APPLIED WORKSHOP FOR BUSINESS - II

4th Week
Fundamentals of Organization Structure

Workshop Topic:
You and Organization Structure

Organizational Structure
Organization structure is one vital factor that helps organizations execute their strategies and
achieve their goals.

Companies use structural innovations such as cross-functional teams and matrix designs to
achieve the coordination and flexibility they need.

Some organizations have moved to a bossless structure, in which all jobs, including those
typically controlled and supervised by assigned managers, are handled by teams.

Organizations use a wide variety of structural alternatives to help them achieve their purpose and
goals, and nearly every firm needs to undergo reorganization at some point to help meet new
challenges.

Structural changes are needed to reflect new strategies or respond to changes in other
contingency factors (environment, technology, size, culture).

3 Key Components to define Organizational Structure

1. Organization structure designates formal positions and 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.

An ideal structure encourages employees to provide horizontal information and coordination

where and when it is needed.

Organization Chart

Organization structure is reflected in the organization chart.

The organization chart is the visual representation of a whole set of underlying activities and
processes in an organization.

An organization chart can be quite useful in understanding how a company works.

It shows the various parts of an organization, how they are interrelated, and how each position
and department fits into the whole.

Centralized vs Decentralized
Centralization and decentralization pertain to the hierarchical level at which decisions are made.

Centralization means that decision authority is located near the top of the organization.
With decentralization, decision authority is pushed downward to lower organization levels.

Organizations may have to experiment to find the correct degree of centralization or

decentralization to meet their needs.

Centralized vs Decentralized
Managers are always searching for the best combination of vertical control and horizontal
collaboration, centralization and decentralization, for their own situations.

Vertical Information Sharing

Organization design should facilitate the communication among employees and departments that
is necessary to accomplish the organization’s overall task.
Managers create information linkages to facilitate communication and coordination among
organizational elements.

Vertical linkages are used to coordinate activities between the top and bottom of an organization
and are designed primarily for control of the organization.

1. Hierarchical Referral.
The first vertical device is the hierarchy, or chain of command.
The lines of the organization chart act as communication channels.

2. Rules and Plans.

To the extent that problems and decisions are repetitious, a rule or procedure can be established
so employees know how to respond without communicating directly with their manager.

3. Vertical Information Systems.

Vertical information systems include the periodic reports, written information, and e-mails and
other computer-based communications distributed to managers.

Horizontal Information Sharing and Collaboration

Collaboration means a joint effort between people from two or more departments to produce
outcomes that meet a common goal or shared purpose.

Horizontal linkage refers to communication and coordination horizontally across organizational

departments.

1. Information Systems.
Computerized information systems enable managers or frontline workers throughout the
organization to routinely exchange information and update each other about progress, problems,
opportunities, activities, or decisions.

2. Liaison Roles.
A higher level of horizontal linkage is direct contact between managers or employees affected by
a problem.
One way to promote direct contact is to create a special liaison role.

A liaison person, sometimes called a coordinator, is located in one department but has the
responsibility for communicating and achieving coordination and collaboration with another
department.

3. Task Forces
Liaison roles usually link only two departments.

When linkage involves several departments, a more complex device such as a task force is
required.

4. Full-time Integrator
He or she is located outside the departments and has the responsibility for coordinating several
departments.

Unlike the liaison person described earlier, the integrator does not report to one of the functional
departments being coordinated.

5. Cross-Functional Teams
Project teams tend to be the strongest horizontal linkage mechanism.
Cross-functional teams are permanent task forces made up of members from different functional
areas and are often used in conjunction with a full-time integrator.

When activities among departments require strong coordination and collaboration over a long
period of time, a cross-functional team is often the solution.
Many of today’s companies use virtual cross-functional teams.

A virtual team is one that is made up of organizationally or geographically dispersed members

who are linked primarily through advanced information and communications technologies.

Relational Coordination
The highest level of horizontal coordination is relational coordination.
Relational coordination refers to “frequent, timely, problem-solving communication carried out
through relationships of shared goals, shared knowledge, and mutual respect.
It is part of the very fabric and culture of the organization.

In an organization with a high level of relational coordination, people share information freely
across departmental boundaries, and people interact on a continuous basis to share knowledge
and solve problems.
Ladder of Mechanisms for Horizontal Linkage and Coordination

Organization Design Alternatives Departmental Grouping Options:

Options for departmental grouping are functional grouping,
divisional grouping,
multifocused grouping,
virtual network grouping, and
holacracy team grouping.

Departmental Grouping Options

Functional grouping places together employees who perform similar functions or work
processes or who bring similar knowledge and skills to bear.

Divisional grouping means people are organized according to what the organization produces.

Matrix grouping means an organization embraces two or more structural grouping alternatives
simultaneously.
An organization may need to group by function and product divisions simultaneously or might
need to combine characteristics of several structural options.
With virtual network grouping, the organization is a loosely connected cluster of separate
components.
Departments are separate organizations that are electronically connected for the sharing of
information and completion of tasks.

Holacracy team grouping is the most recent approach to departmental grouping.

With this grouping, the entire organization is made up of self-managing teams that include the
people needed to accomplish a specific task or activity.

Functional, Divisional and Geographic Designs

In a functional structure, also called a U-form (unitary), activities are grouped together by
common function from the bottom to the top of the organization.

With a divisional structure, also called an M-form (multidivisional) or a decentralized form,

separate divisions can be organized with responsibility for individual products, services, product
groups, major projects or programs, divisions, businesses, or profit centers.

This structure is sometimes also called a product structure or strategic business unit structure.
The distinctive feature of a divisional structure is that grouping is based on organizational
outputs.
Geographic Structure
Each region of the country may have distinct tastes and needs.
Each geographic unit includes all functions required to produce and market products or services
in that region.

Matrix Structure
Sometimes, an organization’s structure needs to be multifocused in that both product and
function or product and geography are emphasized at the same time. One way to achieve this is
through the matrix structure.

The matrix structure often is the answer when organizations find that the functional, divisional,
and geographic structures combined with horizontal linkage mechanisms will not work.
Managers and functional managers have equal authority within the organization employees
report to both of them.

Virtual Network Structure

The most widespread design trend in recent years has been the outsourcing of various parts of
the organization to outside partners.

Outsourcing means to contract out certain tasks or functions, such as manufacturing, human
resources, or credit processing, to other companies.

Holacracy Team Structure

The most recent approach to organization design involves a shift toward self-management.
One extreme self-management model is called a holacracy or holacracy team structure.
There are no managers to perform these management functions.
All organization members are personally responsible for planning their own work, coordinating
etc.

SOURCE MATERIALS:
• Daft, Richard L., Organization Theory & Design, 13th Edition, Cengage Inc., 2021.
• Daft, Richard L., Organization Theory & Design, 10th Edition, Cengage Inc., 2009.
• Daft, Richard L., Management, 9th Edition, Cengage Inc., 2010.