DESIGNING ORGANIZATION STRUCTURES Khalidi Swabiri Department of General Management UDBS PART I: FOUNDATIONS OF ORGANISATION DESIGN.

DESIGNING ORGANIZATION DESIGNING ORGANIZATION STRUCTURES STRUCTURES

Khalidi Swabiri Department of General Management UDBS

PART I: FOUNDATIONS OF ORGANISATION DESIGN

Organization design

The process by which managers select and manage various dimensions and components of organization structure and culture so that an organization can control activities necessary to achieve its goals

is a process of arranging people and physical resources into a structured grouping to carry out plans to accomplish organizational objectives

The Star model

Why Organization Structure?

Divide work into specific jobs and departments

Assign tasks and responsibilities associated with individual jobs

Cluster jobs into units Resource allocation Communication and coordination

Purpose of the structure (cont) Establish relationships among individuals,

groups and departments Establish formal lines of authority Allocate and deploys organizational

resources Contingencies and environmental demand Basis for competetitive advantage -

competence and capabilities framework Strategy execution

Major Considerations in deisgning structure When design structure we have to

consider : Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization

Work Specialization

A component of organization structure that involves having each discrete step of a job done by a different individual rather than having one individual do the whole job

Work specialization is regarded as a source of ever increasing productivity

Departmentalization

Once jobs have been divided through work specialization then they have to be grouped back together so that common tasks can be coordinated

Work departmentalization refers to the basis by which jobs are grouped together

“ the process of subdividing of activities and responsibility areas into units within an organisation”

Departmentalization by Type

Functional Grouping jobs by

functions performed

Product Grouping jobs by

product line Geographical

Grouping jobs on the basis of territory or geography

Process Grouping jobs on

the basis of product or customer flow

Customer Grouping jobs by

type of customer and needs

Chain of Command

The continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who reports to whom.

Helps employee to answer questions such as who do I go for if I have problems?

The concept of chain of command is related to:

AuthorityAuthority responsibility responsibility unity of command unity of command

Authority

Authority: This is a right inherent in a managerial position to tell people what to do and what to expect them to do it

The power to hold people accountable for their actions and to make decisions concerning the use of organizational resources

To facilitate decision making and coordination managers are part of chain of command and thus are granted certain degree of authority to meet their responsibilities.

Authority is related to hierarchy which is classification of people according to their relative authority and rank

Types of organisational Authority Line authority

The position authority (given and defined by the organization) that entitles a manager to direct the work of operative employees.

Staff authority Positions that have some authority (e.g.,

organization policy enforcement) but that are created to support, assist, and advise the holders of line authority.

Responsibility and unity of command

Responsibility is an obligation to perform an assigned duty.

Unity of command is principle that no person should report to more than one boss

Without unity of command conflicting demands and priorities from multiple bosses can create problems

Span of Control

The number of subordinates a manager can supervise efficiently and effectively

Why is it important?

It determine the number and level of managers in an organization.

Determines the shape of an organization structure (taller or flatter)

There is a limited number of subordinates that a single manager can effectively and productively supervise Increased complexity of managers job as

span of control becomes wider

Shapes of organization structures

Span of control and managerial complexity

Do you agree with this ?

Ceteris paribus: the wider or larger the span of control, the more efficient the organization is

Span of control

Trends in recent years has been towards wider spans this is consistent with : Managers efforts to reduce costs The need to speed up decision making The desire to get closer to customer The need to empower employees

Span of Control Many factors affects the size of span of

control Skills and abilities of managers and

employees Characteristic of work being done Physical proximity of the subordinates ??? Degree to which standardized procedures

are in place Nature and sophiscation of an organization's

IS

Centralization And Decentralization Centralization

A function of how much decision-making authority is pushed down to lower levels in an organization; the more centralized an organization, the higher the level at which decisions are made

Managers are involved in day to day decision making

Decentralization The pushing down of decision-making authority

to the lowest levels of an organization Fosters flexibility and responsiveness managers

become accountable risk takers

Factors favoring Centralization

Environment is stable. Top managers able to coordinate activities to keep the organization

focused on its goals

Organization is facing a crisis or the risk of company failure.

Company is large- bureaucracy

Effective implementation of company strategies depends on managers retaining say over what happens.

Factors favoring Decentralization

Environment is complex, uncertain. Lower-level managers are capable and

experienced at making decisions. Lower-level managers want a voice in decisions. Decisions are significant. Corporate culture is open to allowing managers

to have a say in what happens. Company is geographically dispersed. Effective implementation of company strategies

depends on managers having involvement and flexibility to make decisions.

Formalization

Use of written rules and procedures to standardize operations

Jobs in formalized organisations are highly structured and standardized Highly formalized jobs offer little discretion over

what is to be done. Very low level of mutual adjustment

Integration / Boundary spanning Horizontal differentiation/

departmentalization is supposed to enable people to specialize and become more productive Specialization often limits communication

between subunits People develop subunit orientation which

results to communication and coordination failures

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Types of Integration/boundary spanning Mechanisms

Hierarchy of authority: dictates “who reports to whom”

Direct contact: managers meet face to face to coordinate activities

Problematic that a manager in one function has no authority over a manager in another

Liaison roles: a specific manager is given responsibility for coordinating with managers from other subunits on behalf of their subunits

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Types of Integration/boundary spanning Mechanisms Task force: managers meet in

temporary committees to coordinate cross-functional activities

Task force members responsible for taking coordinating solutions back to their respective functions for further input and approval

Teams: a permanent task force used to deal with ongoing strategic or administrative issues

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Types of Integration/boundary spanning Mechanisms

Integrating role: a new, full-time role established to improve communications between divisions

Focused on company-wide integration Integrating department: a new

department intended to coordinate the activities of functions or divisions

Created when many employees enact integrating roles

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Integrating Mechanisms

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Integrating Mechanisms

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Integrating Mechanisms

PART II: ORGANIZATION DESIGN DECISIONS

Design decisions

How do managers decide what organization design to use?

In principle the nature of an organization design depends upon certain contingency factors

However, contingency factors exist in two generic models which try to explain the choice of structure at two extremes

Mechanistic Organizations

Mechanistic organisations : designed to induce people to behave in predictable, accountable ways Decision-making authority is centralized Subordinates are closely supervised Information flows mainly in a vertical direction along a

clearly defined path Hierarchy principal integrating mechanism Tasks and roles coordinated primarily through

standardization and formal written rules Best suited to organizations that face stable,

unchanging environments Influence people to behave in a predictable

manner and roles of people are clearly defined

Organic Organizations

Organic organisations : designed to promote flexibility, so people initiate change and can adapt quickly to changing conditions Decision making distributed throughout the

hierarchy Coordination is achieved through mutual

adjustments Status conferred by ability to provide creative

leadership Encourages innovative behavior Suited to dynamic environments

Organizational Design Decisions

Mechanistic Organization A rigid and tightly

controlled structure High specialization Rigid

departmentalization Narrow spans of control High formalization Limited information

network (downward) Low decision

participation

Organic Organization Highly flexible and

adaptable structure Non-standardized jobs Fluid team-based

structure Little direct

supervision Minimal formal rules Open communication

network Empowered

employees

Contingency Factors

The appropriateness of structure depends on four major factors:

Strategy and structure

An organization structure follows the organization strategy.

Its imperative that an organisational structure should facilitate the achievement of organisational goals

Therefore a change in strategy has to be followed by corresponding a change in structure

Organisational Size-structure relationship

There is a compelling evidence in the literature which links a strong relationship between organisational size and structure

As an organization grows larger, its structure tends to change from organic to mechanistic with increased specialization, departmentalization, centralization, and rules and regulations

Size and organizational complexity

Technology –structure relationship All organizations regardless of their size

use technology to convert inputs into outputs

According to Woodwards technology is classified into three categories according to the level of complexity and sophisication

Technology –structure relationship

Woodward’s classification of technology:

Unit production of single units or small batches

Mass production of large batches of output

Process production in continuous process of outputs

Woodward’s Findings on Technology, Structure, and Effectiveness

Routine technology = mechanistic organizationsRoutine technology = mechanistic organizationsNon-routine technology = organic organizationsNon-routine technology = organic organizations

Environment –structure relationship Organization should design its structure

to fit its environment

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Structure Environment Relationship ; Burns and Stalker Found that organizations need different

kinds of structure to control their activities based on the environment Organic structures are more effective when

the environment is unstable and changing Mechanistic structures are more effective in

stable environments

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Relationship Between Environmental Uncertainty and Structure

Organisational Charts

Organization chart may represent apparent weakness in structure such as ; Too wide spans of control Overlapping areas of control Lack of unity of command Too long chain of command Unclear reporting relationships and/or lines

of communication Unstaffed functions

Organisational Charts

Organization chart should always give: The date when it was drawn up The name of the organization or branch or

department to which it refers Whether is an existing or proposed

structure The extent of coverage if it refers to

management structure only or if it includes servicing departments

COMMON ORGANIZATION DESIGNS

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Functional Structure

A functional structure is a design that groups people on the basis of their common skills, expertise, or resources they use

Functional structure is the bedrock of horizontal differentiation/ departmentalization by functions

An organization groups tasks into functions to increase the effectiveness with which it achieves its goals

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Functional Structure

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Functional Structure (cont.)

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Functional Structure: Advantages

Provides people with the opportunity to learn from one another and become more specialized and productive

People who are grouped together by common skills can supervise one another and control each other’s behavior

People develop norms and values that allow them to become more effective at what they do

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Control Problems in a Functional Structure

Communication Problems: as more organizational functions develop, each with their own hierarchy, they become increasingly distant from one another

Measurement Problems: information needed to measure the profitability of any functional group is difficult to obtain

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Control Problems in a Functional

Customer Problems: the ability to identify and satisfy customer needs may fall short and sales are lost

Strategic Problems: top managers spend too much time finding ways to improve coordination that they have not time to address the longer term

Managers can solve control problems by redesigning the functional structure to increase integration between functions

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Solving Control: Improving Integration in a Functional Structure by Combining Sales and Marketing

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From Functional Structure to Divisional Structure

Functional structure is appropriate if the organization: Limits itself to producing a small number of similar

products Produces those products in one or a few locations Sells them to only one general type of client or

customer As organizations grow, they produce more

products and serve many different types of customers

A new structure is needed that will Increase manager’s control of individual subunits Integrate the operation of the whole company and

ensure subunits are meeting organizational goals

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Moving to a Divisional Structure Organizations most commonly adopt the

divisional structure to solve control problems that arise with too many products, regions, or customers

The type of divisional structure depends on the problem to be solved

Divisional structure creates smaller, more manageable subunits and takes the form

Product structure Geographic structure Market structure

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Product Structure

Product structure: a divisional structure in which products (goods or services) are grouped into separate divisions according to their similarities or differences

Organizations need to decide how to coordinate its product activities with support functions

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Product Division Structure

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Divisional Structure II: Geographic Structure

When the control problems that companies experience are a function of geography, a geographic divisional structure is appropriate

Allows the organization to adjust its structure to align its core competences with the needs of customers in different geographic regions

Allows some functions to be centralized and others decentralized

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Geographic Structure

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Market Structure

A market structure aligns functional skills and activities with the needs of different customer groups

Each customer group has a different marketing focus, and the job of each group is to develop products to suit the needs of its specific customers

Each customer group makes use of centralized support function

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Market Structure

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Matrix Structure Matrix structure: an organizational design

that groups people and resources in two ways simultaneously, by function and product

A matrix is a rectangular grid that shows a vertical flow of functional responsibility and a horizontal flow of product responsibility

The members of the team are called two-boss employees because they report to two superiors: the product team manager and the functional manager

The team is the building block and principal coordination and integration mechanism

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Matrix Structure

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Advantages of a Matrix Structure

The use of cross-functional teams reduces functional barriers and subunit orientation

Opens communication between functional specialists

The matrix enables an organization to maximize its use of skilled professionals, who move from product to product as needed

The dual functional and product focus promotes concern for both cost and quality

Copyright 2010 Prentice HallCopyright 2010 Prentice Hall

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Disadvantages of a Matrix Structure

Matrix lacks a control structure that leads employees to develop stable expectations of one another

The lack of a clearly defined hierarchy of authority can also lead to conflict between functions and product teams over the use of resources

People are likely to experience a vacuum of authority and responsibility People then create their own informal

organization to provide themselves with some sense of structure and stability

Hybrid Structure

Hybrid structure: large complex organizations that have many divisions make use of many different structures

Each product division’s manager selects the structure (functional, product, geographic) that best meets the needs of their particular environment and strategy

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