Module- 2

Organizational
Theory and design
Organizational Theory and design
∙ Classical organizational theory: Bureaucratic Model, Modern view of Bureaucracies.
∙ Centralization and decentralization- Flat and tall structure, departmentation, line/staff concept of
organization.
∙ Modern Organizational theory: Organization as open system, information processing view,
Ecological theories.
∙ Modern organizational designs: project, matrix, horizontal, network designs.
CLASSICAL ORGANIZATIONAL THEORY:
BUREAUCRATIC MODEL, MODERN VIEW
OF BUREAUCRACIES.
CLASSICAL ORGANIZATIONAL THEORY
• The classical organization is most often associated with bureaucracy.
Even though organizations are undergoing dramatic, changes
bureaucracies still exist and must be understood to move toward and
interpret some of the new theories and designs.
• A bureaucracy is a form of organizational structure in which people
can be held accountable for their actions because they are required to
act in accordance with well-specified and agreed-upon rules and
standard operating procedures.
BUREAUCRATIC MODEL

• Bureaucratic theory and design are attributed to Max Weber in early 1990s.
• Weber presented what he thought was an ideal organization structure, which he
called a bureaucracy. His concerns for the ideal was a natural extension of his
interest in the development and change of western society. Specifically, weber
believed that rationalization is the most persistent cultural value of western
society. On an organization level, to Weber the bureaucracy represented a
complete rational form.
• Weber’s interest was in identifying a system of organization or an
organizational structure that could improve the way organizations
operate—that is, increase the value they create and make them more
effective. He favoured taking away authority from individuals and
investing it in rules, norms, and standards that constitute a
bureaucracy. According to Weber, it is a more efficient form of
organization because it aims at a high degree of precision, efficiency,
objectivity and rationality.
Weber’s six bureaucratic principles
• Principle One: A bureaucracy is founded on the concept of rational-legal authority.
• Principle Two: Organizational roles are held on the basis of technical competence.
• Principle Three: A role’s task responsibility and decision-making authority and its
relationship to other roles should be clearly specified.
• Principle Four: The organization of roles in a bureaucracy is such that each lower
office in the hierarchy is under the control and supervision of a higher office.
• Principle Five: Rules, standard operating procedures, and norms should be used to
control the behavior and the relationship between roles in an organization.
• Principle Six: Administrative acts, decisions, and rules should be formulated and
put in writing.
Weber specified several characteristics of his ideal organization structure. The
four major ones are the following:

1. Specialization and division of work

Weber’s bureaucracy contained “a specified sphere of competence. This involves (a)

a sphere of obligations to perform functions which has been marked off as part of a
systematic division of labour (b) the provision of the incumber with the necessary
authority…(c)that the necessary means of compulsion are clearly defined and their
use is subject to define the conditions” this statement implies that weber recognized
the importance of having the authority and power to carry out assigned duties. In
addition, the bureaucrats must know the precise limit of their sphere of competence
so as not to infringe upon those of others
2. Positions arranged in a hierarchy.

Weber stated: "the organization of offices follows the principle of hierarchy: that is,
each lower office is under the control and supervision of a higher one". These
bureaucratic characteristic forces control over every member in the structure. Some
organization theorists, such as Herbert Simon, have pointed out that hierarchy is the
natural order of things.
3. A system of abstract rules.

Weber felt a need for "a continuous organization requires a set of formal rules". A
rational approach to organization requires a set of formal rules to ensure uniformity
and coordination of effort. A well-understood system of regulations also provides
the continuity and stability that Weber thought was so important. Whereas
personnel may frequently change, rules persist. They may range from no smoking
in certain areas to the need for board approval for multi-thousand-dollar capital
expenditures.
4. Impersonal relationships.

It was Weber's belief that the ideal official should be dominated by "a spirit of
formalistic impersonality, without hatred or passion, from the viewpoint of ideal
rationality and not of realistic implementation. He felt that in order for bureaucrats
to make completely rational decisions, they must avoid emotional attachment to
subordinates and clients/customers
Other features…
• Employment is based on technical qualifications.
• The bureaucrat is protected against arbitrary dismissal, and promotions are made
according to seniority and/or achievement's sum up
• No real-world organization exactly follows the Weber model.
Bureaucratic Dysfunctions.
1. The Dysfunctions of specialisation.
Specialization has been shown to lead to increased productivity and
efficiency but also to create conflict between specialized units, to the
detriment of the overall goals of the organization. For example,
specialization may impede communication between units. The
management team of a highly specialized unit has its own terminology
and similar interests, attitudes, and personal goals. Because "outsiders are
different", the specialized unit tends to withdraw into itself and not fully
communicate with units above, below, or horizontal to it. Performing a
highly specialized job is also a major cause of employee boredom and
burnout-blue-collar blues and white-collar woes.
2. Dysfunctions of hierarchy.

The functional attributes of a hierarchy are that it maintains unity of command,

coordinates activities and personnel, reinforces authority, and serves as a formal
system of communication. In theory, the hierarchy has both a downward and an
upward orientation, but in practice, it has often turned out to have only a downward
emphasis. Thus, individual initiative and participation are often blocked upward
communication is impeded and there is no formal recognition of horizontal
communication. Personnel who follow only formal hierarchy may waste a great
deal of time and energy.
3. Dysfunctions of Rules.
Bureaucratic rules probably have the most irritating dysfunctional qualities.
Contributing to the bureaucratic image of red tape, rules often become the ends in
themselves, rather than the means for more effective goal attainment.
The famous management consultant Peter Drucker cites the following common
misuses of rules that requires reports and procedures:
1. Belief that procedural rules are instruments of morality. They should not
determine what is right or wrong conduct.
2. Procedural rules are sometimes mistakenly substituted for judgement. Printed
forms should not mesmerize bureaucrats; forms should be used only in cases where
judgment is not required.
3. Procedural rules is as a punitive control device from above. Bureaucrat are often
required to comply with rules that have nothing to do with their jobs.
4. Dysfunctions of Impersonal characteristics:

The impersonal quality of the bureaucracy has even more dysfunctional

consequences than specialization, hierarchy, and rules. Behaviorally oriented
organization theorists and researchers have given a great deal of attention to the
behavioural dysfunctions of bureaucratic structures.
MODERN VIEW OF BUREAUCRACIES

1. Bureaucracy does not adequately allow for personal growth and the development
of mature personalities.

2. It develops conformity and groupthink.

3. It does not take into account the informal organization and the emergent and
unanticipated problems.

4. Its system of control and authority are hopelessly outdated

5. It has no juridical process

6. It does not possess adequate means for resolving differences and conflicts
between ranks and most particularly between functional groups
7. communication and innovative ideas are thwarted or distorted as a result of
hierarchical divisions.
8. the full human resources of bureaucracy are not being utilised because of
mistrust, fear of reprisals and so forth
9. it cannot assimilate the influx of new technology or scientists entering the
organization
10. it modifies personality structure in such a way that the person in a bureaucracy
becomes the dull, gray, conditioned “organizational man”.
Criticisms
Advantages: Disadvantages:

• It lays out the ground rules for • Managers fail to control the
designing an organizational development of the organizational
hierarchy properly—in the manner
hierarchy that efficiently controls advocated by Weber.
interactions between
• Organizational members come to
organizational levels. rely too much on rules and SOPs to
• It separates the position from the make decisions, and this
person overreliance makes them
unresponsive to the needs of
customers and other stakeholders.
 MODIFICATIONS OF BUREAUCRATIC
STRUCTURING: CENTRALIZATION AND
DECENTRALIZATION- FLAT, AND TALL
STRUCTURE, DEPARTMENTATION, LINE/STAFF
CONCEPT OF ORGANIZATION.
• Vertical structural analysis concentrates on centralization vs
decentralization (authority) and Flat v/s tall structuring concentrates on
decentralization (limited span of control)
• Tall organization structure- a series of narrow span of control
• Flat organization structure-wide span of control

• Horizontal structural analysis-organizing one level of hierarchy

(specialization)- departmentation, line and staff
• Departmentation- organizing each level to attain optimum benefits
from high degree of specialization
• Line/Staff- attempts to resolve the vertical and horizontal conflicts
CENTRALIZATION AND DECENTRALIZATION

Types
1. Geographic or territorial, concentration/centralization or
dispersion/decentralization of operations.
2. Functional centralization and decentralization
3. analytical use of the concept
1. Geographic or territorial concentration/centralization or
dispersion/decentralization of operation.

• The term "centralized' can be used to refer to an organization that has

all its operations under one roof or in one geographic region. On the
other hand, the dispersion of an organization's operations throughout
the country or the world is a form of decentralization. This type of
centralization-decentralization has become particularly relevant as
organizations today begin to create international structures.

• The word “geographic” is often not stated, which adds to confusion.

2. Functional centralization and decentralization

E.g.: human resource function of an organization. A separate

human resources department that performs functions such as
selection or training for the other departments is said to be
centralized. However, if the various functional departments
(e.g. marketing, production and finance), handle their own
human resource functions, then human resource is considered
decentralized.
3. Analytical use of the concept
It is not possible to determine
• The terms “centralization” and whether an organization is
“decentralization” refer to the retention
or delegation of decision-making
centralized or decentralized
prerogatives or command. From an merely by looking at the
organization theory and analysis stand organization chart. The
point, this third type is the most
relevant use of the concepts of determining factor is how much of
centralization and decentralization. the decision making is retained at
They are relative concepts because the top and how much is delegated
every organization structure contains
both features and the concepts differ to the lower levels. This amount of
only in degree. retention or delegation is not
directly reflected on the
organization chart
Decentralization > Centralization
• Decentralization is much more compatible with the behavioral aspects of
management. This relevance is due in part to the lower-level participation in
decision-making and the currently popular notion of empowerment of employees
that results from decentralization.
• Increased motivation, through giving more autonomy and personal control over the
work, is an extremely important by-product.
• More effective decisions are possible because of the speed and first-hand
knowledge that decentralization provides. Invaluable experience in decision
making for lower level executives.
• it allows more time for top management to concentrate on policymaking and
creative innovation.
• A third dimension, cooperation, can be added to create a triangular design so that
the organization becomes a function of three variable-autonomy (decentralization),
control (centralization), and cooperation (teamwork).
FLAT AND TALL STRUCTURE
• In organizational analysis, the terms flat and tall are used to describe the
total pattern of spans of control and levels of management. Whereas the
classical principle of span of control is concerned with the number of
subordinates one superior can effectively manage, the concept of flat and tall
is more concerned with the vertical structural arrangements for the entire
organization.
• The tall structure has very small or narrow spans of control, whereas the flat
structure has large or wide spans.
• In tall structures, the small number of subordinates assigned to each
manager allows for tight control and strict disciple.
• Classical bureaucratic structures are typically very tall.
An organization in which the hierarchy has many levels relative to the
size of the organization is a tall organization.
An organization that has few levels in its hierarchy is a flat
organization.
Advantages and Disadvantages
• Both flat and tall structures could have the same number of personnel.
However, the tall structure could have four levels of management, and flat
one only two levels.
• The tall structure has the definite advantage of facilitating closer control
over subordinates. The very nature of flat structures implies that managers
cannot possibly keep close control over many subordinates. Therefore, they
are almost forced to delegate a certain amount of the work. Thus, wide spans
structurally encourage decentralization. (Theory X)
• The behavioral advantage of flat organization hinges on the assumption that
there are capable people who can produce under conditions of relative
independence. (theory Y). McGregor’s theory X and Y
• The opportunity that tall structure offer for more personal contact
between managers and subordinates. This contact is generally assumed
to be negative and conflicting, but it need not be. In a tall structure, the
manager may create a positive rapport with his or her subordinates that
may not be possible in a flat structure.
• In the flat structure there are few levels, which means that both
downward and upward communication are simplified. There should be
less distortion and inaccuracy. On the other hand, the increased
equality that exists between subordinates in a flat structure may lead to
communication problems.
Advantage of flat structure
[Link]
[Link] satisfaction and growth
Disadvantages of tall structures
1. Communication problems
2. Motivation problems
3. Bureaucratic costs
 • Time may be divided into first shift, second
shift and third shift.
DEPARTMENTATION
• Service may reflect first class, second class
Departmentation is concerned with and tourist class on a passenger ship
horizontal organization on any one level of
the structure, and it is closely related to the • Customer organization may exist in a large
classical bureaucratic principle of commercial loan department that lends to
specialization. There are different types of farmers, small businesses and large industries.
departmentation.
• Equipment may be broken down in a
• Purpose (replaced by product)
production unit into drill-press, punch press
• Process (replaced by functional) and polishing departments.

• Person or things • Alphanumeric departmentation may be utilised

in telephone servicing where numbers 0000 to
• Place (territorial or geographical)
5000 are placed in one department and
numbers 5001 to 9999 placed in another.
Because organizations of any size will contain more than one
hierarchical level, there will always be different types of
departmentation represented. A typical large industrial corporation may
be territorially organized on the first major horizontal level, and each
succeeding level may be organized by product, function, time and
equipment. Confusion is often created when a given organization is
identified as having one type of departmentation.
Functional departmentation
• The most widely used and recognized type of departmentation is functional
in nature and may be found in all types of organizations.
• Examples-
1. Manufacturing organization- production, marketing and finance
2. Railroad organization- operations, traffic and finance
3. General hospital- medical services, housekeeping, dietetics and business

• Advantage: incorporates positive aspects of specialization.

• Disadvantage: conflict
Product/unit Departmentation.
• The product form of departmentation is particularly adaptable to the
tremendously large and complex modern organizations. It goes hand in
hand with profit-centered decentralization. It allows the giant
corporations, to be broken down into groups of self-contained, smaller
product organizations or strategic business units (SBUs).
 Advantages
• Both large and small size can exist in one large organization.
• The matter of control. Because of their self-contained nature, product departments are very adaptable to
accounting-control techniques and management appraisal. Product department performance, measured
according to several different criteria, can usually be objectively determined.
• Product departments can be readily added or dropped with a minimum of disruption to the rest of the
organization.
• Many of the conflicts that exist in the upper level under functional departmentation are generally resolved
by product departmentation. Under product organization, however, the functional conflicts may disappear
at the upper levels but reappear in the lower levels that are functionalized.
• Besides reducing the potential for conflict, product division also provides an opportunity for personal
development, growth, and self-control.
• It is more structurally adaptable to the behavioral aspects of organization than functional departmentation
LINE/STAFF CONCEPT OF ORGANIZATION.

• Staff is not a clear-cut organizational concept. This concept is

borrowed from the military because it has precisely defined and
successfully implemented a pure staff system. Under the “pure”
military approach, line carries command or decision-making
responsibilities, whereas staff gives advice and provides backup and
support to the line.
• Almost every type of organization has attempted to adopt to some degree the
military staff concept, but these organizations have not given much attention
to operationally defining the difference between line and staff. In the
military, there definitely exists an informal, implied staff authority, but
everyone understands the system and realizes that conflicts can be resolved
by reverting to pure line-staff relationships.
• Unlike military, there develops lack of understanding of the line-staff roles
and relationships which often results in the breakdown of communication
and open conflict.
• One reason could be that managers generally have more than one hat.
Managers are line within their own departments and become line and staff
when dealing with outside department. The manager’s functional authority
is often not spelled out in the policies of the organization. As a result,
personal conflicts and dual authority situations are rampant.
MODERN ORGANIZATIONAL THEORY: ORGANIZATION AS
OPEN SYSTEM, INFORMATION PROCESSING VIEW,
ECOLOGICAL THEORIES.
ORGANIZATION AS AN OPEN SYSTEM

• The key for viewing organizations as open systems is the recognition of the
external environment as a source of significant input. In systems
terminology, the boundaries of the organization are permeable to the
external environment (social, legal, technical, economic and political).
• The simplest open system consists of an input, a transformation process, and
an output, which is depicted thus:
Input → Transformation process → Output
• A system cannot survive without continuous input, the transformation
process, and output.
• There are many types of inputs, transformation processes, and outputs.
•One kind of input actually enters the open system in the “closed”
sense. This type of input has a direct effect on the internal system
rather than an outside effect-in systems jargon, it loads the system.
• Another type of input affects the system in an “open” sense. This input
would consist of the entire environmental influence on the system.
•Still another kind of input takes the form of replacement or recycling.
When a component of the system is ejected or leaves, the replacement
becomes an input. This recycling process perpetuates the system.

• Specific examples of inputs into a business organization include

monetary, material and human resources
• At the heart of the open system are the processes, operations, or
channels that transform the inputs into the outputs. Here is where the
internal organization design plays an important role. The
transformation process consists of a logical network of subsystems,
which lead to the output. The subsystems are translated into complex
systems networks that transform the inputs into the desired outputs.

• The third and final major component of any simple open system is the
output. This is represented by the product, result, outcome, or
accomplishment of the system.
The simple open-systems concept has universal applicability.

Any biological, human, social, economic, or technical phenomenon can be conceptualized in

open-systems terms.

• An economic institution
people Transformation
process
services

Transformation
monetary process
Profit /loss

raw Transformation Products

process

Transformation
material And pollutions

material process
Product sales

Money Transformation
process
dividends

Human Transformation
Role behavior
process
resources Law and Transformation
Taxes
process
values
• From an organizational structure standpoint, the critical factor is the
design of the transformation process. Oddly, this transformation design
involves a close-systems analysis. In other words, the closed system is
a subsystem of the open system. The closed-systems aspects of the
transformation process are concerned with the interrelated and
interdependent organizational subsystems of structure, processes, and
technology. These subsystems must be organized in such a way that
they will lead to maximum goal attainment or output.
INFORMATION PROCESSING VIEW

• The view of organizations as information processing systems facing

uncertainty serves as a transition between system theory and contingency
theory. The information processing view makes three major assumptions
about organizations:
[Link] are open social system rather than closed
systems that deal with work related uncertainty
Organizations are open systems that face external, environmental
uncertainty (for example, technology or the economy) and internal,
work-related task uncertainty. Jay Galbraith defines task uncertainty as
“the difference between the amount of information required to perform
the task and the amount of information already possessed by the
organization.” The organization must have mechanisms and be
structured such that it can diagnose and cope with this environmental
and task uncertainty. In particular, the organization must be able to
gather, interpret, and use the appropriate information to reduce the
uncertainty.
2. the basic function of organization structure is to facilitate
the effective collection, processing and distribution of
information

The second assumption is as follows: "Given the various sources of

uncertainty, a basic function of the organization's structure is to create
the most appropriate configuration of work units (as well as the linkages
between these units) to facilitate the effective collection, processing, and
distribution of information." In other words, organizations are
information processing units.
3. organization is comprised of sub units
The final major assumption of this view deals with the importance of
the subunits or various departments of an organization. Because the
subunits have different degrees of differentiation (i.e., they have
different time perspectives, goals, technology, and so on), the important
question is not what the overall organization design should be but,
rather, “(a) What are the optimal structures for the different subunits
within the organization (e.g., R & D, sales, manufacturing);(b) What
structural mechanisms will facilitate effective coordination among
differentiated yet interdependent subunits?"
Tushman and Nadler’s propositions about an information
processing theory of organization to answer the above questions.
1. The tasks of organization submits vary in their degree of uncertainty
2. As work-related uncertainty increase, so does the need for an increased amount of
information, and thus the need for increased information processing capacity.
3. different organizational structures have different capacities for effective information
processing
4. an organization will be more effective when there is a match between the information
processing requirements facing the organization and the information processing capacity of
the organization’s structure.
5. if organization (or subunits) face different conditions over time, more effective units will
adapt their structures to meet the changed information processing requirements.
• The key concept is information, and the key idea is that organizations
must effectively receive, process and act on information to achieve
performance. Although the focal point of this approach is the interface
between environmental uncertainty- both external and internal- and
information processing, it is very closely related to systems and
contingency theories.
ECOLOGICAL THEORIES
• Population ecology theory seeks to explain the factors that affect the
rate at which new organizations are born (and die) in a population of
existing organizations.
• A population of organizations comprises the organizations that are
competing for the same set of resources in the environment.
• Different organizations within a population may choose to focus on
different environmental niches, or particular sets of resources or
skills.
Number of births

• The amount of resources in an environment limits population

density—the number of organizations that can compete for the same
resources in a particular environment. Population ecology theorists
assume that growth in the number of organizational births in a new
environment is rapid at first as organizations are founded to take
advantage of new environmental resources.
Two factors account for the rapid birth rate

1. There is an increase in the knowledge and skills available to generate

similar new organizations. Also, many new organizations are founded by
entrepreneurs who leave existing companies to set up their own
companies using the competences they have learned by working in those
companies.
2. A new environment is that when a new kind of organization is founded
and survives, it provides a role model. The success of the new
organization makes it easier for entrepreneurs to found similar new
organizations because success confers legitimacy, which will attract
stakeholders.
Once an environment is populated with a number of successful
organizations, the organizational birth rate tapers off.
Two factors work to decrease the rate at which organizations are
founded

∙ First, births taper off as the availability of resources in the environment for
late entrants diminishes. First-mover advantages are the benefits an
organization derives from being an early entrant into a new environment.
Latecomers enter an environment that is partially depleted of the resources
that they need to grow.
∙ The second factor that decreases the birth rate is the difficulty of competing
with existing organizations for resources. Potential entrepreneurs are
discouraged from entering an industry or market. Moreover, existing
companies may band together and make it very hard for new companies to
enter the market.
Survival Strategies
R-strategy versus k-strategy Specialist strategy versus generalist
strategy
• Organizations that follow an • Specialist organizations (or specialists)
r-strategy are founded early in a new concentrate their competences and
environment—they are early entrants. skills to compete for resources in a
single niche—for example,
smartphones.
• Organizations that follow a K-strategy • Generalist organizations (or
are founded late—they are late generalists) use their well-developed
entrants. competences to compete for resources
in many or all niches in an
environment—for example,
smartphones, inexpensive cellphones,
landline phones, netbooks, tablets, and
so on
The Process of Natural Selection
• Early in an environment, as a niche develops and new resources become
available, new organizations are likely to be r-specialists
• As they grow, they often become generalists and compete in new niches.
While this is happening, however, K-generalists move into the market and
threaten the weakest r-specialist organizations.
• Eventually, the strongest r-specialists, r-generalists, and K-generalists
dominate the environment by serving multiple market segments and by
pursuing a low-cost or differentiation strategy.
• Large companies, having chosen the K-generalist strategy, often create
niches for new firms to enter the market, so K-specialists are founded to
exploit the new market segments. In this way, generalists and specialists can
coexist in an environment because they are competing for different sets of
resources.
• The driving force behind the population ecology model of
organizational birth is natural selection, the process that ensures the
survival of the organizations that have the skills and abilities that best
fit with the environment.
• Over time, weaker organizations, such as those with old-fashioned or
outdated skills and competences or those that cannot adapt their
operating structure to fit with changes in the environment, are selected
out of the environment and die. New kinds of organizations emerge
and survive if they can stake a claim to an environmental niche.
Some organization theorists feel that contingency theory should be replaced by an
ecological view. This new approach is best represented by what is called “population
ecology” by Hannan and Freeman. It can be summarized as follows:
1. It focuses on groups or populations of organizations rather than individual ones.
2. Organizational effectiveness is simply defined as survival.
3. The environment is assumed to be totally determining. At least in the short or
intermediate term, management is seen to have little impact on an organization's
survival.
4. The carrying capacity of the environment is limited. Therefore, there is a
competitive arena in which some organizations will succeed and others will fail.
MODERN ORGANIZATIONAL DESIGNS: PROJECT, MATRIX,
HORIZONTAL, NETWORK DESIGNS.
PROJECT DESIGNS
• The use of project designs has increased in all organizations that
require a great deal of planning, research and coordination.
• Together with the aerospace industry, project designs are becoming
widely used in other industrial corporations and also in financial
institutions, health care facilities, government agencies, and
educational institutions.
• Projects are of various degrees of importance and magnitudes are
always under way in modern organizations. The project structure is
created when management decides to focus a great amount of talent
and resources for a given period on a specific project goal.
Project design A
• Project managers under “PROJECT A” design have no activities or
personnel reporting directly to them. The project manager, along with
the heads of quality control, research and development, contract
administration, and scheduling, acts in a staff capacity to the general
manager. The project manager must rely on influence and persuasion
in performing a monitoring role, with direct line authority exercised
only by the general manager.
Project design B
• The project managers have all the personnel necessary for the project.
They have staff and functional line personnel reporting directly to
them. The project managers under the aggregate design have full
authority over the entire project. In reality, the aggregate project
organization is very similar to the traditional product or unit form of
departmentation.
• The project organization almost always coexists with the more traditional
functional structure. But project experts stress that even though there are
many similarities between project and functional organizations, project
managers must take a new approach to their jobs:
1. They must become reoriented away from the purely functional approach to
the management of human and nonhuman resources.
2. They must understand that purposeful conflict may very well be a necessary
way of life as they manage their project across many vertical organizational
lines.
3. They must recognize that project management is a dynamic activity in
which major changes are almost the order of the day.
MATRIX DESIGNS
• The search for better and faster ways to develop products and respond
to customer needs has led some companies to choose a matrix
structure, an organizational design that groups people and resources
in two ways simultaneously: by function and by product. A matrix
structure is both similar to and different from a product team structure.
• When a project structure is superimposed on a functional structure, the
result is a matrix.
• The figure shows a very simplified matrix organization. Here, the
functional department heads have line authority over the specialists in
their departments (vertical structure). The functional specialists are
then assigned to given projects (horizontal structure). These
assignments are usually made at the beginning of each project by
collaboration between the appropriate functional and project
managers.
• Once the company has reached the matrix stage, there are also stages or
degrees of this form of organization: First stage of matrix is usually just a
temporary task force; this is followed by the creation of permanent teams or
committees organized around specific needs or problems. The last stage
occurs when a manager is appointed and held responsible for coordinating
the activities and inputs of the teams or committees.
• Similar to a project manager, the matrix manager needs negotiation skills
and a high tolerance for ambiguous power relationships. There is also recent
support for the use of matrix designs as being appropriate and responsive to
the strategies of diversified multinational corporations.
Matrix Designs directly violate classical principles

• The hierarchy principle and the principle of unity of command are

violated in the matrix design.
• The matrix concept does not coincide with the usual line-staff
arrangements.
Disadvantages

1. A great deal of conflict is generated in matrix organization

2. The matrix structure discourages informal groups and the nurturing of
supervisor- subordinate relations
3. The matrix structure has reduced participant motivation for all but the most
aggressive personalities and has reduced corporate loyalty and
identification with the organization.
4. The matrix structure has led to decrease in the quality of communication
and negative effects on relevant role perceptions, work attitudes and
coordination.
Advantages- it includes the positive aspects of both the
functional and project designs
1. The project is emphasised by designing one individual as the focal point for all matters pertaining to
it
2. Utilization of personnel can be flexible because a reservoir of specialists is maintained in functional
organizations.
3. Specialized knowledge is available to all programs on an equal basis; knowledge and experience
can be transferred from one project to another
4. Project people have a functional home when they are no longer needed on a given project
5. Responsiveness to project needs and customer desires is generally faster because lines of
communication are established and decision points are centralized
6. Management consistency between projects can be maintained through the deliberate conflict
operating in the project-functional environment
7. A better balance between time, cost and performance can be obtained through the built-in checks
and balances (the deliberate conflict) and the continuous negotiations carried on between the project
and the functional organizations.
HORIZONTAL DESIGN

• Horizontal designs are at the other end of the continuum from the traditional
vertical, hierarchical structures.
• The project and especially the matrix designs were the first to emphasize the
importance of horizontal over traditional vertical structuring of the
organization.
• Anand and Daft noted that “the horizontal organization advocates the
dispensing of internal boundaries that are an impediment to effective
business performance. If the traditional structure can be likened to a
pyramid, the metaphor that best applies to the horizontal organization is a
pizza—flat, but packed with all the necessary ingredients.
• Horizontal designs better facilitate cooperation, teamwork, and a customer
rather than a functional orientation.
Guiding principles that define horizontal organization design:

1. Organization revolves around the process, not the task.

2. The hierarchy is flattened:
3. Teams are used to manage everything
4. Customer drive performance.
5. Team performance is rewarded:.
6. Supplier and customer contact is maximized:
7. All employees need to be fully informed and trained:
Guiding principles to make horizontal designs as effective as
possible.
1. Make teams, not individuals, the cornerstone of the organizational design and
performance.
2. Decrease hierarchy by eliminating non-value-added work and by giving team members the
authority to make decisions directly related to their activities within the process flow.
3. Emphasize multiple competencies and train people to handle issues and work in cross
functional areas.
4. Measure for end-of-process performance objectives, as well as customer satisfaction,
employee satisfaction, and financial contribution.
5. Build a corporate culture of openness, cooperation, and collaboration, a culture that
focuses on continuous performance improvement and values employee empowerment,
responsibility, and well-being.
NETWORK DESIGNS
• Network designs go beyond horizontal structures and totally abandon
the classical, hierarchical, functional structure of organization. To meet
the challenges of revolutionary changes, these and other organizations
are moving toward network structures.
Miles and colleagues have recently identified three types of radical redesign of today's
organizations:

.
1 Greenfield redesign.

As the term implies, this means starting from just a piece of green field or from a
clean slate, breaking completely from the classical structure and establishing a
totally different design.

Case study of Rubbermaid and Southwest Airlines.

“People should not be doing other people’s job but they need to understand all
of those other jobs; they need to understand how their job fits into the overall
performance of the vision and how the other jobs do as well.”
2. Rediscovery redesign.
This is a more usual type of redesign, whereby established companies
such as general Electric and Chrysler return to a previously successful
design by eliminating unproductive structural additions and
modifications. For example, Chrysler not only created cross-functional
teams but also returned to a more centralized structure that could better
coordinate and controls the needed innovations and acquisitions/
divestments for its product line.
3. Network design.
In the network approach, the firm concentrates on where it can add the
greatest value in the chain, and it outsources to upstream and/or
downstream partners who can do a better job. This network of the firm
and its upstream and downstream partners can be optimally effective
and flexible.
Another network approach is to require internal units of the firm to
interact at market prices-buy and sell to each other at prices equal to
those that can be obtained by outsourcing partners.
• Network organizations have been discussed in the academic literature for a number of
years. For example, organization theorists Miles and Snow identified what they call the
dynamic network. This involves a unique combination of strategy, structure, and
management processes. They more recently have described the network organization as
follows: “Delayered, highly flexible, and controlled by market mechanisms rather than
administrative procedures, firms with this new structure arrayed themselves on an
industry value chain according to their core competencies, obtaining complementary
resources through strategic alliance and outsourcing.”
• Tapscott and Caston note that such networked organizations are “based
on cooperative, multidisciplinary teams and businesses networked
together across the enterprise. Rather than a rigid structure, it is a
modular organizational architecture in which business teams operate
as a network of what we call client and server functions.”
• Network structure is a cluster of different organizations whose actions
are coordinated by contracts and agreements, rather than by a formal
hierarchy of authority. Very often one organization takes the lead in
creating the network as it searches for a way to increase effectiveness.
• Network structures often become very complex as a company forms
agreements with a whole range of suppliers, manufacturers, and
distributors to outsource many of the value-creation activities
necessary to produce and market goods and services. For example,
Nike, the largest and most profitable sports shoe manufacturer in the
world, has developed a very complex network structure to produce its
shoes. Almost all the other functional specialisms that Nike needs to
produce and market its shoes have been outsourced to companies
around the world!
Advantages
• First, to the degree that an organization can find a network partner that can perform a specific
functional activity reliably, and at a lower cost, production costs are reduced.
• Second, to the degree that an organization contracts with other organizations to perform specific
value-creation activities, it avoids the high bureaucratic costs of operating a complex organizational
structure.
• Third, a network structure allows an organization to act in an organic way. If the environment
changes, for example, and new opportunities become apparent, an organization can quickly alter its
network in response. An organization that performs all of its own functional activities would take a
longer time to respond to the changes taking place.
• Fourth, if any of its network partners fail to perform up to company’s standards, they can be replaced
with new partners.
• Fifth, a very important reason for the development of networks has been that organizations gain
access to low-cost overseas sources of inputs and functional expertise, something crucial in today’s
changing global environment.
Disadvantages

• First, it would be difficult to obtain the ongoing learning that builds

core competences over time inside a company because separate
companies have less incentive to make such an investment. As a result,
many opportunities to cut costs and increase quality would be lost.
• Second, if one of company’s suppliers failed to perform well, company
could easily replace it by forming a contract with another. But how
easy is it to find reliable software companies that can both do the job
and be trusted not to take proprietary information and use it
themselves or give it to a company’s competitors?
Reference.
• Jones, G. R., Mathew, M. (2013). Organizational Theory, Design and
change. India: Dorling Kindersley Pvt. Ltd. Pp. 151-180.
• Luthans, F. (1997). Organizational Behavior. (7thed). New York:
McGraw Hill International. Pp. 560-579.