Organizational Structure

An organizational structure defines how job tasks are formally divided, grouped, and coordinated to
achieve organizational goals.
There are six elements that managers need to address when they design their organizations
structure.
1. Work Specialization: Work specialization or division of labor is the degree to which activities
in the organization are subdivided into separate jobs. Work specialization
Makes efficient use of employee skills.
Increases employee skills through repetition
Creates efficiency and productivity,
Allows use of specialized equipment
But can also result in boredom, fatigue, stress, low productivity, poor quality, increased
absenteeism, and high turnover.

2. Departmentalization: It is the basis by which jobs are grouped together. There are five
common forms of departmentalization:
a) Functional Departmentalization: It groups jobs by functions performed. For example:
Production department, finance department, accounting department etc.
b) Product Departmentalization: It groups jobs by product line. For example: Rail and diesel
product division, industrial equipment division etc.
c) Geographical Departmentalization. It groups jobs on the basis of territory or geography.
For example. North zone department, east zone department etc.
d) Process Departmentalization. It groups on the basis of product or customer flow. For
example spinning department, weaving department, printing department etc.
e) Customer Departmentalization. It groups jobs on the basis of common customers.

3. Chain of command: It is defined as a continuous line of authority that extends from the top
organizational levels to the lowest levels and clarifies who reports to whom. There are three
important concepts attached to this theory.
Authority: Refers to the rights inherent in a managerial position to give orders and expect the
orders to be obeyed.
Responsibility: The obligation to perform any assigned duties.
Unity of command: The management principle that each person should report to only one
manager.
4. Span of Control: Span of control refers to the number of subordinates a manager can
efficiently and effectively direct.
a. Wide span of control means a single manager or supervisor oversees a large
number of subordinates. Wider spans of management increase organizational
efficiency.
b. Narrow Span of control means a single manager or supervisor oversees few
subordinates. Narrow span drawbacks:
i. Narrow span of control is more expensive because of additional layers of
management
ii. Increased complexity of vertical communication
iii. Encouragement of tight supervision and discouragement of employee
autonomy.
Some key factors to determine the appropriate span of control within an organization include the
following:
 1. Organizational size. Large organizations have a narrow span of control, whereas smaller
organizations often have a wider span of control. This difference is usually due to the costs
involved with more managers and the financial resources available to an organization.
2. Nature of work: Simple routine tasks require less supervisory control of a manager, allowing
a wider span of control, whereas complex tasks or dynamic workplace conditions may be
best suited for a narrower span of control, where managers can provide more individualized
attention.
3. Organizational culture: Flexible workplaces usually have a wider span of control because
employees are given more autonomy and flexibility in the production of their work.
4. Capacity of subordinates: Efficient and trained subordinates can perform their duties
effectively without much help and direction from the superiors. In such a case, the span may
be larger because a superior will be required to spend less time in managing them.
5. Geographical dispersion, if the branches of a business are widely dispersed, then the
manager will find it difficult to supervise each of them, as such the span of control will be
narrower.
6. Technology. Cell phones, email, and other forms of technology that facilitate communication
and the exchange of information make it possible for managers to increase their spans of
management.
5. Centralization and Decentralization
Centralization: The degree to which decision making is concentrated at a single point in the
organization.
Decentralization: The degree to which decision making is spread throughout the
organization.

Centralization Decentralization

6. Formalization: The degree to which jobs within the organization are standardized.
 - High formalization
Minimum worker discretion in how to get the job done
Many rules and procedures to follow
- Low formalization
Job behaviors are non-programmed
Employees have maximum discretion
Common Organizational Designs
1. The Simple Structure:
- A simple structure is characterized by a low degree of departmentalization,
wide spans of control, authority centralized in a single person, and little
formalization.
- The simple structure is a flat organization, it usually has only two or three
vertical levels, a loose body of employees, and one individual in whom the
decision authority is centralized (manager and the owner are one and the
same).
- It is common for small companies. For example, a small retail store, an
electronics firms run by a hard driving entrepreneur use the simple structure.

Strength Weakness
It is simple. It is difficult to maintain in anything other than
Its fast, flexible, and inexpensive to small organizations because its low
maintain. formalization and high centralization create
Accountability is clear. information overload at the top.
As size increases, decision making becomes
slower.
It is risky everything depends on one
person. One heart attack can literally destroy
the organizations information and decision
making centers.

2. Bureaucracy:
- A bureaucracy is characterized by highly routine operating tasks achieved
through specialization, very formalized rules and regulations, tasks that are
grouped into functional departments, centralized authority, narrow spans of
control, and decision making that follows the chain of command.
- Bureaucratic structures typically have multiple hierarchical layers with power
flowing from the upper layers to the lowest.
- It is common for larger companies

Strength Weakness
It has ability to perform Specialization creates
standardized activities in a Subunit conflicts with
highly effective manner. organizational goals
Functional economies of Obsessive concern with rules
scale and regulations
Minimum duplication of Lack of employee common
personnel and equipment sense to deal with problems
Enhanced communication
Centralized decision making
3. Matrix structure: A structure that creates dual lines of authority and combines functional and
product departmentalization is called matrix structure.
Matrix structure gains the advantages of functional and product
departmentalization while avoiding their weaknesses.
It breaks down unity-of-command concept. Employee in the matrix have two
bosses-their functional department managers and their product managers.
Strength Weakness
It facilitates coordination when the It creates confusion.
organization has a multiplicity of complex and It place stress on individual
interdependent activities. It foster power struggle.

It also facilitates efficient allocation of

specialists

New Design Options

1. Virtual Organization: A small, core
organization that outsources its
major business functions. It is highly
centralized with little or no
departmentalization.
Advantage: It
provides maximum
flexibility while
concentrating on
what the
organization does
best
Disadvantage: It
reduces
managements
control over key
parts of the business.
2. Boundary less Organization: An organization that seeks to eliminate the chain of command,
have limitless spans of control, and replace departments with empowered teams
T-form Concepts
- Relies so heavily on information technology.
- By removing vertical boundaries, management flattens the hierarchy. Status
and rank are minimized.
- By removing horizontal internal boundaries management replace functional
departments with cross functional.
- Breaks down external barriers to customers and suppliers.
Organizational structure

Two extreme form of organization are following:

1. Mechanistic model: A structure is characterized by extensive departmentalization, high

formalization, a limited information network, and centralization.
2. Organic model: structure that is flat, uses cross-hierarchical and cross-functional teams, has
low formalization, possesses a comprehensive information network, and relies on
participative decision making.
Mechanistic vs. Organic model

Mechanistic Pod Organic

High specialization: Task are Work specialization Cross functional teams:
broken down into specialized, Employees contribute to the
separates parts. common task of the
department.
Rigid departmentalization: Departmentalization Cross hierarchical teams: task
Task are rigidly defined. are adjusted and redefined
through team work.
There is a strict hierarchy of Chain of command There is less hierarchy of
authority and control. authority and control, and
there are few rules.
Narrow span of control Span of control Wide span of control
Centralization: knowledge and Centralization vs. Decentralization: knowledge
control of tasks are centralized decentralization and control of tasks are
at the top of the organization. located anywhere in the
organization.
High formalization Formalization Low formalization
Communication is vertical Communication direction Communication is horizontal
Possesses a limited Information network Possesses a comprehensive
information network information network.
Low decision participation Decision making ability Empowered employees
participate in decision making.
It is rigid and tightly controlled Structure It is highly flexible and
structure. adaptable structure.
Figure

Why do structures differ?

Four Reasons Structures Differ-

1. Strategy: An organizations structure helps management to achieve its objectives. Strategy

focuses on three dimensions.
Strategy Strategy option
Innovation strategy A strategy that Organic: A loose structure, low
emphasizes the introduction of major new specialization, low formalization,
products and services; offers meaningful decentralized.
and unique innovations.
Cost-minimization strategy: A strategy Mechanistic: Tight control, extensive work
that emphasizes tight control, avoidance of specialization, high formalization, high
unnecessary innovation or marketing centralization.
expenses, and price cutting.
Imitation strategy: A strategy that seeks to Mechanistic and organic:
move into new products or new markets Mix of loose with tight properties, tight
only after their visibility has already been controls over current activities and looser
proven. controls for new undertakings.
 2. Organizational Size: As organizations grow, they become more mechanistic, more
specialized, with more rules and regulations
3. Technology: The term technology refers to an organization transfers its inputs into outputs.
The more routine the activities, the more mechanistic the structure with
greater formalization
Custom activities need an organic structure
4. Environment: An organizations environment is composed of institutions or forces outside the
organization that potentially affect the organizations performance

- The more scarce, dynamic and complex the environment, the more organic a
structure should be
- The more abundant, stable and simple the environment the more
mechanistic a structure should be

Three Dimensional Environment Model

1. Capacity: Capacity refers to how

much an environment can support
growth.
2. Volatility: Volatility refers to the
degree of instability in the
environment
3. Complexity: Complexity refers to
the degree of heterogeneity and
concentration among

Organizational Designs and Employee Behavior

Impossible to generalize due to individual differences in the employees
Research Findings
Work specialization contributes to higher employee productivity, but it reduces job
satisfaction.
The benefits of specialization have decreased rapidly as employees seek more
intrinsically rewarding jobs.
The effect of span of control on employee performance is contingent upon individual
differences and abilities, task structures, and other organizational factors.
Participative decision making in decentralized organizations is positively related to
job satisfaction.
People seek and stay at organizations that match their needs.