DIMENSIONS OF ORGANIZATION DESIGN

Organizations shape our lives, and well-informed managers can shape organizations.

Structural Dimensions

1. Formalization the amount of written documentation in the organization.

Documentation includes procedures, job descriptions, regulations, and policy manuals. These
written documents describe behavior and activities.
Formalization is often measured by simply counting the number of pages of documentation within
the organization.
Large state universities, for example, tend to be high on formalization because they have several
volumes of written rules for such things as registration, dropping and adding classes, student
associations, dormitory governance, and financial assistance. A small, family-owned business, in
contrast, may have almost no written rules and would be considered informal.

2. Specialization is the degree to which organizational tasks are subdivided into separate
jobs. If specialization is extensive, each employee performs only a narrow range of tasks. If
specialization is low, employees perform a wide range of tasks in their jobs. Specialization is
sometimes referred to as the division of labor.

3. Hierarchy of authority describes who reports to whom and the span of control for each
manager. The hierarchy is depicted by the vertical lines on an organization chart. The hierarchy is
related to span of control (the number of employees reporting to a supervisor).
When spans of control are narrow, the hierarchy tends to be tall. When spans of control are wide,
the hierarchy of authority will be shorter.

4. Centralization refers to the hierarchical level that has authority to make a decision. When
decision making is kept at the top level, the organization is centralized. When decisions are
delegated to lower organizational levels, it is decentralized. Examples of organizational decisions
that might be centralized or decentralized include purchasing equipment, establishing goals,
choosing suppliers, setting prices, hiring employees, and deciding marketing territories.

5. Professionalism is the level of formal education and training of employees. Professionalism is

considered high when employees require long periods of training to hold jobs in the organization.
Professionalism is generally measured as the average number of years of education of employees,
which could be as high as twenty in a medical practice and less than ten in a construction company.

6. Personnel ratios refer to the deployment of people to various functions and departments.
Personnel ratios include the administrative ratio, the clerical ratio, the professional staff ratio, and
the ratio of indirect to direct labor employees. A personnel ratio is measured by dividing the
number of employees in a classification by the total number of organizational employees.
Departmentalization
• After deciding what job tasks will be done by whom, common work activities need to be
grouped together (departmentalization). So work gets done in a coordinated and
integrated way.
• One popular departmentalization trend is cross-functional teams, which are work teams
composed of individuals from various functional specialties.

There are 5 common ways of departmentalization:

• Functional: Grouping jobs by functions performed
• Geographical: Grouping jobs on the basis of geography
• Product: Grouping jobs by product line
• Process: Grouping jobs on the basis of manufacturing process flow
• Customer: Grouping jobs by type of customer

Contextual Dimensions

1. Size can be measured for the organization as a whole or for specific components, such as a plant
or division. Because organizations are social systems, size is typically measured by the number of
employees. Other measures such as total sales or total assets also reflect magnitude, but they do
not indicate the size of the human part of the system.

2. Organizational technology refers to the tools, techniques, and actions used to transform inputs
into outputs. It concerns how the organization actually produces the products and services it
provides for customers and includes such things as flexible manufacturing, advanced information
systems, and the Internet. An automobile assembly line, a college classroom, and an overnight
package delivery system are technologies, although they differ from one another.

3. The environment includes all elements outside the boundary of the organization. Key elements
include the industry, government, customers, suppliers, and the financial community. The
environmental elements that affect an organization the most are often other organizations.

4. The organization’s goals and strategy define the purpose and competitive techniques that set
it apart from other organizations. Goals are often written down as an enduring statement of
company intent. A strategy is the plan of action that describes resource allocation and activities for
dealing with the environment and for reaching the organization’s goals. Goals and strategies define
the scope of operations and the relationship with employees, customers, and competitors.

5. An organization’s culture is the underlying set of key values, beliefs, understandings, and
norms shared by employees. These underlying values and norms may pertain to ethical behavior,
commitment to employees, efficiency, or customer service, and they provide the glue to hold
organization members together. An organization’s culture is unwritten but can be observed in its
stories, slogans, ceremonies, dress, and office layout.

The eleven contextual and structural dimensions discussed here are interdependent. For example,
large organization size, a routine technology, and a stable environment all tend to create an
organization that has greater formalization, specialization, and centralization.
Organic versus Mechanistic Management Processes

Another response to environmental uncertainty is the amount of formal structure and control
imposed on employees. Tom Burns and G. M. Stalker observed twenty industrial firms in England
and discovered that internal management structure was related to the external environment.43
When the external environment was stable, the internal organization was characterized by standard
rules, procedures, and a clear hierarchy of
authority.

Organizations were formalized. They were also centralized, with most decisions made at the top.
Burns and Stalker called this a mechanistic organization system. In rapidly changing
environments, the internal organization was much looser, free-flowing, and adaptive. Rules and
regulations often were not written down or, if written down, were ignored. People had to find their
own way through the system to figure out what to do. The hierarchy of authority was not clear.
Decision-making authority was decentralized. Burns and Stalker used the term organic to
characterize this type of management structure.

More Routine technology = mechanistic organizations (Example: Mass production of large

batches of output).
More Non-routine technology = organic organizations (Example: Unit production of single
units or small batches).

Environmental Uncertainty
- Mechanistic organizational structures tend to be most effective in stable and simple
environments.
- The flexibility of organic organizational structures is better suited for dynamic and
complex environments.
Example: the uncertain nature of the oil industry means that oil companies need to be
flexible
Measuring Dimensions of Organizations
 DESIGNING ORGANIZATIONS FOR INTERNATIONAL ENVIRONMENT

The only way an organization can reasonably expect to be successful in different countries is
to customize its products and services to suit the local interests, preferences, and values in
each country.

ANSWER: Disagree. It is the case that people around the world often want products and services
that are tailored to their local needs and interests, and many organizations are quite successful by
responding to local market demands. However, other international organizations attain competitive
advantages by using the same product design and marketing strategies in many countries
throughout the world.
 ORGANIZATION STRUCTURE

There are three key components in the definition of organization structure:

1. Organization structure designates formal reporting relationships, including the number of levels
in the hierarchy and the span of control of managers and supervisors.
2. Organization structure identifies the grouping together of individuals into departments and of
departments into the total organization.
3. Organization structure includes the design of systems to ensure effective communication,
coordination, and integration of efforts across departments.

Traditional Organizational Designs

1. Functional Organization Structure (Departmentalization by function)

In a functional structure, activities are grouped together by common function from the bottom to
the top of the organization. All engineers are located in the engineering department, and the vice
president of engineering is responsible for all engineering activities.
With a functional structure, all human knowledge and skills with respect to specific activities are
consolidated, providing a valuable depth of knowledge for the organization.
 2. Divisional Organization Structure

The term divisional structure is used here as the generic term for what is sometimes called a
product structure or strategic business units. With this structure, divisions can be organized
according to individual products, services, product groups, major projects or programs, divisions,
businesses, or profit centers. The distinctive feature of a divisional structure is that grouping is
based on organizational outputs.

The difference between a divisional structure and a functional structure

The functional structure can be redesigned into separate product groups, and each group contains
the functional departments of R&D, manufacturing, accounting, and marketing. Coordination
across functional departments within
each product group is maximized.
The divisional structure promotes flexibility and change because each unit is smaller and can adapt
to the needs of its environment.
Moreover, the divisional structure decentralizes decision making, because the lines of authority
converge at a lower level in the hierarchy. The functional structure, by contrast, is centralized,
because it forces decisions all the way to the top before a problem affecting several functions can
be resolved.
Contemporary organizational designs

Matrix Structure

The project manager has authority over the functional members who are his or her project team in
areas related to the project’s goals.
However, any decisions about promotions, salaries and annual reviews typically remain the
functional manager’s responsibility.
At the completion of a project, employees return back to their departments.

Project Structure

- The project manager has authority over the functional members who are his or her project team
in areas related to the project’s goals.
- However, any decisions about promotions, salaries and annual reviews typically remain the
functional manager’s responsibility.
- At the completion of a project, employees return back to their departments.
- Project structure tend to be flexible organization designs as there is no rigid organizational
hierarchy to slow down making decisions or taking actions.
- Managers here serve as coaches, facilitators or mentors.
- They remove or reduce the organizational obstacles and ensure that teams have the resources
they need to effectively and effectively complete their work.
Virtual Organization

• A virtual organization consists of a small core of full-time employees and out-side

specialists temporarily hired as needed to work on projects.
• It does its work with small administrative staff but has global network of freelancers who
are assigned client work.
• By relying on these freelancers, the company enjoys a network of talent without the
unnecessary overhead and structural complexity
• It depends mainly on Outsourcing which means to contract out certain tasks or functions,
such as manufacturing, human resources, or credit processing, to other companies.

Network organization
• Some organizations carry outsourcing to the extreme to create a virtual network
structure. With a virtual network structure, sometimes called a modular structure, the firm
subcontracts most of its major functions or processes to separate companies and
coordinates their activities from a small headquarters organization.
• In which a company uses its own employees to do some work activities and uses networks
of outside suppliers to provide other needed product components or work processes.

Modular Organization
This structural approach allows organizations to focus on what they do best by contracting out
other activities to companies that do those activities best.

Hybrid Structure

A hybrid structure is often preferred over the pure functional, divisional, horizontal, or virtual
network structure because it can provide some of the advantages of each and overcome some of
the disadvantages.
Horizontal Structure

When a company is reengineered to a horizontal structure, all employees throughout the

organization who work on a particular process (such as claims handling or order fulfillment) have
easy access to one another so they can communicate and coordinate their efforts. The horizontal
structure virtually eliminates both the vertical hierarchy and old departmental boundaries.
Symptoms of structural deficiency

Decision making is delayed or lacking in quality. Decision makers may be overloaded because
the hierarchy funnels too many problems and decisions to them. Delegation to lower levels may
be insufficient. Another cause of poor-quality decisions is that information may not reach the
correct people. Information linkages in either the vertical or horizontal direction may be inadequate
to ensure decision quality.

The organization does not respond innovatively to a changing environment. One reason for
lack of innovation is that departments are not coordinated horizontally. The identification of
customer needs by the marketing department and the identification of technological developments
in the research department must be coordinated. Organization structure also has to specify
departmental responsibilities that include environmental scanning and innovation.

Employee performance declines and goals are not being met. Employee performance may
decline because the structure doesn’t provide clear goals, responsibilities, and mechanisms for
coordination. The structure should reflect the complexity of the market environment yet be
straightforward enough for employees to effectively work within.

Too much conflict is evident. Organization structure should allow conflicting departmental goals
to combine into a single set of goals for the entire organization. When departments act at cross-
purposes or are under pressure to achieve departmental goals at the expense of organizational
goals, the structure is often at fault. Horizontal linkage mechanisms are not adequate.

Today’s Organizational Design Challenges

1. Keeping Employees Connected

2. Building a Learning Organization
3. Managing Global Structural Issues

Collectivism vs Individualism

Collectivism stresses the importance of the community, while individualism is focused on the
rights and concerns of each person.

Collectivism refers to a society, a culture, or an economy that values groups over individual
interests. Collectivism is often understood in contrast to individualism, which privileges the
individual interests over the group.