National Institute of Business Management

Chennai - 020

FIRST SEMESTER EMBA/ MBA

Subject : Organizational Behaviour

Name : DEVADI MANJU

Roll No: : 108168

Enrollment
: MBA1/NOV17N/188911510660093F
No:

1. What is Perception? Explain why is it important?

Meaning and Definition of Perception:

“Perception is the process through which the information from outside environment is selected,
received, organized and interpreted to make it meaningful to you. This input of meaningful
information results in decisions and actions.”

A few definitions of perception as given by different authors are as explained below:

“Perception may be defined as a process by which individuals organize and interpret their
sensory impressions in order to give meaning to their environment.”
According to Joseph Reitz, “Perception includes all those processes by which an individual
receives information about his environment—seeing, hearing, feeling, tasting and smelling.
The study of these perpetual processes shows that their functioning is affected by three classes
of variables—the objects or events being perceived, the environment in which perception
occurs and the individual doing the perceiving.”
In simple words we can say that perception is the act of seeing what is there to be seen. But what
is seen is influenced by the perceiver, the object and its environment. The meaning of
perception emphasizes all these three points.

Nature of Perception:
Perception has been explained by Ajit Singh as follows:
“Perception refers to the interpretation of sensory data. In other words, sensation involves
detecting the presence of a stimulus whereas perception involves understanding what the
stimulus means. For example, when we see something, the visual stimulus is the light energy
reflected from the external world and the eye becomes the sensor. This visual image of the
external thing becomes perception when it is interpreted in the visual cortex of the brain. Thus,
visual perception refers to interpreting the image of the external world projected on the retina of
the eye and constructing a model of the three dimensional world.”

From the above explanation it becomes clear that perception is something more than sensation.
It correlates, integrates and comprehends diverse sensations and information from many
 organs of the body by means of which a person identifies things and objects, the sensations
refer to.

Perception is determined by both physiological and psychological characteristics of the human

being whereas sensation is conceived with only the physiological features. Thus, perception
is not just what one sees with the eyes it is a much more complex process by which an
individual selectively absorbs or assimilates the stimuli in the environment, cognitively
organizes the perceived information in a specific fashion and then interprets the information
to make an assessment about what is going on in one’s environment.

Perception is a subjective process, therefore, different people may perceive the same
environment differently based on what particular aspects of the situation they choose to
selectively absorb, how they organize this information and the manner in which they interpret
it to obtain a grasp of the situation.

Importance of Perception:

(i) Perception is very important in understanding the human behavior, because every person
perceives the world and approaches the life problems differently- Whatever we see or feel is
not necessarily the same as it really is. It is because what we hear is not what is really said,
but what we perceive as being said. When we buy something, it is not because it is the best,
but because we take it to be the best. Thus, it is because of perception, we can find out why
one individual finds a job satisfying while another one may not be satisfied with it.

(ii) If people behave on the basis of their perception, we can predict their behavior in the changed
circumstances by understanding their present perception of the environment. One person may
be viewing the facts in one way which may be different from the facts as seen by another
viewer.

(iii) With the help of perception, the needs of various people can be determined, because people’s
perception is influenced by their needs. Like the mirrors at an amusement park, they distort
the world in relation to their tensions.

(iv) Perception is very important for the manager who wants to avoid making errors when dealing
with people and events in the work setting. This problem is made more complicated by the
fact that different people perceive the same situation differently. In order to deal with the
subordinates effectively, the managers must understand their perceptions properly.

Thus, for understanding the human behavior, it is very important to understand their perception,
that is, how they perceive the different situations. People’s behavior is based on their
perceptions of what reality is, not on reality itself. The world as it is perceived is the world
that is important for understanding the human behavior.
2. Why is perception important? Explain the factors influencing perception.
Perception is a process by which individuals organize and interpret their sensory perceives in
order to give meaning to their environment. However, what one perceives can be substantially
different from objective reality. There need be, but there is often, disagreement. For example,
it’s possible that all employees in a firm may view it as great place to work – favorable working
conditions, interesting job alignments, good pay, excellent benefits, an understanding and
responsible management but, as most of us known, it’s very unusual to find such agreement.

Why is perception important in the study of OB? Simply because people’s behavior is based on
their perception of what reality is, not on reality itself? The world as it is perceived is the world
that is behaviorally important.

Perception is the process by which an individual selects, organizes, and interprets information
inputs to create a meaningful picture the world. Perception depends not only on the physical
stimuli, but also on the stimuli’s relation to the surrounding field and on conditions within the
individual. The key point is that perception can vary widely among individuals exposed to the
same reality. One person might perceive a fast-talking salesperson an aggressive and insincere
another, as intelligent and helpful. Each will respond differently to the salesperson.

Importance of Perception:

(i) Perception is very important in understanding the human behavior, because every person
perceives the world and approaches the life problems differently- Whatever we see or feel is
not necessarily the same as it really is. It is because what we hear is not what is really said,
but what we perceive as being said. When we buy something, it is not because it is the best,
but because we take it to be the best. Thus, it is because of perception, we can find out why
one individual finds a job satisfying while another one may not be satisfied with it.

(ii) If people behave on the basis of their perception, we can predict their behavior in the changed
circumstances by understanding their present perception of the environment. One person may
be viewing the facts in one way which may be different from the facts as seen by another
viewer.

(iii) With the help of perception, the needs of various people can be determined, because people’s
perception is influenced by their needs. Like the mirrors at an amusement park, they distort
the world in relation to their tensions.

(iv) Perception is very important for the manager who wants to avoid making errors when dealing
with people and events in the work setting. This problem is made more complicated by the
fact that different people perceive the same situation differently. In order to deal with the
subordinates effectively, the managers must understand their perceptions properly.

Thus, for understanding the human behavior, it is very important to understand their perception,
that is, how they perceive the different situations. People’s behavior is based on their
 perceptions of what reality is, not on reality itself. The world as it is perceived is the world
that is important for understanding the human behavior.

Factors Influencing Perception:

How do we explain that individuals may look at the same thing, yet perceive it differently? A
number of factors operate to shape and sometimes distort perception. These factors can reside in
the perceiver in the object or target being perceived, or in the context of the situation in which
the perception is made (See Below):

Factors that influence perception:

Perception

Factors in the perceiver

 Attitudes
 Motives
 Interests
 Experience
 Expectations

Factors in the situation

 Time
 Work setting
 Social setting

Factors in the target

 Novelty
 Motion
 Sounds
 Size
 Background
 Proximity
 Similarity

When an individual looks at a target and attempts to interpret what he or she sees, that
interpretation is heavily influenced by the personal characteristics of the individual perceiver.
Personal characteristics that affect perception included a person’s attitudes, personality motives
interest, past experiences, and expectations. For instance if you expect police officers to be
authoritative, young people to be lazy, or individuals holding office to be unscrupulous, you may
peeve them as such regardless of their cultural traits.

Characteristics of the target being observed affect what is perceived. Loud people are more likely
to be noticed in a group than quiet ones. So, too, are extremely attractive or unattractive
individuals. Because targets are not looked at in isolation, the relationship of a target to its
background also influences perception, as does our tendency to group close things and similar
things together. For instance, women people of color or members of any other group that has
clearly distinguishable characteristics in terms of features or color are often perceived as alike in
other, unrelated characteristics as well.

A shrill voice is never perceived to be one of authority. Practice some vocal exercises to lower
the pitch of your voice. Here is one to start: Sing – but do it an octave lower on all your favorite
songs. Practice this regularly and after a period of time, your voice will lower. People will
perceive you as nervous and unsure if you talk too fast. Also, be careful not to slow down to the
point where people feel tempted to finish your sentences.

The context in which we see objects or events is also important. The time at which an object or
event is seen can influence attention, as can location, light, heat, or any number of situational
factors. For example, at a nightclub on Saturday night, you may not notice a 22 year old female
dressed to the nines. Yet that same woman so attired for your Monday morning management
class would certainly catch your attention (and that of the rest of the class). Neither the perceiver
nor the target changed between Saturday night and Monday morning, but the situation is
different.

This article throws light on the three important factors influencing the perceptual set, i.e, (a)
Characteristics of the Perceiver, (b) Characteristics of the Perceived, and (c) Characteristics of
the Situation.

A. Characteristics of the Perceiver:

When a person looks at a target and attempts to interpreter what he sees, his interpretation is
greatly influenced by his personal characteristics which are discussed as follows:

1. Needs and Motives:

Our need pattern play an important part in how we perceive things. A need is a feeling of
discomfort or tension when one things he is missing something or requires something. Therefore,
unsatisfied needs or motives stimulate individuals and may exert a strong influence on their
perception. When people are not able to satisfy their needs they are engaged in wishful thinking
which is a way to satisfy their needs not in the real world but imaginary world. In such cases,
people will perceive only those items which suit their wishful thinking. Motives also influence
the perception of people. People who are devious are prone to see others as also devious.

2. Self Concept:
Self concept indicates how we perceive ourselves which then influences how we perceive others
and the situation we are in. The more we understand ourselves, the more we are able to perceive
others accurately. For example, secure people tend to see others as warm and friendly. Less
secure people often find fault with others. Perceiving ourselves accurately and enhancing our-
self concept are factors that enhance accurate perception.

3. Past Experience:

Our perceptions are often guided by our past experiences and what we expect to see. A person’s
past experiences mould the way he perceives the current situation. If a person has been betrayed
by a couple of friends in the past, he would tend to distrust any new friendship that he might be
in the process of developing.
4. Current Psychological State:

The psychological and emotional states of an individual are likely to influence how things are
perceived. If a person is depressed, he is likely to perceive the same situation differently than if
he is elated. Similarly, if a person is scared out of wits by seeing a snake in the garden, she is
likely to perceive a rope under the bed as a snake.

5. Beliefs:

A person’s beliefs influence his perception to a great extent. Thus, a fact is conceived not on
what it is but what a person believes it to be. The individual normally censors stimulus inputs to
avoid disturbance of his existing beliefs.

6. Expectations:

Expectations affect the perception of a person. Expectations are related with the state of
anticipation of particular behaviour from a person. For example, a technical manager will expect
that the non- technical people will be ignorant about the technical features of the product.

7. Situation:

Elements in the environment surrounding an individual like time, location, light, heat etc.,
influence his perception. The context in which a person sees the objects or events is very
important.

8. Cultural Upbringing:
A person’s ethics, values and his cultural upbringing also play an important role in his perception
about others. It is difficult to perceive the personality of a person raised in another culture
because our judgment is based upon our own values.

B. Characteristics of the Perceived:

Characteristics of the person who is being observed can affect what is perceived. Though, it may
go against logic and objectivity, but it cannot be denied that our perceptions about others are
influenced by their physical characteristics such as appearances, age, gender, manner of
communication as well as personality traits and other forms of behaviour. For example, loud
people are more likely to be noticed in a group than are quite ones. So too are extremely attractive
or extremely ugly individuals.

Persons, objects or events that are similar to each other tend to be grouped together. People
dressed in business suits are generally thought to be professionals, while employees dressed in
ordinary work clothes are assumed to be lower level employees.

Manner of communication, both verbal and non-verbal, affect our perception about others. For
example, the choice of words and precision of language can form impressions about the
education and sophistication of the person. The tone of voice indicates the mood of the person.
The depth of conversation and choice of topics provide clues of people’s intelligence. The body
language or expressive behaviour such as how a person sits and the movement of his eyes or a
smile can indicate whether he is nervous or self confident.

The status or occupation of a person also influences the perception. We tend to behave in a more
respectful way when we are introduced to the principal of a school in which our child is studying,
judge of the high court or Supreme Court or a famous cricket player. Sometimes our perception
of a person tends to be; biased, depending upon the description given to us by other persons.
When we meet a person who is described to us as warm and friendly, we treat him differently as
compared to meeting a person who is known to be cold & calculating.

C. Characteristics of the Situation:

The context in which we see objects or events is very important. The surrounding environment
and the elements present in it influence our perception while perceiving a particular situation or
event, its physical, social and organizational setting can also influence the perception. For
example, if you meet a person for the first time and he is with a person whom you respect and
admire, you will create a favorable image about him in your mind as compared to a situation in
which you see him with another person whom you intensely dislike. Of course, the initial
impressions may change with the passage of time, but the saying that “First impression is the
last impression” is very valued.
Location of a given event is also very important factor in determining the behavior. For example,
a conversation with the boss taking place in a casual reception area may be perceived differently
than when taking place in the boss’s office with the door closed. Organizational setting also
affects the behavior of the people. An organization setting where people are given an opportunity
to interact in a friendly and sociable work situation, they become more trustworthy and less
defensive.
 3. Describe the contemporary theories of motivation.

Early motivation theories were based on the assumptions and sometime these theories were not
supported by strong evidence. Maslow’s hierarchy of needs is a good example of this approach.
Therefore, alternative theories of motivation have been put forward over time.

Self-determination theory
Self-determination theory of motivation and argues that people often seek control of their
actions.

Goal setting theory

Goal setting theory is based on the view that challenging objectives should aid and improve
workplace performance. In this theory, it is assumed that an employee is committed to the firm’s
goals and desires to make a positive contribution. It is important that the set goals are also
perceived as achievable.
Goal-Setting Theory Proposes that setting goals that are accepted, specific, and challenging yet
achievable will result in higher performance than having no or easy goals. A goal serves as a
motivator, because, it causes people to compare their present capacity to perform with that
required to succeed at the goal. Hence, feedback is also required.
Benefits of Participation in Goal-Setting are:
 Increases the acceptance of goals.
 Fosters commitment to difficult, public goals.
 Provides for self-feedback (internal locus of control) that guides behavior and
motivates performance (self- efficacy).
an individual is committed to the goal
 Adequate self-efficacy i.e. Individual’s belief that he or she is capable of performing
a task
 Task characteristics i.e., tasks are simple, well-learned, and independent
 National culture inadequate, performance will be negatively affected and that an
employee needs opportunity to perform and prove his/her worth.

Self-efficacy theory

Self-efficacy theory is based upon an employee’s view about their ability to perform the tasks of
their job role. This theory is also known as social learning theory or social cognitive theory.
If an employee has a high self-efficacy, then they will be more confident and have a greater
chance of success. In more challenging situations, employees with a low self-efficacy will often
have a reduction in their job performance levels.

According to the Albert Bandura, self-efficacy can be increased by four ways such as:

I.Vicarious modeling
II.Enactive mastery
III.Arousal
IV.Verbal persuasion
Reinforcement theory

Reinforcement theory refers that to behavior or an attitude is a function of its outcomes or

consequences. That is, the theory suggests that the outcomes of behavior (positive or negative)
will either reinforce (or modify if a negative outcome) ongoing behavior.
Reinforcement Theory Assumes that a desired behavior is a function of its consequences, is
externally caused, and if reinforced, is likely to be repeated. Positive reinforcement is preferred
for its long-term effects on performance ignoring undesired behavior is better than punishment
which may create additional dysfunctional behaviors.

Equity theory

Equity theory is where employees compare their job inputs and outputs with others in the
organization – primarily in an attempt to reduce the perceived inequities.

If the employees find inequities they seek resolve them by:

 Changing the inputs

 Changing the outcomes
 Distorting perceptions of themselves
 Distorting perceptions of others
 Quitting their job

Equity Theory Proposes that employees perceive what they get from a job situation (outcomes)
in relation to what they put in (inputs) and then compare their inputs-outcomes ratio with the
inputs- outcomes ratios of relevant others. If the ratios are perceived as equal then a state of
equity (fairness) exists. If the ratios are perceived as unequal, inequity exists and the person feels
under- or over-rewarded. When inequities occur, employees will attempt to do something to
rebalance the ratios (seek justice).
Employee responses to perceived inequities:
 Distort own or others’ ratios
 Induce others to change their own inputs or outcomes.
 Change own inputs (increase or decrease efforts) or outcomes (seek greater rewards).
 Choose a different comparison (referent) for other (person, systems, or self). quit
their job.
 Employees are concerned with both the absolute and relative nature of organizational
rewards.

Expectancy theory
 Expectancy theory is the tendency to act in a particular way based upon a preconceived
expectation of the likely outcome. Expectancy Theory States that an individual tends to act in a
certain way based on the expectation that the act will be followed by a given outcome and on the
attractiveness of that outcome to the individual.
Key to the theory is understanding and managing employee goals and the linkages among and
between effort, performance and rewards.
I.Effort: employee abilities and training/development
II.Performance: valid appraisal systems
III.Rewards (goals): understanding employee needs

Expectancy Relationships Expectancy (effort-performance linkage): The perceived probability

that an individual’s effort will result in a certain level of performance.
Instrumentality: The perception that a particular level of performance will result in the attaining
a desired outcome (reward).
Valence: The attractiveness/importance of the performance reward (outcome) to the individual.

Contemporary theories of motivation

ERG Theory: Alderfer (1972) classifies needs into three categories –

1) The existence category that provides our basic material existence requirements (akin to
Maslow’s physiological and safety),
2) Relatedness category which provides relationship and social status (akin to Social) and
3) Growth category which refers to personal development (akin to esteem and self-actualization).

McClelland’s Theory of Needs: McClelland’s (1961) theory focuses on three needs:

achievement, power, and affiliation. This actually describes the predominance of disposition of
various types of people. All people have all these needs but the predominant need drives them.
These are discussed below:
 Need for achievement: Those predominant in this derive satisfaction from reaching goals.
To do that, they generally undertake tasks of moderate difficulty rather than very easy or very
difficult ones.
 Need for power: Those predominant in this derive satisfaction from ability to control
others and goal achievement is secondary.
 Need for affiliation: Those predominant in this derive satisfaction from social and
interpersonal activities. Those high in this tends to compromise task orientation for personal
relations and often tend to be ineffective managers.

Cognitive Evaluation Theory: Some people do not get motivated by extrinsic rewards.
Nitin Nohria Model: He proposed in one of the latest articles that there are four drives with which
an individual grapples. These are:
 Drive to acquire: This drive makes us acquire things which are not strictly needs.
The drive comes because of comparison with others. Thus, even if we have a good house, we
need a better one.
 Drive to bond: All of us need families to fulfill this drive.
 Drive to comprehend: We want to make sense of the world around us, understand
the phenomenon, making meaningful contribution, and are demoralized by monotonous work.
 Drive to defend: We have a drive to defend ourselves and hence though we may have
all the physical and emotional security, we will do all we can to defend ourselves.

Motivational Language Theory: Sullivan JJ, (1988) explained that it is language that motivates
people. At least to some extent this is true. We motivate people through talks, explanations and
instructions. We have seen this happen and this is perhaps the reason why some motivational
speakers are so popular.

Motivation - Early & contemporary theories of motivation

1. Motivation - Early & Contemporary Theory of Motivation Dr. G C Mohanta, BE,

MSc(Engg), MBA, PhD(Mgt) Professor
2. Motivation The processes that account for an individual’s intensity, direction and
persistence of effort toward attaining a goal. Intensity – how hard a person tries Direction –
effort that is channeled toward and consistent with organizational goals Persistence – how long
a person can maintain effort
The processes that account for an individual’s willingness to exert high levels of effort to reach
organizational goals, conditioned by the effort’s ability to satisfy some individual need.
Effort: a measure of intensity or drive.
Direction: toward organizational goals
Need: personalized reason to exert effort

3. Motivation works best when individual needs are compatible with organizational goals.
Need an internal state that makes certain outcomes appear attractive? An unsatisfied need creates
tension which is reduced by an individual’s efforts to satisfy the need.

4. Early Theories of Motivation

1. Maslow’s Hierarchy of Needs
2. Alderfer’s ERG Theory
3. MacGregor’s Theories X and Y
4. Herzberg’s Motivation-Hygiene Theory

4.1. Maslow’s Hierarchy of Needs Theory Needs were categorized as five levels of lower- to
higher-order needs. Individuals must satisfy lower-order needs before they can satisfy higher
order needs. Satisfied needs will no longer motivate. Motivating a person depends on knowing
at what level that person is on the hierarchy.
Hierarchy of needs
Lower-order (external): physiological, safety
Higher-order (internal): social, esteem, self- actualization

4.2 Alderfer’s ERG Theory Existence needs Physiological Relatedness needs How one
individual relates to his/her social environment Growth needs Achievement and self
actualization

4.3. McGregor’s Theory X and Theory Y Theory X Assumes that workers have little
ambition, dislike work, avoid responsibility and require close supervision. Theory Y Assumes
that workers can exercise self-direction, desire responsibility and like to work. Motivation is
maximized by participative decision making, interesting jobs, and good group relations.

4.4 Herzberg’s Motivation-Hygiene Theory Job satisfaction and job dissatisfaction are
created by different factors. Hygiene factors: extrinsic (environmental) factors that create job
dissatisfaction. Motivators: intrinsic (psychological) factors that create job satisfaction.
Attempted to explain why job satisfaction does not result in increased performance. The
opposite of satisfaction is not dissatisfaction, but rather no satisfaction.
11. Contemporary Theories of Motivation Three-Needs Theory Goal-Setting Theory
Reinforcement Theory Job Characteristics Model (JCM) Equity Theory Expectancy Theory
12. McClelland’s Needs Theory Three-Needs Theory There are three major acquired needs
that are major motives in work.
Need for achievement (nAch) The drive to excel and succeed
Need for power (nPow) The need to influence the behavior of others
Need of affiliation (nAff) The desire for interpersonal relationships

5. Job Characteristics Model (JCM):A conceptual framework for designing motivating jobs
that create meaningful work experiences that satisfy employees’ growth needs. Five primary job
characteristics: Skill variety: how many skills and talents are needed? Task identity: does the
job produce a completed work? Task significance: how important is the job? Autonomy: how
independence do the jobholder have? Feedback: do workers know how well they are doing?
16. Job Characteristics Model (Contd.) Combine tasks (job enlargement) to create more
meaningful work. Create natural work units to make employees’ work important and whole.
Establish external and internal client relationships to provide feedback. Expand jobs vertically
(job enrichment) by giving employees more autonomy. Open feedback channels to let
employees know how well they are doing.
 5. Write an essay on Organizational Structure.?

Organizational structure encompasses all the roles and types of jobs within an organization. A
complete organizational chart will show each type of position and how many of these there are
at present. When smaller organizations look at their organizational structures, they usually
focus more on job roles than hierarchy. Small businesses, particularly growing ones, often
change quickly -- adding positions and shifting people's responsibilities as they remain flexible
enough to adapt as to go along. For these businesses, having known definitions of people's roles
can be useful, especially as things change.

Organizational structures typically use one of two approaches:

A centralized structure gives most of the authority and decision-making power to the team at
the top.
A decentralized structure distributes authority and decision-making power at lower levels,
which might include departments, groups, or business units.
A company can be organized in a number of ways. It might be built around divisions, functions,
geography, or with a matrix approach:
A divisional structure is organized around divisions or business units that are self-contained
entities with their own functional departments such as human resources, marketing, and so on.
A functional structure is based on job functions often labeled as departments – finance,
purchasing, etc.
A geographical structure is often used when a company has multiple locations. Each location
operates independently.
With a matrix structure, the company is organized around teams assembled for specific tasks.
Team members usually report to more than one person – the team leader, and the supervisor for
the team member’s functional area.

Organizations are set up in specific ways to accomplish different goals, and the structure of an
organization can help or hinder its progress toward accomplishing these goals. Organizations
large and small can achieve higher sales and other profit by properly matching their needs with
the structure they use to operate. There are three main types of organizational structure:
functional structure, divisional structure and a blend of the two, called matrix structure.

Functional Structure

Functional structure is set up so that each portion of the organization is grouped according to its
purpose. In this type of organization, for example, there may be a marketing department, a sales
department and a production department. The functional structure works very well for small
businesses in which each department can rely on the talent and knowledge of its workers and
support itself. However, one of the drawbacks to a functional structure is that the coordination
and communication between departments can be restricted by the organizational boundaries of
having the various departments working separately.

The Bureaucratic Organization

In large organizations and under well defined conditions, organization structure may be
bureaucratic. The essential elements of a bureaucratic organization are:

o the use of standard methods and procedures for performing work; and
o a high degree of control to ensure standard performance.

Figure 1 illustrates a bureaucratic organizational structure.

Figure.1 Bureaucratic organizational structure

Mintzberg (1981) has identified two types of bureaucracies. They are standard and professional
bureaucracy. Standard bureaucracy is based on efficient performance of standardized routine
work. Professional bureaucracy depends upon efficient performance of standardized but
complex work. Thus, it requires a higher level of specialized skills. The structure of standard
bureaucracy is based on functions, large technical staff and many mid-level managers. In
contrast, professional bureaucracy has few mid-level managers.

Divisional Structure

Divisional structure typically is used in larger companies that operate in a wide geographic area
or that have separate smaller organizations within the umbrella group to cover different types of
products or market areas. For example, the now-defunct Tecumseh Products Company was
organized divisionally--with a small engine division, a compressor division, a parts division and
divisions for each geographic area to handle specific needs.

The benefit of this structure is that needs can be met more rapidly and more specifically, as each
division can operate more or less independently for the other divisions in the company. However,
a divisional arrangement can also be cumbersome, as communication is inhibited because
employees in different divisions are not working together. Divisional structure is costly because
of its size and scope. Small businesses can use a divisional structure on a smaller scale, having
different offices in different parts of the city, for example, or assigning different sales teams to
handle different geographic areas.
Divisionalized organizational design refers to a multiproduct or service design that separates
different products or services to facilitate management planning and control. Different divisions
in the organization can further have simple centralized or functional designs, depending upon
their size and activities. This type of organizational design is favoured when different kinds of
products or services require different kinds of management.
Modern organization designs

Project design

Project design is also called the team or task force type. It is used to coordinate across
departments for temporary, specific and complex problems which cannot be handled by a single
department. This design facilitates inputs from different areas. Members from different
departments and functional areas constitute a team, in which every member provides expertise
in their area of specialization. Such a structure generally coexists with the more traditional
functional designs. An illustration of project type of the organizational structure is given in
Figure 2.

Figure. 2 A Project-type organization

Matrix Structure

The third main type of organizational structure, called the matrix structure, is a hybrid of
divisional and functional structure. Typically used in large multinational companies, the matrix
structure allows for the benefits of functional and divisional structures to exist in one
organization. This can create power struggles because most areas of the company will have a
dual management--a functional manager and a product or divisional manager working at the
same level and covering some of the same managerial territory.
The matrix design blends two different types of designs, namely project and functional
organizational designs (Kolodny, 1979). Since the project type of organizational design is not
considered stable, the matrix design attempts to provide permanent management structures by
combining project and functional structures. The main advantage of this combination is that the
matrix design balances both technical and project goals and allocates specific responsibilities to
both. Technical goals refer to how well work is done, while project goals relate to issues such as
type of work to be done and its costs. Figure 3 shows a very simplified matrix organization
design in which department heads have line authority over specialists in their departments
(vertical structure). Functional specialists are assigned to given projects (horizontal structure).
These assignments are made at the beginning of each project through collaboration between
appropriate functional and project managers.

Figure 3. Matrix organizational structure

Matrix organizations are not without their problems (Davis and Lawrence, 1978):

o Responsibility and jurisdiction are not clearly defined in matrix organizations.

Bosses are also not clearly identified. Consequently, matrix organizations could
lean towards chaos and disorder, and even lead to power struggles unless power
between line and project manager is skilfully balanced.

o Within the organization, matrix organizations may encourage the formation of

cliques since all decisions are made in a group. This could reinforce group
loyalties and create inter-group conflicts.

o Matrix organizations need more human resources, particularly during initial

periods. This means higher overheads and increased expenditure.

o Matrix organization forms are usually found at the lower level of the organization.

Adhocracy
Adhocratic structures are also called 'free form' or organic organization structures. They stress
managerial styles which do not depend upon formal structures. They are well suited for complex
and non-standard work and rely on informal structures. An adhocratic structure is flexible,
adaptive and organized around special problems to be solved by a group consisting of experts
with diverse professional skills (Robbins, 1989). These experts have decision making authority
and other powers. The adhocratic Structure is usually small, with an ill-defined hierarchy. Such
a design is suitable for high technology and high growth organizations where an arranged and
inflexible structure may be a handicap.

Why Is Organizational Structure Important?

There are a number of factors that differentiate small-business operations from large-business
operations, one of which is the implementation of a formal organizational structure.
Organizational structure is important for any growing company to provide guidance and clarity
on specific human resource issues, such as managerial authority. Small-business owners should
begin thinking about a formal structure early in the growth stage of their business.
Organizational Purpose

Organizational structure provides guidance to all employees by laying out the official reporting
relationships that govern the workflow of the company. A formal outline of a company's
structure makes it easier to add new positions in the company, as well, providing a flexible and
ready means for growth.

Significance of Formal Structure

Without a formal organizational structure, employees may find it difficult to know who they
officially report to in different situations, and it may become unclear exactly who has the final
responsibility for what. Organizational structure improves operational efficiency by providing
clarity to employees at all levels of a company. By paying mind to the organizational structure,
departments can work more like well-oiled machines, focusing time and energy on productive
tasks. A thoroughly outlined structure can also provide a roadmap for internal promotions,
allowing companies to create solid employee advancement tracks for entry-level workers.
Flat Organizational Structure

There are relatively few layers of management in what is termed a flat organizational structure.
In a flat structure, front-line employees are empowered to make a range of decisions on their
own. Information flows from the top down and from the bottom up in a flat structure, meaning
communication flows from top-level management to front-line employees and from front-line
employees back to top management.
Tall Organizational Structure

There are numerous layers of management in a tall organizational structure, and often inefficient
bureaucracies. In a tall structure, managers make most operational decisions, and authority must
be gained from several layers up before taking action. Information flows are generally one-way
in a tall structure — from the top down.
Other Considerations

It is common for small businesses to lack a solid organizational structure. All employees in
startup companies can be required to perform a range of tasks outside of their official job
descriptions, and a good number of employees in startups have generous leeway in making
decisions. Aside from that, all employees in a startup generally know who they report to, since
it is usually a single person or group — the owner or partners. It is very important to have a
formal organizational structure in place before your company grows so large that your
unstructured workforce becomes unwieldy.

Purpose of Organizational Structure

Organizational structure is about definition and clarity. Think of structure as the skeleton
supporting the organization and giving it shape. Just as each bone in a skeleton has a function,
so does each branch and level of the organizational chart. The various departments and job roles
that make up an organizational structure are part of the plan to ensure the organization performs
its vital tasks and goals.
Purpose

Organizational structures help everyone know who does what. To have an efficient and properly
functioning business, you need to know that there are people to handle each kind of task. At the
same time, you want to make sure that people aren't running up against each other. Creating a
structure with clearly defined roles, functions, scopes of authority and systems help make sure
your people are working together to accomplish everything the business must do.
Function

To create a good structure, your business has to take inventory of its functions. You have to
identify the tasks to be accomplished. From these, you can map out functions. Usually, you
translate these functions into departments. For example, you have to receive and collect money
from clients, pay bills and vendors, and account for your revenues and expenditures. These tasks
are all financial and are usually organized into a finance or accounting department. Selling your
products, advertising, and participating in industry trade shows are tasks that you can group
under the umbrella of a marketing department. With differing ways to organize the tasks, you
can always choose something less traditional. But in all cases, organizational structure brings
order to the list of tasks.
Considerations

Employees do best when they know who to report to and who is responsible. Organizational
structure creates and makes known hierarchies. This can include the chain of command within
an organization. A good organizational chart will illustrate how many vice presidents report to a
president or CEO and in turn, how many directors report to a vice president and how many
employees report to a director. In this way, everyone knows who has say over what and where
they are in the scope of decision-making and responsibility. Hierarchy can also include macro-
level management. For example, one department may comprise several teams. Perhaps several
departments form one division of a company, and that division has a vice president who oversees
all the departments and teams within it.
Features

Choosing the organizational structure

Organization design is a continuous process. While a simple design is needed for simple
strategies, complex designs are necessary when organizational strategies involve complex
interactions.

The choice of any type of organizational design should be in consonance with the organizational
requirements, strategy and environment. The simple centralized and bureaucratic organizational
design based on functional departmentation focuses on work and is thus better suited for getting
work done efficiently. The team or project type of organizational design is appropriate where
inputs from several functional areas are required. The divisional structure is appropriate if
performance and results are to be assessed. Matrix and adhocratic designs focus on coordination
and relationship.