Organizational

Structure and
Design

6-1
Definition of Organization
• Organization implies a formalized intentional structure of roles or positions.
Organizing involves:
1.The identification and classification of required activities.
2.The grouping of activities necessary to attain objectives.
3.The assignment of each grouping to a manager with the authority (delegation) necessary to
supervise it.
4.The provision for coordination horizontally (on the same or a similar organizational level)
and vertically (for example, corporate headquarters, division, and department) in the
organization structure.
The Organizing Process
Basic Questions for Effective Organizing

It is useful to analyze the managerial function of organizing by raising and answering the
following questions:
1. What determines the span of management and hence the levels of organization?
2. What determines the basic framework of departmentation, and what are the strengths and
weaknesses of the basic forms?
3. What kinds of authority relationships exist in organizations?
4. How should authority be dispersed throughout the organization structure, and what
determines the extent of this dispersion?
Organization Chart
• A graphical representation of an organization.

• Conveys four kinds of information:

• Includes different units of organization
• Work performed by different personnel
• Reporting relationships indicated by connecting lines
• Number of hierarchy levels.
Six key elements in
organizational
design.

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Elements of Organizational Structure

• Work specialization
• Departmentalization
• Authority and responsibility
• Span of control
• Centralization vs. decentralization
• Formalization

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1.Work Specialization
• Skilled vs unskilled activities
• Specialized vs general activities
2.Departmentalization

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Departmentalization by Function
• Most widely employed basis for organizing
activities and is present in almost every enterprise
at some level in the organization structure.
Departmentalization by
Enterprise Function
Departmentalization by Territory or
Geography
• Rather common in enterprises that operate over
wide geographic areas.
Departmentalization by Territory or
Geography
Departmentation by Customers
Departmentation by Product
3.Types of Authority Relationships

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Line and Staff Authority

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LINE & STAFF AUTHORITY
Line Authority Staff Authority
Advantages: Advantages:
 Everything kept Simple  Uses the best experts
 Authority relationship graphically  Frees line managers for day-to-day
illustrated by hierarchy activities
 Close to employees so decisions can  Can be used as screening and training
be made quickly for future line managers
Disadvantages: Disadvantages:
 Neglects advisers  Confusing to some employees
 Too many decisions to make in short  Creates line-staff conflicts
time period  Places staff in submissive role
 Requires very skilled managers
How Do Authority and Power Differ?
Authority: Power:
a right whose legitimacy an individual’s ability to
is based on an authority influence decisions
figure’s position in the
organization; it goes
with the job

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What is Empowerment?
• Employees, managers, or teams at all levels in
the organization have the power to make
decisions without asking their superiors for
permission.
• Power should be equal to responsibility (P=R)
• If power is greater than responsibility (P>R),
then this could result in autocratic behaviour of
the supervisor
• If responsibility is greater than power (P<R),
then this could result in frustration
 Types of Power

formal

personal

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4.Span of Control
Most effective and efficient span depends on:
• Employee experience and training (more they
have, larger span).
• Similarity of employee tasks (more similarity,
larger span).
• Complexity of those tasks (more complex, smaller
span).

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Organization with Narrow Spans
Organization with Wide Spans
What Determines an Effective Span of
management?
Contemporary Organizational Design

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5.Centralization & Decentralization
Centralization Decentralization
decision making takes lower-level managers
place at upper levels of provide input or actually
the organization make decisions

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6.Formalization
How standardized an organization’s jobs are and
the extent to which employee behavior is guided
by rules and procedures.

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Contingency factors that
favor either the
mechanistic model or
the organic model of
organizational design.

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Models of Organizational Design

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1.Strategy  Structure

Certain structural designs work best with different

organizational strategies.
Simple strategy- simple structure
Complex strategy- complex structure

Innovative Pursuit organic structure

Cost effective pursuit mechanic structure
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2.Size  Structure
Organic Mechanistic
Less than 2,000 More than 2,000
employees can be employees makes forces
organic. organizations to become
more mechanistic.

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3.Technology used  Structure
Organic Mechanistic
More nonroutine More routine
technology technology

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4.Environment  Structure

Stable environment: mechanistic structure

Dynamic environment: organic structure

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Compare and
contrast traditional
and contemporary
organizational
designs.

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Traditional Organizational Designs

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Team Structure
A structure in which the entire organization is
made up of work teams that do the organization’s
work.

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Matrix and Project Structures

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Project Structure
A structure in which employees continuously work
on projects.

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Boundaryless Organizations

An organization whose design is not imposed by a

predefined structure.

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6.4 Discuss the design
challenges faced by
today’s
organizations.

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Current Organizational Design Challenges

• Keeping employees connected

• Managing global structural issues
• Designing flexible work arrangements

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Flexible Work Arrangements
• Telecommuting
• Compressed workweek
• Flextime
• Job Sharing
• Contingent workers

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Types of Business Organization
Criterion or basis Types of business organizations
Size SME, Large organizations
Ownership Sole proprietorship, partnership, Pvt. Ltd., Public Ltd., Co-
operatives, Trusts & associations
Purpose For-profit, not for profit
Activity Manufacturing, trading & services
Origin Domestic & Multinational, transnational or global, joint ventures
and alliances
Sector Public sector & Private sector
Style of management Traditionally managed, managed as per the western models,
using adapted or hybrid management models.
Reach of markets Local, regional, national, international or multi-national, global
Types of Business Organization (contd.)
Criterion or basis Types of business organizations
Decision making Centralized, decentralized
Product offering Standard and coordinated product offering in
different markets or uncoordinated product
offering in different markets adapted to the
local conditions & preferences
Sources of finance Ownership capital or debt-financed, domestic
funds or financed through FDI
Listing on the stock exchange Listed or unlisted