Indian Institute of Management

Ahmedabad IIMA/OB0226TEC

Technical Note

Understanding the design of organisations

Organisations are all around us. Right from the time we get up to the time we sleep, we use
products made by organisations. Organised action—as distinct from sporadic individual or
group level action—offers vast possibilities for expediting development as it brings under
one roof all the human, material, financial and technological resources needed to undertake
unfamiliar, long-range tasks. Organisations are diverse in nature producing various goods
and services, and every organisation has its own way of working according to its needs,
goals, environment and various other factors.

The field of organisational behavior concerns itself with the investigation of the impact that
individuals, groups and structure have on human behaviour within organisations, for the
purpose of applying such knowledge toward improving an organisation’s effectiveness1.
Human behaviour within organisations is defined, limited and strongly impacted by the
elements of an organisation’s design (e.g., hierarchies, rules and procedures, etc.). The study
of design of organisations is, therefore, important as organisations provide us the setting for
a wide variety of basic social processes (e.g., socialisation, communication, exercise of
power, and goal setting and attainment).

Organisations have been conceptualised using different perspectives like the rational
systems perspective, the natural systems perspective and the open systems perspective2. The
rational systems perspective proposes that organisations are collectivities oriented to the
pursuit of relatively “specific” goals and have a formal structure. They are purposeful,
usually with a high degree of formalisation, where the participation of members is conscious
and deliberate, and which have specific goals. While the rational system definition provides
a relatively precise definition of organisations, we find that while organisations may have
specific goals and well-defined norms of behaviours, their participants are rarely guided by
them. The natural systems perspective espouses that organisations are more than systems to
obtain specific goals; they are organic systems imbued with a strong desire to survive and to
maintain themselves. They engage in informally structured activities to secure this end. The
open systems perspective mainly stresses the importance of organisations interacting with
the environment and their dependence on various factors that are uncontrollable. The open
systems theory describes an organisation as a goal oriented entity of differentiated
components. It continuously interacts with various participants in the environment in the
process of achieving its goals and keeps reconfiguring itself in order to become efficient and
effective.

While each of the above mentioned definitions provide us a lens to understand various
aspects of organisations, we believe that the open systems definition comes closest to

Prepared by Professor Vishal Gupta and Jaya Reddy, Academic Associate, Indian Institute of
Management, Ahmedabad for the sole purpose of aiding classroom discussion on the topic of
organisation structures. This article provides a basis for understanding the elements of organisations
and important types of organisation structures.

© 2017 by the Indian Institute of Management, Ahmedabad.

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defining modern-day organisations. In the present note, we will use the open systems
definition of organisations that have the following characteristics.

 Organisations are a ‘goal-oriented’ entity of differentiated components.

 They are designed as deliberately structured and coordinated activity systems
(components interact within a structure and are interdependent; issues of structure,
power, culture exist).
 The system takes inputs from the environment and gives outputs to it (is linked to
the external environment and interacts with it; feedback is taken from the external
environment to change or correct its operation).
 The structure is separated from its environment by a definite boundary.
 The system grows, differentiates, matures and may die.

ELEMENTS OF ORGANISATION STRUCTURE

Organisation structure is defined as the arrangement of individuals and their reporting

relationships within the organisation to achieve performance in a controlled and
coordinated manner3. Understanding the design of the organisation structure is extremely
important as it aids in achieving important objectives such as 1) division of labour, 2)
coordination among participants of the organisation, 3) facilitation of decision making, and
4) establishment of political order and centres of authority4. Organisation design consists of
the following elements3,5:

 Specialisation: refers to the degree to which organisational tasks are divided into
separate jobs. A highly specialised organisation will have its employees doing
focussed, specific jobs whereas a less specialised organisation will have employees
that do jobs having multiple task components. Individuals doing similar jobs are
grouped under one department.

 Hierarchy: refers to the number of supervisory levels between the CEO and the
lower most employee of the organisation. Hierarchy defines who reports to whom
and is depicted by vertical lines on the organisational chart.

 Span of control: refers to the number of subordinates who report to a supervisor. The
number of subordinates reporting to a supervisor in turn affects the number of
relationships that the supervisor has to deal with (take care of). If the supervisor has
two subordinates reporting to her then she needs to deal with three relationships
(Figure 1a). If the supervisor has three subordinates reporting to her then she needs
to take care of six relationships (Figure 1b).

1 2
1 2
3

3
4 5
6

(a) (b)

Figure 1. Span of Control

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 Centralisation: refers to the hierarchical level that has the authority to make a
decision. When decision making is limited to top level managers, the organisation is
said to be highly centralised. When decision making power is delegated to lower
level managers, the organisation is said to be low on centralisation.

 Formalisation: refers to the degree to which written documentation exists in the

organisation. If the organisation has a lot of rules detailing the type of behaviours to
be exhibited, the actions to be performed and the procedures to be followed while
performing tasks, then the organisation is said to be high on formalisation.

 Design of coordination systems: refers to the systems that are brought into the design
of the organisation that enable the smooth flow of information and coordination of
activities and efforts between different departments. Examples of these systems
include cross-functional teams, task forces, supervisors (full-time integrators),
information systems, liaison roles and task forces.

An organogram (also referred to as an organisation chart) represents some of the above

mentioned elements of structure. Figure 2 below shows an organogram.

CEO Specialization

HR Marketing Operations
Hierarchy

Span of
control
Figure 2. Organogram (organisation chart)

The fundamental processes that determine the design of organisations are differentiation and
integration3. Differentiation is the process by which an organisation allocates people and
resources to organisational tasks and establishes the task and authority relationships that
allow the organisation to achieve its goals. An organisation can differentiate horizontally or
vertically. Horizontal differentiation is referred to as specialisation and leads to the formation
of departments. Vertical differentiation is referred to as hierarchy and is related to the idea of
span of control.

Integration is the process through which the differentiated elements (e.g., departments,
hierarchy) within the organisation are coordinated. Integration ensures that the different
departments and levels of hierarchy work in a coordinated manner. Coordination systems
as described above are examples of the integration mechanisms that can be adopted by the
organisation to ensure smooth operation. Actually, spending time and effort in devising
integration mechanisms is the ‘curse of organising’. The benefits of people coming together
and pooling their energies to achieve a common goal are somewhat reduced because of the
efforts made to coordinate the activities of individuals.
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Managers need to play important balancing roles within organisations5. First, they need to
balance differentiation and integration. They need to integrate the organisation by choosing
appropriate integrating mechanisms. Second, they need to balance centralisation and
decentralisation. Specifically, they should coordinate activities to keep the organisation
focussed on its goals as well as promote flexibility and responsiveness. Third, they should
balance standardisation and mutual adjustment. They need to ensure conformity with
specific models, rules or norms as well as promote the use of judgment rather than
standardised rules to guide decision making.

FACTORS AFFECTING ORGANISATION STRUCTURE

An organisation’s structure is affected by a number of contingency factors that determine

the configuration of the design elements. The factors as well as their impact on the design of
organisations are described below5:

1. Size: refers to the number of employees working in the organisation. Given the
human limitation of being able to manage effectively only a limited number of
relationships (span of control), an increase in the size of the organisation leads to an
increase in the hierarchy within the organisation. For example, if the organisation has
only five people, the organisation can manage with only one level of hierarchy.
However, if the organisation size increases, the number of people to be placed at the
supervisory levels needs to increase.

2. Organisation environment: refers to all the elements that exist outside the boundary
of the organisation and that have the potential to affect all or part of the organisation.
Elements of the environment that can affect organisations include competitors,
labour markets, finance, technology, government, socio-political conditions,
suppliers and raw material. Environments can be classified as simple or complex
depending upon the number of elements in the environment that can affect
organisational functioning. Also, environments can be classified as stable or unstable
depending upon the frequency with which the elements change over time. An
organisation’s environment can be classified as having low uncertainty when it is
simple and stable and as having high uncertainty when it is complex and unstable6.
An organisation operating in a less uncertain environment can afford to be high on
formalisation, high on centralisation, have fewer integrators and fewer boundary-
spanners. However, organisations having highly uncertain environments need to be
flexible and agile. They need to have more boundary spanners, high inter-
department coordination, less formalisation, less centralisation, more integrators and
high teamwork. Figure 3 below provides a representation of an environment’s
impact on organisation design.
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Stable
Less Uncertainty: Mod-High Uncertainty:
low speed response mod-high speed response
High formalisation, high Low-medium formalisation, low
centralisation, more hierarchy, –medium centralisation, low
fewer integrators hierarchy, more integrators,
more boundary spanners
Simple Complex
Mod-High Uncertainty: High Uncertainty:
mod-high speed response high speed response
Low-medium formalisation, low Low formalisation, low
–medium centralisation, low centralisation, less hierarchy,
hierarchy, more integrators, more integrators, more boundary
more boundary spanners
Unstable

Figure 3. Environment’s impact on Organisation Design (adapted from Duncan, 1972)

3. Organisational strategy: is a plan for interacting with the competitive environment. It

constitutes the specific pattern of decisions and actions that managers take to use
core competencies to achieve a competitive advantage and outperform competitors.
Organisational strategy can be classified as prospectors, analysers, low cost
defenders and differentiated defenders7,8. Prospectors value creativity, risk-taking and
innovation. They aim to identify, create and exploit new market opportunities.
Analysers are fast followers and also emphasise creativity, research and risk-taking
for innovation. Analysers closely monitor the market and seek to improve the
products introduced by prospectors or offer comparable products at reduced costs.
Low-cost defenders emphasise production efficiency and delivering existing products
at reduced costs. Differentiated defenders also direct products to stable segments of the
market. They, however, emphasise providing outstanding service and high quality
instead of low cost.

Prospectors are likely to have a learning orientation, flexibility in their design and a
fluid structure that is low on formalisation and high on decentralisation5. These firms
are likely to be staffed with a high proportion of specialists who enjoy considerable
authority and a workplace that does not have many rules and regulations. Analysers
like to balance efficiency and learning. They are likely to be high on both cost control
as well as on flexibility and adaptability7. Thus, they are like prospectors in their
design of organisations, but with higher formalisation and centralisation as
compared to prospectors. Low cost defenders emphasise efficiency and are likely to be
high on centralisation, formalisation and specialisation7,8. Differentiated defenders are
both customer and competitor centric cost controllers. They, therefore, emphasise
efficiency and tight cost control (through moderate-high formalisation) and
centralised authority. However, because of their focus on quality and customer
service they may also be loosely knit and flexible, with strong horizontal
coordination5,8.

4. Organisational technology: refers to the work processes, techniques, machines and

actions used to transform input into outputs3. Technology can be classified as core
technology that relates to the transformation process to provide goods/service5. Non-
core technology is not directly related to the primary mission of the organisation. The
core technology of organisations can be manufacturing or service based3,5. An
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organisation that uses manufacturing technology produces tangible products that

can be produced and stored at one location from where they can be transported to
customers at different locations, is capital intensive and has little direct customer
interaction. Service-technology based organisations, on the other hand, have
intangible output, the production and consumption of service happen in real time
and at the same place, customer interaction is high and rapid response is usually
necessary. Manufacturing organisations usually are higher on formalisation,
centralisation and specialisation compared to service based organisations. Service-
based organisations have high geographical dispersion and require that their
employees have both technical as well as interpersonal skills.

TYPES OF ORGANISATIONAL STRUCTURES

Organisations use many types of structures, often one or more at a time based on their
purpose and goals and most of them undergo changes every time they face a new challenge.
Given below is a brief description of some of the important organisational structures3,5.
Functional Structure

As the name suggests, a functional structure is based on the type of work people do. People
who utilise similar skills and perform a common function are grouped into one department.
For example, all the finance people work under the same manager as do all the other
functions like marketing, manufacturing, human resources, design etc. People are grouped
into functions/departments based on the core function of the organisation. For example, a
market research firm may have people divided separately into research, analytics, social
media, etc. This structure is highly useful when the organisation requires in depth expertise
to achieve its goals. This structure is usually found in organisations that have only one major
product category. (Exhibit 1 (panel A) provides a graphical representation of a functional
structure.)

Advantages

Economies of scale. A functional structure promotes sharing of infrastructure and placement

of functional people in the same department which helps in achieving economies of scale. It
eliminates rework and waste so that organisations can save on resources by producing
things at one plant enabling them to stay updated with the latest tools and machinery.

Encourages domain expertise. It promotes the in-depth skill development of employees

exposing them to a range of activities in their own domain. This often helps in new
inventions and people becoming experts in their chosen domain.

Disadvantages

Poor adaptability. Functional structures have a very poor response time to changes in the
environment that require high levels of coordination across departments. This structure
performs poorly if there are multiple product categories.

Hierarchy overload and poor horizontal coordination. Decision-making becomes very slow, and
is concentrated at the top. This leaves no decision making power at the lower levels,
discouraging autonomy; it also leads to narrow goals at the departmental level and loss of
motivation in employees.
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Divisional and Geographical Structures

Divisional structures are generally formed based upon one or more products, services,
projects or businesses in the organisation and are linked to the outputs they generate. For
example, GE has many divisions like capital, appliances and lighting, healthcare, aviation,
transportation etc. Unlike functional departments, divisions have their own advertising,
budgeting, manufacturing, marketing and hiring; they are more autonomous and are
responsible for their own profit and loss. This type of structure works better in organisations
that have a diverse product range and sufficient staff. A variant of the divisional structure is
the geographic structure that is based on the geographies in which the organisation
operates. This type of structure is usually found in large multinational companies that
operate across geographies as well as in multiple product lines. (Exhibit 1 (panel B) provides
a graphical representation of divisional and geographical structures.)

Advantages

Promotes internal flexibility. As every division (or geography) has its own departments like
finance, marketing, HR, manufacturing, etc., it is easy for the division to define its objectives
and decentralise decision-making. It also increases coordination across functional
departments. Each department is accountable for its product line.

Responsive. A divisional structure helps in adapting to a fast changing and unstable

environment providing a clear point of contact to the customers as each product (or
geography) has its own visibility. Customers need not call a centralised office where they
have to transfer the call to a specific division. Instead, they can directly call the specific
division they are doing business with.

Disadvantages

Loss of economies of scale. Organisations with a divisional structure lose out on economies of
scale as resources are duplicated within divisions. Resource utilisation also may not be
optimum.

Loss of interest in bigger goals. As divisions strive to achieve their own goals, they eventually
tend to lose out on the larger organisation goal, and cross unit coordination is likely to be
very poor leading to competition between one’s own divisions. For example, one unit may
design a product which is incompatible with the ones produced by another division.

Matrix Structure

A matrix is a grid-like organisational structure that allows a company to address multiple

business dimensions using multiple command structures9. It is an organisational structure in
which people report to multiple managers, having different roles10. A matrix structure has
the advantages of both functional as well as divisional structures. In this type of structure, a
functional manager oversees the tasks relating to her function and a project manager looks
after the specific project that she is running. Matrix structures are of multiple forms:

Functional Form

In this form of matrix, employees remain as full-time members under the control of their
functional managers. The project manager has the least say and generally coordinates across
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various functional groups. Each functional group is responsible for its component of the job
in the project.

Project Form

Functional managers have the least power in this type of matrix and they only assign
resources and act as consultants based on need. The project manager is responsible for the
completion of the project. The project matrix is most popular and is used to manage
development projects in many companies today10.

Balanced Form

As the name suggests, both functional and project managers share the responsibility and
jointly approve and make decisions. Employees in such a matrix often face power struggles
between the project objectives, departmental objectives and organisational goals. While the
project manager decides what is to be done and when it is to be done, the functional
manager deploys staff and defines how to accomplish those tasks.

If we look at the above three forms of matrix structures, there is a continuum that can be
visualised, where the functional and project matrix structures fall at the extremes. The
former gives the functional manager more power and the latter gives the project manager
more power. A balanced form is always plagued with power struggles between the project
and functional managers.

Matrix structures are generally found in companies where there is a need for strong
technical assistance across various areas (product groups, geographical hierarchies). Some of
the industries where we generally find matrix structures are large scale consulting,
aerospace and construction industries. If we take a closer look at the above industries, most
of them would generally be working on a project basis11 and across geographies. We can also
observe the matrix structure in organisations that have many products and very few people,
that do not want to lose out on the optimum utilisation of people and so assign people on a
part-time basis to several product teams. (Exhibit 1 (panel C) provides a graphical
representation of the matrix form of organisational structure.)

Advantages

Productive use of organisational resources. A matrix structure gives us the flexibility to deploy
resources based on the needs across various projects so that no resource is duplicated9. This
helps organisations when there are multiple project teams running simultaneously.

Project-based functioning. The project manager plays a key role right from the conception
stage to the completion stage and has full control over the project activities. Inputs from
functional departments may be valuable but the project manager has the final say5.

Promotes domain knowledge. Matrix structures not only help people to interact with other
colleagues from different disciplines, but also provide them a home port for specialists to
come back to their function once the project is completed, letting them retain their domain
expertise9,10.

Cross-functional learning. Matrix structures facilitate cross-functional learning as people from

different departments come together to work on the same project. This helps in creating
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innovative solutions and also a better understanding of the constraints faced by other
departments11. Members can use their learning across various teams, which helps create
innovative products.

Disadvantages

Confusion and conflict over roles and responsibilities. Matrix organisations may lead to conflicts
between functional and project managers and eventually may result in functional managers
skipping project meetings, delayed delivery of their function’s work in the project, finger
pointing, competing goals and divided loyalties9,10,11. A balanced form of matrix is more
prone to these things because power and authority are more equally distributed in this
system.

Misaligned Goals. Aligning goals among different dimensions of a matrix is a major

challenge9. For example, an automobile manufacturing company may have different goals
for managers. While the vehicle program manager (VPM) is responsible for profit and loss,
the functional manager (FM) is responsible for the number of vehicles sold. A sales manager
having dual reporting with both of them in a matrix structure may initiate a sales incentive
program which results in an increase in the sales of vehicles, but the incentives may reduce
the potential profit for each unit negatively, affecting the VPM’s goals. Here, the VPM and
FM have conflicting goals.

Politicisation of resources among various projects. As there are two managers in the matrix form,
namely, the functional manager and the project manager, politicisation of project resources
between projects by the functional manager results in projects being delayed11.

Increase in overheads. Administrative expenses may increase due to the higher salaries paid to
the people in matrix roles since their work load is higher.12 This may double the costs
because of the dual chain of command.

Temporary team. Matrix structures often pose a problem of cohesiveness within the team as
most of the team members move on as soon as the project ends13. Keeping such teams
motivated is a big challenge.

Recommendations to make a matrix work

Matrix guardian. Top management should clearly explain the matrix to the people in the
organisation and its need to achieve the organizational objectives10,11. Such a structure
should be implemented only if its added value is higher than the cost incurred. Management
must also ensure that all the organisational elements we discussed at the beginning are
brought fully into play.

Formalise the resource allocation process. The creation of a formal project prioritisation protocol
helps allocate resources to the more important and time bound projects first9. It also clarifies
who will be responsible in case of a budget overshoot and contingent resource requirement.

Clarify roles and responsibilities. We may use the RACI (Responsible, Accountable, Consulted
and Informed) Chart (Figure 4) for clarifying roles and responsibilities9. Also, the authority
for a task should be clear at all times.
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Principal Investigator Co-investigator Research Associate Head (Project)

Task 1 C I R A

Task 2 R C I A

Task 3 I C A R

Task 4 A R I C
*R-Responsible (works on), A-Accountable (deliverables), C-Consulted (subject matter
expert), I-Informed (FYIs)

Figure 4. RACI Chart (adapted from Sy, Beach, & D’Annunzio, 2005)

Training. Top managers should be given training on goal alignment, middle managers on
dealing with issues with unclear roles and responsibilities, and employees on knowledge
and skills to operate in a matrix structure.

Linking functional deliverables with project based goals. Define the objectives clearly at the start
of every year or when the team is formed. Both the bosses, namely, the project boss and the
functional boss should accept the objective. Decide whether to set up a functional or project
matrix. A balanced matrix is rarely successful. Functional groups can be evaluated along
performance metrics on the basis of project based goals like the number of projects
completed and the man hours required to do the same. All these performance parameters
need to be accepted by both the bosses and the performance reviews should be done jointly
by them5. For example, if we ask people to look at the bigger goal but reward them for the
achievement of their department’s goals, we will undermine the matrix.

Schedule and prioritise. An employee working in a matrix team will have multiple deadlines
competing for her attention all at the same time and eventually they may even be in conflict
with each other. So, it is essential to prioritise tasks across teams and keep them organised.

Horizontal Structure

Organisations following horizontal structures are designed around cross-functional core

processes13. Processes here refer to an organised group of related tasks and activities. The
aim of such structures is to eliminate vertical hierarchy and departmental boundaries.
Customers usually drive such organisations and they measure their effectiveness through
customer satisfaction, employee satisfaction and financial contribution. The culture of such
organisations is likely to be of openness, trust and collaboration with a focus on continuous
improvement5. The organisation promotes the creation of self-directed teams and not
individuals. Process owners are responsible for the entire process and individuals in the
team are given the authority to take decisions13. (Exhibit 1 (panel D) provides a graphical
representation of a horizontal organisational structure.)

Advantages

Flexibility. Promotes flexibility and rapid responses to changes in the environment.

Cross-functional integration. Employees have a broader view of organisational goals and are
focussed on teamwork and collaboration5.
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Job enrichment. Employees have a greater opportunity to take decisions, share responsibility
and be accountable for the work outcomes.

Disadvantages

Requires a different mind-set. Leaders require a completely different mindset and a willingness
to empower their subordinates to take decisions. Leaders and employees need to be trained
to work in such a structure.

Determination of core processes. To be successful, the cross-functional core processes need to be

identified very carefully. This may not be very clear-cut a lot of times5,13.

Network Structure

A network structure is designed as a set of social relations across a group of organisations14.

It refers to inter-organisational tie-ups that are either formal or informal. Network
organisations include a range of agreements like alliances, joint ventures, consortiums and
contract-based organisations. An example is the Frankfurt based Star Alliance which is the
world’s largest airline alliance with 28 member airlines15, each having its own competencies.
Alliances between airline companies are formed to reduce costs and attain economies of
scale apart from avoiding the entry barriers to heavily regulated routes. Member airlines
share various facilities at airport terminals like common check-in counters and ground
handling, ticketing, sales offices, lounges, etc. They also share flights among the member
airlines by entering into code sharing agreements16 – which means each airline in this
agreement will do its own marketing for selling the tickets on the shared flight under its
own flight number, but one of these cooperating airlines will operate the flight which is
called the operating carrier and the rest are called administrating carrier(s). (Exhibit 1 (panel E)
provides a graphical representation of the network form of organisational structure.)

Advantages

Agile and innovative. In a network structure, each node has its own independent decision
making and is very quick to adapt to changing demands. As each functional job is done by
experts in their domain, a high chance of innovation is possible.

Effective communication. As each organisation works independently on an objective to deliver

something, communication is very effective within their division and less siloed17. Decision
making will be very quick as organisations are usually small and the structures are flat.

Disadvantages

Complex relations. People may not know how to act in case of any contingencies as the
structure is more fluid, relationships become more complex and roles are less clear, leading
to conflicts. People often get confused as to who is responsible for what and may even avoid
contributing to team work.

Dependence on external vendors. As the tasks are mostly done by various organisations that
have expertise in a particular domain, there is a potential danger that these variables might
affect the organisation in its success as it does not have control over other organisations17.
For example, even though an organisation is design focussed, poor product quality might
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affect its sales and maintaining relationships with external vendors may be a big challenge.
Table 1 below summarises the advantages and disadvantages of the five structures.

Table 1 Summary of advantages and disadvantages of organisational structures

Functional Divisional Matrix Horizontal Network

Advantages 1. Highly 1. Known for high 1. Best suited 1. Flexibility 1. Highly

resource accountability and for 2. Cross- responsive
efficient and adaptiveness complicated functional and adaptable
suited for 2. Works best in environments integration 2. Very good
stable diverse 2. Quick 3. Job time and
environments environments and response enrichment resource
2. Offers good time efficient efficiency
accountability

Dis- 1. Lacks 1. Lacks resource 1. Not resource 1. Requires a 1. Suited for

advantages adaptability to efficiency and efficient and different mind- highly
changes mediocrely poor set uncertain
2. Least responsive accountability 2. Identification environments
responsive and 2. Moderately of core and has less
poor time adaptable processes accountability
efficiency difficult

Each structure meets different needs and is a tool that can help managers be more effective.
Structures set constraints on human behaviours. Thus, the leaders of the organisation should
not consider organisational structures to be static. They must continuously design and
redesign according to the need of the environment (internal as well as external). Structures
should be established keeping in mind the different set of contingencies and different
constituents whom it may impact. Structural alignment with other elements of the
organisation is essential for organisational effectiveness. Symptoms of structural
misalignment include delayed and poor quality of decision-making, organisational inertia,
decline in employee performance, employee needs not being met and too much of conflict.

RELATIONSHIP OF STRUCTURE WITH OTHER ELEMENTS OF ORGANISATION

Metaphors help us to create a more vivid image in the readers’ vision. A metaphor is a
figure of speech in which a term or phrase with a literal meaning is applied to a different
context in order to suggest a resemblance, such as ‘the head of the family’18. It helps us draw
similarities between two objects. One of the best metaphors that closely describe an open
system organisation is the ‘human body’. We compare the elements of an organisation with
the organs of a human body to aid our understanding of the relationship between an
organisation’s structure and its other elements.

Structure

Similar to the ‘anatomy’ of a living organism, structure denotes the formation of various
departments of an organisation based on the similar kind of activities they do and their
hierarchy. Structure plays a prominent role in facilitating coordination, communication and
integration of efforts by people. An ideal structure should have control and should provide
information and coordination both horizontally and vertically as per the need5.
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Leadership

Leadership is analogous to the ‘brain’ of an organism. The top management is the thinking
part of the organisation. Also, the brain has control over other organs in the body. The
working style set by the key leaders of the organisation sets the tone for the overall working
style of the employees and the organisation. Some of the key attributes of leadership that
can be observed are decision making styles within the organisation and time spent by top
leaders in activities like goal setting, communication and formal/informal meetings with
employees and customers19.

Strategy

As the ‘vision’ shows us the way to reach our destination, strategy helps us to achieve
sustainable competitive advantage over other competitors in the market, for example, cost
strategy by means of economical production and innovative strategy by providing
distinctive products or services19. A company’s strategic priorities always change based on
the needs of and the goals that an organisation ought to achieve.

Culture

Culture is defined as the underlying values, beliefs and assumptions shared by employees of
an organisation. It is the ‘psychology’ of an organism, because the latter refers to the study
of thoughts and beliefs of an individual. Culture determines the behaviour of people in
organisations by way of the set of values shared widely in the organisations. This portrays
the peoples’ understanding of the existence of organisations and their knowledge about the
vision of organisations19.

Skills and Staffing

Skills here refer to what an organisation is good at doing. These are the collective skills of
the complete organisation, and not just of an individual in the organisation. Skills are similar
to the ‘skills’ of a human being (e.g., music, painting, arts, etc.). We often talk about Toyota’s
Quality and Apple’s Design. These are exclusive to them. Staffing is about how an
organisation gets people on board, trains them and how it builds their careers19. Staffing, in
other words, is the role played by the HR department during all the stages of the HR life
cycle, which is an employee’s time with the organisation. It includes recruitment and
placement, induction and career planning, development and transition.

Systems

Finally, systems are analogous to the ‘blood’ of an organism. They are concerned with the
processes and procedures that an organisation uses to manage itself in its daily functioning.
Systems include everything, right from management information systems to performance
management systems to distribution systems19. They always need to be dynamic to adapt to
the changing environment to achieve organisation goals. Hence, they play a key role in the
overall functioning of the organisation.

Just as coordination between various elements of an organism is needed for proper

functioning, coordination between the elements of the organisation is also important for it to
be effective. If there is no coordination between any of the above elements, the organisation
will perform poorly. For example, if a large multinational organisation’s strategy is to form
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cross-functional teams and encourage innovation, but there is no thought given to how to
form and manage such teams (form of reporting, leadership), such an organisation is bound
to fail. Similarly, if the strategy of an automobile manufacturer is innovation but its
organisational structure is highly rigid and top-down where decision-making is centralised,
the organisation cannot succeed. Alignment of all the elements is fundamental to
organisations that strive to succeed.

CONCLUSION

An organisation’s structure defines the way in which tasks and people in the organisation
are divided and specialised and authority is distributed. In meeting the growing demands of
consumers, organisations are becoming more agile and are expanding exponentially across
geographies. As organisations grow bigger, they develop multiple product groups and work
across geographies leading to more number of people working in complex structures,
making relationships more complex. This often brings in a lot of problems as decision
making becomes relatively slow requiring buy-in at various levels of the organisation. Being
vigilant to the growth of organisations and adapting the structure to suit its growth is
essential for its smooth functioning. The purpose of this note is to help readers understand
organisational structure better by making them recognise the intricacies of structure and its
alignment with various other elements of an organisation.
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Exhibit 1. Types of Organisational Structures

Panel A. Functional Structure

CEO

HR Marketing R&D

Panel B. Divisional / Geographical Structure

CEO
CEO

Power Construction Americas South-East Europe

Home
Electronics Appliances Machinery

HR MKT MFG HR MKT MFG HR MKT MFG

Panel C. Matrix Structure

CEO

HR Marketing R&D

Product A

Product B

Panel D. Horizontal Structure

CEO

Process 1 Head R&D Design Manufacturing Customer

Sales & Sales & Customer

Process 2 Head Marketing
Distribution Distribution

Panel E. Network Structure

IT & Services
Vendors
Firm

e-Commerce
Firm

Logistics Firm Financial

Institutions
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