ORGANISATION THEORY TOPIC 6

ORGANISATION THEORY TOPIC 6

ORGANISATION STRUCTURE AND DESIGN

COVERAGE AREA:

Organisational Design and Organisational Structure, Organisational Design–Basic Challenges; Differentiation and Integration Process; Centralization and Decentralization Process; Standardization / Formalization and Mutual Adjustment. Coordinating Formal and Informal Organizations. Mechanistic and Organic Structures Designing Organizational structures–Authority and Control; Line and Staff Functions, Specialization and Coordination. Types of Organization Structure –Functional. Matrix Structure, Project Structure.

INTRODUCTION

Organizational structure refers to how the work of individuals and teams within an organization is coordinated. In order to achieve organizational goals and objectives, individual work needs to be coordinated and managed. Structure is a valuable tool in achieving coordination, as it specifies reporting relationships (who reports to whom), delineates formal communication channels, and describes how separate actions of individuals are linked together.

Organizational mission is expressed in terms of organizational goals. Organizational structure plays as important role in attaining these goals.

Any organization when it starts has a small structure and it takes a mega form as it develops. The development is both vertical and horizontal. Vertical structure indicates the line authority and reporting channel. Horizontal structure indicates the division of work and specialization.

It has been observed that the formation of organizational structure is subject to influence of various people who have a say in the organization and therefore there exist a divergence between planned and operating organizational structure.

Koontz and Donnel have defined organizational structure as ‘the establishment of authority relationships with provision for coordination between them, both vertically and horizontally in the enterprise structure’

Good organizational structure indicates the following:

  • formal reporting hierarchy right from the lowest level of worker to the highest level of board of directors
  • Grouping of identical activities in one department so that equipment, machines, processes and expertise can be developed at one place under the guidance of one departmental head.
  • Coordination of various activities and coordinating authority
  • Individual, group and departmental goals should be laid down
  • lateral and vertical relationship with particular reference to seniority must be laid down
  • Standing orders, policies, procedures, drills, rules and regulations to be clearly laid down

 

FORMS OF ORGANIZATION STRUCTURE:

Mechanistic form of organizational structure:

  • based on formalized system that is relatively rigid in nature
  • applicable to those organizations that are not influenced by technological, product, market changes and generally maintains a constant pattern
  • authority is centralized
  • plenty of written orders and instructions

 

Organic form of organizational structure:

  • Generally adopted by organizations those are subject to change due to environmental factors like technology, market changes and product development
  • authority is delegated to various functional levels/individuals i.e.  Decentralised decision making
  • very few levels of organizational hierarchy

 

organisation structure

 

CONCEPTS OF ORGANIZATIONAL STRUCTURE

Centralisation and Decentralisation

Centralisation refers to reservation of authority for decision making at top level of management. Lower levels are responsible for implementing the decisions. Centralisation is found where the organization structure do not have many layers and it is relatively flat. It is found where subordinates are not trained to handle higher jobs, where there is a lack of trust in subordinates and the intricacy or the magnitude of work that demands centralized control.

For example, in the banking services, authority to sanction loan for projects etc is reposed in a particular authority, may be general manager of the bank and subordinates are only responsible to project the case

Decentralisation on the other hand refers to authority being delegated to various levels of organization for making appropriate decisions. In decentralized organizations, individuals at lower levels are authorized to make decisions pertaining to their jobs that give them autonomy.

Flat organizational structure is ideal to have a decentralized command and control especially in the present environment where specialization, information technology, competencies, work teams , work group culture and systems prevail.

Following guidelines determine whether there should be centralization or decentralization:

  • Mission, goals and objectives of the organization.
  • Size of the organization and complexity of the work.
  • Geographical location of customers
  • Competency of subordinates

Span of Management

In a classical organization, effectiveness and efficiency is determined by number of people a manager can handle effectively.  The basic principle of span of management is an ability of a manager to effectively supervise a finite number of people. It has been established that at higher levels a manager can control four to eight people while at lower levels eight to fifteen people can be supervised. Span of management is of two types:

Wide Span – suitable where work is delegated to work groups and teams and there is near autonomy in work environment. Clear policies are laid down and subordinates display a high degree of sense of responsibility.

Narrow Span – In narrow span there are number of organizational layers and each of the individual is accountable to his leader. This type of structure is too costly. There is no freedom of work as supervisor’s tend to get too much involved in the job of subordinates.

RELATED CONCEPTS:

Organizational charts are generally used for providing a picture of organization at a glance. They are indicative of level of authority, relationship (as it is related to each other’s duties and responsibilities). These could be depicted in various forms (a) Skeleton form, expressed only by lines. (b) Function wise for each appointment. (c) Indicating names along with designation

Standing Orders are duties that each of the individuals is required to perform in the organization. Standing orders are extensively written instructions in defence organizations.

Policies are general guidelines which are required to be considered by a manager while performing his work. Since these are guidelines, they are changeable considering the situation at a particular time.

Rules on the other hand are prescribed code of conduct, which is required to be followed by every individual in the organization. They are rigid form of instructions like leave rules.

Procedures are written instructions as to how a work is to be done, what does it involve and the sequence to be undertaken.

Good organizational structure facilitates the following:

Every individual has to perform certain activities in the organization. He is responsible to accomplish the same and therefore certain amount of power and authority is given to him. It is therefore necessary that an ideal structure is formed that will facilitate accomplishment of organizational objectives.

Identical activities are grouped together in order to facilitate efficient functioning and achievement of results. Organizational structure is therefore needed for integration of diversed activities.

It is necessary that idle machine time is avoided, capacity is fully utilized and operations of production in particular and other functions are regulated to achieve utilization of resources. Bottlenecks are avoided and smooth flow of activities is achieved. This is possible once a well thought out organizational structure is formed with specific functions allotted to each of the employees in the organization.

Steps in Formation of Organizational Structure

  1. Determination of organizational goals and identification of related activities
  2. Grouping of Identical activities leading to formation of department and sections.
  3. Delegation of authority matching with one’s roles & responsibilities

ORGANISATION DESIGN

According to Sargent and McConnell, “Organizational design can be defined as a process for improving the probability that an organization will be successful by assessing and re-shaping structure and positions to better meet (business) goals”.

Determinants of Organizational Design:

  • Environment: the more dynamic and uncertain the environment, the greater the need for flexibility. Hence, the organic structure will lead to higher organizational effectiveness. Conversely, .in stable and predictable environments, the mechanistic form will be the structure of choice.
  • Strategy: The relationship between strategy and structure can be thought in terms of utilizing structure for strategy implementation because structure is a means to an end and not an end in itself. Without coordination between strategy and structure, the most likely outcomes are confusion, misdirection, and splintered efforts within the organization.
  • Size: Small organizations are very often organic systems. Larger organizations are often mechanistic – mechanistic systems are usually designed to maximise specialisation and improve efficiency.
  • Organization Life-Cycle: Like humans, most organizations go through the following four stages: birth, growth, decline, death. The older the organization and the larger the organization, the greater it’s need for more structure, more specialization of tasks, and more rules. Thus, greater the likelihood that it will move from an organic structure to a mechanistic structure.
  • Technology: Advances in technology are the most frequent cause of change in organizations since they generally result in greater efficiency and lower costs for the firm. In general, the more routine the technology, the more standardized the structure can be.
  • Organizational Culture: If the organization believes that employee behaviour should be tightly controlled SO as to conform to given norms, the organization structure will be highly centralized with closed supervision down the line. On the other hand, if the organization values individual freedom of choice, the structure will be loose and flexible allowing for exercise of self-direction and self-control by its employees.

COMPONENTS OF ORGANISATION DESIGN:

DIFFERENTIATION:

  • deciding how to divide the work in an organization,
  • leads to specialisation and functional expertise
  • Three forms of differentiation are as follows:
  1. Horizontal Differentiation (often referred to as departmentalisation): dividing and grouping the activities and employees of an enterprise into various departments, division of the total work of an enterprise into individual functions and sub-functions.
  2. Vertical Differentiation: measured in terms of the number of hierarchical levels (Authority-Responsibility levels), as the size of an organization increases, the need for greater vertical differentiation also increases.
  3. Spatial Differentiation: geographic dispersion of an organization’s offices, plants and personnel.

INTEGRATION:

  • extent to which various parts of the organization interact, coordinate, and cooperate with each other.
  • primary benefit of integration is the coordinated actions of different people and activities to achieve a desired organizational objective.
  • Some integrating mechanisms used in organisation:
  1. Hierarchy of Authority
  2. Direct contact among different managers
  3. Liaison Officers & Full Time Managers in Integrating Role to coordinate different Managers/Roles/Functions
  4. Temporary Taskforces under which one member of each function or division is assigned to a taskforce created to solve a specific problem
  5. Permanent Teams if issues addressed by taskforce are of recurring nature

 

CENTRALISATION

  • retention or concentration of managerial authority in a relatively few key managerial positions at the nerve centre of an organization
  • Advantages of Centralization: It allows Top Managers to coordinate organisational activities in an effective manner and keep organisation focused on goals. It also leads standardization of Procedures and systems which leads to greater efficiency, effective evaluation and comfort in handling emergency situations.
  • Disadvantages of Centralization:  Destroys Individual Initiative, Over-Burdens a Few Persons, Slows Down the Operations, Distances Policy Makers from Customers.

DECENTRALISATION:

  • delegation of authority to lower level employees or departments
  • authority is retained at the top management level for taking major decisions and framing policies
  • the middle and lower level managers are entrusted with authority for taking decisions on tasks assigned to them
  • Degree of decentralisation depends upon the organisation’s growth strategies, outlook of top management, size and span of operations, extent of diversification and availability of able managers.

Advantages of Decentralization:

  • Frees Top Management from Operational Responsibilities
  • Development of Future Managers
  • Facilitate Better and Speedier Decisions
  • Permit Management by Objectives and Self-Control

 

Disadvantages of Decentralisation:

  • Increased Administrative Expenses (Training managers etc.)
  • Difficulty in coordination
  • Unsuitable for Small Organizations
  • Inconsistencies & lack of Standardization
  • Narrow Outlook of Executives hampers organisation’s overall performanceextent to which jobs and the procedures for carrying out these jobs are precisely and clearly defined.

 

STANDARDISATION

  • can be applied to tasks that are routine, problems that are analysable, decisions that can be programmed, and for which appropriate instruction manuals can be developed
  • involves uniformity in inputs, processes & outputs – inputs are standardised when all workers receive the same training or when certain types of training are required for filling a position. Processes are standardised by the use of guidelines, rules, and policies. Outputs are standardised when the dimensions of the output are specified and defined.

Mutual Adjustment:

  • process through which people use their judgment rather than standardised rules to address problems, guide decision-making, and promote coordination.
  • gives employees the freedom to behave flexibly so that they can respond to new and changing situations creatively.

Designing Organizational structures–Authority and Control; Line and Staff Functions, Specialization and Coordination.

Authority: 

  • defined as the power and right of a person to use and allocate the resources efficiently, to take decisions and to give orders so as to achieve the organizational objectives.
  • Authority always flows from top to bottom.
  • Authority should be accompanied with an equal amount of responsibility.
  • Delegating the authority to someone else doesn’t imply escaping from accountability.
  • Authority is needed to perform any task as it provides:
  • Right to make Decisions
  • Power to hold others accountable

 

5 levels of Authority and Control in Modern Organisations:

  1. Owners/Shareholders
  2. BOD
  3. CEO, President, VP
  4. Divisional Manager
  5. Functional Manager

Delegation of Authority

It must be remembered that delegation of authority to lower levels does not absolve the delegater the responsibility or the consequences of the actions of their subordinates. This is one reason why managers do not delegate authority to their subordinates.

Control:

It is a basic managerial function which consists of those activities which are necessary to ensure that performance takes place in accordance with the targets laid down by the management. It also involves taking corrective action in case the performance is not satisfactory. Control is a facilitative function that promotes coordination in the organisation.

Controls help in measuring progress, policy verification, setting accountability, uncover deviations and initiating corrective actions.

Line and Staff Functions:

The functions of a department can be as a line or a staff. The functions which have a direct responsibility of achieving the targets for production or sales are line functions. The staff functions are those which do not participate directly in the activity but aid line functions to achieve the targets. Production Planning, Marketing, Purchasing, etc., are staff functions. The distinction is more clear and precise at higher levels. The staff function is advisory but owns the responsibility for the results and in accountable for non-performance.

Conflict between Line and Staff Functions:

Line and staff managers are supposed to work harmoniously to achieve the organizational goals. But their relationship is one of the major sources of conflict in most organizations. Since such conflicts lead to loss of time and organizational effectiveness, it is always desirable to identify the sources of such conflicts and initiate necessary action to overcome them.

The line managers may think that staff personnel are not accountable for their actions as they have no direct responsibility in core functions of the organizations. The line positions may not give due consideration to the advice of the staff personnel thinking that they have no experience in operational activities and hence their recommendations and ideas may lack applicability.

At this, staff managers may feel that line managers do not make the right use of talents of the staff personnel and are not open to new ideas. Since staff personnel lack authority, they may not be able to implement their solutions for problems. This creates and embarrassing situation for the staff personnel.

Coordination:

Coordination is a process to establish harmony among the different activities of an organisation, so that the desired objectives can be achieved.

Features of Coordination:

(1) Coordination Integrates Group Effort

(2) Coordination Ensures Unity of Action

(3) Coordination is a Continuous Process

(4) Coordination is an All-pervasive Function

(5) Coordination is the Responsibility of All Managers

(6) Coordination is a Deliberate Function

Cooperation vis-a-vis Coordination:

Only cooperation does not suffice but coordination is also needed. For example, a teacher aspires to teach effectively (this is cooperation) but the timetable is not prepared in the school (this is lack of coordination).

In this situation, classes cannot be arranged for. Here, the effort made by the teacher is meaningless, in the absence of coordination. On the other hand, in the absence of cooperation, coordination dissatisfies the employees. Thus, both are required at a given point of time.

Specialisation:

Work Specialization is the degree to which tasks in an organization are divided into separate jobs. In some companies or organizations this is also referred to as division of labor. Work specialization is something that helps companies become more efficient, and productive.

The purpose of job specialization is to split up the process of work into individual tasks that is necessary for the organization or business and that cannot be handled by one person. Work specialization has its own advantages and disadvantages. There needs to be a balance of having work specialization and at the same time allowing workers to switch in between or shuffle their responsibilities.

BASIC CHALLENGES IN ORGANISATION DESIGN:

Balancing Differentiation and Integration: Managers need to be sure they do not differentiate or integrate their organization too much, since both have their own costs. Managers must balance the two by using differentiation for building core competencies and choose appropriate integrating mechanisms to coordinate those competencies.

Balancing Centralization and Decentralization:  If authority is too much decentralized, managers get unlimited freedom & they may pursue their own functional goals and objectives at the expense of organizational goals. On the other hand, if authority is too centralized and top management makes all important decisions, managers lower down the hierarchy will be afraid to try new moves and will lack the freedom to respond to problems arising in their own groups and departments. The ideal situation is such a balance between centralization and decentralization that middle and lower managers are allowed to make important operating decisions and top managers’ manage long-term strategic decision-making.

Balancing Standardization and Mutual Adjustment:  Managers facing the challenge of balancing standardization with mutual adjustment need to keep in mind that, in general, people at higher levels in the hierarchy and in functions who perform complex, uncertain tasks rely more on mutual adjustment than on standardization. For all organizational roles, the appropriate balance between these two variables is one that promotes creative and responsible employee behaviour as well as organizational effectiveness.

Impact of information Technology (IT) on Organization Design & Structure:

  • Smaller Organizations with some organisations existing wholly in cyberspace. Also, IT systems automatically handle many administrative duties, reducing the need for clerical staff.
  • Decentralized Organizational Structures: Information can be, quickly and easily shared throughout the organization, even across great geographical distances through use of IT technologies like telecommuting, thus boosting coordination among different decentralised units. Further, managers in varied business divisions need to have the information to make important decisions quickly rather than waiting for decisions from top level.
  • Improved Horizontal Coordination: Intranets and other networks can connect people even when their offices, factories, or stores are scattered around the world. Managers can communicate with one another and can also provide key information to employees across the organization in just a few clicks.
  • Improved Interorganizational Relationship i.e.  with external parties such as suppliers, customers, and partners. Extranets are increasingly important for linking companies with contract manufacturers and outsourcers.
  • Managing of Large Diverse Organisations would not have been possible without the use of IT technologies.
  • Introduction of new separate IT department in the enterprises is only because of the great impact IT exerts on each & every activity of the organisation.

 

Types of Organization Structure –Functional. Matrix Structure, Project Structure

Functional Organization Structure

  • most commonly used type of organization structure.
  • organization is grouped into various departments where people with similar skills are kept together in forms of groups; e.g. sales department, marketing department, finance department, etc.
  • organizational chart for a functional organization structure shows the president, vice president, finance department, sales department, customer service department, administration department, etc.
  • Here all authority (i.e. budget allocation, resource allocation, decision making, etc.) stays with the functional manager.
  • Suitability:  for an organization which has ongoing operations and produces standard products or goods, such as manufacturing industries.
  • Merits: Functional Specialisation leading to efficient HR usage, Role Clarity w.r.t each function, Better Supervision & Control, Easy Expansion & Quick Staffing as pre-determined functional qualifications.
  • Demerits: Sub-unit (functional) goal gaining precedence over organisational goals, Inter-function conflict, Fail to develop overall managers to take on future top level positions, slow decision making, violation of unity of command as different functional heads direct workers.

Project Organisation Structure:

It is a temporary organisation designed to achieve specific results by using teams of specialists from different functional areas in the organisation.

Project members are chosen for their special capabilities in the light of the goals to be accomplished from different functional departments, viz., production, engineering, quality control, marketing etc.

When the project has been completed, this task force is dissolved and personnel are returned to their regular organization units or to new projects.

Some of the examples of projects are: research and development projects, product development, construction of a new plant, housing complex, shopping complex, bridge etc.

Merits: High performance due to focussed deployment of available resources, Executive Development by handling diversified assignments, Timely completion of project/task, Availability of support of functional heads.

Demerits: Authority Gap – Project Manager is responsible for project completion while Functional Manager has commanding authority over employees. Difficulty in coordination among different functional specialists, Identity problem of team members – Dual Loyalty towards Functional & Project Managers – Also violates Unity of Command.

Matrix Organisation Structure:

  • combination of two or more types of organizational structures, such as the projectized organization structure and the functional organization structure.
  • In a matrix structure, some employees usually work under more than one boss – functional & project.

 

  • suitable for construction, heavy equipment making, aerospace, marketing research, installation of EDP system & management consultancy firms.
  • Advantages: Result Oriented, Flexible, Maintenance of Professional identity, Emphasis on Professional competence, Continuous development of employees by participating in different projects.
  • Disadvantages: Reporting Confusions as two managers, Managerial Conflicts b/w functional & project managers, More managers increase overhead cost, Huge workload on employees.

MINTZBERG’S ORGANISATION MODEL:

Mintzberg describes five main parts of the organisation:

Strategic Apex: full time top managers;
Operating Core: the basis of the organisation, where people do the basic work, the core business: making the products or delivering services (shop floor);
Middle Line: a hierarchy of authorities between apex and core (middle management);
Techno-structure: outside the line, often directed towards standardisation of the work (staff);
Support: indirect support of the operating core, of the standardised work.

Upon this base Mintzberg describes five configurations, characterised by the way in which one of the five parts of the organisation is having a key role and in which one of the five coordinating mechanisms is central.

Simple structure: based on direct supervision, the strategic apex has the key position. Vertical and horizontal centralisation..
Machine bureaucracy: based on standardisation of working processes. Techno-structure has the key position. Limited horizontal decentralisation.
Professional organisation: based on standardisation of skills. Operating core has key position. Vertical and horizontal decentralisation.
Division organisation: based on standardisation of output. Key role for the middle line. Limited vertical decentralisation.
Ad-hocracy: based on mutual adjustment. Key role for the support structure, sometimes together with operating core. Selective decentralisation.

Later on Mintzberg added a sixth configuration: The idealistic organization: based on standardization of norms and values.

 

Miles and Snow’s Classification of Organisations:

Miles and Snow classified organizations based on the rate at which the companies change their products or markets. The types of organization that they identified are shown below:

Defenders are organizations

  • which have narrow product-market domains.
  • Top managers in this type organization are highly expert in their organization’s limited area of operation.
  • but do not tend to search outside their narrow domains for new opportunities.

Prospectors are organizations

  • which almost continually search for market opportunities, and
  • they regularly experiment with potential responses to emerging environmental trends.
  • Thus, these organizations often are the creators of change and uncertainty to which their competitors must respond.

Analyzers are organizations

  • which operate in two types of product-market domains, one relatively stable, the other changing.
  • In their stable areas, these organizations operate routinely and efficiently through use of formalized structures and processes.
  • In their more turbulent areas, top managers watch their competitors closely for new ideas, and then rapidly adopt those which appear to be the most promising.

Reactors are organizations

  • in which top mangers frequently perceive change and uncertainty occurring in their organizational environments
  • but are unable to respond effectively.
  • Because this type of organization lacks a consistent strategy-structure relationship, it seldom makes adjustments of any sort until forced to do so by environmental pressures.

 

Classification vis-a-vis Organisation Structure:

Defenders and Prospectors are the two pure strategic types that are at opposite ends of the continuum yet both focus on growth and increasing market share. Analyzers, in contrast, are hybrid organizations operating in two types of product-market domains, one relatively stable, the other continually changing. In their stable areas, these organizations operate routinely and efficiently through use of formalized structures and processes. In their more turbulent areas, top managers watch their competitors closely for new ideas, and then rapidly adopt those which appear to be the most promising. Typically Analyzers follow a matrix organizational structure and control is often difficult.

Reactors are the final strategic type. In these organizations, change and uncertainty occurs but firms are unable to effectively respond. Because this type of organization lacks a consistent strategy-structure relationship, it seldom makes adjustments of any sort until forced to do so by environmental pressures. Reactor managers either fail to articulate a viable organizational strategy or have a strategy that does not link to the firm’s technology or process structure or is not relevant to the environment.

Questions:

  1. Organisation structure influences the division of tasks, grouping of activities, coordinating of activities and overall accomplishment of tasks. In the light of this statement, discuss various components of organisation structure. (UPSC 2013)
  2. Practically, it is not possible to determine whether an organisation is centralised or decentralised merely by looking at the organisation chart. The determining factor is how much of decision making is retained at top level and how much is delegated to lower levels. Examine this keeping in mind the team organisations have emerged in recent years. (UPSC 2013)
  3. Organisation designs may involve strategic decisions but is properly viewed as path to effective strategic communication. Explain it and discuss basic principles of organisation design. (UPSC 2011)
  4. In post modern organisations are traditional concepts like line and staff functions irrelevant ? Do you think so? Give arguments in support of your answer. (UPSC 2015)
  5. Explain the following – Problems in matrix organisation structure (UPSC 2014)
  6. There is a positive relation between Organisation’s environment and its structural design. Make an analysis of the same, suggest steps to design an organisation. (UPSC 2014)
  7. According to Hendry Mintzberg, how does power dynamics between various parts of organisation result in different structural forms of organisation? What are these structural forms and how do they effect organisation’s effectiveness? (UPSC 2015)
  8. Centralisation and Decentralisation do not exist in organisation but they also reinforce each other. Elaborate with illustrations. (UPSC 2010)
  9. In what ways, IT has forced influenced many organisations to restructure themselves? Explain with suitable examples. (UPSC 2010)
  10. Explain the following: specialisation vs professionalisation (UPSC 2013)
  11. Organisation is not a single entity but a managed configuration of different parts. Discuss the relevance of the statement by using framework proposed by Mintzberg. (UPSC 2012)
  12. Miles and Snow had classified organisations into four types depending on the strategy of each organisation. What should be the features of corresponding organisation design? (UPSC 2012)
  13. Organisation design may involve strategic decisions but is properly viewed as path to effective strategy execution. Explain it and discuss the various principles of organisation design. (UPSC 2011)
  14. Explain the following- strategy – structure relationship. (UPSC 2016)
  15. The relative advantages of functional structure of organisation are like two edged swords. What are the implications of this statement? (UPSC 2016)

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