Organization Structure

• Set of planned relationships between groups of

related functions, physical factors and personnel.
• Represents authority and responsibility
relationships between various positions.
• Pattern of communication and coordination.
 Need & Importance
• Facilitates Administration
 Sound organization structure facilitates performance of various functions
such as planning, staffing, directing & controlling by division of labour,
delegation, authority & responsibility relationship

• Promotes growth & diversification

 Sound organization structure designed on scientific principles help in
keeping various activities under control & increase the capacity of the
organization to grow & diversify.

• Optimum use of technological innovation

 Sound organization structure facilitates introduction of change & is flexible
to give adequate scope for the improvement in technology.
 Need & Importance
(contd.)
• Coordination
 Organization structure is an important means of bringing
coordination among various departments.
 Creates clear-cut relationship between the departments
 Provides for the channels of communication for the
coordination of activities of different departments.

• Optimum use of human resources

 Sound organization structure ensures that every individual is
placed on the job for which he is best suited. This helps in
better use of individuals.

• Training & Development

 An effective organization structure is an important device for
training & developing the personnel. It prepares them to take
more responsibilities whenever the need arises.
 Need & Importance
(contd.)
• Stimulates creative thinking
 An organization structure based on clear-cut demarcation of authority,
discretionary freedom etc., will certainly create the spirit of
constructive & creative thinking.
 Gives an opportunity for the staff to display their hidden creative
talents.

• Job Satisfaction
 Organization structure is a source of satisfaction to people.
 Organization structure provides each person a place of status which
confers a certain standing among his fellows.
 Most people spend large part of their time at work so they expect
their jobs to provide a reasonable degree of job satisfaction.
 Features
• Simplicity
 Various organizational relations should be kept minimum
possible.
 Every individual should be clear about to whom he has
to consult in a particular matter.

• Flexibility
 The structure is based on circumstances, which are
dynamic.
 The changes can be incorporated easily if the structure
is flexible.
 Features (contd.)
• Clear Line of Authority
 There should be clear lines of authority running from top
to bottom or in horizontal directions.
 One should be clear about what he is expected to
achieve and what relationships should be maintained by
him.
 Failure results into frictions, politics and inefficiencies.

• Application of Ultimate Responsibility

 A manager assigns some of the work to his
subordinates, but he is responsible for the performance
of total work.
 Everybody carries dual responsibility.
 Features (contd.)
• Proper Delegation of Authority
 It refers to authorisation of a manager to make certain
decisions.
 Absence causes delay in decision implementation, more
pressure on managers & less motivation to
subordinates.

• Minimum possible Managerial Levels

 Greater number of managerial levels leads to longer line
of communication in the chain of command.
 Creates problems of delay, distortion & increasing cost.
 Features (contd.)
• Principles of Unity of Direction & Command
 Every work having the same objective must be assigned to a single
person.
 One person should receive orders & instructions from one superior.

• Proper Emphasis on Staff

 Line activities serves the organisation objective directly like
production.
 Staff activities help in carrying out the line activity like accounting,
personnel.
 Line functions should be separated from staff functions.
 Features (contd.)
• Provision for Top Management
 There should be active participation of shareholders and
board of directors in management process.
 They both affect the organizational functioning.
 Process
• Identification of Activities
 Managers must identify the necessary activities
 Deductive method of identifying activities is followed
 Major activities are further classified into sub-activities.

• Grouping of Activities
 Similar activities are grouped into departments
 The basis may be functions, regions, type of customer etc.

• Delegation of authority
 Authority & responsibility are correlated
 Assignment of job to an individual creates responsibility, so he must have corresponding
authority to discharge his obligations.
 Contingent Factors
• Environment
 Organisation works within the framework of environment.
 Different environmental factors affect the different types of
organization differently.
 Mechanic system is suitable for stable environment while
organic system is suitable for dynamic environment.

• Strategy
 Course of action through which organization relates itself with
environment.
 There is a close relationship between strategy & structure.
 Contingent Factors
(contd.)
• Technology
 Directly affects the task structure.
 Three types of technology include unit, mass & process production.
 With the increase in technological complexity, the number of
personnel increases.
 The span of management for managers increases as an
organization moves from unit to mass production but it decreases
when the organization moves from mass to process production.
 With the increase in technological complexity, its clerical &
administrative staff becomes larger.
 Contingent Factors
(contd.)
• Size
 Measured in terms of number of employees, scale of operation
& amount of investment.
 Positive correlation between these three.
 Size of organization influences its coordination, direction,
control and hence, organizational structure.
 Size of organization affects the degree of formalization of
various processes like communication, authority, decision
making etc.
• People
 Organisation structure is the result of conscious actions on the
part of the people, engaged in the organization.
 Combination of framers and participants.
 Mechanism
While designing an organizational structure, three issues should
be
taken care of; which are: What should be the different units,
what
components should join together & what should be kept apart,
relationship & placement of different units. The different
approaches for finding the answers are:

• Process approach
 All necessary activities for achieving objectives are performed.
 No unnecessary duplication of activities.
 Activities are performed in a synchronized way.
 Mechanism (contd.)
• Result approach
It involves the following steps:
 Defining the business
 Establishing the objectives
 Determining the requirements for skills needed to meet them
 Determining the degree of authority.

• Decision approach
It involves certain questions and the answers of these becomes the
basis of this approach. The questions include:
 Decisions needed to obtain results
 Nature of such decisions
 Levels at which such decisions be made
 Activities involved in or affected by such decisions
 DEPARTMENTATION

Departmentation is the process of

dividing the work of organization
into various units or departments.
The terms used to denote the
departments that result from
departmentation vary a great deal.
 FUNCTION

PRODUCT TERRITORY

BASES OF
DEPARTMENTATION

CUSTOMER PROCESSES

TIME ALPHA-
NUMERICAL
 CHOOSING A BASIS FOR
DEPARTMENTATION

Specialization
Coordination
Control
Economy
Recognition of local conditions
Adequate attention
Human consideration
 DELEGATION OF AUTHORITY
Delegation of authority is the process through which a manager gives
authority to others to accomplish certain assignments. Principles of
delegation:
•Functional Definition: Clearly defined objective of a department or position
specifies results which are expected, the activities which are to be performed, and
its relationship with other positions.
•Delegation of Results Expected: The authority is delegated to get certain results
by performing particular activities.
•Parity of Authority and Responsibility: Authority and responsibility of any
manager should be co-equal. Authority gives a person right of taking and enforcing
decision to accomplish assigned activities; responsibility places the obligation upon
the person to perform these activities by using this authority. Authority without
responsibility lacks an ordinate purpose, likewise, responsibility without authority to
carry on assigned activities has a hollow ring.
•Unity of Command: It suggests that a subordinate should be responsible to a
single superior. The more completely a subordinate has the reporting relationship
with a single superior, less is problem of conflict in instructions and greater is feeling
of personal responsibility.
•Absoluteness of Responsibility: No superior can avoid his responsibility merely
by delegating his authority to subordinates.
 EFFECTIVE DELEGATION
Delegation is effective when adequate authority is delegated to
subordinates and they make its proper use. Important
measures which may be helpful in making delegation effective:
•Authority and responsibility of a manager should be clearly defined.
•A manager may fail to delegate because of feeling of insecurity in
his job. This fear should be avoided.
•A work climate, free from fear and frustration, should be
established. Managers having delegated authority should be suitably
awarded and supported by top management.
•Authority delegation should be tied with intelligent planning. It
should not be delegated before the goals are made clear. The art of
goal setting aids authority delegation because it brings in close focus
what authority will be required to achieve these goals.
 EFFECTIVE DELEGATION
(CONTD..)
•Proper control techniques should be developed to ascertain that
authority is used properly. This does not mean that control
techniques interfere unnecessarily with day-to-day functioning of
the delegants.
•The delegants should be selected in the light of the job to be done.
The nature of work and personality factors of delegants go a long
way in determining the quality and quantity of the delegation.
Problems of delegants should be carefully solved without
encroaching upon their authority.
•There should be free and open lines of communication. Delegators
have absolute responsibility. They are interested to know how
decisions are being taken, authority is being used, and problems
are being tackled. This brings both superior and subordinates
closer and they can solve many problems which come in the way of
delegation.
 CENTRALIZATION AND DECENTRALIZATION
Centralization denotes concentration of authority and
decentralization is dispersion of authority. These words are used
in context of administrative processes, physical and
geographical location, various functions being performed, or
degree of delegation of authority.
When centralization and decentralization are used in the context
of degree of authority at various levels and associated
management practices, they denote different degrees of
delegation of authority.
Centralization refers to the reservation of authority at top level of
the organization and decentralization refers to systematic
delegation of authority in the organization. However, there can
neither be absolute centralization or decentralization. In between
these two extreme points, there may be continuum of authority
distribution.
 FACTORS DETERMINING
DECENTRALIZATION
A basic factor that arises while designing the
organizational structure is:
How much to decentralize the authority?
The temperament of individual managers affects
the extent of authority delegation along with many
other factors. Most are beyond control of mangers.
Such factors are:
 SIZE OF
ORGANIZATION
HISTORY OF
MANAGEMENT
ORGANIZATION
PHILOSOPHY

AVAILABILITY PATTERN OF
OF MANAGERS PLANNING

FACTORS DETERMINING DEGREE OF

DECENTRALIZATION

CONTROL DECENTRALIZATION
TECHNIQUES ACTIVITIES

RATE OF CHANGE ENVIRONMENTAL

OF ORGANIZATION INFLUENCES
 RATIONALE CENTRALIZATION

Centralization is the systematic and consistent reservation of authority at

central points within the organization. This results into a number of benefits
in the organization.
•Provides opportunity for personal leadership.
•Facilitates integration of efforts.
•Quick decisions possible, emergencies can be handled very easily.
•Makes communication and control easier.
•Helps in reducing wastage of efforts.
•Uniformity in actions and thus coordination.
Centralization is suitable for smaller organizations. When organizations
increase in size and diversify, these benefits turn into limitations.
 RATIONALE DECENTRALIZATION
Decentralization has become the prevailing philosophy for organizing
activities on the part of large organizations. Its benefits:
•Reduces burden of top management.
•Facilitates growth and diversification in organization.
•Good philosophy to motivate managers.
•Encourages development of managers.
•Emphasis on horizontal growth of organization (reducing number of
management levels).
•Pinpoints more accurately on the results to be achieved.
If the organization is growing rapidly and working in dynamic
environment, decentralization is the best policy.
 MAKING DECENTRALIZATION EFFECTIVE

1) CENTRALIZED
TOP POLICY AND
CONTROL

2)APPRECIATION OF
CONCEPT OF
DECENTRALIZATION

3)DEVELOPMENT OF
MANAGERS

4)COMPETITION
AMONG UNITS
 Classification of Organisation
Structure
 Line Organisation Structure
 Line and Staff Organisation Structure
 Functional Organisation Structure
 Divisional Organisation Structure
 Project Organisation Structure
 Matrix Organisation Structure
 Free-form Organisation Structure
 Line Organisation Structure
An organisational structure in which authority moves
down in a line from the chief executive; typically, there are
no specialists or advisors, the chief executive having
complete authority over decision making.

Production Manager

Foreman Foreman Foreman Foreman

(Spinning) (Weaving) (Dying) (Finishing)

Workers Workers Workers Workers

 Line Organisation Structure
Merits Demerits
 Simplicity  No specialist
 Discipline  No conceptual
 Prompt Decision thinking
 Economical  Autocratic approach
 Lack of coordination
 Line and Staff Organisation Structure

An organisational structure is a structure in which both

line structure and staff structure, with the latter
providing specialized staff activities that support line
activities.

General Manager

Financial Production Marketing Personnel

Manager Manager Manager Manager

Production Plant Marketing

Finance Finance Advertising Personnel
Planning Service Research
Officer Officer Manager Officer
Manager Manager Analyst
Line and Staff Organisation Structure
Merits Demerits
 Planned  Lack of well defined
Specialization authority
 Quality Decisions  Line and Staff Conflict
 Prospect of Personal
Growth
 Better Training
 Line and Staff Conflict
Viewpoint of Line Managers
 Lack of Responsibility in
staff
 Staff encroach upon line
authority
 Staff dilute line authority
 Staff is theoretical bias
Viewpoint of Staff Managers
 Lack of proper use of staff
in line managers
 Line managers resists new
ideas
 Line managers don’t give
proper authority

Conflict is a natural phenomenon and is not to be always viewed as a disease to be

cured and a disorder to be curbed. To some extent it may even be necessary and
desirable to keep the organization alert or induce it to be more innovative, to open
up opportunities for learning and impart flexibility to organizational function.
 Functional Organisation Structure
In a functional structure, the division of labor in an organization is
grouped by the main activities or functions that need to be performed
within the organization—sales, marketing, human resources, and so
on. Each functional group within the organization is vertically
integrated from the bottom to the top of the organization.

Headquarters

Plant 1 Plant 2

Human Human
Production Marketing Finance Production Marketing Finance
Resource Resource
 Functional Organisation Structure
Merits Demerits
 Greater Variety of  Lack of Unity
Skills  Slow decision making
 Greater Efficiency process
 Greater Satisfaction  Lack of proper
of Job response
 No duplication of  Line and Staff conflict
activities
 Divisional Organisation
Structure
Divisional structure is built around business units. Here, organisation structure is
divided into several autonomous units. Each unit is self contained in that it has
the resources to operate independently of other divisions.

Managing Director

Consumer
Electronics Chemical
Product
Division Division
Division

Manufacturin Manufacturin Manufacturin

Purchasing Purchasing Purchasing
g g g

Marketing Accounting Marketing Accounting Marketing Accounting

 Divisional Organisation
Structure
Merits Demerits
 Emphasis on end  Costly
product  Lack of Satisfaction
 Performance  Divisionalisation
measurement easy problem
 High motivation
 Size of organisation
can be increased
easily
 Project Organisation Structure
Project structure appears same like a divisional structure, except that
in latter, various divisions are created on permanent basis while in
former they are created only for the life time of the project

General Manager

Project A Project B Project C

R&D Purchasing R&D Purchasing R&D Purchasing

Marketing Accounting Marketing Accounting Marketing Accounting

 Project Organisation Structure
Merits Demerits
 Single and Specific  Feeling of insecurity
Goals and uncertainty
 Unique and  Lack of clarity among
Unfamiliar to present members
organisation  Manager carry
 High degree of responsibility without
interdependence authority
between tasks
Matrix Organisation Structure
A Matrix organizational structure combines the advantages of
functional structure and product structure. In a matrix organisational
structure, people have to report to two bosses, one being the head of
the department in which they are working, and the other being the
leader or coordinator of the project on which they are working.
 Matrix Organisation Structure
Merits
 Minimization of project
costs, due to sharing of
resources.
 Minimization of conflicts
 Balance between time,
cost and performance
 Sharing of authority and
responsibility
 Stress distribution
between the team
 Information sharing
Demerits
 Not suitable for small
organizations
 Complete responsibility of
the Manager for success
or failure
 The team leader gets all
the credit
 Suitable only for project
based organization.
 Free-form Organisation
Structure
A Free-form organization is a rapidly changing, adaptive, temporary
system organized around problems to be solved by groups of relative
strangers with diverse professional skills. The duration of a team is
non-existent i.e. the team can last for a month or a year. Roles
performed in the teams are also interchangeable. A team can also be
subdivided in sub-teams.
This structure is suitable for those industries which have to work in
highly dynamic environments. Such environments are characterized
by high flexibility and ever-changing character.
 Types of
Free-form Organisation Structure

 Virtual Organisation

 Virtual Office
 Virtual Organisation
Virtual Organisation is a temporary network of independent companies
linked by information technology to share skills, costs, and access to one
another’s markets. It wont have a central office or organisational chart. It
will have no hierarchy or no vertical integration.
It is a temporary alliance between two or more organisations that band
together to undertake a specified venture.
 Virtual Organisation leads to:
• Better technology
• Better opportunities
• Better excellence
• Reliability
• Redefine the boundaries of company
• Creating synergy (2+2 =5 effect) by
temporary alliances
 Virtual Office
A virtual office is a combination of off-site live communication and address
services that allow users to reduce traditional office costs while
maintaining business professionalism. Employees interact with each other
through various portable communication tools like e-mail, mobile phone,
laptop and various audio video conferencing tools.
 Virtual Office
Merits Demerits
 Reducing facility cost  Lack of Belongingness
 Reduced equipment cost  Psychological fear of Job
 Emphasis on formal Loss
communication  Family Tensions
 Reduced work stoppages
 Social interaction and
Social contribution