Organizational Structure

Definition

Formal and informal framework of policies and rules, within which an organization arranges its lines of authority and communications, and allocates rights and duties.

Organizational structure determines the manner and extent to which roles, power, and responsibilities are delegated, controlled, and coordinated, and how information flows between levels of management.

This structure depends entirely on the organization's objectives and the strategy chosen to achieve them.

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Organizational Structure can be thought of in terms of three dimensions; Vertical Organization-the location of decision making responsibilities within a structure Horizontal Organization-formal division of the organization into subunits Integrating Mechanisms-mechanisms for coordinating these subunits

In a centralized structure, the decision making power is concentrated in the top layer of the management and tight control is exercised over departments and divisions.

Centralization-is the concentration of decision making authority at a high level in a management hierarchy.

Centralization

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There are four main arguments for centralization: Centralization can facilitate coordination. It can help ensure that decisions ae consistent with organizational objectives.

When decisions are decentralized to lower-level managers, these managers make decisions at variance with top managers goals. Centralization of important decisions minimizes the chance of this occurring

Major strategic decisions are often centralized to make sure the entire organization is pulling in the same direction. In this sense, centralization is a way of controlling the organization

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Centralization can avoid duplication of activities by various sub units within the organization. By concentrating power and authority in one individual or management team, centralization can give top level managers the means to bring about needed major organizational changes.

In a decentralized structure, the decision making power is distributed and the departments and divisions have varying degrees of autonomy

Decentralization vests decision making authority in lower level managers or other employees

Arguments for Decentralization

There are five main arguments for decentralization: 1. Decentralization gives top management time to focus on critical issues by delegating routine issues to lower level managers and reducing the amount of information top managers have to process, making them less vulnerable to cognitive biases.

Decentralization
2. Behavioral scientists said that people a willing to give more to their jobs when they have greater degree of individual freedom and control over their work. The idea behind employee empowerment is that if you give employees more responsibility for their jobs, they will work harder, which increases productivity and reduce costs

Decentralization
Decentralization permits greater flexibilitymore rapid response to environmental changes. In a centralized firm, the need to refer decisions up the hierarchy for approval can significantly slow decision making and inhibit the ability of the firm to adapt to rapid environmental changes.
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Decentralization
4. Decentralization can result in better decisions. In a decentralized structure, decisions are made closer to the spot by individuals who have better information than managers several levels up a hierarchy.

Decentralization
Decentralization can increase control. Decentralization can establish relatively autonomous, self contained sub units within an organization. An autonomous sub unit has all the resources and decision making power required to run its operation daily.
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