Organization structure –the pattern of jobs and groups of jobs in an organization. It is an important cause of individual and group behavior.
The Concept of Organization Structure Structure as recurring activities Structure as an influence on behavior
The Four Key Design Decisions Specialization Division of Labor (Work specialisation: Low High Basis Departmentalization: Homogeneous Heterogeneous Number Span of Control: Many Few Delegation Authority: High Low
TYPES OF ORGANISATIONAL STRUCTURE • Identify all the activities of the organisation and group them properly. It is known as departmentation. • On that basis four major types are: • Functional structure • Divisional structure • Hybrid structure • Matrix structure
Work specialization • Work specialization– concerns the extent to which jobs are specialized. • It is the process of dividing work into relatively specialized jobs to achieve advantages of specialization.
FUNCTIONAL STRUCTURE • A functional structure is a type of departmentalization in which positions are grouped according to their main functional area. • Organising by functions is the most widely used method of grouping activities and this structure we seen almost everywhere.
Functional Departmentalization Structure OBM Company Engineering Finance Public Relations Quality control Manufacturing Distribution Human Resources Purchasing
ADVANTAGES OF FUNCTIONAL STRUCTURE • Clarity about career paths • Economies of scale within function • Specialization • Coordination • In- depth skill development • Power and prestige
DISADVANTAGES OF FUNCTIONAL STRUCTURE • Boredom and monotony • Poor decision making • Sub-unit conflicts • Managerial vacuum
Departmentalization –process in which an organization is structurally divided by combining jobs in departments according to some shared characteristic or basis.
DIVISIONAL STRUCTURE • A divisional structure is a type of departmentalization in which positions are grouped according to similarity of products, services or markets. • Generally following 5 are common forms of departmentalization: • Functional • Geographical • Product • Process • Customer
Departmental Bases:Functional Departmentalization • Jobs are combined according to the functions of the organization • The principal advantage is efficiency • By having departments of specialists, management creates efficient units • A major disadvantage is that organizational goals may be sacrificed in favor of departmental goals.
Functional Departmentalization Structure OBM Company Engineering Finance Public Relations Reliability Manufacturing Distribution Human Resources Purchasing
Departmental Bases:Geographic Departmentalization • Establish groups according to geographic area • The logic is that all activities in a given region should be assigned to a manager • Advantageous in large organizations because physical separation of activities makes centralized coordination difficult • Provides a training ground for managerial personnel
Geographic Departmentalization Structure ABC Company North West South East Central
Departmental Bases:Product Departmentalization • All jobs associated with producing and selling a product or product line will be placed under the direction of one manager. • Product becomes the preferred basis as a firm grows by increasing the number of products in markets. • Concentrating authority, responsibility, and accountability in a specific product department allows top management to coordinate actions
Product Departmentalization Structure XYZ Company Small Household Appliances Large Household Appliances Commercial Appliances Building Materials and Products Lawn and Garden Products Automotive Products
Departmental Bases:Process Departmentalization • Grouping activities on the basis of process. Because each process requires different skills process departmentalization allows homogenous activities to be categorized. For example, the applicants might need to go through several departments namely validation, licensing and treasury, before receiving the driver’s license.
Process Departmentalization Structure XYZ Company Sawing department manager Planning and Milling Department manager Assembling Department manager Finishing Department manager Packing and Labelling Department manager Inspection and shipping Department manager
Departmental Bases:Customer Departmentalization • The importance of customer satisfaction has stimulated firms to search for creative ways to serve people better. • Organizations with customer-based departments are better able to satisfy customer-identified needs than organizations that base departments on non-customer factors. e.g. educational institutions offer regular and external courses
Customer Departmentalization Structure OBM Company Retail Stores Mail Order On-Line Sales Institutional Sales Government Contracts
Advantages of divisional structure • Each unit or division can respond or react quickly when required because it can make independent decisions. • This structure can help achieve the goals of the division. • It help organisations focus on serving their customer well. • A divisional structure helps top level management to fix responsibility and accountability for performance. • This structure provides a good training ground for managers to enhance their general management skills.
Disadvantages of divisional structure • Duplication of resources and activities is one of the main disadvantage of this structure. • Individuals in a divisional structure tend to concentrate on divisional goals and not on the organisation goals.
Hybrid structure • It adopts both functional and divisional structures at the same level of management. • Many large organisations adopt it because to derive the economies of scale, greater competence of managers and efficiency in resource utilisation of functional structure while divisional structure to focus on products, services or markets.
Advantages of hybrid structure • Increased Efficiency • Creates Unity Among the Staff Members • Flexibility • Decentralization of Decision-making • Optimum Use of Resources
Disadvantages of hybrid structure • Large staff in the corporate-level functional department • Co-ordination is very slow.
Matrixstructure • Matrix organization – attempts to maximize the strengths and minimize the weaknesses of both the functional and product bases. • Facilitates the utilization of highly specialized staff and equipment. • A matrix structure has two chains of command- vertical and horizontal. • A matrix structure is often seen in construction, marketing and a consultancy firm where professional experts work together on a project.
Example of the Matrix Organization Model Functions Project or product A Project or product B Project or product C Project or product D Project or product E Projects, products ManufacturingMarketingEngineeringFinance
Advantages of Matrix Organization • Efficient use of resources • Flexibility in conditions of change and uncertainty • Technical excellence • Freeing top management for long-range planning • Improving motivation and commitment • Providing opportunities for personaldevelopment
Disadvantages of matrix structure • Administration costs are higher. • Dual authority of command leads to problem sometimes in the firm. • In this form of structure, individuals are too engrossed with maintaining good relations with their peers, and tend to neglect the project goals and clients. • Matrix organization encourage group decision-making. Sometimes even minor decisions are made in groups which bring down productivity levels.
Organizational design Organizational design –the process of developing the organizational structure.
Span of management/control • It refers to the number of subordinates a superior can supervise efficiently and effectively. • Number of individuals who report to a specific manager • Narrow span • Wide span
For example, if a manager directly controls 10 employees in the organization then it is his span of control. With the expansion of the business the span of the supervisors increases because the number of employees increases. • There are two kinds of organizational structures including flat and tall organizational structure. In both of the structures there is a different span of control. A company incurs less cost if the span of control of supervisors increases because the company will have to pay the benefit to a less number of supervisor.
Determinants of span of control • Competence of superior • Competence of the subordinates • Nature of work/ similarity of task • Means of communication • Geographical location • Leadership style
Tall structure • A tall structure comprises many hierarchical levels with narrow spans of control. • First disadvantage is that it is very expensive. • Second is that communication gets unduly complicated because of omission and misinterpretation of message. • Third is that numerous departments and levels make the planning and controlling tasks complicated. • Large complex organizations often require a taller hierarchy. • In a tall structure, managers form many ranks and each has a small area of control.
Flat structure • A flat structure has a wide span of control and fewer hierarchical levels. • In a flat structure, tasks are highly inter-related. • It focus on empowering employees rather than adhering to the chain of command. • By encouraging autonomy and self-direction, flat structure attempt to tap into employees’ talents and to solve problems by collaboration.
Chart of flat structure CEO VP Finance VP HR VP Advertising VP Administration VP Logistics
Delegation of Authority • Managers decide how much authority should be delegated to each job and to each jobholder • Delegation of authority– process of distributing authority downward in an organization
Centralisation • When the authority to make all decisions lies with a single person in the organization it is centralisation. • When a single person has full authority, it is centralization. In this case subordinates have no choice in decision making.
Factors affecting centralisation • Leadership • Integration requirement • Uniform action • Emergency • Insufficiency of managerial manpower • Monetary and vital decisions • Peripheral factors
Advantages of centralisation • Fast decisions • Successful control • Safeguarding secrets • Stability of policy • Personal leadership • Market gain
Limitations of centralisation • Depotism • Lack of specialisation • Load on the top executive • Inappropriate and undeveloped decisions • Volatility • Ignorance of human factor
Decentralisation • Decentralisation refers to assigning of authority to the employees at different levels in the organisation in the context of the duties assigned to them.
Factors affecting decentralisation • Load of top executives • Requirement for diversification • Hold on the market • Growth of managers • Motivational development
Advantages of decentralisation • Reduces load on top executives • Development of enterprise and dependability • Increased motivation • Simplifies division of work • Leadership growth • Efficient control and supervision • Not dependent on few persons
Disadvantages of decentralisation • Difficulties of co-ordination • Waste of staff • Damaging in emergency • Increased administrative costs • Internal constraints-like government control
Contemporary organizational design • Team structure • Matrix project structure • Boundaryless structure