OB Chap 4
OB Chap 4
OB Chap 4
Organizational structure
Organizational structure aligns and relates parts of an organization, so it can achieve its
maximum performance. The structure chosen affects an organization's success in carrying out its
strategy and objectives. Leadership should understand the characteristics, benefits and limitations
of various organizational structures to assist in this strategic alignment.
Organizational structure is the method by which work flows through an organization. It allows
groups to work together within their individual functions to manage tasks. Traditional
organizational structures tend to be more formalized—with employees grouped by function
(such as finance or operations), region or product line. Less traditional structures are more
loosely woven and flexible, with the ability to respond quickly to changing business
environments.
Organizational structures have evolved since the 1800s. In the Industrial Revolution, individuals
were organized to add parts to the manufacture of the product moving down the assembly line.
Frederick Taylor's scientific management theory optimized the way tasks were performed, so
workers performed only one task in the most efficient way. In the 20th century, General Motors
pioneered a revolutionary organizational design in which each major division made its own cars.
These elements comprise an organizational chart and create the organizational structure itself.
➢ "Departmentation" refers to the way an organization structures its jobs to coordinate
work.
➢ "Span of control" means the number of individuals who report to a manager.
➢ "Chain of command" refers to a line of authority.
The company's strategy of managerial centralization or decentralization also influences
organizational structures.
➢ "Centralization," the degree to which decision-making authority is restricted to higher
levels of management, typically leads to a pyramid structure.
Centralization is generally recommended when conflicting goals and strategies among
operating units create a need for a uniform policy.
➢ "Decentralization," the degree to which lower levels of the hierarchy have decision-
making authority, typically leads to a leaner, flatter organization. Decentralization is
recommended when conflicting strategies, uncertainty or complexity require local
adaptability and decision-making.
These disadvantages can be exacerbated if the matrix goes beyond two-dimensional (e.g.,
employees report to two managers) to multidimensional (e.g., employees report to three or more
managers).
The matrix-structured organization also provides greater visibility, stronger governance and
more control in large, complex companies. It is also well suited for the development of business
areas and the coordination of complex processes with strong dependencies.
Matrix structures pose difficult challenges for professionals charged with ensuring equity and
fairness across the organization. Managers working in matrix structures should be prepared to
intervene via communication and training if the structure compromises these objectives.
Furthermore, leadership should monitor relationships between managers who share direct
reports. These relationships between an employee's managers are crucial to the success of a
matrix structure.
Under centralization, the important and key decisions are taken by the top management and the
other levels are implemented as per the directions of the top level.
For example, in a business concern, the father & son being the owners decide about the
important matters and all the rest of functions like product, finance, marketing, and personnel,
are carried out by the department heads and they have to act as per instruction and orders of the
two people. Therefore, in this case, decision-making power remain in the hands of father & son.
There is a saying that “Everything that increasing the role of subordinates is decentralization and
that decreases the role is centralization”. Decentralization is wider in scope and the subordinate’s
responsibility increase in this case. On the other hand, in delegation the managers remain
answerable even for the acts of subordinates to their superiors.
Implications of Decentralization
➢ There is less burden on the Chief Executive as in the case of centralization.
➢ In decentralization, the subordinates get a chance to decide and act independently which
develops skills and capabilities. This way the organization is able to process reserve of
talents in it.
➢ In decentralization, diversification and horizontal can be easily implanted.
➢ In decentralization, concern diversification of activities can place effectively since there
is more scope for creating new departments. Therefore, diversification growth is of a
degree.
➢ In decentralization structure, operations can be coordinated at divisional level which is
not possible in the centralization set up.
➢ In the case of decentralization structure, there is greater motivation and morale of the
employees since they get more independence to act and decide.
➢ In a decentralization structure, co-ordination to some extent is difficult to maintain as
there are lot many department divisions and authority is delegated to maximum possible
extent, i.e., to the bottom most level delegation reaches.
Centralization and decentralization are the categories by which the pattern of authority-
relationships becomes clear. The degree of centralization and de-centralization can be affected
by many factors like nature of operation, volume of profits, number of departments, size of a
concern, etc. The larger the size of a concern, a decentralization set up is suitable in it.
The degree of centralization and decentralization will depend upon the amount of authority
delegated to the lowest level.
Formalisation
Organizations are basically clasified on the basis of relationships. There are two types of
organizations formed on the basis of relationships in an organization
Formal Organization -
This is one which refers to a structure of well defined jobs each bearing a measure of authority
and responsibility. It is a conscious determination by which people accomplish goals by adhering
to the norms laid down by the structure. This kind of organization is an arbitrary set up in which
each person is responsible for his performance. Formal organization has a formal set up to
achieve pre- determined goals.
Informal Organization -
It refers to a network of personal and social relationships which spontaneously originates within
the formal set up. Informal organizations develop relationships which are built on likes, dislikes,
feelings and emotions. Therefore, the network of social groups based on friendships can be
called as informal organizations. There is no conscious effort made to have informal
organization. It emerges from the formal organization and it is not based on any rules and
regulations as in case of formal organization.
Formal and informal organization helps in bringing efficient working organization and
smoothness in a concern.
Within the formal organization, the members undertake the assigned duties in co-operation with
each other. They interact and communicate amongst themselves.
Therefore, both formal and informal organizations are important. When several people work
together for achievement of organizational goals, social tie ups tends to built and therefore
informal organization helps to secure co-operation by which goals can be achieved smooth.
Therefore, we can say that informal organization emerges from formal organization.
Organisational Design- The simple structure, the bureaucracy, the matrix structure
Simple Org
Strengths of a Simple Organizational Structure
The strength of a simple organizational structure is that it enables a business owner to have tight
control over her company’s operation. No decisions are made without her approval, and she is
aware of every important decision made. There is no hesitation on the part of employees in a
simple structure because their orders come directly from the top, not a department head or mid-
level manager a subordinate might question. Companies make decisions quicker with a simple
structure because there are no layers of management that ideas or requests need to climb before
approval.
The formal organizational structure includes a well-defined structure of jobs that clears
authority, functions, and responsibility in organizations. Plans, processes, and policies are
already defined in these types of organizations and the teams need to follow and perform their
tasks based on these. Its main focus is on jobs and functions rather than the employees. Jobs in
the formal organizations are divided into sub-tasks and employees are assigned these tasks as per
their skills. It demands the intervention of different departments, which is based on a grouping of
sub-tasks of common jobs. For example, organizations have different departments based on their
functioning i.e. production, marketing, purchase, etc. Delegation of work is from top to the
bottom level which means that supervisors assign work to the subordinates. Supervisors are
responsible for the coordination of activities of their subordinates as well as their performance.
Matrix Organizations
These types of organizations work on dual relationships in terms of responsibilities ushered over
the employees. Employees in such organizations report to both- functional head and project
head. For example, in matrix organizations, HR team members will report to the project
manager, i.e., Hiring Manager of real-estate recruitment project and the HR head for their
functional tasks.
Culture is by and large invisible to individuals. Even though it affects all employee behaviors,
thinking, and behavioral patterns, individuals tend to become more aware of their organization’s
culture when they have the opportunity to compare it to other organizations. If you have worked
in multiple organizations, you can attest to this. Maybe the first organization you worked was a
place where employees dressed formally. It was completely inappropriate to question your boss
in a meeting; such behaviors would only be acceptable in private. It was important to check your
e-mail at night as well as during weekends or else you would face questions on Monday about
where you were and whether you were sick. Contrast this company to a second organization
where employees dress more casually. You are encouraged to raise issues and question your boss
or peers, even in front of clients. What is more important is not to maintain impressions but to
arrive at the best solution to any problem. It is widely known that family life is very important,
so it is acceptable to leave work a bit early to go to a family event. Additionally, you are not
expected to do work at night or over the weekends unless there is a deadline. These two
hypothetical organizations illustrate that organizations have different cultures, and culture
dictates what is right and what is acceptable behavior as well as what is wrong and unacceptable.
Why Does Organizational Culture Matter?
An organization’s culture may be one of its strongest assets, as well as its biggest liability. In
fact, it has been argued that organizations that have a rare and hard-to-imitate organizational
culture benefit from it as a competitive advantage. In a survey conducted by the management
consulting firm Bain & Company in 2007, worldwide business leaders identified corporate
culture as important as corporate strategy for business success. This comes as no surprise to
many leaders of successful businesses, who are quick to attribute their company’s success to
their organization’s culture.
Culture, or shared values within the organization, may be related to increased performance.
Researchers found a relationship between organizational cultures and company performance,
with respect to success indicators such as revenues, sales volume, market share, and stock prices.
At the same time, it is important to have a culture that fits with the demands of the company’s
environment. To the extent shared values are proper for the company in question, company
performance may benefit from culture. For example, if a company is in the high-tech industry,
having a culture that encourages innovativeness and adaptability will support its performance.
However, if a company in the same industry has a culture characterized by stability, a high
respect for tradition, and a strong preference for upholding rules and procedures, the company
may suffer as a result of its culture. In other words, just as having the “right” culture may be a
competitive advantage for an organization, having the “wrong” culture may lead to performance
difficulties, may be responsible for organizational failure, and may act as a barrier preventing the
company from changing and taking risks.
Figure 15.3 Organizational culture consists of three levels. Source: Adapted from Schein, E. H.
(1992). Organizational culture and leadership. San Francisco: Jossey-Bass.
At the deepest level, below our awareness lie basic assumptions. Assumptions are taken for
granted, and they reflect beliefs about human nature and reality. At the second level, values exist.
Values are shared principles, standards, and goals. Finally, at the surface we have artifacts, or
visible, tangible aspects of organizational culture. For example, in an organization one of the
basic assumptions employees and managers share might be that happy employees benefit their
organizations. This assumption could translate into values such as social equality, high quality
relationships, and having fun. The artifacts reflecting such values might be an executive “open
door” policy, an office layout that includes open spaces and gathering areas equipped with pool
tables, and frequent company picnics in the workplace. For example, Alcoa Inc. designed their
headquarters to reflect the values of making people more visible and accessible, and to promote
collaboration. In other words, understanding the organization’s culture may start from observing
its artifacts: the physical environment, employee interactions, company policies, reward systems,
and other observable characteristics. When you are interviewing for a position, observing the
physical environment, how people dress, where they relax, and how they talk to others is
definitely a good start to understanding the company’s culture. However, simply looking at these
tangible aspects is unlikely to give a full picture of the organization. An important chunk of what
makes up culture exists below one’s degree of awareness. The values and, at a deeper level, the
assumptions that shape the organization’s culture can be uncovered by observing how employees
interact and the choices they make, as well as by inquiring about their beliefs and perceptions
regarding what is right and appropriate behavior.
The Organisation System
Organization Structure
The way in which job tasks are formally divided, grouped, and coordinated.
Org Design
➢ Work Specialization - The degree to which tasks in an organization are subdivided into
separate jobs.
➢ Chain of Command - The unbroken line of authority that extends from the top of the
organization to the lowest echelon and clarifies who reports to whom.
➢ Span of Control - The number of subordinates a manager can efficiently and effectively
direct.
Common Structures
Simple Structure - An organization structure characterized by a low degree of
departmentalization, wide spans of control, authority centralized in a single person, and little
formalization.
Bureaucracy - An organization structure with highly routine operating tasks achieved through
specialization, very 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 - An organization structure that creates dual lines of authority and combines functional
and product departmentalization.
Organizational Culture
A system of shared meaning held by members that distinguishes the organization from other
organizations.
7 Key Characteristics of Culture
1. Innovation and risk taking - The degree to which employees are encouraged to be innovative
and take risks.
2. Attention to detail - The degree to which employees are expected to exhibit precision,
analysis, and attention to detail.
4. People orientation - The degree to which management decisions take into consideration the
effect of outcomes on people within the organization.
5. Team orientation - The degree to which work activities are organized around teams rather
than individuals.
6. Aggressiveness - The degree to which people are aggressive and competitive rather than
easygoing.
7. Stability - The degree to which organizational activities emphasize maintaining the status quo
in contrast to growth.
Org A
This organization is a manufacturing firm. Managers are expected to fully document all
decisions, and “good managers” are those who can provide detailed data to support their
recommendations. Creative decisions that incur significant change or risk are not encouraged.
Because managers of failed projects are openly criticized and penalized, managers try not to
implement ideas that deviate much from the status quo. One lower-level manager quoted an
often-used phrase in the company: “If it ain’t broke, don’t fix it.” There are extensive rules and
regulations in this firm that employees are required to follow. Managers supervise employees
closely to ensure there are no deviations. Management is concerned with high productivity,
regardless of the impact on employee morale or turnover. Work activities are designed around
individuals. There are distinct departments and lines of authority, and employees are expected to
minimize formal contact with other employees outside their functional area or line of command.
Performance evaluations and rewards emphasize individual effort, although seniority tends to be
the primary factor in the determination of pay raises and promotions.
Org B
This organization is also a manufacturing firm. Here, however, management encourages and
rewards risk taking and change. Decisions based on intuition are valued as much as those that are
well rationalized. Management prides itself on its history of experimenting with new
technologies and its success in regularly introducing innovative products. Managers or
employees who have a good idea are encouraged to “run with it.” And failures are treated as
“learning experiences.” The company prides itself on being market driven and rapidly responsive
to the changing needs of its customers. There are few rules and regulations for employees to
follow, and supervision is loose because management believes that its employees are
hardworking and trustworthy. Management is concerned with high productivity but believes that
this comes through treating its people right. The company is proud of its reputation as being a
good place to work. Job activities are designed around work teams, and team members are
encouraged to interact with people across functions and authority levels. Employees talk
positively about the competition between teams. Individuals and teams have goals, and bonuses
are based on achievement of these outcomes. Employees are given considerable autonomy in
choosing the means by which the goals are attained.
OCTAPACE Profile
Hofstede’s cultural dimensions
Denison Culture Model
Culture Formation
Culture is transmitted to employees in a number of forms, the most potent being stories, rituals,
material symbols, and language.
Organizational Structure
• Work specialization
• Departmentalization
• Chain of Command
• Span of Control
• Centralization
• Simple Structure
• Bureaucracy
• Matrix
Organizational Culture
• Definition & characteristics
• Strong & Weak Culture
• OCTAPACE
• Hofstede’s Framework
• Denison’s Culture Model
• Culture Formation
• Org Change
Organizational Climate
Employees’s subjective perceptions of an organization’s work environment which are
descriptive and these perceptions could lead to affective responses which govern employee’s
behavior.