Organization Theory

Lecture -2

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 Questions, Suggestions & Recap
1. There is no question and suggestion form any students as yet. I would
suggest that students may jot down questions and if we find time raise it
at the end of the lecture or mail it to the teaching assistant. This will
make the course more meaningful for you & me.
2. We have upto now understood the requirement of an organization for
any activity even if these organizations are family run, section 8 or
multinational companies. We have discussed about the types of
organization structures, the design and the role & responsibilities of
various level in the organizations.
3. Now we will go forward to understand how the organization analysis its
business environment and structures its vision, mission & goal.

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 Dimensions of Organization Design

ORGANIZATIONAL DESIGN MATRIX

Structural Dimensions Contingency Factor

Formalization Size
Organizational
Specialization technology
Hierarchy of Authority Environment
Centralization Goals and strategy
Professionalism Culture
Personnel Ratio

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 Organization Theory

• Current Challenges
• Globalization
• Intense Competition
• Ethics and Social Responsibility
• Diversity
• Speed of Responsiveness
• Workplace Post Covid
• Customer Connect & Satisfaction

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 Organization Structure

• Formal Reporting Relationships

• Number of levels
• Span of control
• Grouping of Individuals
• Creation of departments
• Design of Systems
• Communication, coordination, and integration of efforts

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Organization were required then and now for Performance
and Effectiveness Outcomes

• Efficiency – amount of resources used to achieve the organization’s

goals.
• Effectiveness – the degree to which an organization achieves its
goals.
• Stakeholder Approach – balancing the needs of groups in and
outside of the organization that has a stake in the organization’s
performance.

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 Importance of Organizations
• Organizations are a means to an end.
• The corporation has played a significant role in the last 100 years.
• Produce goods and services efficiently.
• Facilitate innovation.
• Adapt to and influence a changing environment.
• Create value for owners, customers, and employees.
• Accommodate ongoing challenges of diversity, ethics, and the
motivation and coordination of employees.

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The Importance of Organizations

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Interacting Structural Dimensions of Design and
Contingency Factors

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 Type of Organization and their Structure

- Hierarchical Organization Structure

- Functional Organization Structure
- Horizontal or Flat Organization Structure
- Divisional Organization Structure (market-based, product-based,
geographic)
- Matrix Organization Structure
- Team-based Organization Structure
- Network Organization Structure

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 Hierarchical Organization Structure
The pyramid-shaped organizational chart is known as a hierarchical org
chart. It’s the most common type of organizational structure––the chain of
command goes from the top (e.g., the CEO or manager) down (e.g., entry-
level and low-level employees) and each employee has a supervisor. 
Pros    
• Better defines levels of authority and responsibility
• Shows who each person reports to or who to talk to about specific projects
• Motivates employees with clear career paths and chances for promotion     
• Gives each employee a specialty     
• Creates camaraderie between employees within the same department

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 Hierarchical Organization Structure
Cons
• Can slow down innovation or important changes due to increased
bureaucracy
• Can cause employees to act in interest of the department instead of the
company as a whole
• Can make lower-level employees feel like they have less ownership and
can’t express their ideas for the company

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Typical Hierarchical Organization

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 Horizontal and Flat Organization Structure
A horizontal or flat organizational structure fits companies with few levels
between upper management and staff-level employees. Many start-up
businesses use a horizontal org structure before they grow large enough to
build out different departments, but some organizations maintain this
structure since it encourages less supervision and more involvement from all
employees.
Pros    
• Gives employees more responsibility
• Fosters more open communication    
• Improves coordination and speed of implementing new ideas    

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 Horizontal and Flat Organization Structure
Cons
• Can create confusion since employees do not have a clear supervisor to
report to
• Can produce employees with more generalized skills and knowledge
• Can be difficult to maintain once the company grows beyond start-up status

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Horizontal: Strength & Weakness

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 Functional Organization Structure
Similar to a hierarchical organizational structure, a functional org structure
starts with positions with the highest levels of responsibility at the top and
goes down from there. Primarily, though, employees are organized according
to their specific skills and their corresponding function in the company. Each
separate department is managed independently. 
Pros
• Allows employees to focus on their role
• Encourages specialization
• Help teams and departments feel self-determined
• Is easily scalable in any sized company

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 Functional Organization Structure
Cons
• Can create silos within an organization
• Hampers interdepartmental communication
• Obscures processes and strategies for different markets or products in a
company

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 Divisional Organization Structure
(market-based, product-based, geographic)
In divisional organizational structures, a company’s divisions have control
over their own resources, essentially operating like their own company
within the larger organization. Each division can have its own marketing
team, sales team, IT team, etc. This structure works well for large companies
as it empowers the various divisions to make decisions without everyone
having to report to just a few executives. 
Depending on your organization’s focus, there’s a few variations to consider.
Market-based divisional org structure
Divisions are separated by market, industry, or customer type. A large
consumer goods company, like Target or Walmart, might separate its durable
goods (clothing, electronics, furniture, etc.) from its food or logistics
divisions.

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 Functional Organization Structure
Product-based divisional org structure
Divisions are separated by product line. For example, a tech company
might have a division dedicated to its cloud offerings, while the rest of
the divisions focus on the different software offerings e.g., Adobe and
its creative suite of Illustrator, Photoshop, InDesign, etc

Geographic divisional org structure

Divisions are separated by region, territories, or districts, offering more
effective localization and logistics. Companies might establish satellite
offices across the country or the globe in order to stay close to their
customers.

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 Functional Organization Structure
Pros
• Helps large companies stay flexible 
• Allows for a quicker response to industry changes or customer needs
• Promotes independence, autonomy, and a customized approach
Cons
• Can easily lead to duplicate resources
• Can mean muddled or insufficient communication between the
headquarters and its divisions
• Can result in a company competing with itself.

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 Divisional Structure
✔Product structure or strategic business units
✔Divisions organized according to products, services, product groups
✔Good for achieving coordination across functional departments
✔Suited for fast change
✔Loses economies of scale
✔Lacks technical specialization

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 Conditional for Matrix Structure

• Need for shared and flexible use of people across products

• Two or more critical outputs like new products and technical
knowledge
• The environment is complex and uncertain
• Resource sharing by sister organizations

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 Matrix Structure
✔ Multi-focused with strong horizontal linkage
✔ Conditions for Matrix:
1. Share resources across the organization
2. Two or more critical outputs required: products and technical
knowledge
3. Environment is complex and uncertain
✔ Allows organization to meet dual demands
✔ Largest weakness is that employees have two bosses and conflicting
demands

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 Matrix Organization Structure
A matrix organizational chart looks like a grid, and it shows cross-functional
teams at form for special projects. For example, an engineer may regularly
belong to the engineering department (led by an engineering director) but work
on a temporary project (led by a project manager). The matrix org chart accounts
for both of these roles and reporting relationships.
Pros
• Allows supervisors to easily choose individuals by the needs of a project
• Gives a more dynamic view of the organization
• Encourages employees to use their skills in various capacities aside from their
original roles
Cons
• Presents a conflict between department managers and project managers
• Can change more frequently than other organizational.
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Matrix: Strength & Weakness

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 Network Structure
(Virtual Networks and Outsourcing)
✔Extend horizontal coordination beyond the boundaries of the
organization
✔Most common strategy is outsourcing
• Contract out certain tasks/functions
✔Virtual or modular structures subcontract most of its major functions
to separate companies
✔The virtual network organization serves as a central hub with
contracted experts

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 Network Organization Structure
These days, few businesses have all their services under one roof, and
juggling the multitudes of vendors, subcontractors, freelancers, offsite
locations, and satellite offices can get confusing. A network organizational
structure makes sense of the spread of resources. It can also describe an
internal structure that focuses more on open communication and
relationships rather than hierarchy.
Pros
• Visualizes the complex web of onsite and offsite relationships in companies
• Allows companies to be more flexible and agile
• Give more power to all employees to collaborate, take initiative, and make
decisions
• Helps employees and stakeholders understand workflows and processes

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 Network Organization Structure
Cons
• Can quickly become overly complex when dealing with lots of offsite
processes
• Can make it more difficult for employees to know who has final say
• Consider the needs of your organization, including the company culture
that you want to develop, and choose one of these organizational structures.

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Virtual Network Example
(Covid Times)

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Virtual Network Strength and Weakness

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 Hybrid Structure
(Family Run Service Organization)
✔Combination of various structure approaches
✔Tailored to specific needs
✔Often used in rapidly changing environments
✔Greater flexibility

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Best Organization Structure

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Thank You

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