Organizational Design

Organizational Design - the process of

constructing and adjusting an organizations
structure to achieve its goals.
Step by step removes dysfunctional aspects of
structure .
The process focuses on improving both
technical & people side of business
Realigns work flow, procedure, structure &
system to fit current business realities

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Benefits
Excellent customer service
Increase profitability
Reduce operating cost
Improved efficiency
For managing & growing business.
Integrates people with core business , process ,
technology & system

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Organisations that dont renew suffer

Inefficient workflow with breakdown
Lack of ownership
Delay in decision making
Mistrust between workers & management
Redundancies in effort
Lack of knowledge & focus on customer
Cover up blame rather than identifying & solving
problems.

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Steps in Design Process

Charter the design process
Assess the current state of the business
Design the new organisation
Implement the design

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Common Organizational Designs

Traditional Designs
Simple structure

Low departmentalization, wide spans of control, centralized

authority, little formalization

Functional structure

Departmentalization by function
Operations, finance, marketing, human resources, and
product research and development

Divisional structure

Composed of separate business units or divisions with limited

autonomy under the coordination and control the parent
corporation.

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Exhibit 97 Strengths and Weaknesses of Traditional

Organizational Designs

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Exhibit 98 Contemporary Organizational Designs

Team Structure
What it is:

A structure in which the entire organization is made up of

work groups or teams.

Advantages:

Employees are more involved and empowered. Reduced

barriers among functional areas.

Disadvantages:

No clear chain of command. Pressure on teams to perform.

Matrix-Project Structure
What it is:

A structure that assigns specialists from different functional

areas to work on projects but who return to their areas when
the project is completed. Project is a structure in which
employees continuously work on projects. As one project is
completed, employees move on to the next project.

Advantages:

Fluid and flexible design that can respond to environmental

changes. Faster decision making.

Disadvantages:

Complexity of assigning people to projects. Task and

personality conflicts.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

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Exhibit 98 (contd ) Contemporary Organizational

Designs
Boundaryless Structure
What it is:

A structure that is not defined by or limited to artificial

horizontal, vertical, or external boundaries; includes virtual
and network types of organizations.

Advantages:

Highly flexible and responsive. Draws on talent wherever its

found.

Disadvantages:

Lack of control. Communication difficulties.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

98

Organizational Designs (contd)

Contemporary Organizational Designs
Team structures

The entire organization is made up of work groups or selfmanaged teams of empowered employees.

Matrix and project structures

Specialists from different functional departments are

assigned to work on projects led by project managers.

Matrix and project participants have two managers.

In project structures, employees work continuously on

projects; moving on to another project as each project is
completed.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

99

Organizational Designs (contd)

Contemporary Organizational Designs (contd)
Boundaryless Organization

An flexible and unstructured organizational design that is

intended to break down external barriers between the
organization and its customers and suppliers.

Removes internal (horizontal) boundaries:

Eliminates the chain of command
Has limitless spans of control
Uses empowered teams rather than departments

Eliminates external boundaries:

Uses virtual, network, and modular organizational
structures to get closer to stakeholders.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

910

Organizational Designs (contd)

The Learning Organization
An organization that has developed the capacity to
continuously learn, adapt, and change through the
practice of knowledge management by employees.
Characteristics of a learning organization:

An open team-based organization design that empowers

employees

Extensive and open information sharing

Leadership that provides a shared vision of the organizations

future.

A strong culture of shared values, trust, openness, and a

sense of community.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

911

Designing Organizational Structure

Organizational Design
A process involving decisions about six key elements:

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

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Exhibit 91 Purposes of Organizing

Divides work to be done into specific jobs and
departments.
Assigns tasks and responsibilities associated with
individual jobs.
Coordinates diverse organizational tasks.
Clusters jobs into units.
Establishes relationships among individuals,
groups, and departments.
Establishes formal lines of authority.
Allocates and deploys organizational resources.
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913

Approaches to Organisational
Design
Functional Structure
Divisional Structure
Matrix Structure
Team Structure
Network Structure

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Functional structure

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Functional structure
Advantages
Specialization each department focuses on its own
work
Accountability someone is responsible for the section
Clarity know your and others roles
Learning- from one another

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Functional structure

Disadvantages
Closed communication could lead to lack
of focus.
Departments can become resistant
to change.
Coordination .
Customer problem.

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Multidivisional Structure.
Consumer Products Company.

CEO

Corporate Headquarters Staf

Corporate
Managers

Divisional
Managers

Senior VP

Senior VP

Senior VP

Senior VP

Marketing

Finance

Materials

Research and

Management

Development

Division A

Division B

Division C

Division D

Support functions

Support functions

Support functions

Support functions

Functional
Managers

4-21
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ADVANTAGES
Increased Organizational Effectiveness.
Increased control.
Profitable growth.
Internal Labour Market.

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DISADVANTAGES
Managing the Corporate- Divisional relationship.
Coordination problems between divisions.
Transfer pricing.
Bureaucratic costs.
Communication Problems.

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CEO

Matrix Structure

07/26/15

Vice President Vice President Vice President Vice President Vice President
Sales and
Finance
Research and Purchasing
Engineering
Marketing
Development

Product A
Manager

Product B
Manager

Product Team

Product C
Manager

Product D
Manager

Two-boss employee
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Advantages of a Matrix
Structure
1. Uses cross-functional teams.
2. Better communication between functional
specialists, opportunity for learning, progress,
innovation.
3. Enables organization to maximize its use of skilled
professionals, who move from product to product
as needed.
4. The dual functional and product focus promotes
concern for both cost and quality.

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Disadvantages of a Matrix
Structure
1. Lacks the advantages of bureaucratic structure
role ambiguity, role conflict
2. Conflict between function and product teams
over the use of resources, power.
3. Lack of coordination, stress, uncertainty.
4. Over a time, people experience a vacuum of
authority and responsibility.

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Network Structure
A recent innovation in organizational
architecture is the use of network structures.
A network structure is a cluster of different
organizations whose actions are
coordinated by contracts and agreements
rather than through a formal hierarchy.

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Network Structure
Network structures often
result from outsourcing.
Outsourcing is the process of moving
activities that were previously performed
inside the organization to the outside
(where they are done by other companies).
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Advantages of Network
Structure
1. Organization can find a network partner
reduction in production cost.
2. Avoids the high bureaucratic costs of operating
a complex organizational structure.
3. Organization acts in organic way.
4. Organization can gain access to low cost
foreign sources of inputs and functional
expertise.
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Disadvantages of Network
Structure
1. Outsourcing ??
2. Coordination problem- different companies
perform different parts of the work.
3. Trust among groups, Trust that outsourcing will
not leak confidential information of company to
its competitors.

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Merits & Demerits of Organisational Design

Clarity
Growth
Adaptability
Opportunities

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Organizational Structure
Work Specialization
The degree to which tasks in the organization are
divided into separate jobs with each step completed
by a different person.
Overspecialization can result in human diseconomies
from boredom, fatigue, stress, poor quality, increased
absenteeism, and higher turnover.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

929

Departmentalization by Type
Functional
Grouping jobs by
functions performed

Product
Grouping jobs by product
line

Geographical

Process
Grouping jobs on the
basis of product or
customer flow

Customer
Grouping jobs by type of
customer and needs

Grouping jobs on the

basis of territory or
geography

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

930

Organizational Structure (contd)

Chain of Command
The continuous line of authority that extends from
upper levels of an organization to the lowest levels of
the organization and clarifies who reports to whom.

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931

Organizational Structure (contd)

Authority
The rights inherent in a managerial position to tell
people what to do and to expect them to do it.

Responsibility
The obligation or expectation to perform.

Unity of Command
The concept that a person should have one boss and
should report only to that person.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

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Organizational Structure (contd)

Span of Control
The number of employees who can be effectively and efficiently
supervised by a manager.

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933

Exhibit 93 Contrasting Spans of Control

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Organizational Structure (contd)

Centralization
The degree to which decision making is concentrated
at upper levels in the organization.

Organizations in which top managers make all the decisions

and lower-level employees simply carry out those orders.

Decentralization
Organizations in which decision making is pushed
down to the managers who are closest to the action.

Employee Empowerment
Increasing the decision-making authority (power) of
employees.
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935

Exhibit 94 Factors that Influence the Amount of

Centralization and Decentralization

More Centralization
Environment is stable.
Lower-level managers are not as capable or experienced at
making decisions as upper-level managers.
Lower-level managers do not want to have a say in decisions.
Decisions are relatively minor.
Organization is facing a crisis or the risk of company failure.
Company is large.
Effective implementation of company strategies depends on
managers retaining say over what happens.
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

936

Exhibit 94 (contd) Factors that Influence the Amount

of Centralization and Decentralization

More Decentralization
Environment is complex, uncertain.
Lower-level managers are capable and experienced at making
decisions.
Lower-level managers want a voice in decisions.
Decisions are significant.
Corporate culture is open to allowing managers to have a say in
what happens.
Company is geographically dispersed.
Effective implementation of company strategies depends on
managers having involvement and flexibility to make decisions.
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

937

Exhibit 95 Mechanistic Versus Organic Organization

High specialization

Cross-functional teams

Rigid departmentalization

Cross-hierarchical teams

Clear chain of command

Free flow of information

Narrow spans of control

Wide spans of control

Centralization

Decentralization

High formalization

Low formalization

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

938

Removing External Boundaries

Virtual Organization
An organization that consists of a small core of full-time
employees and that temporarily hires specialists to work on
opportunities that arise.

Network Organization
A small core organization that outsources its major
business functions (e.g., manufacturing) in order to
concentrate on what it does best.

Modular Organization
A manufacturing organization that uses outside suppliers to
provide product components for its final assembly
operations.
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

939

Todays Organizational Design

Challenges
Keeping Employees Connected
Widely dispersed and mobile employees

Building a Learning Organization

Managing Global Structural Issues
Cultural implications of design elements

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

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