HR and Organisation Development

Unit -4

What is organizational structure?

Organizational structure describes the roles and responsibilities in an organization's
hierarchy. It helps define the following details:
 Job descriptions
 Role categorization into teams or departments
 Who makes departmental decisions
 Who each role reports to
The organizational structure can help a business stay organized and clearly define
roles. With a properly built organizational structure, managers can delegate work to
roles that are fully trained for the task, which can help promote clarity, organization,
productivity and accountability.
What is an organizational structure?
An organizational structure is a set of rules and relationships within a company that
defines how it operates to meet its goals. It outlines the hierarchy in an organization
by defining roles, explaining where each role fits within the business and determining
who reports to whom. There are many organizational structures a business can
choose from, and they stem from centralized or decentralized organizational
structures
.A centralized organizational structure gives executives the authority to make
decisions that are distributed throughout the company to mid- and lower-level
employees. A decentralized organizational structure provides mid-level and lower-
level employees with the power to make decisions in their branch of the company
rather than relying on the high-level employees to make all of the decisions.
Why is organizational structure important?
 Provides a management planning tool
 Improves decision-making
 Helps employee engagement
 Provides a visual
How to choose an organizational structure
1. Review the different organizational structures
2. Determine the company's strategy
3. Consider the business' environment, size and age
4. Review the information
5. Create a visual chart and make a decision
What are the benefits of organizational structures?
 Faster decision-making
 Faster decision-making
 Improved operating efficiency
 Greater employee performance
 Eliminates duplication of work
 Reduced employee conflict
 Better communication

What is organizational design?

Organizational design is the diagnostic process of improving a company's
procedures so they operate efficiently. This includes improving:
 Organizational structure
 Workflow
 Mechanical systems
 Procedures
It also helps ensure some inherent business values are being focused on with the
current company structure, including:
 Meeting work goals and deadlines
 Ensuring all work meets company goals
 Improvement of customer service
 Ensuring accountability
 Conflict resolution
 Delegation of decision-making positions
Organizational design is a process that defines a company's leadership practices
and hierarchy. A company's organizational design can affect its workplace culture,
efficiency, workplace relationships and production value

The organizational design process can help a company in a variety of ways,

including:
 Creating a hierarchy of leadership: The creation of a leadership hierarchy
within a company allows for a clear delegation of duties and expectations.
  Delegation of duties: A business's organizational design may allow a company
to split into departments and teams to make management duties easier and
more efficient to implement.
 Discovery of ineffective aspects: Organizational design can help identify
aspects of a business that are not working as effectively as expected, which
can help the company's leaders understand what they may need to change

What is the difference between organizational structure and design?

The difference between organizational structure and design is the representation it
has in an organization. Organizational structure is a static representation of a
business. Upper management can design, structure and edit this plan and change
each role's relationship to each other. It can provide easy visualization and
understanding of how the business functions.Organizational design is a changing
representation of a business. It defines the procedures that restructure and improve
an organization. Customer wants, factors in the market, the economy and the
surrounding business environment can all change and impact a business, which is
why upper management uses organizational design to react to those changes
appropriately. Organizational design is an ongoing effort to change a business when
factors that impact it change.
6 organizational structures to consider
When building an organizational structure for your business, consider the following
structure examples:
1. Centralized
Centralized organizational structures are linear formations that clearly define
positions as higher or lower than others. Military structures are prominent examples
of centralized organizational structures. The hierarchy typically proceeds as follows,
from highest in the system to the lowest:
1. Board of directors
2. CEO
3. Executive teams
4. Department managers
5. Department supervisors
6. Employee workforce
Centralized structures offer a structured and straightforward system, emphasizing
organization and expertise and ensuring verified members of the organization are in
proper decision-making positions of power.
A centralized organization is a hierarchical decision-making structure where all
processes and decisions are made at the executive or top level. Managers and
employees in the organization's lower chain of command can rarely make or
implement decisions without the executive's approval.In a centralized organization,
all decisions, including those related to everyday operations, are made by the top-
level executives or company owners. They create policies that team members can
implement to improve their performances. Many organizations prefer using a
centralized organization structure because the clear chain of command offers
enhanced transparency, improves efficiency at work, reduces the cost of
management and focuses on meeting the organization's goals.

2. Decentralized
Decentralized organizational structures may allow for more flexibility within the
hierarchy, giving more decision-making power to every employee and department.
Most departments in a decentralized organizational structure have equal autonomy
and impact on a business' decisions, allowing for fast and flexible strategies in
changing business climates. While less structured than a centralized organizational
structure, decentralized structures favor adaptability.
A company with a decentralized organizational structure is one where mid-level and
lower-level managers make most of the decisions, rather than the senior
management team. Sometimes, management even involves team members in the
decision-making process. This differs from a centralized organization, in which the
highest-ranking leaders within the company make all major decisions, and there's a
strict decision-making hierarchy. Few companies qualify as fully decentralized or
centralized. Rather, most have various degrees of both.Some of the main situations
in which a decentralized organizational structure works well include:
 When a company has different points of contact with its customers and each
requires highly individualized customer service
 When an organization has many locations and its upper management is
unable to manage and make decisions for all of them
 When the product competes in a fast-paced market with intense competition,
so it's beneficial to make quick decisions
 When new developments constantly alter the business model, making
centralized control less effective

3. Functional
Functional organizational structure divides an organization based on its workforce's
specialization. For example, you may divide your workforce under this structure into
departments that focus on manufacturing, sales, product transfer or human
resources. Because members of each department have similar skillsets,
communication is easier and faster. Learning and training may also be quicker
because members can learn from each other in a department.However, because this
structure isolates departments, they may have trouble viewing their department from
another's point of view. For example, the human resources department may create a
policy that the manufacturing department needs to place work instructions next to
every machine. However, the manufacturing department may not see the safety
emphasis of the policy because every member has each process memorized. To
avoid departmental isolation, encourage department crossover meetings, especially
concerning policies that may overlap departments
Advantages of this structure may include:
 Employees grouped by skill
 Greater sense of teamwork
Disadvantages of this structure may include:
 Lack of communication with other departments
 Harmful competition
 Management issues

4. Divisional
Divisional organizational structure divides a company into distinct divisions based on
the products produced, or physical department location. For example, a furniture
manufacturer may have one division dedicated to indoor furniture, and dedicate
another to outdoor furniture. Each division is independent of the other, equipped with
its own IT, HR, marketing and finance departments.Divisional organizational
structures are beneficial to companies that have large and varied product outputs, or
for those who work in many distinct locations. However, the business must be able to
duplicate fully functioning teams multiple times, such as IT or HR teams, in order for
this structure to stay efficient.
Advantages of this structure may include:
 Focus on a single good or service
 More centralized leadership
Disadvantages of this structure may include:
 Poor integration with other divisions
 Competition between divisions
 Lack of communication between divisions
  Potential tax implications

5. Flatarchy
A flatarchy can act as an opposite to the traditional hierarchy, placing all members
into smaller working teams and giving each team more decision-making power. In a
flatarchy, each team uses their independence to make their own decisions and set
their own goals toward the company mission. Flatarchies are cost-efficient
organizational structures and promote quick decision-making in the company.
Communication remains as open as possible, encouraging clear and honest
communication throughout the business.However, employees may have less role
awareness while under this system and can become unsure of who they report to or
who to ask about a decision. When using this system, consider making any hierarchy
lines clear so employees new to the system can become acclimated as soon as
possible
Advantages of this structure may include:
 Cost-efficient
 Fosters good communication
 Higher employee morale
 Faster decision making
Disadvantages of this structure may include:
 Potential employee conflict
 Leadership confusion

6. Matrix
The matrix organizational structure allows employees to be grouped by product,
function, region or any other defining factor the company chooses. Companies can
form matrix organizational structures to be as big or complex as needed, even
allowing employees to overlap in responsibility. For example, an employee can have
responsibilities in human resources and manufacturing.Because matrix
organizational structures are more customizable than any other structure, they allow
for a company to form its departments in a way that best suits its needs. With the
help of organizational design, companies can appoint specialists to departments
where they are most needed. However, employees can become confused
concerning role awareness and accountability in a matrix structure. To prevent this,
consider making roles clearly defined and describing aspects and responsibilities of
work to new hires.
Advantages of this structure may include:
 Fosters open dialogue
 Flexible workplace environment
Disadvantages of this structure may include:
 Leadership confusion
 Conflicting leadership loyalties
 Potentially more costly
 Roles may not be clearly defined
 Potentially heavy employee workload

Elements of organizational design to consider

You can use organizational design to evaluate every aspect of your business with
goals to improve overall business functionality. When considering organizational
design for your business, there are five elements of your business to evaluate,
including:
1. Strategy
Strategy in business organizational design distinguishes how your business will
complete business goals. It defines a company's:
 Mission statement
 Values
 Products
 Market group
 Objectives
 Selling propositions
2. Structure
Structure defines how you organize each role in an organization. This includes what
departments or teams classify them, and what objectives each serves. It can help
organize the following parts of your structure:
 Power distribution into centralized or decentralized departments
 General organization focus such as division, product, matrix or functionality
structure
3. Processes
Processes can be anything from your budget allocation to your documentation
process. Examples of processes in business include:
 Standardized procedures
 Metrics tracking
 Evaluation processes
4. Motivations
Motivations keep staff and customers alike interested in your business' well-being
and its products. Some aspects that organizational design may change include:
 Rewards for employees: Promotions, commission pay and bonuses
 Rewards for customers: Free trials, membership bonuses and deal offers
5. Recruitment
Recruitment looks at the processes involved with hiring, training and recruiting
employees for your business. Organizational design can change any of the following
aspects:
 Hiring requirements
 Employee training details
 Campaign strategies

Importance of organizational structure and design

Some reasons organizational structure and design are important include:
Helps define employee roles
Organizational structure helps define the role each employee has in a business by
defining groups employees belong to. Even in loosely managed structures such as
flatarchies, employees can gain a better understanding of their duties with both
organizational structure and organizational design. Organizational structure places
employees with those who are of a similar skillset to them, even in flatarchies. By
working closely with employees of a similar skillset and job description, employees
may better understand the intricacies of their position.
Encourages productivity
Because organizational structures and organizational design both encourage a more
organized workforce, a company that uses both may encourage heightened
productivity from their employees. Employees divided into categories based on either
expertise or product focus may work very well with each other because of matching
skillsets.
Defines company goals
By dividing your company into clearly defined units with organizational structure and
improving your business using organizational design, you more accurately define
your goal as a company. For example, when going through the process of
organizational design, you may realize one structure is better than another, which
can change original goals from doubling a quota to continuously improving your
company's processes.
Promotes communication
Almost every organizational structure format can improve a business'
communication. For example, in a centralized organizational structure, employees
communicate more effectively because everyone has the same general skillset. In a
flatarchy, employees communicate more effectively because the hierarchy is less
strict and allows for more open communication. In a decentralized structure, the rate
at which employees communicate may be faster, improving the results of
communication

Factors affecting structures designs

The structure and design of an organization are influenced by several factors. These
factors help determine how roles, responsibilities, and communication flow are
organized within a company. Here are the key factors affecting organizational
structure and design:
1. Size of the Organization
 Impact: Larger organizations tend to have more complex structures, often
hierarchical, with multiple levels of management. Smaller organizations may
have a simpler, flat structure with fewer layers.
 Design Implication: Larger organizations may require more formal
procedures and divisions, while smaller organizations can be more flexible
and informal.
2. Business Strategy
 Impact: An organization’s strategy, whether it's focused on cost leadership,
differentiation, or innovation, will shape its structure.
 Design Implication:
o Cost Leadership: May have a more centralized structure to control
costs and maintain efficiency.
o Differentiation: May need a more flexible, decentralized structure to
encourage creativity and quick decision-making.
o Innovation-focused: Requires a flexible, flat structure to support
collaboration and rapid adaptation.
3. Nature of the Business or Industry
  Impact: The industry in which the company operates can affect the structure.
For example, manufacturing firms may have a more rigid, functional structure,
while tech or creative industries may prefer a flat, project-based structure.
 Design Implication: Industries with stable environments may prefer a
hierarchical structure, while dynamic industries might require more flexibility
and less bureaucracy.
4. Technology
 Impact: The type of technology and information systems used within the
organization can significantly influence the structure.
 Design Implication: Organizations with advanced technology and
communication tools can support flatter structures by enabling better
communication and collaboration across departments and regions.
5. Organizational Culture
 Impact: The values, beliefs, and behaviors that make up an organization’s
culture will impact how formal or informal the structure is.
 Design Implication: A collaborative, open culture may favor a flat,
decentralized structure, while a more traditional, hierarchical culture may
support a more rigid and formal structure.
6. Environment (External Factors)
 Impact: The external environment, including market competition, regulatory
requirements, and economic conditions, influences structure.
 Design Implication: Organizations in highly competitive, fast-changing
environments may need a more flexible, decentralized structure to quickly
respond to market demands. Stable environments may allow for a more
centralized and hierarchical approach.
7. Geographical Dispersion
 Impact: Companies with operations spread across different regions or
countries may need to adopt a structure that accommodates regional
autonomy while maintaining overall corporate control.
 Design Implication: Multi-national companies may use a matrix structure to
manage both global strategies and local needs, while geographically
concentrated companies may have a simpler, more centralized structure.
8. Workforce Characteristics
 Impact: The skills, expertise, and preferences of the workforce can influence
how an organization is structured.
 Design Implication: A highly skilled and experienced workforce may require
less supervision and thus support a flatter structure. In contrast, less
 experienced employees may need more guidance, leading to a more
hierarchical structure.
9. Leadership Style
 Impact: The approach taken by the organization’s leadership (autocratic vs.
democratic) influences decision-making authority and the overall structure.
 Design Implication: Leaders who value control and direct oversight might
favor a centralized, hierarchical structure, while more participative leaders
may prefer a decentralized or team-based design.
10. Legal and Regulatory Requirements
 Impact: Some industries face strict regulations (e.g., healthcare, finance),
which may necessitate specific reporting structures and compliance
departments.
 Design Implication: Highly regulated industries may need a more formal
structure with dedicated compliance functions, while less regulated industries
can have more flexible and innovative designs.
11. Products and Services
 Impact: The complexity and variety of products or services offered by the
organization can influence structure.
 Design Implication: Companies offering diverse product lines may adopt a
divisional structure, where each product line or division operates semi-
independently. A company with a single product or service may not need this
complexity.
12. Growth and Expansion Plans
 Impact: Organizations in a rapid growth phase may need to adjust their
structure to accommodate new markets, employees, or product lines.
 Design Implication: As organizations grow, they may move from a simple to
a more complex structure, introducing additional management layers or
functions.
13. Control Mechanisms
 Impact: The degree of control needed (centralized vs. decentralized decision-
making) can affect the structure.
 Design Implication: Centralized control typically leads to more formal,
bureaucratic structures, whereas decentralized control supports flatter, more
flexible organizational designs.
14. Customer Base
 Impact: The diversity of customers and their needs may lead to changes in
the structure.
  Design Implication: Organizations with a diverse customer base may need
separate departments or divisions catering to different market segments.
15. Innovation and Change Management
 Impact: Organizations that focus on innovation and constant change may
require a structure that supports flexibility and experimentation.
 Design Implication: These organizations often adopt a flatter or matrix
structure to encourage collaboration and quick responses to market shifts.
The ideal structure and design of an organization depend on a mix of internal and
external factors. The key is to create a structure that aligns with the organization's
goals, the environment it operates in, and its workforce, while remaining adaptable to
changes and growth.

What is a boundaryless organization

A boundaryless organization is an organization that actively removes boundaries to
innovation, meaning it has less hierarchy and functional separation and is more
integrated. This allows for a free flow of information, ideas, and innovations.
A boundaryless organization reduces four types of boundaries. Reducing boundaries
for each dimension is one of the key characteristics of a boundaryless organization.
A boundaryless organization breaks down the traditions, locational constraints, and
hierarchies of more traditional company structures. Employees at these types of
organizations can expect a flexible business environment and a team of coworkers
that transcend geographic boundaries.

A boundaryless organization is a company that rejects the external boundaries and

internal hierarchies of more traditional organizations.
The four types of boundaries are:
 Vertical. This is the traditional, hierarchical structure. Reducing management
layers allows ideas to travel freely through the organization, and new
initiatives can be implemented without managers stifling potential innovation.
The aim here is to create a “healthy hierarchy”.
 Horizontal. This is the functional separation, including departments and other
silos. By removing horizontal boundaries, ideas can easily be shared and
implemented cross-functionally.
 External. This is separation within the value chain. By working closely with
customers and suppliers, implementing innovations will be more effective.
 Geographical. This refers to the separation between countries or
geographies and is a specific form of horizontal separation. By integrating
different geographies, innovations will spread more easily and can be
implemented faster.
Note here that boundaries are not eliminated. Rather, they are made porous. There
is a clear separation between the own organization and a supplier, but by making the
boundary porous, ideas can easily flow through.
Example
General Electric
Jack Welch, CEO of General Electric, pioneered the boundaryless organization in
the 1990s. According to Welch, a successful organization is one in which the best
ideas are discovered and exploited. Boundaries – whether between hierarchical
levels, functions, geographies, or external boundaries – stifle this innovation.
According to GE’s 1994 annual report, “Boundaryless behavior has become the
‘right’ behavior at GE, and aligned with this behavior is a rewards system that
recognizes the adapter or implementer of an idea as much as its originator. Creating
this open, sharing climate magnifies the enormous and unique advantage of a multi-
business GE, as our wide diversity of service and industrial businesses exchange an
endless stream of new ideas and best practices”.
Jack Welch believed that rigid, hierarchical organizations did not have the right
structure to foster innovation in a fast-moving and ever-changing world. To achieve
this, Welch launched Work-Out, a program aimed at removing boundaries at the
company.
Boundaryless organization advantages and disadvantages
Advantages
The advantages of a boundaryless organizational structure for the organization are
increased performance, agility, flexibility, and innovation potential.
Advantages of a boundaryless organization for the employee include:
 Increased autonomy
 Increased engagement, and
 Higher job satisfaction.
Disadvantages

The main disadvantage of a boundaryless organization is the difficulty of

implementing it in certain industries. Some industries, like the biochemical industry,

are highly regulated and require standardized processes that don’t always allow for

highly permeated boundaries.

Additionally, a boundaryless organization may not work for all employees. Some

employees prefer structure over freedom, and operating in an environment with

fewer boundaries may not be easy for them.

Characteristics of a boundaryless organization

Boundaryless organizations:

 Eliminate traditional organizational boundaries, which removes obstacles to

innovation and promotes the generation and implementation of new ideas.
Without these boundaries, ideas can travel through the organization with little
hindrance.
 Have more agility, flexibility, and a higher degree of integration. This means
that the organization can better marshall resources into new products and
services. The result is more problem-solving and innovation potential, allowing
for rapid response to new opportunities or challenges.
 Utilize cross-functional teams that cut across traditional departmental lines,
facilitating a multidisciplinary approach to projects and initiatives.
 Empower individuals at all levels to make decisions and take action based on
their expertise and insights, which further boosts the organization’s
adaptability and innovative capacity.
  Establish direct and open lines of communication throughout the organization,
ensuring that information flows freely without hierarchical barriers.

Understanding Lean Organisational Structure

A lean organisational structure is a streamlined and efficient framework that

minimises hierarchy, reduces bureaucracy, and focuses on essential roles and
functions. This structure emphasises simplicity, agility, and cost-effectiveness by
eliminating unnecessary layers of management and decision-making. It encourages
direct communication, quicker decision-making, and empowers employees to take
ownership of their work. Lean organisations often have cross-functional teams,
flexible job roles, and a strong commitment to continuous improvement. This
structure aligns with Lean principles, fostering a culture of efficiency, waste
reduction, and customer-centricity.
A lean organization is a firm that has adopted a minimalist and simplified business
approach. Such an organization seeks to reduce waste and focus its resources on
producing items that have the best value for its customers. The first step in creating
a lean organization is to analyze all processes to determine those that can be
eliminated without affecting the final product. The second step is to cut employees or
assign them other duties. These steps leave only those activities and employees that
have a direct impact on the final product. A lean organization has various defining
characteristics. It is focused on offering the customer more value and is well
organized to reduce time wastage. In addition, it has a collaborative environment and
is proactive in preventing problems.
Prominent Characteristics of Lean Organisation
1. Customer Centric Approach: Lean Organisations are strongly committed to
being customer-centric. It is a central principle that guides their actions and
decisions. They prioritise understanding and meeting customer needs above
all else. By continuously engaging with their customers and gathering
feedback, lean organisations ensure that their products or services align with
customer desires and expectations. The customer-centric approach fosters
customer loyalty and drives innovation and competitiveness in the market.

2. Waste Reduction: Waste reduction is at the core of lean principles. Lean

organisations diligently seek out and eliminate waste in all its forms, including
overproduction, excess inventory, defects, and waiting times. By doing so,
they enhance efficiency and reduce costs. A waste-reduction mindset benefits
the organisation and contributes to environmental sustainability by conserving
resources and minimising the ecological footprint.

3. Commitment to Continuous Improvement: Lean organisations have a

determined commitment to continuous improvement, embodying the Kaizen
philosophy. The constant improvement process involves employees in its
never-ending journey. Employee engagement and empowerment are key
drivers of continuous improvement, as frontline workers often have the best
insights into process inefficiencies and innovative solutions. This collaborative
approach fosters a culture of innovation and adaptation.
4. Streamlined Processes: Lean organisations are masters at streamlining
their processes. The lean journey maps and optimises their workflows to
reduce cycle and lead times. Just-in-Time manufacturing is a key aspect
of lean management, ensuring that production aligns precisely with customer
demand, minimising inventory and waste.

5. Lean Culture and Leadership: Lean culture and leadership are foundational
to the success of a lean organisation. Leaders play a key role in adopting lean
principles throughout the organisation. They prioritise employee engagement
and empowerment, encouraging each team member to participate in
continuous improvement efforts actively. A lean culture fosters a shared
commitment to lean ideals, where all employees take ownership of their work,
processes, and outcomes.

6. Visual Management: Lean organisations utilise visual tools like Kanban and
Andon systems to facilitate communication and monitor performance. These
visual cues make it easy for employees to understand processes, identify
bottlenecks, and respond promptly to issues. Visual management enhances
transparency, accountability, and overall efficiency.

7. Standardisation: Standardisation is a crucial aspect of lean operations. Lean

organisations document their processes, ensuring that everyone follows
standardised procedures. This consistency reduces errors, enhances quality,
and streamlines operations. It also enables employees to identify deviations
and areas for improvement easily.

8. Flexibility and Adaptability: Lean organisations are efficient, flexible, and

adaptable. They can quickly adjust their processes and resources to respond
to changing customer demands or market conditions. This agility allows them
to thrive in dynamic business environments.

9. Supplier Collaboration: Lean organisations recognise the importance of

strong supplier relationships. They collaborate closely with suppliers to ensure
a smooth and efficient supply chain. This collaboration extends lean principles
beyond their walls, creating a value stream encompassing their internal
operations and external suppliers, resulting in further waste reduction and
enhanced efficiency.