Organizational Structures (on the basis of functions & Divisions)

Organizational Structures On The Basis Of Functions &

Divisions (Product, Geographic, Market)

ORGANIZATION STRUCTURE

Organizational Structure refers to the differentiation (differences in the orientations among the managers if different departments and differences in formal structure among these departments) and integration (quality of the state of collaboration for achieving unity) of activities and authority, role and relationships.

An organization structure specifies the various job tasks and shows how them same are formally divided, grouped, and coordinated.

It provides an appropriate framework for authority relationship. It indicates the hierarchy of authority and the reporting relationships.

Choice of an organization’s strategy (stability strategy/growth strategy) is determined by three basic factors (contingency factors): (i) the organization’s size, (ii) technology used by the organization (for converting the financial, human and physical resources into products and services), and (iii) environmental uncertainty (external environment).

Organization design aspects broadly include how the organization is structured, the types and numbers of jobs, and the processes and

procedures used to:

handle and pass information

make decisions

produce results

manage quality

communicate information

plan, develop and manage resources

innovate and handle crises

PURPOSES OF THE ORGANIZATION DESIGN

  to support the organization’s strategy. The structure should

be designed in such a way as to assure the realization of the organization’s goals and objectives.

to arrange resources in the most efficient and effective way

to provide for the effective division of tasks and accountabilities among individuals and groups

to ensure effective co-ordination of the organization’s activities and clarify the decision-making processes

to enhance and elucidate the lines of communication up, down and across the organization

Contd……. to permit for the effective monitoring and review of the

organizations activities

to endow with mechanisms for coping with change in markets, products and the internal and external environments

to aid the handling of crises and problems

to help to motivate, manage and give job satisfaction to individual members of the organization

to provide for management succession

PRINCIPLES OF GOOD ORGANIZATIONAL DESIGN

The various parts of the structure should be divided into specialist areas. These specialist areas need to be interlinked.

The number of levels in the structure, sometimes referred to as the scalar chain, should be as few as possible.

The span of control will vary according to the nature of the jobs and the organization, but it should not be so narrow that it results in a structure with too many levels, or too broad to allow effective management.

There should be what has been described as unity of command. For this the reporting positions and authority need to be clearly defined.

Contd….. Every post in the structure should have a clear role and

add value to the way the organization functions.

The extent to which the organization should be centralized or decentralized will need to be determined by reference to a number of factors. These include the nature and type of industry, geographical dispersion, history, environment, resources available etc.

The structure must be designed to take account of changes in the environment, which can include the economy, legislation, markets, technological developments, geography, cultural environment, and social environment.

KEY FACTORS AFFECTING ORGANIZATION DESIGN

SIZE AND ORGANIZATION DESIGN

Size as a key structural variable is subject to two schools of thought. The first approach, often called the “bigger is better” model, presupposes that the per unit cost of production decreases as the organization grows. In effect, bigger is said to be more efficient.

The second approach i.e. “small is beautiful” revolves on the law of diminishing returns. Large and impersonal organizations are said to trigger apathy and alienation, with resulting problems such as turnover and absenteeism.

Recent research hints that when designing their organizations, managers should stick to a middle ground between “bigger is better” and “small is beautiful” because both models have been oversold. The best that managers can do is check the productivity, quality, and efficiency of divisions, departments, and profit centers.

ENVIRONMENT AND ORGANIZATIONAL DESIGN

Environmental Complexity Environmental complexity is an estimate of the

magnitude of the problem and opportunities in the organization’s environment. This is identified by three main factors:

a) Environmental Richnessb) Environmental Interdependencec) Uncertainty and Volatility

Dynamism Dynamism relates to the stability or instability of the

environment. It is presumed that when the task and environmental uncertainty contingency is low, the mechanical structure and when the task and environmental uncertainty contingency is high, an organic structure produces high effectiveness.

TYPES OF ENVIRONMENT

STRATEGY AND ORGANIZATION DESIGN

Organizational strategy refers to the way the organization positions itself in its setting in relation to its stakeholders, given the organization’s resources, capabilities, and mission. Basically two types of strategies are popular at present:

GENERIC STRATEGIES These are in terms of cost focus and product focus.

According to Michael Porter, companies need to differentiate and place themselves differently from their competitors in order to build and sustain a competitive advantage. These strategies are shown in Figure 2.

Low Cost Differentiation Focused

Contd……

COMPETENCY-BASED STRATEGIES As middle and lower-level managers bring about minor

modifications and adjustments to solve specific problems and capitalize on specific opportunities, they and their firms may learn new skills.

These skills may be recognized by senior management and give them the opportunity to adjust, modify, and build upon a generic strategy to develop a competency strategy. In the process of building upon its capabilities, the firm may actually move generic strategies and/or combine elements of two generic strategies.

Figure 3 illustrates, specific strategic choices or decisions

reflect how the dominant coalition perceives environment constraints and the organization’s objectives.

In summary, strategy influences structure and structure influences strategy. Strategic choice theory and research teaches managers at least two practical lessons. First, the environment is just one of many co determinants of structure. Second, like any other administrative process, organization design is subject to the byplays of interpersonal power and politics.

TECHNOLOGY AND ORGANIZATION DESIGN

Two important technological contingencies that influence the type of organizational structure are the variety and analyzability of work activities.

Variety refers to the number of exceptions to standard procedure but can occur in the team or work unit.

Analyzability refers to the extent that the transformation of input resources to outputs can be reduced to a series of standardized steps. Some jobs are routine, meaning that employees perform the same tasks all of the time and rely on set rules (standard operating procedures). These situations, such as automobile assembly lines, have high formalization and centralization as well as standardization of work processes.

Contd…….

These situations call for an organic structure, one with low formalization, highly decentralized decision-making authority, and coordination mainly through informal communication among team members.

High-variety and high-analyzability tasks have many exceptions to routines, but these exceptions can usually be resolved through standard procedures. Work units that fall into this category should use an organic structure, but it is possible to have somewhat greater formalization and centralization due to the analyzability of problems.

OTHER FACTORS HISTORY present structure may have developed over a

number of years, as functions have been added, changed or deleted. It is also more likely to have determined the current structure

The organization’s if there have been relatively little pressures on the organization to adapt to changing circumstance.

CUSTOMERS AND MARKETS

The organization structure is also affected by the type of market and customers it serves, and in a customer-responsive environment this should be one of the main determinants of structure. Customer-based structure is more likely to lead to long-term success for the organization and it gives a clear focus to the organization.

PROCESSES

The processes used within the organization also affect the structure. A production line process consists of a number of distinct tasks carried out by people specializing in those tasks at different stages of the process.

There are of course disadvantages to this approach, primarily in terms of maintaining the motivation and morale of production line operatives and there is less focus on the customer. The advantages of organization of the basis of process or technology is that it allows for task specialization which means that people can develop a high degree of skill and the emphasis on the outputs from a particular process can result in high productivity.

PEOPLE

People in the organization affect the structure in a number of ways. Structures do not just appear, they are the result of people’s views and beliefs and their approach to managing the organization.

GEOGRAPHY The geographical spreading of an organization affects its

structure mainly because of its need to be near raw materials or customers.

When there is a strong need to provide products or services within a particular geographical area, the organization may be divided into regions or areas, with each being a fully self-contained, miniature version of the parent organization. The advantages of a geographically based structure is that it makes firm able to provide a complete service at one location and a degree of autonomy can provide for more efficient decision-making and increase job satisfaction

PRODUCTS AND SERVICES The structure may be determined by the particular products

and services provided. Large and diverse organizations have separate divisions because they are dealing with very different products and services.

ORGANIZATIONAL EFFECTIVENESS

Span of Management(Span of Control)

It is the ability of a manager to effectively supervise a finite number of people.

Effectiveness & efficiency in a organization is determined by the no. of people a manager can effectively handle.

It is of two types:- Wide Span Narrow Span

TYPOLOGY OF ORGANISATION STRUCTURES

Line Organization and Line and Staff Organization Functional Organization Structure Product Organisation Structure/ Divisional Structure Geographic structure Market structure Hybrid Structure Formal and Informal Organization Centralization and Decentralization Vertical Structure Horizontal Organization Project Organization Matrix Organization Mechanistic and Organic Structures

LINE ORGANISATION

Line organization is the simplest form of organization structure.

It is based on the scalar principle, which states that authority and responsibility should flow in a direct line vertically from the highest level of the organization to the lowest level.

The primary emphasis in the line organization is upon the superior-subordinate relationship.

One of the advantages of the line organization is that it facilitates decision making and execution because there is a definite authority at each level of the hierarchy. However, the disadvantage is that if a wrong decision is made at the top level, the same is carried out simply without anybody down the line venturing to point out its deficiencies.

LINE AND STAFF ORGANISATION

Most business organizations, except the very small, have this type of structure.

In line and staff organization, the line authority remains the same as it does in the line organization i.e. the authority flows from top to bottom; and the line executives perform the major functions; the staff functionaries support and advise the line executives. For example, for sound management of human resources, the line managers are provided specialized assistance through personnel/Human Resource managers. As staff functionaries are employed to perform supportive role, they do not have any power of command in the organization (Figure 2).

The main advantage of line and staff organization is that the staff specialists relieve the line executives of the botheration of concentrating on specialized functions like selection, training, development, wage and salary administration, accounting, public relations etc. However, the disadvantage of this structure is that since functionaries are not accountable for the results, they may not be performing their duties effectively.

FUNCTIONAL ORGANISATION STRUCTURE

This is the most widely used form of organization structure. Here the tasks are grouped together on the basis of common functions. The functional structure suits best to the small to medium organizations producing one or a few products.

The main advantages of this type of structure is that the organization can facilitate both people utilization and coordination in the service of the whole organization. The functional grouping also provides opportunities for promotion and career development.

One of the major disadvantages of this form of organization is the growth of sectional interest which may conflict with the needs of the organization as a whole.

PRODUCT ORGANISATION STRUCTURE / DIVISIONAL

STRUCTURE This form of organization structure is adopted by large

companies producing a wide range of products. Here, the activities are grouped on the basis of the individual products manufactured by the company. The organization structure of a large multi-product pharmaceutical company is illustrated in Figure 4.

One of the advantages of the product organization is that it enables diversification of the products to take place with minimal effort. Another advantage is that it can cope better with technological change by grouping people with expertise and their specialized equipment in one major unit. The main disadvantage of the product organization is that each product division may promote its own product group in a way that creates problems to other product divisions of the company.

GEOGRAPHIC STRUCTURE

Organizations that are spread over a wide area may find advantages in organizing along geographic lines so that all the activities performed in a region are managed together.

Companies that market products globally sometimes adopt a geographic structure. In addition, experience gained in a regional division is often excellent training for management at higher levels.

Some of the advantages of this structure are Serve local needs better Positive competition More effective communication between firm and local

customers

GEOGRAPHIC STRUCTURE

NorthernRegion

W esternRegion

SouthernRegion

EasternRegion

CorporateM anagers

CEOCorporation

Some of the Disadvantages are:-Conflict between local and central managementDuplication of resources and functions

MARKET STRUCTURE

Large BusinessCustom ers

Sm all BusinessCustom ers

EducationalInstitutions

IndividualCustom ers

CorporateM anagers

CEOCorporation

Market structure is used to group employees on the basis of specific market the company sells in. A company could have 3 different markets they use and according to this structure, each would be a separate division in the structure.

HYBRID STRUCTURE

The hybrid form combines features of both functional and divisional forms. When an organization starts to get very large, functions that are considered important to each product are decentralized to the units; however, some functions like finance and accounting are centralized at headquarters for practical reasons (Figure 5).

The important advantages of hybrid structure are: The overall organization enjoys the benefits of both functional

and product (decentralized) structures. It provides the opportunity to improve coordination both within

and among divisions. It enables the organization to pursue an adaptive strategy

within the product divisions while at the same time achieving efficiency in the functional departments. It helps in proper alignment of corporate and divisional goals.

A major disadvantage of the hybrid structure is that it often leads to excessive duplication of activities between functions and divisions.

Another disadvantage is its tendency to create conflict between headquarters and divisional functions.

FORMAL AND INFORMAL ORGANISATION

The formal organization structure refers to a structure of clearly defined jobs, each bearing a definite amount of responsibility and authority.

The formal organization lays down formal procedures, rules and regulations, which guide the behavior of individuals performing these jobs.

The informal organization is the outcome of social interaction that takes place between the individuals of the formal organization. When people work together they tend to form informal work groups, often spontaneously, because of physical proximity, commonality of interest etc.

Unlike the formal organization, the informal organization is unstructured and not given. Generally, it is an unofficial organization born out of a formal organization.

An informal organization has its own structure, roles, procedures, norms and values which are unwritten and are evolved through consensus among the members of the informal groups. The communication patterns are not fixed and as such communication may flow in any direction.

It serves as a useful channel of communication and it lightens the workload of the management, if the latter gives due importance to the informal workgroups.

It reduces the undesirable effects of the rigidities of the formal organization and also provides a safety valve for employee emotions.

CENTRALISATION AND DECENTRALISATION

The term Centralization refers to concentration of decision making at a single point in the organization. In contrast, when the top management gives maximum, though not complete, discretion to the lower level personnel in the organization to make decisions, then it can be said that there is decentralization in the organization.

In a decentralized organization, action can be taken more quickly to solve problems, and more people provide inputs into decisions. With most of the large companies now preferring to make organizations more flexible and responsive, there has been a marked change towards decentralized decision making.

The main advantages of decentralization are: It reduces the burden of the top management by freeing

them from many operational decisions, and enables them to concentrate on their strategic responsibilities

It can contribute to staff motivation by enabling middle and lower level managements to get a taste of responsibility, and by encouraging the use of knowledge, innovation, and initiative by all employees.

The main disadvantages of decentralization are: It requires greater coordination by senior management to

ensure that individual units in the organization are not working against the interests of the whole organization

Decentralization does require a plentiful supply of capable and well-motivated managers, who are able to cope with increased responsibility which decentralization brings about.

VERTICAL STRUCTURE

A vertical organization is that in which the size of the hierarchical chain of command is long i.e. the number of hierarchical levels are high.

The main advantages of the vertical organization are: They provide better communication of the organization’s

mission, values, and goals to all employees These organizations have the ability to sustain a very high

degree of specialization of functions and roles. The principal disadvantages are: Too many hierarchical levels consume more time for

communication and the same may lead to delays in decision making

The scope for initiative and risk taking at operational levels becomes limited.

HORIZONTAL ORGANISATION

As the traditional vertical, hierarchical structures of the organizations are being considered inappropriate to the requirements of the changing environment, an increasing number of modern organizations prefer the use of horizontal structures.

The horizontal structure facilitates cooperation, teamwork, and customer orientation rather than a functional orientation.

Horizontal structures are created around three to five core processes for the time rather than traditional departmental functions.

The vertical hierarchy is flattened to reduce the levels of supervision. This is done by combining the fragmented tasks, eliminating work that fails to add value, and by cutting to the minimum activities within each process.

Multi-disciplinary/ cross functional self-managed teams (composed of personnel from different functional areas like finance, marketing, human resource, quality control and operations) are created to handle the core processes, and each team are entrusted with a core process.

For horizontal structure to work, employees are brought into direct contact with customers as well as suppliers.

All employees should be provided with all data, and they should be trained for analyzing and use the data to make effective decisions as team members.

All employees are encouraged to develop multiple skills; and those who develop are rewarded.

The main advantages of horizontal organization are: Decisions can be taken more quickly to solve problems A horizontal structure has fewer problems of coordination. One of the disadvantages of the horizontal structure

is the absence of proper reporting to superiors by the subordinates because of decentralization.

PROJECT ORGANISATION

When an organization undertakes a big project or a number of small projects, it creates project organization(s) for the completion of the same. This is done because the existing functional structure of the organization may not be suitable to complete the projects which are time bound and are subject to high standards of performance as in the case of aero space and aircraft companies.

A project organization is separate from and independent of functional departments of the company. Headed by a Project Manager, every project organization consists of a team of specialists drawn from different functional areas of the company or from outside.

The project organization is suitable when the company gets a one-time assignment or a huge contract or when the company faces a unique challenge. The main advantages of the project organization are:

The participating specialists of the project team get opportunity for prompt, expeditious and effective accomplishment of the goals of the project.

It facilitates speedy communication between the project manager and the team members

It provides flexibility in handling various tasks. The major disadvantages of the project organization are: The entire project becomes meaningless, if the project

manager fails to coordinate the activities of the project properly

The members of the project organization have to sever the contacts with the mainstream organizational life.

The job of the project manager becomes very difficult because he has to deal with specialists from a number of diverse fields.

MATRIX ORGANISATION

The matrix organization combines two forms of departmentalization— functional and product.

It is built around a project which is headed by a Project Manager. The Project Manager is also known as Product Manager as he is responsible for the output (product) of the project. The project teams comprise of employees (specialists) drawn from different functional departments such as the Human Resources, Finance, Production, Marketing, and Research & Development Departments of the Company.

Thus, the employees of the matrix have two bosses: their Functional Departmental Managers and their Project Manager.

Some of the advantages of the matrix structure are: It facilitates coordination when the organization has

multiple complex and interdependent activities It ensures the effective utilization of the services of the

people with highly specialized skills The direct and frequent contact between the different

functional specialists in the matrix ensures better communication and more flexibility.

The major disadvantages of the matrix structure are: This structure breaks the unity-of-command concept.

Reporting to one boss introduces role conflict and role ambiguity

It fosters power struggle between product (project) managers and functional managers who share the same set of resources

A matrix organization incurs higher costs than an organization with a conventional hierarchy.

The matrix structure is used in advertising agencies, aerospace firms, R & D laboratories, construction companies, hospitals, government agencies, universities, management consulting firms, and entertainment companies.

DESIGNING ORGANIZATION FOR FUTURE EXPANSION

Features of Futuristic Organization:- Organization of resources based upon common boundary of

production. Non-hierarchic organization Flexible & loose nature of organization. Streamlining of operating processes. Localized planning and decision making. Elimination of middle level management. Adaptable structure. Knowledge Management. Focus on Multiple Skills and broad job description. Organizational Culture based upon mutual trust, review

progress and problem solving drills.

EMERGING CONCEPT OF ORGANIZATION STRUCTURE

The Modern Organization should reap benefits of standardization and at the same time give processes greater flexibility.

It will allow rapid changes in design and product & rapid responses to market demands.

Organization Structure should be integrated with shared values, beliefs and assumptions the employees enjoy.

EMERGING STRUCTURES

VIRTUAL ORGANIZATION

BOUNDARY LESS ORGANIZATION

NETWORK ORGANIZATION

LEARNING ORGANIZATION

FLAT STRUCTURES

INVERTED PYRAMID

TASK FORCES

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