is important
Disadvantages
1. Over load on managers
2. Risk of manager losing control
Note
a) The levels are expensive.
b) The levels complicate communication.
c) The levels also complicate planning and control.
The principle of the span of management states that there is a limit to the number of
subordinates a manager can effectively supervise, but the exact number will depend on
the impact of underlying factors.
Personal intelligence and factors such as comprehending, good interpersonal skills,
communication abilities and leadership qualities influence the size of the span. If it were
that the size of the span of control is limited then the size of the enterprise is also limited.
But that is not so. This is because of the recourse of departments. In theory, by creating
departments an organization can expand to any size. Let us now have look at the different
types of departmentalization and its advantages and disadvantages.
Departmentalization by Numbers
As the name implies, this process is simply departmentalization by the numbers. Though
this was an important method earlier it is now losing its value. Its advantage is its
simplicity. The following are its disadvantages:
•
•
•
The need for specialized and various skills
Lack of efficiency
Its lack of usefulness at higher level
Departmentalization by Time
Certain businesses cannot be stopped or started at short intervals or it is not viable or it
cannot be done so. For example, running of trains and hospital needs round the clock
working compelling work to be carried out in three shifts. Thus comes the
departmentalization by time.
Its advantages are as follows:
1. Services can be provided round the clock or at least beyond the 8-hour shift.
2. Better use of the machines – using the same machine for more than 8 hours.
3. People can work at different time of the day and hence can take advantage of the rest
of the day – like the students can work in the evening shifts etc.
4. Processes requiring more than 8 hours at a stretch can also be undertaken.
Its disadvantages are as follows:
1. Coordination and communication will be major problem – though it can be tackled
one need to take great care as there are chances for lapses.
2. Supervision during the night shifts is generally lax.
3. There is always a fatigue factor setting in either in men or in machine.
Departmentalization by Function
Departmentalization by function is the most common basis for organizing. Marketing,
Production and Administration are widely used departments.
Its advantages are as follows:
1. It is an established method.
2. It allows specialization on the part of the managers.
3. The top managers are able to defend the activities of the enterprise and have close
control over the affairs.
Its disadvantages are as follows:
1. The persons working in the respective departments have difficulty in seeing the
business as a whole.
2. This kind of departmentalization makes it difficult to adapt quickly to environmental
changes.
Departmentalization by Area
Departmentalization by geographical area is also a very common approach. This kind of
approach is useful to large-scale operations and operations carried over large
geographical area. Area wise departmentalization is most often used in sales and in
production where as finance is usually located at the corporate office.
Its advantages are as follows:
1. Local market’s needs and problems can be handled.
2. Since the manager in a territory has to carry out many different functional and
managerial activities, this type of organization provides a good training ground for
general managers.
Its disadvantages are as follows:
1. Instead of specialists this approach requires more persons with general managerial
abilities.
2. It may increase the problem of control by the top management.
Departmentalization by Product
Grouping activities on the basis of product or product lines has long been growing in
importance in multi-line and large-scale enterprises.
Its advantages are as follows:
1. It permits the maximum use of personal skills and specialized knowledge.
2. Profit responsibility can be exacted from product department managers.
Its disadvantages are as follows:
1. Similar to the area departmentalization, it is important to have people with general
abilities.
2. Problem of maintaining top management control.
Matrix Organization
Other names given to this type of organization are Grid or Project or Product
management. The essence of matrix organization normally is the combining of functional
and product patterns of departmentalization in the same organization structure.
Look at the figure 9.4. It depicts the matrix organization in an engineering department.
There are functional managers in charge of engineering functions and an overlay of
project managers responsible for the end product. Though this kind of organization is
followed in many businesses it may not be drawn as a matrix explicitly.
Director
Chief
Designs
Chief
Civil
Chief
Electrical
Project X
Manager
Project Y
Manager
Project Z
Manager
Figure 9.4: Matrix Organization
Its advantages are as follows:
1. Professional identification is possible.
2. Product profitability can be easily identified.
Its disadvantages are as follows:
Chief
Mechanical
1. Loss of unity of command.
2. Conflicts in authority exist and so managers with highly skillful interpersonal
relations are required.
Strategic Business Units
SBUs are distinct businesses with its own mission that is distinct from the other units. It
has its own manager, competitors, plans and resource management.
Its advantages are as follows:
1. It preserves the attention and energies of a manager and staff to guide and promote a
product etc.
2. It promotes entrepreneurship.
Its disadvantages are as follows:
1. In practice, it is difficult to design
2. It is difficult to define SBU.
Hence you would have understood by this time that there is no single best way to
organize. The most appropriate pattern depends on various factors in a given situation.
These factors include the kind of job to be done, the way the task must be done, and the
kinds of people involved, the technology, the people served and other internal and
external considerations.