"What are organisational structure?

"
When two or more people come together; to work to achieve a common purpose or to achieve
objectives, we have the basis of an organization. Often, the next step is to establish what must be done
and by whom – such as functions to be performed, where these will take place, people involved etc all
of which leads to thinking about how the organization will be structured and how it will operate.

A Definition

Organizational structure refers to the formal definition of tasks, jobs, work units, people, and resources
in a business/organization and the relationships between these.

What is Organizational Structure? Why is it Important?

Departmentalization

Grouping related functions into manageable units to achieve the objectives of the enterprise in the most
efficient and effective manner is traditionally referred to as departmentalization. The primary forms of
departmentalization are by function, process, product, market, customer, geographic area, and
sometimes matrix (also called project organization). In many organizations, a combination of these
forms is used.

Structure shapes the effectiveness of an organization in terms of inter-departmental working

relationships, product and service development lead times, quality, efficiency, and responsiveness to
customer demands. It also influences individual employee and working team morale, motivation,
commitment, and satisfaction.

Different Types of Organizational Structures

By Function

Perhaps the oldest and most common method of grouping related functions is by specialized function,
such as marketing, finance, and production (or operations). Sometimes this form of departmentalization
may create problems if individuals with specialized functions become more concerned with their own
specialized area than with the overall business.

By Process
Departmentalization can also take place by process. This type of structure is often found in large process
or manufacturing companies,

By Product

Whenever specialized knowledge of certain products or services is needed, departmentalisation by

product may be observed. This usually occurs in large diversified companies.

By Market

When a need exists to provide better service to different types of markets, departmentalisation by
market may be the appropriate form. Below is an example of a business serving non-profit markets,
which uses the market form of departmentalisation,

By Customer

Sometimes key or major customers warrant departmentalisation by customers or groups of type of

customers. This is often the case in banks, financial institutions or service industries such as marketing,
advertising and insurance.
By Geographic location

When organizations are spread throughout the world or have territories in many parts of a country,
departmentalisation by geographic area may provide better service to customers and be more cost
effective.

Combination of Organization Structures

Divisional

In reality, organizations of any size may employ multiple types of structure using various combinations
of the elements covered on the previous slides.

Multiple

Many organizations, particularly large, physically dispersed and diversified organizations, utilize several
different forms of departmentalization.

Matrix

Departmentalization by matrix, or project, has received considerable use in recent years, particularly in
such industries as aerospace (e.g., NASA). Staff with different backgrounds and experiences appropriate
to the project are assembled and given the specific project to be accomplished within a certain time
period.

Other Aspects of Organizational Structure

A note on Centralization v decentralization

Centralization and decentralization involve the principle of delegation of authority. When a limited
amount of authority is delegated in an organization, it is usually characterized as centralized. When a
significant amount of authority is delegated to lower levels in the organization, the business is
characterized as decentralized. Centralization and decentralization are opposites, and there are different
degrees of each. In a highly centralized organization, employees at lower levels have a limited range of
decision-making authority. The scope of authority to make decisions in decentralized organizations, by
way of contrast, is very broad for lower level employees.

Emerging Organisational Structures

Each new generation of technology creates new opportunities to redesign or rethink organizational
structure. The acceleration of change requires flexible structures that can rapidly incorporate and adapt
to technological and process changes.

Whilst backbone structures (such as the ones we have looked at in this document) focused on strategic
management as well as provision of administrative and support functions will still exist; there will be a
growing use of informal structures (task oriented), to include project teams (actual and virtual), matrix
structures, collaboration networks, and others that work within and across the organizational hierarchy.

Technology fulfills the communication and coordination functions that once were accomplished through
a formal chain of command. Organizations are no longer limited to one design presumed to be right for
all circumstances. They can adopt whatever informal structures are needed to meet current operations
and dismantle them when the requirements change. This enables large organizations to act like small
ones in dealing with change. They do not have to overhaul a large infrastructure. Using informal
structures, they can experiment and adapt on a small scale before making large resource commitments;
they can also redirect personnel quickly and avoid the cost of overall restructuring.

Virtual Organization (Food for thought)

Organic or Open Organization

The usual goals for organizations are high productivity and efficiency. Organizations are seen as reliable
machines and employees are considered to be sub-machines or constituent parts of the machine. This
type of organization requires stable environment in which it operates and it is not subjected to rapid
change and development. The emergence of globalization and the high connectivity through
telecommunication channels has on the one hand provided the firms with opportunity in the shape of
new markets. On the other hand, this also has its adverse consequences in that it encourages the threat
of substitute products and services, usually from small and medium sized firms, operating in
manufacturing and service industries and communities at much reduced costs. The environment
therefore becomes turbulent and subject to rapid change. Well documented and established rules,
stringent policies and procedures for business processes and manufacturing regimes become hurdles
that undermine the ability of organization to adapt to the changes in the environment quickly and
effectively.

Organic organization philosophy promotes the encouragement of creativity of individuals. It is based on

the hypothesis that productivity and adaptability to rapid change is increased when employees are
placed at the centre of their environment and they are allowed to manage themselves and their
resources. When their creativity is accounted for and rewarded. When their continuous development is
encouraged through provision of opportunities and resources.

This type of system or organization allows for the de-centralization of jobs. Formal procedures are de-
emphasized.

Modular Organization

Modularity in organization changes the traditional hierarchical structure to form loosely coupled
networks of organizational actors. The underlying idea is that these loosely coupled actors or objects
would quite easily form and reform organizational components that are loosely coupled.

The idea of modularity in organizational structure goes hand in hand with idea of modularity in software
development. One of the software engineering goals for software design is that we should design
software applications in a highly modular fashion. Computing applications should be made of
components that are highly modular. That is each components should do one thing and one thing only.

For example in a Human Resource Management application a component may be responsible for
creating Wage Slips. This is a tangible and of value business process and outcome. The same
component should not also manage employee schedule. It should be modular. Furthermore, software
components should be loosely coupled. That is if we change the internal structure or implementation of
one of the components, this does not adversely affect the performance or functionality of other
components that it interacts with. In other words these components should be loosely coupled. In
building systems we endeavor to build solutions made up of components that are highly modular and
loosely coupled.

These are organizations where non-core functions are likely to be sub-contracted or outsourced. This is
a direct effect of the use of technology and telecommunication channels for doing business. Using
affordable technology and connectivity, companies can maintain relationships with business partners at
lower costs than ever before. This also has an impact on the product in that such organizations tend to
build products or services that are highly modular. These organizations concentrate on their core
capabilities and build alliances and joint ventures.

In summary

Other Aspects of Organizational Structure - A note on centralization v decentralization

Characteristics of Decentralized Structures

[Link] of High Decentralization (Flatter Organizations)

Eliminates layers of management

Decisions can be made by people closer to the problem

Faster decision-making without resort to higher level consultation

Excellent training experience for promotion to higher level management

Decisions better adapted to local conditions

[Link] of Low Decentralization (Taller Organizations)

Eliminates additional responsibility not desired by some people performing routine jobs

Permits crucial decisions to be made by individuals with the big picture

Closer control of operations

Uniformity of policies, practices, and procedures

Better use of centralized, specialized experts

Some emerging trends are significant

Increasing pace of technology change and development

Increasing impact of technology on organizational structures

Employees and Customers technology/computer literate

· Business areas/functions are increasingly accountable for the value they create for the customer.

· Business boundaries are blurring as electronic networks tie business partners, suppliers and
customers more closely together.

· Activities are becoming more distributed, business wide (and sometimes worldwide).

· The size and importance of premises such as centralized business headquarters is decreasing.