Understanding Organisations

Organizational Design Defined

A plan for arranging and coordinating the activities of an organization for the purpose of fulfilling its mission and achieving its goals.

Components of Organizational Design

Organizational Structure

Defines the primary reporting relationships that exist within an organization. The chain of command and hierarchy of responsibility, authority, and accountability are established through organizational structure.

Common Forms of Organizational Structure

Functional structure Divisional structure Matrix structure

Functional Structure

Members of the organization are grouped according to the particular function that they perform within the organization. Appropriate when an organizations greatest source of complexity comes from the diverse tasks that must be performed rather than from its products, geographic markets, or consumer groups.

Example of a Functional Structure

Functional Structure: Advantages

Facilitates specialization

Advantages

Cohesive work groups

Improved operational efficiency

Functional Structure: Disadvantages

Focus on departmental vs. organizational issues Disadvantages Difficult to develop generalists needed for top-level management Only top-level management held accountable for profitability

Common Forms of Organizational Structure

Functional structure Divisional structure Matrix structure

Types of Divisional Structure

Product divisional Most appropriate for organizations with relatively diverse product lines that require specialized efforts to achieve high product quality. Geographic divisional Most appropriate for organizations with limited product lines that either have wide geographic coverage or desire to grow through geographic expansion. Customer divisional Most appropriate for organizations that have separate customer groups with very specific and distinct needs.

Product Divisional Structure

Geographic Organizational Structure

Chief Executive Corporate Staff Finance & Accounting Personnel Marketing Legal Planning Research & Development

General Mgr. Western District

General Mgr. Southern District

General Mgr. Central District

General Mgr. Northern District

General Mgr. Eastern District

District Staff Personnel Accounting & Control

Engineering

Production

Marketing

Departmentation by customers
MD

Community City banking

Corporate banking

Institutional banking

Real estate & Mortgage loans

Agricultural banking

Banks

Common Forms of Organizational Structure

Functional structure Divisional structure Matrix structure

Matrix Structure

A structure in which the tasks of the organization are grouped along two organizational dimensions simultaneously. Examples include:

Product/function
Product/geographic region

Matrix Organizational Structure

Chief Executive Officer

Vice President, Engineering

Vice President, Production

Vice President, Purchasing

Vice President, Administration

Project Manager A

Engineering Staff

Production Staff

Purchasing Agent

Administration Coordinator

Project Manager B

Engineering Staff

Production Staff

Purchasing Agent

Administration Coordinator

Project Manager A

Engineering Staff

Production Staff

Purchasing Agent

Administration Coordinator

Matrix Structure: Advantages

Can achieve simultaneous objectives

Advantages

Managers focus on two organizational dimensions, resulting in more specific job skills

Matrix Structure: Disadvantages

Complex, leading to difficulties in implementation Disadvantages Behavioral difficulties from two bosses Time consuming from a planning/coordination perspective

STRATEGIC BUSINESS UNITS

Some firms encounter difficulty in evaluating and controlling the operations of their divisions as the diversity, size, and number of these units continue to increase. Under these conditions, a firm may add another layer of management to improve strategy implementation, to promote synergy, and to gain greater control over the firms diverse business interest. This can be accomplished by creating groups that combine various divisions (or parts of some divisions) in terms of common strategic elements.

STRATEGIC BUSINESS UNITS

Contd...

These groups, commonly called strategic business units (SBUs), usually are based on the independent product-market segments served by the firm.
The SBU structures main value appears to be that it provides a way for the largest companies to regain focus in different parts of their business that were central to earlier success yet which became lost or dysfunctional in the complexity and size brought on by the companys success.

Components of Organizational Design

Overall organizational design is defined by three primary components:

Organizational structure

Integrating mechanisms
Locus of decision making

Managing Complexity Through Integration

Interdependence is the degree to which work groups are interrelated.

Three primary levels of work group integration:

Pooled interdependence Sequential interdependence Reciprocal interdependence

Pooled Interdependence

Occurs when organizational units have a common resource but no interrelationship with one another.
A F Headquarters E C B

Sequential Interdependence

Occurs when organizational units must coordinate the flow of information, resources, and tasks from one unit to another.
A B C

Reciprocal Interdependence

Occurs when A information, resources, and tasks must be C passed back and forth between work groups.
E

Integrating Mechanisms

Methods for managing the flow of information, resources, and tasks within the organization. Three major categories of integrating mechanisms are:

General management systems. Methods of increasing coordination potential. Methods of reducing the need for coordination.

General Management Systems

Some coordination of work units may be achieved through the development of general management systems such as:

The managerial hierarchy

Rules and procedures

Plans and goals

Such mechanisms form the foundation of an organizations integration system.

Increasing Coordination Potential

Two popular mechanisms for increasing coordination potential both vertically and horizontally in the organization are information systems and lateral relationships.

Information systems facilitate the flow of information up and down the traditional chain of command and across organizational units. Lateral relationships exist across work units and serve as mechanisms for exchanging decision-making information.

Components of Organizational Design

Overall organizational design is defined by three primary components:

Organizational structure

Integrating mechanisms
Locus of decision making

Locus of Decision Making

Locus of decision making refers to the degree to which decision making is centralized versus decentralized.

Centralized Decision Making

Advantage

Gives top-level management maximum control. Limits the organizations ability to respond quickly and effectively to changes in the environment.

Disadvantage

Decentralized Decision Making

Advantage

Organizations can respond to environmental change more rapidly and effectively because the decision makers are the people closest to the situation.

Disadvantage

Top-level managers lose some control.

Mechanistic Vs. Organic Systems

Mechanistic Systems Highly centralized organizations in which decision-making authority rests with top-level management. Organic Systems Decentralized organizations that push decision making to the lowest levels of the organization in an effort to respond more effectively to environmental change.

What do you think would be the major form of departmentation in the following organisations? Why?
An international company operating in twentyfive countries with a limited product line An engineering-design organisation that designs large projects, such as oil fields or airports. A medium-sized manufacturing company with a single major product. A large consumer products organisation selling throughout the India.