Six Key Elements in Organizational Design

Six Key Elements in Organizational Design
Organizational design is engaged when managers develop or change an organization's structure. Organizational
Design is a process that involves decisions about the following six key elements:
I. Work Specialization
Describes the degree to which tasks in an organization are divided into separate jobs. The main idea of this
organizational design is that an entire job is not done by one individual. It is broken down into steps, and a different
person completes each step. Individual employees specialize in doing part of an activity rather than the entire activity.
II. Departmentalization
It is the basis by which jobs are grouped together. For instance every organization has its own specific way of
classifying and grouping work activities.
There are five common forms of departmentalization:
1.
Functional Departmentalization. As shown in the Figure 2-1, it groups jobs by functions performed. It can
be used in all kinds of organizations; it depends on the goals each of them wants to achieve.
Figure 2-1Functional Departmentalization example
Different aspects on this type of departmentalization:

Positive Aspects
o
2.
Efficiencies from
putting together similar
specialties and people with
common skills, knowledge, and
orientations
Negative Aspects
o
Poor communication
across functional areas
Limited view of
organizational goals
Coordination within
functional area
In-depth specialization
Product Departmentalization. It groups jobs by product line. Each manager is responsible of an area
within the organization depending of his/her specialization
Figure 2: Product Departmentalization example
Source: Bombardier Annual Report

Positive Aspects
Allows specialization in
particular products and services
Managers can become

experts in their industry
3.
Negative Aspects
Duplication of functions
o
o
Limited view of
Closer to customers
Geographical Departmentalization. It groups jobs on the basis of territory or geography.

Figure 2-3: Geographical Departmentalization example

Positive Aspects
More effective and

efficient handling of specific
regional issues that arise
Serve needs of unique
Negative Aspects
o
o
Can feel isolated from
other organizational areas
geographic markets better
4.
Process Departmentalization. It groups on the basis of product or customer flow.

Figure 2-4: Process Departmentalization example

Positive Aspects
5.
More efficient flow of

work activities
Negative Aspects
Can only be used with

certain types of products
Customer Departmentalization. It groups jobs on the basis of common customers

Figure 2-5: Customer Departmentalization example

Positive Aspects
o
Customers' needs and

problems can be met by
specialists
Negative Aspects
o
o
Limited view of
III. Chain of command

It is defined as a continuous line of authority that extends from upper organizational levels to the lowest levels and
clarifies who reports to whom. There are three important concepts attached to this theory:
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 to perform any assigned duties.
Unity of command: The management principle that each person should report to only one manager.
IV. Span of Control

It is important to a large degree because it determines the number of levels and managers an organization has. Also,
determines the number of employees a manager can efficiently and effectively manage.
V. Centralization and Decentralization

More Centralization
Environment is stable
Lower-level managers are not as

capable or experienced at making
decisions as upper-level
managers.
More Decentralization
Environment is complex,
uncertain.
Lower-level managers are

capable and experienced at
making decisions.
Lower-level managers do not want

to have say in decisions
Lower-level managers want a

voice in decisions.
Decisions are significant.
Decisions are relatively minor.
Organization is facing a crisis or

the risk of company failure.
Corporate culture is open to

allowing managers to have a say
in what happens.
Company is large.
Effective implementation of
company strategies depends on
managers retaining say over what
happens.
Company is geographically
dispersed.
Effective implementation of
company strategies depends on
managers having involvement and
flexibility to make decisions
VI. Formalization
It refers to the degree to which jobs within the organization are standardized and the extent to which employee
behavior is guided by rules and procedures.

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Six Key Elements in Organizational Design

Different aspects on this type of departmentalization:

Different aspects on this type of departmentalization:

Managers can become

Geographical Departmentalization. It groups jobs on the basis of territory or geography.

Different aspects on this type of departmentalization:

More effective and

geographic markets better

Process Departmentalization. It groups on the basis of product or customer flow.

Different aspects on this type of departmentalization:

More efficient flow of

Can only be used with

Customer Departmentalization. It groups jobs on the basis of common customers

Different aspects on this type of departmentalization:

Customers' needs and

III. Chain of command

Responsibility: The obligation to perform any assigned duties.

IV. Span of Control

V. Centralization and Decentralization

Lower-level managers are not as

Lower-level managers are

Lower-level managers do not want

Lower-level managers want a

Decisions are significant.

Decisions are relatively minor.

Organization is facing a crisis or

Corporate culture is open to

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