Organizational structures Lecture 7

Definitions of organizational structures They define the levels of management in organizations; Org.structures define relationships between jobs; They define the centers of decisions in any organization. They help to achieve organizational goals by grouping jobs, defining relationship between positions as well as who takes the responsibility in organnzation.

Types of organizational structures Functional organizational structure. Employees are grouped together according to their similar tasks, skills or activities. Functional structures are suitable for SMEs with high level of specialization. The decision making is centralized at the top of the organization.

Benefits of functional organizational structure Efficient use of resources; In-depth skill development; Clear career paths; Strategic decisions are made on the top of the organization.

Disadvantages od functional design Slow decision making Less innovative. Performance responsibility is unclear; Limited management training. Poor coordination across functions.

Divisional organizational structure It is suitable for medium sized to big companies, expanding geographically or on customer base. A Divisional design means that all activities needed to produce a good or service are grouped into an anonymous unit.

Differences between functional and divisional design Functional designs are based on groupings by input; Each department is not an independent profit center; Divisional design considers output such as product, customer or location. Each division is independent profit center;

Forms of divisional responsible design Product division. Each unit is for a single product or a group of related products. Division by products is created when there is specific in the production process; Customer division. Organization sells products to diverse group of customers. Geographic division. It is advantageous when is necessary to locate facilities close to customers who have differences in regional tastes or needs.

Strengths of divisional design: Adaptation to unstable environment; High customer satisfaction; High task coordination; Clear performance responsibility; General management training.

Weaknesses of divisional design Inefficient use of resources; Low-in depth training. Decrease of the number of personnel reduces the specialization; Focus on division’s objectives. Difficult coordination between headquarter and the division. Loss of control.

Hybrid design Hybrid design is one that has divisional units but also have functional departments specialized and centralized in the headquarter.

Group task Give example of organizations having functional, divisional design. For which industry is functional design more appropriate and when divisional is suitable?

Strengths of hybrid design Simultaneous coordination; Integration of goals with objectives; it provides autonomy for the divisions to modify their objectives based on unique situations. Adaptability and efficiency. Adapt to the opportunities of the environment.

Matrix design It implements functional and divisional structures simultaneously in each department. The worker in each department is being supervised by two bosses at the same time. It is suitable for the following situations: Environmental pressure exists for a dual focus; Large amount of information needs to be processed; Innovations are performed Organization is working on several projects together. Efficiency is needed in the use of resources.

Strengths of matrix design Provides flexibility; Encourages resource efficiency; Enhances skill development; Increase motivation and commitment; Helps top management in planning process.

Weaknesses of matrix design Creates dual authority confusion; Is time consuming; Generates high implementation cost; Requires interpersonal skill training; Spawns power struggle.

Organizational design and environment The link between design and environment is examined by Burns and Stalker. There are two types of structures, according to them: Mechanistic; Organic

Differences between mechanistic and organic designs In the mechanistic design, tasks are broken down into specialized, separate tasks. Tasks are rigidly defined. Strict hierarchy of authority and control is used as well as too many rules are applied. Knowledge and control of tasks are centralized at the top of organizations. Communication is vertical. In the organic design, employees contribute to the tasks of the department; Tasks are defined and adjusted through the employee interactions; Less hierarchy and control and few rules; Knowledge and control are located anywhere in the organizations; Communication is horizontal.

Task Give example of the organizations with organic and mechanistic design. Which of the design forms is more appropriate in Internet economy?

Relationship between strategy and environment Organizations vary according to the environment: Differentiation. It is the extent to which the organization is broken down into departments; Integration. It is the degree of collaboration between the departments;

Relationship strategy and structure Alfred Chandler gives the idea that ”Structure follows the strategy”. There are 3 strategies possible according to Chandler: Defender; Prospector; Analyzer.

Strategies by Chandler Defender Strategy: To protect the organization’s market Problem: how to maintain strict control of the organization Structure: Divisional design, centralized control. Prospector Strategy: Seek high growth of the organization’s market Problem: How to facilitate and coordinate numerous activities Structure: Divisional design and decentralized control.

Strategies by Chandler Analyzer Strategy: protect some markets while seeking growth in other markets Problem: How to differentiate the organization’s structure and processes to accommodate both stable and dynamic areas of operation. Structure: Matrix design, centralized control.

Link between strategy and structure by Mintzberg Design consists of 5 elements: Strategic apex; top management and its staff; Middle line; Middle and first-line managers; Operating core; Technostructure; engineers, researchers, technician; Support staff.

Structures by Mintzberg Simple structure. It is used by small and young organizations run by aggressive environment. Machine bureaucracy. The organization is large and old, there is standartization of work processes. It is suited to stable and simple environment.

Types of structures Professional bureaucracy. Operating core is dominating, coordination is achieved through standardization of skills. Decentralized decision making. Divisionalised form. Standartization of output is performed. Decisions are made by middle managers. Suitable for steady environment. Adhocracy. Typical for dynamic and complex environment. Matrix design with focus on operating core and technostructure.

Relationship between technology and organizational design Technology is process that transforms input into output. It includes technology, knowledge, tools, techniques. Woodward identified three categories of technology: Unit, small-batch technology; Large batch, mass production technology; Continuous process technology.