Organizational Structure and Organization Design

What is an Organizational Structure?

Meaning of an Organizational Structure: – An Organizational Structure defines how activities such as task allocation, coordination, and supervision are directed towards the achievement of organizational objectives. Successful organizational structures define each employee’s job and how it fits within the overall system.

Organizational structure can also be considered as a viewing glass or perspective through which individuals view their organization and its environment.

Organization Structure

Management experts use the six basic elements of organizational structure to devise the right plan for a specific company. These elements are: departmentalization, chain of command, span of control, centralization or decentralization, work specialization and the degree of formalization. Each of these elements affects how workers engage with each other, management and their jobs in order to achieve the employer’s goals.

Key Elements for Proper Organizational Structure

Key Elements for Proper Organizational Structure are as follows: –

  1. Work Specialization: – Work specialization ensures that all employees have specific duties that they are expected to perform based on each employee’s work experience, education and skills. This prevents an expectation that employees will perform tasks for which they have no previous experience or training and to keep them from performing beneath their capacities.
  1. Departmentalization: – Departmentalization refers to how the organizational structure groups the company’s functions, offices and teams. Those individual groups are typically referred to as departments. Departments are usually sorted on the basis of the kinds of tasks the workers in each department perform, but this is not the only way to create a company’s departmental breakdown.
  1. Chain of Command: – Most organizations, from businesses to non-profits organizations to the military, utilize a chain of command. This helps eliminate inefficiencies by having each employee report to a single manager, instead of to several bosses. The chain of command is reflected in the organizational structure and affects job descriptions as well as office hierarchies. Managers assign tasks, communicate expectations and deadlines to employees, and provide motivation on a one-to-many basis.
  1. Span of Control: – An organization’s span of control defines how many employees each manager is responsible for within the company. There is no single type of span of control that’s ideal for all companies or even for all businesses in a specific industry. The optimal span will depend on a number of factors, including the size of the workforce, how the company is divided into departments and even the company’s specific business goals and strategies.
  1. Centralization vs. Decentralization: – Organizational structures also rest somewhere on a spectrum of centralization. Generally, more conservative corporate entities adopt a centralized structure. Centralizing authority in a business means that middle management typically is left with little to no input about the goals the company sets. This system is typical in larger corporate organizations, as well as at companies in more conservative industries. On the other hand, a company could adopt a more decentralized approach. A decentralized system allows all levels of management the opportunity to give input on big-vision goals and objectives. There has been a rise in decentralized organizations, as is the case with many technology startups. This allows companies to remain fast, agile, and adaptable, with almost every employee receiving a high level of personal agency.
  1. Formalization: – Finally, organizational structures implement some degree of formalization. Formalization is the element that determines the company’s procedures, rules and guidelines as adopted by management. Formalization also determines company culture aspects, such as whether employees have to sign in and out upon arriving and exiting the office, how many breaks workers can take and how long those breaks can be, how and when employees can use company computers and how workers at all levels are expected to dress for work.

What are the types of Organizational Structures?

There are four types of general organizational structure implemented in the real world. Following are the types of Organizational Structures: –

  1. Functional Structure: – The first and most common is a functional structure. This is also known as bureaucratic organizational structure and breaks down a company based on the expertise of its workforce. Most small to medium-sized businesses implement a functional organization structure. Dividing the firm into departments containing marketing, sales and operations is the act of using a bureaucratic organizational structure.
  1. Divisional or Multidivisional Structure: – The second type is common in large companies with multiple business units. A divisional or multidivisional structure, a company using this method builds its leadership team based on its products, projects, or the subsidiaries they operate. A good example of this structure is Johnson & Johnson. With thousands of products and lines of business, the company structures itself so that each business unit acts as its own company with its own chairman.
  1. Flatarchy Structure: – Flatarchy, a newer structure, is the third type and is used among many startups. As the name suggests, it flattens the hierarchy and chain of command and gives a lot of autonomy to its employees. Companies that use this type of structure have a high speed of implementation.
  1. Matrix Structure: – The fourth and final organizational structure is a matrix structure. It is also the most confusing and the least used. This structure matrixes the employees of different superiors, divisions or departments. For example, an employee working for a matrix company may have duties in both sales and customer service.

What are the advantages of Organizational Structure?

The merits of having a well designed organizational structure are as follows: –

  1. The activities of individuals and groups will become more rational, stable and predictable.
  2. A systematic hierarchy in which people are related in a meaningful order will result. Personal responsibility will be clearly known and the right to act will be defined.
  3. Persons will be selected on the basis of their ability to perform the required tasks. Simplification and specialization of work assignments is possible in a more effective manner.
  4. Directional and operational goals and procedures shall be clearly set and energy devoted to their achievement.
  5. Available resources will be utilised in a most effective way.
  6. Such an organization can make dealing with individual workers more democratic as patronage and favoritism are reduced.
  7. Workers will benefit from employed superior-subordinate-relationships in which each job receives the necessary support and direction.

What are the disadvantages of Organizational Structure?

The disadvantages of having an organizational structure are as follows: –

  1. Individual creativity and originality can be affected by rigid fixation of duties and responsibilities.
  2. Workers may be less willing to assume duties that are not formally part of their original job.
  3. Too often fixed relationships and lines of authority seem flexible and difficult to adjust to meet changing needs.
  4. They create anxiety among individual workers by putting too much pressure for routine and conformity.
  5. They become very costly in terms of time and human dignity to enforce organizational rules and regulations.
  6. Inter-personal communication may slow down or stop as a result of strict adherence to formal lines of communication.
  7. Organizations fail to take into account the significant differences in workers as human beings.

These deficiencies can be reduced through careful planning and efforts by supervisors to be responsive to human problems created by formal organizational structures.

Principles of an Organizational Structure

Following are the Principles of an Organizational Structure: –

  1. Principle of Unity of Objectives: – An enterprise should have a clearly defined purpose (or objectives). An organization structure is effective if it facilitates the contribution made by all the individuals in the enterprise towards the attainment of the objectives of the enterprise.
  1. Principle of Specialization: – The principle of specialization states that each person should play the role for which he is naturally best suited and should not interfere in any other occupation.
  1. Principle of Coordination: – Coordination is the process which ensures smooth interaction. It is between the forces and functions of the various constituent parts of the organization. Thus, it aims to gain from maximum collaborative effectiveness and minimum friction.
  1. Principle of Authority: – Authority principle refers to a person’s tendency to comply with people in positions of authority, such as government leaders, law-enforcement representatives, doctors, lawyers, professors, and other perceived experts in various fields.
  1. Principle of Delegation: – According to this principle, if a subordinate is given the responsibility to perform a task, at the same time he should be given sufficient freedom and power to perform that task effectively.
  1. Principle of Efficiency: – Efficiency requires minimizing the number of unnecessary resources used to produce a given output, including individual time and energy. It is a measurable concept that can be determined using the ratio of total inputs to useful outputs.
  1. Principle of Unity of Command: – The concept of unity of command requires that each member of an organization must report to one and only one leader. For example, a company’s HR team would have just one supervising head, rather than two or three, to systematically set up the work environment. With the help of Unity of Command principle there is a proper hierarchy which is established in the company.
  1. Principle of Span of Control: – In simple words, span of control means a manageable number of subordinates of a superior. The more subordinates a manager controls, the wider his span of control.
  1. Principle of Balance: – The principle of balance states that there should be a proper balance between the different parts of the organization. Two-way communication between superiors and subordinates helps to unite the organization to work as an operating system effectively.
  1. Principle of Personal Ability: – According to this principle, the employees who are deployed should be able to perform the tasks for which they are hired.
  1. Principle of Flexibility: – The principle of flexibility states that an accounting information system must be able to adapt to changes based on company needs, operations and management.
  1. Principle of Simplicity: – The organizational structure should be simple so that it can be easily understood by everyone. The rights, responsibilities and position of every person should be clarified so that there is no confusion about these things. It helps the organization to run smoothly.

What is an organization design?

Meaning of an Organization Design: – Organization design is a process of shaping the way organizations are structured and run. Organizational design is a step-by-step methodology which identifies dysfunctional aspects of work flow, procedures, structures and systems, realigns them to fit current business realities/goals and then develops plans to implement the new changes. This includes many different aspects of life at work, including team formation, shift patterns, lines of reporting, decision-making processes, communication channels, and more.

Organization design and redesign can help any type of organization achieve its goals. Sometimes, large-scale restructuring is required. At other points, more subtle changes in structures and systems can ensure that an organization continues to grow. In this article, we’ll look at when and why organization design is necessary, and how it happens in practice. As a result, you’ll know how to contribute to the process whenever you get the chance.

Organizational Design: When and Why?

There are three common “triggers” for organization design: –

  1. Something has changed, either inside or outside the business: Perhaps you have purchased some new technology, or a rival has entered your territory. There may be a significant law change affecting your business. Some factors are exciting, some are worrying, but they all require feedback – and that means some change in the way you work.
  1. You have set new strategies or goals: An organization may make a strategic decision to approach its work differently for a number of reasons. It could also change the way we measure success. For example, a publishing company may decide to produce less in print, offer more free content online, and aim to make most of its money from advertising. In this case, it would need to set new goals for website engagement and ad revenue, and implement an organization design process to pursue this new strategy.
  1. The current design no longer works: – Many aspects of change affecting an organization are gradual. But, over time, a “tipping point” is reached. Perhaps you’ve increased your people’s flexible working options, but problems are starting to show up: absenteeism, deadlines are looming, and a growing sense of inequality across the business. Enough: Your organizational design needs to change.

Hierarchical and Organic Organization Design

Organization design is often divided into two distinct styles: – hierarchical and organic. The table below shows some of the key characteristics of hierarchical and organic designs; examined in terms of complexity, formality, level of involvement, and communication styles.

S.No.Hierarchical Structure Organic Structure
1.A hierarchical organization is an organizational structure where every unit in the organization, except one, is subordinate to another unit.An organic organizational structure is characterized by an extremely flat reporting structure within an organization.
2.Mechanical organization structure emphasizes on narrow span of control.It emphasises on wide span of control.
3.It follows hierarchy of command.Organic organisation structure  does not follow hierarchy of command.
4.There is an intensive division of labor and work is divided into specific tasks.The work is divided into general tasks and there is little or no specialization.
5.People consider individual goals as different from organisational goals.There is synchronization of individual goals with organisational goals.
6.Tasks are performed according to position in the hierarchy. People at lower levels perform comparatively simpler tasks.Tasks are assigned to people according to their capabilities and skills and not hierarchical positions.
7.Tasks are performed according to discretions and desires of managers at the top.Tasks are flexible and keep changing according to situations. They are performed through constant interaction of people.
8.Communication is hierarchical; orders, instructions and commands flow from top to bottom.Communication is a network. It flows in all directions in the form of suggestions, advises and information rather than orders.
9.Mechanistic organisation structure expects subordinates to obey and be loyal to superiors and the organisation.Organic organisation structure expects commitment to the organisational goals and not obedience from subordinates.
10.Control is exercised from the top.There is self-control.
11.Mechanistic organisation structure is an appropriate form of structure for organisations operating in a stable environment.Organic organisation structure is more suitable for organisations operating in a dynamic environment.

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