Organizational Structure

An organizational structure is a mostly hierarchical concept of subordination of entities that

collaborate and contribute to serve one common aim.

Organizations are a variant of clustered entities. The structure of an organization is

usually set up in many styles, dependent on their objectives and ambience. The structure of an

organization will determine the modes in which it shall operate and will perform.

Organizational structure allows the expressed allocation of responsibilities for different

functions and processes to different entities. Ordinary description of such entities is as branch,

site, department, work groups and single people. Contracting of individuals in an organizational

structure normally is under timely limited work contracts or work orders or under timely

unlimited employment contracts or program orders.

An organizational structure defines how job tasks are formally divided, grouped, and

coordinated. There are six key elements that managers must consider when they design their

organization’s structure. There are:

1. Work specialization

2. Departmentalization

3. Chain of command

4. Span of control

5. Centralization and decentralization

6. Formalization
1. Work specialization

Work specialization is the degree to which tasks in the organization are subdivided into separate

jobs. Early in the twentieth century, Henry Ford became rich and famous by building

automobiles on an assembly line. Every Ford worker was assigned a specific repetitive task. For

instance, one person would just put on the right-front wheel and someone else would install the

right –front door. By breaking jobs up into small standardized tasks, this could be performed

over and over again. Ford was able to produce cars at the rate of one every 10 seconds, while

using employees who had relatively limited skills.

Ford demonstrated that work can be performed more efficiently, if employees are

allowed to specialize. Today we use the term work specialization or division of labor, to

describe the degree to which activities in the organization are subdivided into separate jobs. The

essence of work specialization is that rather than an entire job being done by one individual, it is

broken down into a number of steps, with each step being completed by a separate individual. In

essence, individuals specialize in doing part of an activity rather than the entire activity.

Most managers today see work specialization as: neither obsolete nor an unending source

of increased productivity. Rather, managers recognize the economics it provides in certain types

of jobs and the problems it creates when it’s carried too far. You’ll find, for example, high work

specialization being used by McDonald’s to efficiently make and sell hamburgers and fries, and

by medical specialists in most health maintenance organizations. On the other hand, companies

like Saturn Corporation have had success by broadening the scope of jobs and reducing

specialization.
2. Departmentalization

Once you’ve divided jobs up through work specialization, you need to group these jobs together

so that common tasks can be coordinated. The basis on which jobs are grouped to coordinate

common tasks is called departmentalization.

One of the most popular ways to group activities is by functions performed. A

manufacturing manager might organize a plant by separating engineering, accounting,

manufacturing, personnel, and supply specialists into common departments. The major

advantage top this type of grouping is obtaining efficiencies from putting like specialists

together. Functional departmentalization seeks to achieve economies of scale by placing

employees with common skills and knowledge into common units.

Jobs can also be departmentalized by the type of product produced by organization. The

major advantage top this type of grouping is increased accountability by placing all activities

related to the product are under the direction of one manager. If an organization’s activities are

service rather than product-related, each service would be autonomously grouped.

Another way to departmentalize is on the basis of geography or territory. If an

organization’s customers are scattered over a large geographic area and have similar needs based

on their location, then this form of departmentalization can be available. Since each process

requires different skills, process departmentalization enables the homogenous categorization of

activities. Finally, jobs may be grouped according to the type of customer served by the

organization. While many organizations combine these methods, two are gaining popularity:

customer departmentalization and cross-functional teams.

3. Chain of command

An unbroken line of authority extending from the top to the bottom of an organization to the

lowest echelon, the chain of command clarifies who reports to whom. It answers questions for

employees such as “To whom do I go if I have a problem?” and “To whom am I responsible?”

You can’t discuss the chain of command without discussing two complementary

concepts: authority and unity of command. Authority refers to the rights inherent in a managerial

position to give orders and expect them to be obeyed. To facilitate coordination, each managerial

position is given a place in the chain of command, and each manager is given a degree of

authority in order to meet his or her responsibilities. The unity of command principle helps

preserve the concept of an unbroken line of authority. It states that a worker should have only

one person to whom the person is directly responsible. These two concepts are affected by

computer networks and employee empowerment.

4. Span of control

How many employees can a manager efficiently and effectively direct? The answer to this

question will determine the number of levels and managers that an organization has. All things

are being equal, the wider or larger the span, the more efficient the organization.

Narrow or small spans have their advocates. By keeping the spans of control to five or six

employees, a manager can maintain close control. But narrow span have three major drawbacks:

firstly, they require more managers and are more costly. Secondly, they make vertical

communication more complex. Thirdly, narrow spans of control encourage overly tight

supervision and discourage employee autonomy.

 Wide spans of control reduce costs, cut overhead, speed up decision making, increase

flexibility, get closer to customers, and empower employees. However, to ensure that

performance doesn’t suffer because of these wider spans, organizations have been investing

heavily in employee training. Managers recognize that they can handle a wider span when

employees know their jobs inside and out or can turn to their coworkers when they have

questions.

5. Centralization and decentralization

In some organizations, top managers make all the decisions. Lower-level managers merely carry

out top management’s directives. At the other extreme, there are organizations in which decision

making is pushed down to the managers who are closest to the action. The former organizations

are highly centralized; the latter are decentralized.

The term centralization refers to the degree to which decision making is concentrated at a single

point in the organization. Whereas decentralization is the extent to which authority and decision

making are spread throughout all levels of an organization rather than being reserved for top
management. Organizations today are becoming more decentralized to solve problems more

quickly and to obtain increased employee input and commitment to organizational goals.

6. Formalization

The term formalization refers to the degree to which jobs within an organization are

standardized. If the job is highly formalized, then the jobs are characterized by explicit job

descriptions, lots of organizational rules, clearly defined procedures covering work processes in

organization in which there is high formalization.

When formalization is low, job behaviors are relatively non-programmed and employees

have a great deal of freedom to exercise discretion in their work. Because of discretion on the job

is inversely related to the amount of behavior in that job that is preprogrammed by the

organization, the greater the standardization, the less input the employee has into low the work is

to be done. Standardization not only eliminates the possibility of employees engaging in

alternative behaviors but it even removes the need for employees to consider alternatives.

Common Organizational Designs

We now turn to describing three of the most common organizational designs found in use:
 The simple structure

 The bureaucracy

 Matrix structure

 The Simple Structure:

A structure characterized by a low degree of departmentalization, wide spans of control,

authority centralized in a single person, and little formalization. The simple structure is a “flat”

organization; it usually has only two or three vertical levels, a loose body of employees, and one

individual in whom the decision-making authority id centralized. This fast, flexible structure is

inexpensive to maintain and promotes clear accountability. However, as the organization grows,

low formalization and high centralization can cause information overload at the top. And, this

structure is risky because everything depends on one person. One heart attack can destroy the

organization’s information and decision-making center.

 The Bureaucracy:

Bureaucratic structures have a certain degree of standardization. They are better suited for more

complex or larger scale organizations. They usually adopt a tall structure. The bureaucracy is

characterized by highly specialized operating tasks achieved through specialization, much

formalized rules and regulations, tasks that are grouped into functional departments, centralized

authority, narrow spans of control, and decision making that follows the chain-of-command.

 Matrix Structure:

The matrix structure assigns functional specialists to interdisciplinary teams that are supervised

by project leaders. This structure combines product departmentalization and functional

departmentalization. Because workers in the matrix have two bosses—their functional

department managers and their product managers—the matrix breaks the unity-of-command

concept. The matrix has strong points: it facilitates coordination between multiple projects that

are complex and interdependent, and it efficiently allocates specialists. The matrix also has

several weaknesses: it can create confusion, foster power struggles, and increase employee

stress. So, the matrix has met with mixed success.

New Designs Options

The Team Structure:

Management can focus its coordination efforts by using a team structure. The primary

characteristics of the team structure are that it breaks down departmental barriers, flattens the

organization, decentralizes decision making, empowers employees, promotes accountability, and

requires employees to be generalists as well as specialists.

In smaller companies, the team structure can define the entire organization. Every one of

Whole Foods Market' stores, the largest natural-foods grocer in the US developing a focused

strategy, is an autonomous profit centre composed of an average of 10 self-managed teams,

while team leaders in each store and each region are also a team. More often, especially in larger

organizations, the team structure complements what is typically a bureaucracy. Such an

arrangement allows the organization to achieve the efficiency of standardization while gaining

flexibility. Xerox, Motorola, and DaimlerChrysler are all among the companies that actively use

teams to perform tasks.

The Virtual Organization:

Sometimes called network or modular, virtual organizations stay small and outsource major

functions. This highly centralized structure limits departmentalization. Because individuals and

small companies unite on a project-by-project basis, each project can be staffed according to its

demands. In addition, bureaucratic overhead and long-term risks and costs are minimized.

Virtual organizations are flexible, but they limit management’s control over key parts of its

business.

The figure above shows a virtual organization. Management outsources all of the primary

functions of the business. The core of the organization is a small group of executives. They

oversee directly any activities that are done in-house and coordinate relationships (usually

contracts) with other organizations that manufacture, distribute, and perform other crucial

functions for the virtual organization.

The Boundary less Organization:

This method minimizes the chain of command, limits spans of control, and replaces departments

with empowered teams. Cross-hierarchical teams, participative decision making, and 360-degree
performance appraisals dismantle vertical boundaries. Cross-functional teams, project-driven

activities, lateral transfers, and job rotation break down horizontal barriers. Globalization,

strategic alliances, customer-organization linkages, and telecommuting overcome external

barriers. The boundary less organization is made possible by networked computers that expedite

communication across intra-organizational and inter-organizational boundaries. The company

works closely with suppliers by providing technical assistance, leasing them equipment, and

giving advice. It also refined the role of the customer, putting responsibility on them to cart the

furniture home and assemble it themselves. As a result, the company can offer lower prices,

which supports its low-cost focused strategy.

Why do Structures Differ?

This described a variety of organizational designs ranging from the highly structured and

standardized bureaucracy to the loose and amorphous boundary less organization. The other

designs we discussed tend to exist someone between these two extremes models of

organizational design i.e. Mechanistic and Organic model.

Mechanistic Versus Organic Structures

Rigid and tightly controlled, the mechanistic organization is characterized by high

specialization, extensive departmentalization, narrow spans of control, high formalization,

downward communication, high centralization, and little participation by low-level members in

decision making. Jobs are standardized, simple, and routine. There is also strict adherence to the

chain of command. In its ideal form, the mechanistic organization is an “efficiency machine,”

well lubricated by rules, regulations, and routines.

 The organic organization is a direct contrast to the mechanistic form. It is characterized

by a flat structure, flexibility, use of cross-functional teams, adaptability, comprehensive

information networking, and decentralization. Rather than having standardized jobs and

regulations, the organic structure’s flexibility allows it to change rapidly as needs require. While

there is a division of labor, jobs are not standardized, and employees are well-trained and

empowered to make job-related decisions. The net effect is that workers need a minimal degree

of formal rules and little direct supervision.

Strategy:

The structure that an organization selects to achieve its objectives is based on strategy. Because

objectives are derived from organization’s overall strategy, it’s only logical that strategy and

structure should be closely linked. More specifically, structure should follow strategy. If

management makes a significant change in its organization’s strategy, the structure will need to

be modified to accommodate and support this change. Most current strategy frameworks are

based on three dimensions: innovation, cost minimization, and imitation and the structure design

that works best with each.

 To what degree does an organization introduce major new products or services? An

innovation strategy does not mean a strategy merely for simple or cosmetic changes from

previous offerings but rather one for meaningful and unique innovation. It pursues unique,

meaningful change.

An organization that is pursuing a Cost-minimization strategy tightly controls costs,

refrains from incurring unnecessary innovation or marketing expenses, and cuts prices in selling

a basic products.

Organizations following an Imitation strategy try to capitalize on the best of both of the

previous strategies. A strategy that seeks to move into new products or new markets only after

their viability has already been proven. It combines the previous strategies by moving into

markets after innovators have successfully penetrated them and by copying their ideas.

Organization Size:

There is considered evidence to support the idea that an organization’s size significantly affects

its structure. For instance, large organizations those that typically employees 2,000 or more

people tend to have more specialization, more departmentalization, more vertical levels, and

more rules and regulations than do smaller organizations. However, the relationship isn’t linear.

Rather, size affects the organizational structure at a decreasing rate and becomes less important

as an organization expands.

Technology:

Organizations use technology to transform inputs into outputs. The knowledge, tools and

procedures used by an organization to perform its major functions. Clearly, the technology
employed by a given organization is closely linked to the work it performs and the major tasks it

seeks to accomplish. Technology plays an important role in shaping both the design and

performance of many organizations.

Perhaps the best known study on the effect of technology is one conducted in England

during the 1950s by Woodward. She segmented them into three categories based on the sizes of

their production runs. Category one, unit production, included unit or small-batch production

that manufactured custom products, such as tailor-made suits. Category two, mass production,

included large-batch or mass-production manufacturers, such as automobile makers. Category

three, process production, included continuous-process production, such as oil refiners. She

reached two conclusions:

(1) Distinct relationships exist between a firm’s technology classification and its structure;

(2) Organizational effectiveness is contingent upon “fit” between technology and structure.

Subsequent studies have demonstrated that organizational structures adapt to technology.

Furthermore, the degree of routineness differentiates technologies. So, technologies tend toward

either routine or non-routine activities. The former are characterized by standard technologies,

the latter by customized activities.

External Environment:

The external environment refers to all factors and forces beyond an organization’s boundary that

have the potential to affect it and its component parts. Because an organization’s environment

consists of institutions or forces outside of the organization that can affect its organizational

performance, environmental uncertainty greatly influences structure. In fact, management will

attempt to minimize uncertainty by adjusting the organization’s structure. These typically include

suppliers, customers, competitors, government regulatory agencies, public pressure groups, and

the like.

External environments vary with respect to their complexity, uncertainty, stability and

munificence. They affect the structural complexity of organizations and the prevalence of

boundary-spanning activities within them. In addition, external environment shapes general

management approach and, through their impacts on strategy, overall organizational

performance.

Some organizations face relatively static environments few forces in their environment

are changing. There are, for example, no new competitors, no new technological breakthroughs

by current competitors, or little activity by public pressure groups to influence the organization.

Other organizations face very dynamics environments rapidly changing government regulations

affecting their business, new competitors, difficulties in acquiring raw materials, continually

changing product preferences by customers, and so on. Static environments create significantly

less uncertainty for managers than do dynamic one. And because uncertainty is a threat to an

organization’s effectiveness, management will try to minimize it. One way to reduce

environmental uncertainty is through adjustments in the organization’s structure.

Organizations do not simply respond to the external environment. In addition, they often

take steps to affect it. This can involve political action, the negotiation of long term contracts,

mergers, and public relations activities.

 Organizational Structure and Employee Behavior

The evidence linking organizational structures to employee performance and satisfaction leads to

a pretty clear conclusion. Not everyone prefers the freedom and flexibility of organic structures.

Some people are most productive and satisfied when work tasks are standardized and ambiguity

is minimized .i.e., in mechanistic structures. So any discussion of the effect of organizational

designs on employee behavior has to address individual differences. To illustrate this point, let’s

consider employee performances for work specialization, span of control, and centralization.

The evidence generally indicates that work specialization contributes to higher

employee productivity but at the price of reduced job satisfaction. In addition, specialization is

not an unending source of higher productivity. Problems start to surface and productivity suffers

when the human diseconomies of doing repetitive, narrow tasks overtake the economies of

specialization. As the workforce becomes more educated, the point at which productivity

declines seems to be reached more quickly than in the past. But it would be naïve to ignore the

segment of the workforce which still prefers highly specialized jobs.

Research indicates that it is probably safe to say there is no evidence to support a

relationship between span of control and employee performance. While it is attractive to argue

that wider spans of control lead to higher performance, it is impossible to state that any particular

span of control is best for producing high performance and satisfaction among employees.

However, some evidence suggests that a manager’s job satisfaction increases as the number of

workers he or she supervises increases.

Fairly strong evidence links centralization and job satisfaction. Organizations that are less

centralized have a greater amount of participative decision making, and evidence indicates that
participation is positively related to satisfaction on the job. But again, individual differences

surface. For example, employees who have low self-esteem place a fairly high value on shared

decision making since they will not be held solely responsible for their action.

Conclusion is that to maximize employ performance and satisfaction, individual

differences, such as experience, personality, and the work task, should be taken into account. In

addition, national culture influences the preferences that structure, so it, too, need to be

considered. So we need to consider cultural differences along with individual differences when

making predictions on how structure will affect employee performance and satisfaction.
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