Basic Organizational

Design
IPE 3231

Afia Ahsan
Lecturer
MPE, AUST
Organizational Structure
The type of framework a company uses to distinguish power and
authority, roles and responsibilities, and how information flows through
the organization.

Organizational Chart
The visual representation of an organization’s structure.

Organizational Design
Organizational design is the overall pattern of structural components and
configurations used to manage the total organization.
Organogram
Purpose of Organizing
❖ Divide work to be done into specific jobs and departments.
❖ Assigns tasks and responsibilities associated with individual jobs.
❖ Coordinates diverse organizational tasks.
❖ Clusters jobs into units.
❖ Establishes relationships among individuals, groups, and departments.
❖ Establishes formal lines of authority.
❖ Allocates and deploys organizational resources.
Key Elements of Organizational Structure
❖ Work Specialization
❖ Departmentalization

❖ Chain of Command
❖ Span of Control
❖ Centralization and Decentralization
❖ Formalization
 Work Specialization
dividing work activities into separate
job tasks.
Individual employees “specialize” in
doing part of an activity rather than
the entire activity to increase work
output.
It’s also known as the division of labor.
Work specialization makes efficient
use of the diversity of skills that
workers have.
Economies and Diseconomies of Work
Specialization
At some point, the human
diseconomies from the division
of labor—boredom, fatigue,
stress, low productivity, poor
quality, increased absenteeism,
and high turnover—exceed the
economic advantages.
Departmentalization
How jobs are grouped together is called departmentalization.
Functional
Grouping jobs by functions performed
Geographical
Grouping jobs based on territory or geography
Product
Grouping jobs by product line
Process
Grouping jobs based on product or customer flow
Customer
Grouping jobs by type of customer and needs
Functional Departmentalization

+ Efficiencies from putting together similar specialties and

people with common skills, knowledge, and orientations
+ Coordination within the functional area
+ In-depth specialization
- Poor communication across functional areas
- Limited view of organizational goals
Geographical Departmentalization

+ More effective and efficient handling of specific

regional issues
+ Serve the needs of unique geographic markets better
- Duplication of function
- Can feel isolated from other organizational areas
Product departmentalization

+ Allows specialization in particular products and services

+ Managers can become experts in their industry
+ Closer to customers
- Duplication of functions
- Limited view of organizational goals
Process departmentalization

+ More efficient flow of work activities

- Can only be used with certain types of products
Customer departmentalization

+ Customer’s needs and problems can be met by specialists

- Duplication of functions
- Limited view of organizational goals
Cross-Functional Team
One specific type of team that more organizations are using is a cross-
functional team, which is a work team composed of individuals from
various functional specialties.
Chain of Command
The chain of command is the line of authority extending from upper
organizational levels to lower levels, which clarifies who reports to
whom.
Three Aspects of Chain of Command
Authority: Authority refers to the rights inherent in a managerial position
to tell people what to do and to expect them to do it.
Responsibility: The obligation or expectation to perform. Employees
should be held accountable for their performance.
Unity of command: The unity of command states that a person should
report to only one manager
Chain of Command
Acceptance theory of authority
Authority comes from the willingness of subordinates to accept it. If an
employee didn’t accept a manager’s order, there was no authority.
subordinates will accept orders only
if the following conditions are satisfied:
1. They understand the order.
2. They feel the order is consistent with the organization’s purpose.
3. The order does not conflict with their personal beliefs.
4. They are able to perform the task as directed.
Chain of Command
Line authority Staff authority
entitles a manager to direct the
work of an employee. It is the In larger and more complex
organizations, line managers create
employer–employee authority
staff authority to support, , assist,
relationship that extends from
advise, and generally reduce some of
the top of the organization to the their informational burdens.
lowest echelon, according to the
chain of command.
Chain of Command
Line vs Staff Authority
❑ line refers to managers whose
organizational function contributes
directly to the achievement of
organizational objectives.
❑ In a manufacturing firm, line
managers are typically in the
production and sales functions,
whereas managers in human
resources and payroll are
considered staff managers with
staff authority.
Span of Control
The number of employees a manager can efficiently and effectively manage.
All other things being equal, the wider or larger the span, the more efficient an organization is.
Assume two organizations, both of which have approximately 4,100 non managerial employees.
Span of Control
Width of span is affected by
✓ skills and abilities of the manager
✓ Employees Characteristics
✓ characteristics of the work being done
✓ similarity and complexity of tasks
✓ standardized procedure
Centralization and Decentralization
Centralization Decentralization
The degree to which decision
making takes place at upper levels The degree to which lower-level
of the organization. employees provide input or
actually make decisions
Top managers make key decisions
with little input from below, then the
organization is more centralized
Centralization and Decentralization
Centralization and Decentralization
The decision is relative, not absolute- that is, an organization is never
completely centralized or decentralized

Employee empowerment
Giving employees more authority (power) to make decisions formalization.
Formalization
Formalization refers to how standardized an organization’s jobs are and the
extent to which employee behavior is guided by rules and procedures.
Highly formalized jobs offer little discretion over what is to be done.
Low formalization means fewer constraints on how employees do their work.
Mechanistic and Organic
Organization
Mechanistic and Organic Organization
Mechanistic Organization
An organization design that’s rigid and tightly controlled.
Organic Organization
An organizational design that’s highly adaptive and flexible.
Mechanistic and Organic Organization

Mechanistic Organic
High specialization Cross-functional teams
Rigid departmentalization Cross-hierarchical teams
Clear chain of command Free flow of information
Narrow spans of control Wide spans of control
Centralization Decentralization
High formalization Low formalization
What is Contingency Factor?
A contingency factor refers to any element that cannot be accurately
predicted or forecast for the future. These are typically events or
circumstances that are beyond control, such as natural disasters,
economic crises, and other major occurrences.
Contingency Variables
Four contingency variables are:
❑ Organization’s strategy
❑ Size and structure
❑ Technology and structure
❑ Degree of environmental uncertainty.
Strategy and Structure Size and Structure
An organization’s structure should organization’s size affects its
facilitate goal achievement. Because structure. More employees are
goals are an important part of the mechanical enough to influence the
organization’s strategies, that’s why structure, whereas employees who
strategy and structure are closely are less likely to influence the
linked. structure.
 Technology and Environmental
Structure Uncertainty and Structure
Every organization uses some form of In stable and simple environments,
technology to convert its inputs into mechanistic designs can be more effective.
outputs. Technology’s effect on On the other hand, the greater the
structure. The firm has a consistent uncertainty, the more an organization needs
pattern of three distinct technologies the flexibility. Managers need to try to
that have increasing levels of complexity minimize environmental uncertainty by
and sophistication. adjusting the organization’s structure.
Traditional Organizational Design
structures tend to be more mechanistic in nature

Three traditional structures are:

1. Simple Structure
2. Functional Structure
3. Divisional Structure
Simple Structure
A simple structure, which is an organizational design with low
departmentalization, wide spans of control, authority centralized in a single
person, and little formalization.
Strengths: Fast; flexible; inexpensive to maintain; clear accountability.
Weaknesses: Not appropriate as an organization grows; reliance on one
person is risky
Functional Structure
A functional structure is an organizational design that groups similar or
related occupational specialties. You can think of this structure as
functional departmentalization applied to the entire organization.
Strengths: Cost-saving advantages from specialization (economies of
scale, minimal duplication of people and equipment); employees are
grouped with others who have similar tasks.
Weaknesses: The pursuit of functional goals can cause managers to lose
sight of what’s best for the overall organization; functional specialists
become insulated and have little understanding of what other units are
doing.
Divisional Structure
The divisional structure is an organizational structure made up of
separate business units or divisions. In this structure, each division has
limited autonomy, with a division manager who has authority over his or
her unit and is responsible for performance.
Strengths: Focuses on results—division managers are responsible for
what happens to their products and services.
Weaknesses: Duplication of activities and resources increases costs and
reduces efficiency.
Contemporary organizational Design
A contemporary organizational design can be defined as a dynamic,
flexible framework that is designed to adapt to the rapidly changing
business environment, emphasizing collaboration, cross-functional
teams, and a high degree of digitalization
Team Structure
Organizes employees into teams that work collaboratively towards
common goals.
Strengths: Enhances collaboration and innovation, offers employees more
autonomy, and can improve job satisfaction.
Weaknesses: This may lead to conflicts within teams, can be challenging to
manage effectively, and might result in unclear roles and responsibilities.
Matrix and Project Structure
The matrix structure assigns specialists from different functional departments to
work on projects led by a project manager. Many organizations use a project
structure, in which employees continuously work on projects.
Strengths: Offers flexibility, enhances communication across
departments, and allows for specialization.
Weaknesses: This can lead to confusion and conflicts due to dual
reporting lines and may create challenges in balancing the power
between project and functional managers.
Network Structure
The Network Structure in organizational design is characterized by a
more decentralized approach, focusing on outsourcing certain processes
or functions to external organizations or contractors.
Strengths: Highly flexible and scalable, cost-effective, and allows
organizations to focus on their core competencies.
Weaknesses: This can lead to a loss of control over key processes and
may cause issues with quality and consistency.
Thank You