CHAPTER 2: ORGANIZATIONAL STRUCTURE AND DESIGN

DEFINITION, ALIGNMENT AND PRELIMINARY CONSIDERATIONS

The analysis and detailed study of the organizational typologies of a corporation’s
structure is a complex subject that requires in-depth analysis from a dynamic
perspective.

Unfortunately, OSD is often oversimplified, and essential elements are forgotten, such
as the need to factor in critical aspects related to the competitive environment:
- Especially, and even more soo nowadays, the need to bear in mind critical
aspects related to the competitive environment such as the VUCA environment
and the new context of Digital Disruption.
The need to view and analyze business corporations as entities or institutions
that bring together a set of interests of their several stakeholders. These
interests must tie up coincide in most situations for the proper functioning of
the company, but in the

ORGANIZATION
1. OSD  Organizational Structure Design can be defined as the process of
reshaping organization structure and roles:
- Needs quality time to be thought, developed, implemented, and
accepted
- Right people in right positions: right positions on right time
- Stability appraised as a must
- The company cannot/should not incur in incongruences or
contradictions

2. Alternatively, it can be defined as the alignment of:

- Structure
- Processes
- Rewards
- Performance-metrics
- Talent attraction and talent accountability with the strategy/corporate
goals of the business

3. Attention too all these organizational elements is necessary to create new

capabilities to compete in a given and challenging market

4. Depending on some contingent factors (environment, technology, dimension,

and strategy) some organizational attributes/layouts/variables (for instance,
complexity, centralization, and formalization), are designed and set up into
action.

5. Organization structure design must be understood as a tool, not as an end.

Organization Structure Design involves analysing:

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 - The formal structure
- The overall existing systems
- Likewise, the existing processes that support the organization

OSD likewise, must provide answers to the following questions:

- How is the company organised? Mechanistic-wise or organic-wise?
- Are there distinct business units or other separations? Regional,
functional…by product or by market?
- How distinct and/or rigid are the lines of authority?
- How standardized is the work? (Rules, policies, procedures…)
- How is the work measured, incentivized, and rewarded?

Criteria and key factors in design of organizational structure:

1. Work Specialisation: It answers to the question about to what degree all
relevant activities are subdivided by different tasks
2. Departmentalization: grouping jobs together, in order to common tasks to be
coordinated
3. Chain of command: it clarifies which are the persons expected to obey and
which are the ones to compute those orders. It clarifies who reports to whom.
Hands on person  type of managers that let employees organize themselves,
meaning that is an active person that listens to employees and provides them
plenty of autonomy.
4. Contrasting spans of control identifies different quantitative steps an
organization needs in order to get things done, but when there is plenty of
layers, the company becomes a disaster. Spans of control are necessary for
getting results and achieving corporate efficiency.
5. Centralisation and decentralisation: it depends on the nature of the business
a. Centralisation refers to the degree to which the decision-making
process is concentrated at a single point
6. Formalization: the degree to which jobs within the organization are
standardized. Formalization does not mean bureaucracy.

All human behaviour effects affect the structure and profile of the company

The eight elements of organization design – PWC Survey Approach:

Divided in two dimensions: informal and formal dimensions
- Formal
o Decisions  how decisions are made
o Motivations  how people are compelled to perform
o Information  how the organization formally processes data
and knowledge
o Structure  how work and responsibilities are divided
- Informal
o Norms  how people instinctively act or tale action
o Commitments  how people are inspired to contribute
o Mind-sets  how people make sense of their work
o Networks  how people connect beyond the lines and boxes.

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The mechanistic vs the organic model
The mechanistic model: you are being told what you are expected to do.
Implementation of procedures reflected in the structure and goals of the company. A
person in a role specialises in a specific task or set of tasks.
- High specialization
- Rigid departmentalization
- Clear chain command
- Marrow spams and control
- Centralization
- High formalization

The organic model: a person in a role assigned to a specific task or set of tasks.
However, the person can lean new tasks and develop new skills and capabilities.
- Decentralized authority
- Low level formalization
- Slight complexity
- Vertical and lateral information flow

Factors or variables impacting on the organizational structure design

- The environment and the competitive landscape
- The technology shift and technology challenges within the sector
- The size itself of the organization
- The leadership management style: a preference towards “lean/light” vs
“heavy/strong” structures
- The distribution of power at an internal level organization.

Likewise, the organizational dimension (number of employees) is directly and

positively related to:
- The number of hierarchical levels
- The degree of specialisation
- The degree of formalizations
- The degree of decentralization
- The new fields (for instance, market segments/strategic business units)
the corporation will compete in.

Differentiation and integration activities

- Vertical approach: how many hierarchical levels we can find in a
corporation
- Horizontal approach: how many different divisions or departments we
can fins in a firm.

Horizontal differentiation: is usually determined by:

1. Specialization  in several functions, tasks and assignments

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 a. It appears as a direct consequence of the division of work
b. It intends to concentrate types of function or tasks based on specialized
knowledge
2. Process of departmentalization

TYPES OF ORGANIZATIONAL STRUCTURES

Basic organizational forms
- The simple structures: is most widely practised in small businesses in
which the manager and the owner are one and the same. It is, therefore,
the type of organisation where the convergence between ownership and
executive management most clearly converges.

- The functional structure: conservative oriented model. We have

specialised employees to achieve things. This format shows that each
function has its own hierarchy and shows the position of each function
within the organization’s hierarchy.
o Strengths:
 Simple, fast and flexible
 Inexpensive to maintain
 Accountability is clear
o Weaknesses  lack of trust = lack of authority
 Difficult to maintain in anything other than small
organization.
 Risky because everything depends on one person.

- The divisional structure: the company can be divided in very different

criteria, although the most common one is to split the business into
different business units.

FMCG  Fast Moving Consumer Goods: Fast-moving consumer

goods are products that sell quickly at relatively low cost. These goods
are also called consumer packaged goods.
FMCGs have a short shelf life because of high consumer demand (e.g.,
soft drinks and confections) or because they are perishable (e.g., meat,
dairy products, and baked goods). These goods are purchased
frequently, are consumed rapidly, are priced low, and are sold in large
quantities. They also have a high turnover when they're on the shelf at
the store.

TAM  target addressable markets:

- The matrix organizational structure:

- New organizational and virtual structures:

New Organizational & Virtual Structures Nowadays, in the Corporate
Arenna, important daily factors like Flexibility, Simplicity, Integration and
Knowledge management are fostering new Organizational designs

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provided with Variable Geometry and or Flexible bureaucracy: we ŕ e
witnessing that the Organizational Structures are transforming
themselves.

Shamrock organization: A very limited and reduced High Management

Group: it acts as core of operations and as a reduced as possible (1st leaf).
Outsourcing all activities that are more efficient to do outside the
company (2nd leaf)
Flexible workforce since it is not necessary to integrate everyone within
the operating kernel with the same operating rules (3rd leaf).
Different abilities and attitudes suggest and advise to separate some key
functions among them –Research & Development, Sales & Commercial...
The model embraces carrying out technological innovations so that the
end customer perceives agile, comfortable and effective services levels
such as IT Cloud Services, online banking, etc... (Potential 4th leaf).

Key to this model is the coordination’s mechanism among leaves:

therefore, it becomes key the implementation of “Standardization of
Procedures”.
Suitable model for large service companies and in industrial sectors with
high technological change processes.
Contingent factors: sophisticated technical systems, dynamic and agile
environments, large size organizations, external and internal power to
negotiate agreements and conditions.

Federal Model (N-form):

It is the evolution of divisional or multidivisional structure.
There is a decision unit or its center every time smaller.
Adequate structure for large international and diversified companies or
with strategic agreements.
Diversity of federal organizational units each with their identity and
objectives but sharing the same mission and culture.

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 Federal units have “power” since the headquarters has delegated it and
it only performs support, counseling, and coordination functions (mission
and culture sharing)

Network/virtual model:
It is the evolution of the previous models, Shamrock and Federal

It is the maximum segregation of the company in activities carried out by

other companies linked to the “parent company” (small central core)

Bordering organizational borders: it does not represent a structure too

defined since it is based very much on alliances and outsourcing of
activities (contractual relationships with third parties)

Bordering organizational borders it does not represent a structure too

defined since it is based very much on alliances and outstanding of
activities (contractual relationships with third parties)

It tends to be implemented in areas or sectors that require high executive

agility in terms of time to market or where the duration oof the
process/project is clearly defined and limited in time.

Usually as well in joint ventures and/or temporary company agreements

carried out jointly, especially between multinational corporations

MODELS OF ANALYSIS, DIAAGNOSIS AND ADAPTATION OF ORGANISATIONS

Jone’s organizational and competitive model

Mintzberg’s organizational configuration model

IMPLICATIONS OF DIFFERENT ORGANIZATIONAL DESIGNS