ORGANISATION STRUCTURE

DEFINING ORGANIZATIONAL STRUCTURE

A key issue in accomplishing the goals identified in the planning process is

structuring the work of the organization.
Organizations are groups of people, with ideas and resources, working
toward common goals. The purpose of the organizing function is to make the
best use of the organization's resources to achieve organizational goals.
Organizational structure is the formal decision-making framework by which
job tasks are divided, grouped, and coordinated. Formalization is an
important aspect of structure. It is the extent to which the units of the
organization are explicitly defined and its policies, procedures, and goals are
clearly stated. It is the official organizational structure conceived and built by
top management. The formal organization can be seen and represented in
chart form. An organization chart displays the organizational structure and
shows job titles, lines of authority, and relationships between departments. It
is the framework that enables employees to work together productively. It
allows adequate management to be provided for each group. Because of the
organizational structure, employees know where to report and whom to ask
for help. Often a company exhibits the formal organizational structure on an
organizational chart. This is a diagram that traditionally shows boxes to
indicate functions, with connecting lines to indicate relationships. The
relationships can also be called the chain of command. This shows flow of
authority, accountability, and responsibility. Authority is the power granted
by the job description to make decisions, take actions, and allocate
resources. Accountability is the duty to inform and update supervisors.
Responsibility is the obligation to perform the job requirements and meet
objectives.
Key Elements of Organizational Structure

Ø - Work specialization :- It refers to the degree to which tasks in the

organization are subdivided into separate jobs.
• the entire job is broken down into steps, each step completed by a
separate individual
• individual workers specialize in doing part of an activity
• involves repetitive performance of a few skills
• can be viewed as a means to make the most efficient use of
employee's skills
• some task requires highly developed skills
• Others can be performed by the untrained
Ø Departmentalization:- After reviewing the plans, usually the first step
in the organizing process is departmentalization. Once jobs have been
classified through work specialization, they are grouped so those common
tasks can be coordinated. Departmentalization is the basis on which work
or individuals are grouped into manageable units. There are five traditional
methods for grouping work activities.

· Departmentalization by function organizes by the functions to be

performed. The functions reflect the nature of the business. The advantage
of this type of grouping is obtaining efficiencies from consolidating similar
specialties and people with common skills, knowledge and orientations
together in common units.

· Departmentalization by product assembles all functions needed to

make and market a particular product are placed under one executive. For
instance, major department stores are structured around product groups
such as home accessories, appliances, women's clothing, men's clothing, and
children's clothing.

· Departmentalization by geographical regions groups jobs on the basis

of territory or geography. For example, Merck, a major pharmaceutical
company, has its domestic sales departmentalized by regions such as
Northeast, Southeast, Midwest, Southwest, and Northwest.

· Departmentalization by process groups jobs on the basis of product or

customer flow. Each process requires particular skills and offers a basis for
homogeneous categorizing of work activities. A patient preparing for an
operation would first engage in preliminary diagnostic tests, then go through
the admitting process, undergo a procedure in surgery, receive post
operative care, be discharged and perhaps receive out-patient attention.
These services are each administered by different departments.

· Departmentalization by customer groups jobs on the basis of a

common set of needs or problems of specific customers. For instance, a
plumbing firm may group its work according to whether it is serving private
sector, public sector, government, or not-for-profit organizations. A current
departmentalization trend is to structure work according to customer, using
cross-functional teams. This group is chosen from different functions to
work together across various departments to interdependently create new
products or services. For example, a cross-functional team consisting of
managers from accounting, finance, and marketing is created to prepare a
technology plan.

Ø Chain of command :-
Chain of command is the unbroken line of authority that connects each
level of management with the next level. The chain of command helps
organizations function smoothly by making two things clear: who is
responsible for each task, and who has the authority to make official
decisions.

In organizations, employees are assigned:

1. Responsibility for their jobs; they are obligated to perform those duties
and to achieve goals and objectives associated with their positions.

2. Accountability for reporting their results to supervisors or team

members and justifying outcomes that falls below expectations.

Managers ensure tasks are accomplished by exercising authority.

Authority is the power to make decisions, issue orders, carry out actions,
and allocate resources.

Delegation is the assignment of work and the transfer of authority and

responsibility to do that work.

Possible chain-of-command systems:

1. Line organization – The simplest and most common chain-of-command

system. Everyone knows who is accountable to whom. Know which tasks
and decisions each person is responsible for. It does have a
disadvantage – the technical complexity of a firm’s activities may require
specialized knowledge that individual managers don’t have and can’t
easily acquire.

2. Line and staff organization combines specialization with management

control. Managers are supplemented by functional groupings of people
known as staff. These staff employees provide advice and specialized
services but they are not in the line organization’s chain of command

Power and Authority

Organizational structure is a means of facilitating the achievement of
organizational objectives. Such structures are not static, but dynamic.
They reorganize in response to changing conditions that occur in the
environment, new technology, or organizational growth. Organization
structures are dependent upon the employees whose activities they
guide. Supervisors rely upon power and authority to ensure that
employees get things done.
Authority
The organizational structure provides the framework for the formal
distribution of authority. Formalization is the degree to which tasks are
standardized and rules and regulations govern employee behavior. It
influences the amount of discretion an employee has over his or her job.
In an organization with high degrees of formalization, job descriptions
and policies provide clear direction. Where formalization is low,
employees have a great deal of freedom in deciding how thy conduct
their work. Within the same organization, different departments may
have different degrees of formalization. For example, in a hospital,
doctors have freedom in selecting treatments, drugs, and methods for
treating patients. However, the hospital physical plant staff has a strict
schedule for cleaning buildings, mowing lawns, and maintaining the
facilities.
Authority is the legitimate power of a supervisor to direct subordinates
to take action within the scope of the supervisor's position. Formal
authority in the organization can be traced all the way back to the U.S.
constitutional right to own property. The owner of the organization has
the authority to make decisions. For example, entrepreneurial firms
have an informal arrangement of employees and centralization of
decision-making authority, the owner.
Forms of Authority
Three forms of authority are line authority, staff authority, and team
authority.
Line authority is direct supervisory authority from superior to
subordinate. Authority flows in a direct chain of command from the top
of the company to the bottom. Chain of command is an unbroken line of
reporting relationships that extends through the entire organization that
defines the formal decision-making structure. It helps employees know
to whom they are accountable, and whom to go to with a problem. Line
departments are directly linked to the production and sales of specific
products. Supervisors -- in line departments, such as marketing and
production -- give direct orders, evaluate performance, and reward or
punish those employees who work for them. Unity of command within
the chain states that each person in an organization should take orders
from and reports to only one person. This helps prevent conflicting
demands being placed on employees by more than one boss. However,
the trend toward employee empowerment, fueled by advances in
technology and changes in design from downsizing and reengineering
have tempered the importance of being accountable to only one
superior. Span of control refers to the number of employees that should
be placed under the direction of one manager. Spans within effective
organizations vary greatly. The actual number depends on the amount
of complexity and the level of specialization. In general, a wide span of
control is possible with better-trained, more experienced, and
committed employees.
Ø Span of control:- The Span of Control in an organization is defined as
the number of employees reporting directly to one supervisor.
Traditionally, the Span of Control has been defined as a number
between 4 and 7 subordinates under one manager. The Span of Control
is a concept which developed during the 19’th Century for the
organization of large European armies into smaller and smaller subunits.
I.e. one could have 7 soldiers in one Platoon with 1 leader, 7 platoons
with one higher-ranking leader, etc. to form a large army which was
relatively easy for one General at the top to manage under conditions of
combat.

Narrow Span Drawbacks

· xpense of additional layers of management

· increased complexity of vertical communication
· encouragement of overly tight supervision and discouragement
of employee autonomy.
Ø Centralization and Decentralization :- Centralization is the
retaining of power or authority to upper-levels of management. The
advantages to centralization involve a closer control of company
operations-including policies and practices. By retaining power at the
top, those decisions that directly affect a company will be made by the
proper governing board.

Decentralization is the degree to which authority is dispersed

throughout the lower levels of an organization. One of the main
advantages to decentralization is that decisions can be made
considerably faster, without having to seek approval from upper levels
of authority. Also, the presence of decentralization acts as a
motivational tool for employees to work their way through the ranks.
Decentralization also eases the workload for busy executives who may
not have time to oversee all aspects of the company.

Reasons to Move from Decentralization to Centralization

A. Considerable company growth- a company may find it advantageous

to switch to a decentralization model in order to keep organized. In this
manner, a company may establish new divisions or departments to keep
track of its growth.

B. Geographic- decentralization could involve the dispersing of power

from a centralized headquarters to localized branches. This designation

of power is most commonly used in the situations where a domestic

company has offices in a foreign country.

C. Technological complexity- a company may also choose to

decentralize its chain of command in order to better facilitate its
technological departments. This maneuver may also indirectly
demonstrate a sense of confidence to the technology employees, as it
proves a company has confidence in their actions. A positive side effect
could be the creation of an environment where ideas can be freely
explored and where they may flourish

D. Time- decentralization is sometimes necessary as a time solution. For

instance, a company might experience a time limit to finish a project,
and the most feasible solution would be to appoint lower-level mangers
that are more directly involved in the project to supervise.
Ø Formalization :- the degree to which jobs within the organization
are standardized
HIGH LEVELS
ü minimum amount of discretion over what, when, and how
ü consistent output
ü explicit job descriptions
ü organizational rules
ü clearly defined procedures

LOW LEVELS
ü unprogrammed behaviors
ü exercise discretion
ü great deal of freedom
ü less standardization
ü consider alternatives
 FORMS OF ORGANIZATIONAL STRUCTURE
Along with assigning tasks and the responsibility for carrying them
out, managers must consider how to structure their authority
relationships--that is, what structure the organization itself will
have, how it will appear on the organizational chart.
Line Structure:- The simplest organizational structure, line
structure, has direct lines of authority that extend from the top
manager to employees at the lowest level of the organization. This
structure has a clear chain of command, enabling managers to
make decisions quickly, but requires that managers possess a
wide range of knowledge. Line structures are most common in
small businesses.
Line-And-Staff Structure :- The line-and-staff structure has a
traditional line relationship between superiors and subordinates,
and specialized managers--called staff managers--are available to
assist line managers. Line managers focus on their area of
expertise, while staff managers provide advice and support to line
departments on specialized matters. This structure may result in
overstaffing and ambiguous lines of communication.
Matrix Structure:- A variation of the line-and-staff
organizational structureis the matrix structure. In today's workplace,
employees are hired into a functional department (a department that
performs a specific type of work, such as marketing, finance,
accounting, and human resources) but may find themselves working on
projects managed by members of another department. Organizations
arranged according to project are referred to as matrix organizations.
Matrix organizations combine both vertical authority relationships
(where employees report to their functional manager) and horizontal, or
diagonal, work relationships (where employees report to their project
supervisor for the length of the project). "Workers are accountable to
two supervisors—one functional manger in the department where the
employee regularly works and one special project manager who uses the
employee's services for a varying period of time".
Since employees report to two separate managers, this type of
organizational structure is difficult to manage—especially because of
conflicting roles and shared authority. Employees' time is often split
between departments and they can become easily frustrated if each
manager requires extra efforts to complete projects on similar time-
lines.
Because the matrix structure is often used in organizations using the
line-and-staff setup, its also fairly centralized. However, the chain of
command is different in that an employee can report to one or more
managers, but one manager typically has more authority over the
employee than the other manager(s). Within the project or team unit,
decision making can occur faster than in a line-and-staff structure, but
probably not as quickly as in a line structure. Typically, the matrix
structure is more informal than line-and-staff structures but not as
informal as line structures.
Bureaucratic structures :- Bureaucratic structures have a certain
degree of standardization. They are better suited for more complex or
larger scale organizations. They usually adopt a tall structure.

Boundaryless structure :- The most radical concept in today's

organisational design is the concept of 'boundarylessness', which seeks
to overcome traditional boundaries between layers of management
(vertical), functional areas (horizontal), as well as geographic
boundaries. Some claim the boundaryless structure is a combination of
team and network structures, with the addition of temporariness [21].
Ikea, the world's largest furniture manufacture, has been successful in
implementing the boundaryless structure.The company works closely
with suppliers by providing technical assistance, leasing them
equipment, and giving advice. It also refined the role of the customer,
putting responsibility on them to cart the furniture home and assemble
it themselves. As a result, the company can offer lower prices [22], which
supports its low-cost focused strategy.
Virtual structure :- A special form of boundaryless organisation is
virtual. It works in a network of external alliances, using the Internet.
This means while the core of the organisation can be small but still the
company can operate globally be a market leader in its niche.
As we can see, organizations develop, modify and change their
structures so that they align with their strategies. And the main trend for
the last decades seems to be coming back to flatter structures. Although
this structure seems suitable for small companies only, large
organizations can take elements of it in harder times. Being at risk of
losing profits or even going bankrupt due to the major financial
downturn today, a lot of companies are moving to flatter structures. Not
only are they unable to maintain multiple management levels any more,
they are also in need of a more flexible structure to cope with new
threats.
Learning Organization :- A Learning Organization is the term given to
a company that facilitates the learning of its members and continuously
transforms itself. Learning Organizations develop as a result of the
pressures facing modern organizations and enables them to remain
competitive in the business environment. A Learning Organization has
five main features; systems thinking, personal mastery, mental models,
shared vision and team learn.