Organization

Structure & Design

 Organizations strive to be effective through various
structural configurations

 Restructuring and reorganizing an integral part of any

organization’s activities

 Structural changes reflect changes in organization's

strategies and / or a response to change in
environment, culture, technology, size, life-cycle stages
‘Superstructure’ :
 depicted by the organization chart depicting
departments and important reporting relationships in
the organization
 hierarchy

‘Infrastructure’ :
- roles performed by various organizational members
 Extent of formal authority, extent of centralization, extent of
formalization, extent of specialization
 Essential for ensuring reliability and quality of work, accountability
of various role performers
Organization structure :
- the formal decision-making framework by
which job tasks are divided, grouped, and
coordinated.
Elements of Structure

Complexity Formalisation

Centralisation
Structural configurations among
organizations would differ mainly
based on differences in degrees of
these three dimensions.
 Complexity
 Refers to the degree of differentiation that exists within an
organization.

 Horizontal differentiation – degree of differentiation between units

based on orientation of members, nature of tasks, qualifications (e.g.
specialization, departmentation)

 Vertical differentiation – depth in structure, number in hierarchical

levels

 Spatial differentiation – geographical dispersion of organization’s

offices, plants, personnel

Greater the differentiation, greater the complexity within the

organization.
 Greater need and difficulty of coordinating activities of diverse
groups of employees
Horizontal differentiation
 Specialization: particular grouping of activities performed by an
individual
 Functional : jobs broken down into simple and repetitive
tasks (division of labour)

 Social : individuals are specialized. Possess professional skills

that cannot be routinized.

Greater the specialization, greater the complexity

 Requires more sophisticated and expensive methods for co-ordination
and control

 Departmentation: grouping of specialists; may be based on

simple numbers, function, product or service, client, geography, or process.
Greater the departmentation, greater the complexity
 Vertical differentiation
 A response to an increase in horizontal
differentiation
 Span of control: number of subordinates that a manager
can effectively direct
 Smaller the span, taller the organization

16 1

64 8

256 64

1024 512

4096 4096

Span : 4 Span : 8
 Choosing the span: 4-8 at upper levels,
8-15 or more at lower levels

 Problem with organizational levels:

 Expensive. As levels , effort and money  for
managing the additional staff.
 Complicates communication through omission, filtering
& misinterpretation as information passes up and down
the line.
 Complicates planning and control.
 Narrow vs. Wide spans:
Advantages and Disadvantages
Organizations with Narrow Spans : Tall structures

Advantages Disadvantages
Close supervision Superiors tend to get too involved in
subordinates’ work
Close control Many levels of management
Fast communication between High costs due to many levels
subordinates and superiors
Excessive distance between lowest level
and top level

Organizations with Wide Spans: Narrow Structures

Advantages Disadvantages
Superiors are forced to delegate Tendency of overloaded superiors to
become decision bottlenecks

Clear policies must be made Danger of superior’s loss of control

Subordinates must be carefully selected Requires exceptional quality of managers

 Factors influencing span of management
Factor Narrow spans (great deal of time spent Wide spans (less time spent with
with subordinates) subordinates)
Training of Little or no training Thorough training of subordinates
subordinates
Clarity of Inadequate or unclear authority Clear delegation to undertake well-defined
delegation of delegation tasks
authority
Clarity of plans Unclear plans for non-repetitive Well-defined plans for repetitive operations
operations
Use of objective Non-verifiable objectives and standards Verifiable objectives used as standards
standards
Rate of change Fast changes in internal and external Slow changes in external and internal
environments environments
Communication Use of poor or inappropriate Use of appropriate techniques, such as
techniques communication techniques, including proper organization structure, written and
vague instructions oral communication
Incompetent and untrained manager Competent and trained manager
Amount of Complex task Simple task
personal contact
needed Subordinates’ unwillingness to assume Subordinates’ willingness to assume
responsibility and reasonable risks responsibility and reasonable risks
Immature subordinates Mature subordinates
Vertical vs. Horizontal Structures: Efficiency vs. Learning

Vertical Organization designed Horizontal Organization

for efficiency designed for learning

Horizontal structure is dominant:

• Shared tasks, empowerment
• Relaxed hierarchy, few rules
• Horizontal communication, face
to face
• Many teams and task forces
• Decentralized decision-making

Dominant
Structural
Approach

Vertical structure is dominant:

• Specialized tasks
• Strict hierarchy, many rules
• Vertical communication and reporting
systems
• Few teams, task forces, or integrators
• Centralized decision-making
 Importance of complexity
 Greater the complexity, greater the need for
effective communication, coordination and
control devices.

 Hence, creates different demands and

requirements on managers’ time.

 Paradox : economies created by complexity

counterbalanced by the increased burden of
keeping organization together
 Formalization
 Refers to the degree to which jobs within the organization are
standardized.

 Individual discretion on job inversely proportional to extent of

formalization.

 Formalization can be explicit (written), or implicit (unwritten…perceived)

 Degree of formalization can vary among and within organizations, and

type of jobs (e.g. production jobs more formalized than research, in same
organization)

 Greater the professionalization of the job, lesser the likelihood of it being

highly formalized

 Formalization inversely related to level in hierarchy.

Importance of formalization
 Standardization reduces variability in behavior

 Standardization promotes coordination

 Formalization  economy

 Formalization :externalized behavior;

Professionalization : internalized behavior
Formalization techniques

 Selection

 Role requirements

 Rules, procedures, policies

 Training

 Rituals
Formalization & Complexity

 Strong association between specialization,

standardization and formalization

 Higher functional specialization

 High formalization

 Higher social specialization

 low formalization
Centralization

Refers to the degree to which the formal

authority to make discretionary choices is
concentrated in an individual, unit, or level
(usually high in the organization)
Importance of the centralization-decentralization
issue
 Decentralization helps counter information overload

 Decentralization facilitates speedy action and response

 Decentralization can provide more input into decision-making

 Decentralization motivates employees

 Decentralization provides training opportunities for lower level

managers

 Centralization benefits whole organization, not any special-

interest group

 Some activities are done more efficiently when centralized.

 Situational factors will determine the “right” amount of

centralization required
 Centralization, Complexity and
Formalization
 Centralization and Complexity
 Inversely related

 Centralization and Formalization

 Ambiguous relationship
CONTINGENCY VARIABLES AFFECTING
ORGANISATIONAL STRUCTURE

Strategy

Environment Technology

Structure
Culture • Formalization
• Complexity Size
• Centralization
 Environment -Structure relationship

 Systems perspective

 Different levels of environmental

uncertainty

 Structural redesign to control

environmental uncertainty
 Open systems
 Recognizes dynamic interaction of system
with its environment

Environment

System

Transformation
Inputs Outputs
process

Environment
 Environment : Everything outside the
organization’s boundaries
 General environment : conditions that may have an impact
on the organization,but their relevance is not overtly clear .

 Specific environment : that part of the environment that is

directly relevant to the organization in achieving its goals.
(strategic constituencies)
 Varies depending on domain chosen by organization.

 Domain: the claim that the organization stakes out for itself
with respect to the range of products or services offered and
markets served.

 The domain of an organization determines its

specific environment.
The organization and its specific environment

Customers
Suppliers

Public
Pressure
groups

Organization Competitors

Trade
associations

Government
Labour
unions
 Environment – Structure relationship

 A dynamic environment has more influence on structure than a

static environment does

 Environment and Complexity

  environmental uncertainty  complexity

 Environment and Formalization

 Low formalization for boundary activities

 Environment and Centralization

  environmental complexity, decentralization

 However, extremely hostile environment drives organizations

to temporarily centralize their structures (e.g wildcat strike by

employees, unions)
 Strategies for managing environment
 Resource dependence theory

1. Domain choice
 Changing domain of operation to change operating environment

2. Recruitment
 Based on professional competence, experience in operating in similar
environment

3. Vertical Integration
 To extend organization's control over input and output ends of the
environment and reduce supply and distribution uncertainties

4. Buffering
 Cost-effective alternative to vertical integration. e.g. maintaining high
inventories of input (raw materials, spare parts) and output (finished
goods)

5. Smoothening
 To counter environments where demands are predictable but extreme. By
 Strategies for managing environment (contd.)

6. Advertising
 To create brand loyalty / lure away customers / reduce competitive
pressures / stabilizing demand

7. Contracting
 Long-term contracts with input / output agencies to protect
organization from input / output related uncertainties

8. Mergers / Acquisitions / Strategic alliances

 Horizontal integrations

9. Lobbying
 Type of political behavior. Attempting to get favorable treatment
from government and regulatory bodies: often through
consortiums, business forums etc.
 Strategy-Structure relationship

Strategic dimension Characteristic features Structural design

Innovation Meaningful and unique Flexible structure
strategy / innovations Low routinization and mechanization
prospector Decentralization
strategy
Low in formalization

Defender Strategy Turf protection, focus on More functional specialisation

cost, efficiency, limited Centralized control
product range Elaborate formal hierarchy for communication

Analyser strategy “Second mover” Mix of standardization and adaptiveness

Moderate centralization

Marketing Advertising, market Flexible structure

differentiation segmentation, prestige Decentralization
pricing Low in formalization

Breadth strategy Scope of market, variety of Divisional Structure

customers, geographic Decentralized control
range, number of products
Cost-control No unnecessary marketing More functional specialisation
strategy / cost- or innovation expenses, Centralized control
leadership tight control on expenses Elaborate formal hierarchy for communication
strategy
 Technology and Structure

 Technology and Complexity

 Routine technology low complexity
 Non-routine technology high complexity
 Technology and Formalization
 Routine technology high formalization
 Non-routine technology Low formalization
 Technology and Centralization
 Routine technology high centralization, if
formalization is low.
 Routine technology decentralization, if
formalization is high.
 Non-Routine technology decentralization
 Size – Structure relationship

 Size – complexity
 Size –vertical differentiation

 Size – spatial differentiation

 Size – Formalization
 Direct surveillance vs formalized regulations

 size, formalization

 Size – Centralization
 Organizational Configurations
 Defined work activities

 Reporting relationships
 Simple
 flat hierarchy, single head for coordination
Organizational Configurations
(contd.)
 Functional

 Divisional
 Self-contained autonomous unit groups, coordinated by a
HQ unit

 Matrix
 Multiple reporting relationships

 Ad Hoc
 High horizontal diff, low vertical diff, high spatial diff, low
forml, decentralization, flexibility
 Bureaucracy
Organizational Configurations
(contd.)
 Virtual
 High spatial diff

 International
 Global versions of functional, divisional, matrix