Unit 5: Organization Structure

and Design (5 Hrs.)

Defining organization structure and design;
Building the vertical dimension of
organizations; Building the horizontal
dimension of organizations; The
contingency approach to organization
design; Application of organization design
 Organization structure
• The organization structure is the system which
describes the organizational hierarchy in terms
of different functions, roles, responsibilities,
supervision, etc.
• The organizational structure also defines the
flow of information between different levels
of an organization, clarity of job of each
employee, and its fitment in the overall
system which motivates the employees to
work efficiently by keeping their morale high;
hence, increasing the overall productivity of
an organization.
Organizational structure and Design
 1. Centralized Structure
• In this type of organizational structure, all
decisions, as well as processes, are defined; and
handled by the top management. Employees and
managers are responsible for the successful
implementation of decisions and have to follow
them.
• Few real-life examples of such organizations are
Army, companies like Flipkart, Apple, McDonald’s,
etc. where the power of decision- making is held
at the top level and there is a wide chain or
hierarchy of managers and subordinates.
• Thus, the centralized structure has a top-down
approach for decision flow.
2. Decentralized Organization Structure
• In such type of organizations, day-to-day tasks
and the decision-making processes are delegated
to the supervisors at the middle and lower level
by the top management for fast and effective
decisions and to improve efficiency.
• By letting the middle and lower level executives
jump in the process of decision-making, the top
management can focus on other major decisions.
This also increases the responsibility and
accountability of the employees.
 Contd..
• For Example; Mark, the HR Manager at ABC Company,
has to finalize a deal with a vendor at a job portal for
hiring and, for this, he negotiates best prices with
discounts to close the deal.
• If his organization is a centralized one, then he will first
seek senior management permission to finalize the
deal and wait for their approval.
• If there is a delay rendered by the management part,
he might lose the deal.
• However, if his company is decentralized, then, he has
authority to close the deal all by himself with the
vendor without seeking any approval from the
management which, in turn, results in finalizing cost-
effective and quick decision-making.
 Organizational Design
• In simpler terms, “Organizational Design” refers
to defining, designing, and re-structuring
organizational structure.
• The very process of organizational design is
aimed at finding any type of defective or
dysfunctional elements related to an
organization’s system, organization structure,
process, and work culture.
• Identification of these elements leads to their
rectification so that they can better fulfill an
organization’s objective.
Elements Of Organizational Design
• A well-designed organizational structure not
only defines functions, hierarchy, roles, and
responsibilities but also the alignment of
organizational goals of staff/teams. Poor
organizational design or structure may result
in serious downfalls in organizations i.e.
ambiguity of roles, lack of trust in team and
superiors, rigid work environment, slow and
ineffective decision-making, etc.
1. Chain Of Command/Line Of Command
• In this, the authority and power are delegated
from top to bottom i.e. in an organization top
management gives instructions to the bottom
team and all the employees at each level.
• Further, the accountability of an employee’s
job flows upward to the management.
• It gives clarity of the reporting structure in an
organization. Let us have a look at the chain of
command with a visual diagram:
 2. Span Of Control
• “Span Of Control” demonstrates how wide is the
area of the direct control of supervisors over their
subordinates which is directly related to how
many subordinates (in numbers) report to a
senior or supervisor; which, in turn, depends on
the number of tasks performed at different levels.
• In case of more tasks, the span of control will be
wider. It also depends on other aspects like
geographical location, the ability of the team and
superior, the complexity of tasks, etc.
 3. Centralization
• Centralization refers to centralizing an
organizational system where planning and
decision-making authority is allotted either to
a single person or the top management.
• A decentralized organization is the one where
planning and decision-making are handed
over to middle or low-levels.
Decentralized Organization:
 4. Specialization
• Large organizations divide some of its functions based on
the specialized areas and, so, subtasks are defined in
different tasks.
• These subtasks are distributed among individual job roles.
 5. Formalization
• Formalization refers to the process of specifying or mentioning
rules, procedures, and duties to the employees as an individual as
well as to the teams, departments, units, and the whole
organization by managers in written form too. Formalization
indicates the goals and vision of an organization, tasks, hierarchy
and relationships, authority and responsibilities, different
processes, and work methods.
• A formal organization emphasizes on job roles, responsibilities, and
assigning work to the individuals as per the requirement of roles.
These are controlled by rules and procedures.
• An informal organization emphasizes on individuals, and the job
responsibilities are designed based on individual employee skills
and preferences irrespective of the department in which he/she is
working. An individual can be assigned the role of different
departments as well based on self-interest, skills, etc.
 6. Departmentalization
• As the name states, “Departmentalization” is the
process of dividing organizational functions into
different departments as per specializations of
jobs or responsibilities so that the common tasks
can be handled by specialized teams.
• In rigid departmentalization, there is almost no
interaction between different teams and each
team works as per their area of specialization. In
contrast, in loose departmentalization, the teams
are free to interact with each other and can work
together for common tasks.
 Organization Design Concepts
• Organizational structure may be studied in
three ways. They are vertical differentiation,
horizontal differentiation and modern
organizational structure
 A. Vertical Differentiation
Vertical differentiation of
organization structure divides
the organization according to
hierarchies or layers reflected
by authority, responsibility,
control and communication
1. Tall organizational structure
2. Flat organizational structure
• Tall structure is an organizational
structure with many levels of
hierarchy.
• Flat structure is an organizational
structure with a limited number
of levels of hierarchy.
• A narrow span of control is seen
in a tall structure. In a flat
structure, the span of control is
wide.
 B. Horizontal Differentiation
• Horizontal differentiation of organization
structure relates to division of organization
into similar or parallel units or departments
based on functions, divisions, places and
products. According to horizontal
differentiation, organizations can be divided
into functional, divisional, geographic and
matrix structures.
 1. Functional structure
• A functional structure groups tasks and activities by
organization functions such as production/operations,
marketing, finance/accounting, research and
development, and management information systems.
 2. Multidivisional Structure
• The multidivisional structure consists of a corporate office and
operating division which represents a separate business or profit
centre. Under this, the responsibilities for day-to-day operations are
delegated to division managers.
 3. Geographic Structure
• When an organization organizes its activities on the basis of
geographic locations, it is called geographic structure.
• This form of structure enables businesses to: have a
reporting and functional system across multiple locations.
• A matrix structure is a
combination of two or 4. Matrix structure
more types of
organizational structures. It
is a way of arranging your
business so that you set up
reporting relationships as a
grid, or a matrix, rather
than in the traditional
hierarchy.
• It includes dual lines of
budget authority with dual
sources of reward and
punishment, shared
authority, dual reporting
channels, and a need for an
extensive and effective
communication system. It is
mostly used in
construction, health care,
research, and defense.
 Modern Organizational structures
Team Based Structure
• A team-based
structure is an
organizational
structure where
several teams work
toward a common
goal while
performing their
own specialized
tasks. They
encourage less
hierarchy in their
structure, allowing
organizations more
flexibility from their
professionals.
 Network Structure
• A network organizational structure is one in which organizations group certain
types of employees together based around a common specialization. These
employees then form partnerships with other specialists from throughout the
organization to take on new projects and work toward a common goal.
360 Degree Structure
• 360 Degree Feedback is a system in which employees receive confidential,
anonymous feedback from the people who work around them not just the
employee’s immediate supervisor. The organization structure with 360 degree
feedback system is termed as 360 degree structure.
• It's designed so a range of people can share their opinion to provide a well-
rounded view on the individual.
 The contingency approach to
organization design
• There are two theories regarding the organization design,
these are universal approach and contingency approach.
• A universal approach is one prescriptions or propositions
are designed to work in any situation.
• Otherwise, a contingency approach suggests that
organizational efficiency can be achieved in several ways.
• In a contingency design, specific conditions such as the
environment, disorganization work force and technology
determine the structure.
• The contingency factors include such thing as the strategy
of the organization, technology, the environment, size of
the organization or the social system within which the
organization operates.
• There are a number of factors upon which design of an
organization structure is based on.
 Contd..
• Size: Size is an important factor to design an organizational structure. The
size of an organization can be measured in many ways. It is measured in
term of its budget, total value of productivity or business, number of clients
sewed, value of the organization’s assets. Larger organization have more
complex organizational structures than smaller organization.
• Technology: Organizational technology refers to the information and
communication technologies that transform inputs into outputs. In small
organizations the structure depend primarily on the technology, whereas in
large organization coordinative activities may be more important.
• Strategy: Strategy is the plans and actions necessary to achieve
organizational goal. The structural necessities are environment, technology
and size.
• Size & life cycle. The organizational size and life cycle also impact the
organizational structure and design. A 20-person company has very
different challenges when it comes to design compared to a 200,000-person
company.
• Culture. Organizational culture is another key element that impacts
organizational structure and design – and, vice versa, design also impacts
culture.
• Other factors can be environmental uncertainty, individual differences or
organizational performances.
Application of organization design
• Clarity in operations.
• Growth opportunities.
• Adaptability to change.
• Work specialization.
• Unity of command.
• Control or supervision.
• Coordination of departments and compartments.
• Balance of responsibilities.