Fundamentals

of
Organizational
Design
 • The following three key components define organization
structure:
• It designates formal positions and reporting
relationships, including the number of levels in the
Organization hierarchy and the span of control of managers and
supervisors.
Structure • It identifies the grouping together of individuals into
departments and of departments into the total
organisation.
• It includes designing systems to ensure effective
communication, coordination, and integration of
efforts across departments.
Two aspects of organizational Chart

• Information Sharing Perspective

• Vertical & Horizontal Information
Flow
• Denoted by the lines in
organizational chart
• Organisational Design Alternatives
• Required work , activities, reporting
relationships, and departmental
groupings.
• Denoted by the block in the chart
Centralised Vs Decentralized

Decision making authority is located near the top of the organization or

pushed downward to lower organization levels.

More Vertical Communications à Efficiency & Control à Specialized

tasks, Hierarchy of authority, formal reporting systems

More Horizontal Communication à flexible learning organisation à

shared tasks, a relaxed hierarchy, few rules, and face-to-face
communication.
Vertical Information Sharing
• Used to coordinate activities between the top and bottom of an organization and are designed primarily for
control of the organization.
• Employees at lower levels should carry out activities consistent with top-level goals, and top executives must
be informed of activities and accomplishments at the lower levels.
• Hierarchical Referral (Chain of Command)
• If a problem arises that employees don’t know how to solve, it can be referred up to the next level in the hierarchy.
• the problem is solved, the answer is passed back down to lower levels.
• Rules and Plans.
• 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.
• Eg: Budget
• Vertical Information Systems.
• To increase vertical information capacity.
• Periodic reports, written information, and e-mails and other computer-based com- munications distributed to managers.
 Horizontal Information Sharing
• To overcomes barriers between departments and
provide opportunities for coordination and
collaboration
• Collaborationà Task Sharing
• A joint effort between people from two or more
departments to produce outcomes that meet a common
goal or shared purpose and that are typically greater than
what any of the individuals or departments could achieve
working alone
• Information Systems à Information Sharing
• Communication and coordination horizontally across
organisational departments to share information.

• Liaison Roles.
• Located in one department but has the responsibility for
communicating and achieving coordination and
collaboration with another department.
Horizontal Information Sharing
• Task Forces.
• a temporary committee
composed of representatives
from each organizational unit
affected by a problem.

• Full-time Integrator.
• A full-time position or
department solely for the
purpose of coordination.
• Does not report to one of the
functional departments à
located outside the
departments
Horizontal Information Sharing
• Cross-Functional Teams.
• 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.
 Organization Design Blocks

• Required Work Activities

• Departments are created to perform tasks considered strategically important to the
company.
• Eg: Manufacturing company à Human resource department (recruit and train
employees), Purchasing department (obtain supplies and raw materials), Production
department (build products) and Sales department (Sell products).
• Tasks à Positions à Departments
• Reporting Relationships
• How does work activities fit together in the organizational hierarchy.
• Defining chain of command à represented by vertical lines on an organization chart.
• Every employee should be in an unbroken line of authority to the top
Departmental Grouping Options

• Functional grouping
• Employees who perform similar functions or work processes or who bring similar knowledge and skills to
bear are grouped together.
• Eg: all marketing people work together under the same supervisor
• Human knowledge and skills with respect to specific activities are consolidated, providing a valuable depth
of knowledge for the organization.
• +Ve àPerfect when in-depth expertise is critical to meet organisational goal & efficiency is important
(through economy of scale)
• -ve à Slow to respond to environmental changes; Less Innovation
• How to improveà Increased horizontal coordination through horizontal information sharing
Divisional Structure
• People are organized according to what the organisation produces. (grouping is based on organizational outputs)
• Eg LEGO Group shifted from a functional structure to a divisional structure: DUPLO àbig bricks for the youngest
children; LEGO construction toys; and a third category for other forms of LEGO play materials such as buildable
jewellery
• Functional to divisional when organisation becomes complex à Best in large organizations with several products
• +ves à Suited to fast change in unstable environment, Allows units to adapt to differences in products, regions,
customers, Decentralizes decision making
• -ves à Eliminates economies of scales, poor coordination across product lines, Eliminates in-depth competence and
technical specialization, Makes integration and standardization across product lines difficult.
• Promote horizontal coordination with heads of each divisions.
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.
• Brand recognition, day-to-day control and
decision-making is decentralised to local
or regional units
Matrix Structure
• Used when both technical expertise and product
innovation and change are important for meeting
organisational goals.
• Strong form of horizontal linkage.
• Both divisional and functional structures are
implemented simultaneously à product managers and
functional managers have equal authority within the
organization.
• The employees report to both functional managers &
product managers
• However, certain conditions has to be met to ensure
smooth functioning of matrix structure
Matrix Structure
• Conditions for Matrix Structure
• Pressure exists to share scarce resources (in terms of specialist employees) across product lines.
• The organisation is typically medium-sized and has a moderate number of product lines.
• Pressure exists for in-depth technical knowledge (functional structure) and make quick
differentiation in products (divisional structure)
• There is frequent external change and high interdependence between departments.
• Positives
• Achieves coordination necessary to meet dual demands from customers
• Flexible sharing of human resources across products
• Suited to complex decisions and frequent changes in an unstable environment
• Negatives
• Dual authority (frustrating and confusing)
• Time-consuming (frequent meetings and conflict-resolution sessions)
• Requires great effort to maintain power balance (participants to understand dynamics)
 Organisational Design Alternatives à Three
basic elements
• Required Work Activities
• Departments à perform tasks considered strategically important to the company.
• As organisations grow larger and more complex, managers find that more functions need to
be performed.
• Organisations typically define new positions, departments, or divisions as a way to
accomplish new tasks deemed valuable by the organization.
• Reporting Relationships
• How should these activities and departments fit together in the organisational hierarchy?
• Reporting relationships, often called the chain of command, are represented by vertical lines
on an organisation chart.
• Departmental Grouping Options
• Affects employees because they share a common supervisor and common resources, are
jointly responsible for performance, and tend to identify and collaborate with one another.
 Types of Organizational Design Alternatives

• Functional grouping
• Employees who perform similar functions or work processes or who
bring similar knowledge and skills to bear are put together.

• Eg- All marketing people work together under the same supervisor

• All human knowledge and skills with respect to specific activities are
consolidated, providing a valuable depth of knowledge for the
organisation.

• Best when in-depth expertise is critical to meeting organisational

goals, when the organisation needs to be controlled and coordinated
through the vertical hierarchy, and when efficiency is important.

• Best when there is little need for horizontal coordination.

 Types of Organizational Design Alternatives

• Divisional grouping
• people are organised according to what the organisation
produces.
• Eg: All the people required to produce toothpaste—
including personnel in marketing, manufacturing, and
sales—are grouped together under one executive.
• Best when complexity is high
• The divisional structure promotes flexibility and change
because each unit is smaller and can adapt to the needs of
its environment.
• Decentralizes decision making because the lines of
authority converge at a lower level in the hierarchy.
Types of Organizational
Design Alternatives
• Geographic Structure
• Based on organization’s users or customers.
• Similar to divisional structure
• Each region of the country may have distinct tastes and
needs à all functions required to produce and market
products or services in that region.
• Eg: Walmart Stores are organized by geographic regions,
such as Walmart Japan, Walmart Brazil, Walmart China
• Horizontal coordination within a region is emphasized
rather than linkages across regions or to the national
office.
 Types of Organizational Design Alternatives

• Matrix grouping
• 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.
• Conditions for matrix
• Condition 1 à Pressure exists to share scarce resources across product lines
• Condition 2 à Environmental pressure exists for two or more critical outputs, such as
for in-depth technical knowledge (functional structure) and frequent new products
(divisional structure).
• Condition 3 --> The environmental domain of the organization is both complex and
uncertain.
 • Virtual network grouping
• organisation is a loosely connected cluster of
Types of separate components.
Organizational • Departments are separate organisations that are
electronically connected for the sharing of
Design Alternatives information and completion of tasks.
• Outsourcing
• Contract out certain tasks or functions, such as
manufacturing, human resources, or credit processing, to
other companies.
 Types of Organizational Design Alternatives

• Holacracy team grouping

• The entire organization is made up of self-managing teams that include the people needed to
accomplish a specific task or activity.
• Characteristics
• Teams (circles), rather than individuals, tasks, departments, or other units, are the
fundamental building blocks of the organization. Everyone works on a team in a holacracy.
• Individual roles are collectively defined and assigned within the various teams as needed to
accomplish the work.
• Teams evolve, form, and disband as conditions change. As new opportunities, needs,
problems, goals, and tasks emerge, organizational members create new teams or circles to
address them.
• Teams design and govern themselves. Leadership is distributed and contextual. No one is an
assigned “manager.” The responsibilities of leadership are continually shifting as needs arise,
teams change, and new roles are defined.
 Symptoms of Structural Deficiency
• Generally, when organization structure is out of alignment with organisation needs, one or more of the following symptoms of structural deficiency
appears:
• There is an absence of collaboration among units.
• Organisation structure should encourage collaboration when and where it is needed to meet organisational goals.
• When departments are under pressure to achieve departmental goals at the expense of organisational goals, the structure is often at fault.
• Horizontal linkage mechanisms are not adequate.
• 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 organisation does not respond innovatively to a changing environment.
• 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.
• The organization structure also has to specify departmental responsibilities that include environmental scanning and innovation.