Unit 3: Organizational Design & StrategyLesson 7: Strategic Organizational Design

2. + 2 Objectives What are organizations & what is the importance of their structure?
Factors in designing the structure of the organization Structure & configuration of
classic organizations Structure & configuration of modern organizations What are the
different relationships between strategy & organizational structure?RIMS, Bangalore |
PGDM 2nd Year, Strategic Management April 18, 2012
3. + 3 What is an organization? Specific configuration of structure, people, task, and
techniques Structure describes the form of departments, and hierarchy. It influences the
organizations efficiency & effectiveness People incorporate the skills, attitudes, and
social interaction of the members of the organization Task depicts the goals of the
individual & the organization Techniques explain the methods and approach used to
perform tasksRIMS, Bangalore | PGDM 2nd Year, Strategic Management April 18, 2012
4. + 4 What is organizational structure? Mechanism of mobilizing human, physical,
financial, and information resources at all levels of the system | Framework by which an
organization communicates, develops goals, and then works on achieving these goals
Important factor in organizations performance; not only affects strategy, it affects other
areas like stability, workflow, size & life cycle, and corporate culture Provides
guidelines on Division of work into activities Linkage between different functions
Hierarchy Authority structure & relationshipRIMS, Bangalore | PGDM 2nd Year,
Strategic Management April 18, 2012
5. + 5 Principles of organizational structure (1/2) Principles of organizational structure
are the methods by which the organization maintains that structure, and the processes it
uses to keep the structure efficient. Hierarchy of command: One of the principles that
holds an organizational structure together is the hierarchy of command. Respect for the
authority of management and the executive team creates a functional line of
communication. Everyone in the company can follow the trail of responsibility for
projects, and employees understand who they report to and how the management
structure affects their jobs. Role Definition: An efficient organizational structure helps
to properly define everyones role within the company. A clear definition of the
responsibilities and standing of each person within the company creates an understanding
of what is expected from each individual, and how individual performance can affect the
efficiency of the entire organization.RIMS, Bangalore | PGDM 2nd Year, Strategic
Management April 18, 2012
6. + 6 Principles of organizational structure (2/2) Evaluating Outcomes: Monitoring the
outcome of individual projects, as well as the ongoing performance evaluation of
individual employees, helps to determine the strengths and weaknesses in the
organizational structure. The weaknesses can be dealt with either through training,
reallocation of company assets such as equipment, or eliminating ineffective employees
or those performing duplicate tasks. The strengths of the organization can be amplified to
help identify future managers of the company, determine successful processes that can be
used in future projects, and improve the processes used to reach future company goals.
Altering Organizational Structure: One of the key principles of organizational structure is
the ability to remain dynamic and change to suit the needs of the company. Some of the
elements that necessitate change in an organizational structure include changing customer
needs, a change in company management, new technology, and reacting to the activities

of your competition.RIMS, Bangalore | PGDM 2nd Year, Strategic Management April

18, 2012
7. + 7 Benefits of organizational structure? (1/3) Streamline Operations
Organizational structures can help companies streamline business operations | Organizing
business functions into departments ensures business operations are completed and
effective and efficient manner | Companies may save money by reducing the number of
similar business functions completed by multiple departments Improve Decision
Making Companies can use organizational structure to improve their business decision
making process | Organizational structures can be designed to promote the flow of
information from frontline operations to managers responsible for making business
decisions | Executive level management can use organizational structure channels for
sending information to managers or employees responsible for completing business
functions.RIMS, Bangalore | PGDM 2nd Year, Strategic Management April 18, 2012
8. + 8 Benefits of organizational structure? (2/3) Operate Multiple Locations As small
businesses continue to grow and expand, they may open multiple locations in local,
regional or domestic economic markets | Organizational structures help business owners
create a management chain to ensure all business locations operate according to the
companys standard procedures. Business owners rely on organizational structures
because the owner may not be able to visit each location in a timely manner. Improve
Employee Performance Organizational structures often outline employee tasks and
which manager is responsible for overseeing each employee.RIMS, Bangalore | PGDM
2nd Year, Strategic Management April 18, 2012
9. + 9 Benefits of organizational structure? (3/3) Focus on Customer Service & Sales
Companies using a well- defined organizational structure should be able to spend more
time focusing on customer service rather than correcting operational issues | Companies
may also focus on increasing sales revenues and profits from business operations by
meeting consumer needs and wants.RIMS, Bangalore | PGDM 2nd Year, Strategic
Management April 18, 2012
10. + 10 What is an organizational chart? Visual representation of underlying activities
& processes being undertaken by the organization Key components Formal reporting
relationships including number of levels in the hierarchy and span of control of managers
& supervisors Grouping of individuals into departments & of departments into the total
organization Underlying principle Vertical linkages primarily show control; Vertical
control best associated with goals of efficiency & stability Horizontal linkages indicate
the coordination & collaboration; Horizontal coordination is associated with learning,
innovation & flexibilityRIMS, Bangalore | PGDM 2nd Year, Strategic Management April
18, 2012
11. + 11 Factors considered during organizational design (1/2) Primary objective:
Ensure clarity, understanding, de- centralization, stability, and adaptability
Organizational structure has become important because of Size, Global spread, and
complexity of the modern business firm Expanding markets, new competitors,
proliferation of products, need for instant communication, and fierce focus on asset
values Relationship between people, both internally & externally 4 basic principles
during organizational design Specialization is division of work into components in
which people specialize. Vertical kinds of work at different levels in the organization

Horizontal division into departmentsRIMS, Bangalore | PGDM 2nd Year, Strategic

Management April 18, 2012
12. + 12 Factors considered during organizational design (2/2) 4 basic principles during
organizational design, (contd) Coordination is integration of activities of these
specialized units towards a common objective. Involves placement of different units in
the organization together or separately and deciding on patterns of relationship &
communication Unity of Command, Authority & Responsibility, Span of Control,
Departmentalization Centralization is whether decision making is delegated to lower
levels (De-centralized) or concentrated at the top (Centralized) Design of systems
should ensure effective communication, coordination, and integration across departments
Formalization refers to the extent to which rules & regulations permeate the
organization. Defines the formal relationship in the organization Finding the right
balance between vertical control & horizontal coordination is an important design
decisionRIMS, Bangalore | PGDM 2nd Year, Strategic Management April 18, 2012
13. + 13 Traditional organizational structures (1/6) Simple structure Single product or
owner driven organization Little or no separation of management responsibilities & no
clear definition of functional division of labor Emphasis is on direct control &
communication for increasing businessRIMS, Bangalore | PGDM 2nd Year, Strategic
Management April 18, 2012
14. 14RIMS, Bangalore | PGDM 2nd Year, Strategic Management April 18, 2012
15. + 15 Traditional organizational structures (2/6) Functional designs Structured
around a CEO & limited corporate staff Activities are grouped together by common
functions & functional managers play critical role (Production, Marketing, R&D,
Accounting, etc.) Each functional unit has different set of duties &
responsibilitiesRIMS, Bangalore | PGDM 2nd Year, Strategic Management April 18,
2012
16. + 16 Traditional organizational structures (3/6) Functional Designs, (contd)
Advantages: Provides functional clarity | Specialization is built into the organizational
structure | Promotes economies of scale & makes it best suited for cost leadership
strategy | Suits Small-Medium sized organizations producing limited line of products
where dominant competitive issues are cost, efficiency & quality Disadvantages:
Functional area managers tend to develop a narrow focus on local issues instead of
overall strategic issues | Rivalry between departments | Coordination & delegating
responsibility among departments become increasingly difficult | Routine, repetitive jobs
leading to poor productivity | Slow to respond to environmental changesRIMS, Bangalore
| PGDM 2nd Year, Strategic Management April 18, 2012
17. 17RIMS, Bangalore | PGDM 2nd Year, Strategic Management April 18, 2012
18. + 18 Traditional organizational structures (4/6) Divisional Structure Departments
are grouped together based on organizational outputs | Each division represents a separate
business or profit center All activities for a single project or purpose are brought under
one manager | Easy to fix accountability, procedures & systems can be standardized
leading to better integration across different specialtiesRIMS, Bangalore | PGDM 2nd
Year, Strategic Management April 18, 2012
19. + 19 Traditional organizational structures (5/6) Divisional Structure, (contd)
Advantages: Enables more accurate monitoring of the performance of each business |

Facilitates comparison between divisions | Improves resource allocation | Motivates

managers of poorly performing divisions to look for ways to improve | Suited to fast
change in an unstable environment, enhanced corporate financial control, and stronger
pursuit of internal efficiency Disadvantages: Creates functional departments in each
division leading to duplication of effort | Economies of scale in functional departments
are reduced | Little incentive to promote cooperation among divisions | Inter divisional
trading becomes complex leading to reduced transparency in operations | Conflicts
between division & headquarters on allocation of resources & support servicesRIMS,
Bangalore | PGDM 2nd Year, Strategic Management April 18, 2012