1. Designing organization structures
PART I: FOUNDATIONS OF ORGANISATION DESIGN
Khalidi Swabiri
Department of General Management
UDBS

2. Organization design
The process by which managers select and manage various dimensions and components of organization structure and culture so that an organization can control activities necessary to achieve its goals
is a process of arranging people and physical resources into a structured grouping to carry out plans to accomplish organizational objectives

3. The Star model
Strategy
Structure
Processes
People
Rewards

4. Why Organization Structure?
Divide work into specific jobs and departments
Assign tasks and responsibilities associated with individual jobs
Cluster jobs into units
Resource allocation
Communication and coordination

5. Purpose of the structure (cont)
Establish relationships among individuals, groups and departments
Establish formal lines of authority
Allocate and deploys organizational resources
Contingencies and environmental demand
Basis for competetitive advantage - competence and capabilities framework
Strategy execution

6. Major Considerations in deisgning structure
When design structure we have to consider :
Work specialization
Departmentalization
Chain of command
Span of control
Centralization and decentralization
Formalization

7. Work Specialization
A component of organization structure that involves having each discrete step of a job done by a different individual rather than having one individual do the whole job
Work specialization is regarded as a source of ever increasing productivity

8. Departmentalization
Once jobs have been divided through work specialization then they have to be grouped back together so that common tasks can be coordinated
Work departmentalization refers to the basis by which jobs are grouped together
“ the process of subdividing of activities and responsibility areas into units within an organisation”

9. Departmentalization by Type
Functional
Grouping jobs by functions performed
Product
Grouping jobs by product line
Geographical
Grouping jobs on the basis of territory or geography
Process
Grouping jobs on the basis of product or customer flow
Customer
Grouping jobs by type of customer and needs

10. Chain of Command
The continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who reports to whom.
Helps employee to answer questions such as who do I go for if I have problems?
The concept of chain of command is related to:
Authority
responsibility
unity of command

11. Authority
Authority: This is a right inherent in a managerial position to tell people what to do and what to expect them to do it
The power to hold people accountable for their actions and to make decisions concerning the use of organizational resources
To facilitate decision making and coordination managers are part of chain of command and thus are granted certain degree of authority to meet their responsibilities.
Authority is related to hierarchy which is classification of people according to their relative authority and rank

12. Types of organisational Authority
Line authority
The position authority (given and defined by the organization) that entitles a manager to direct the work of operative employees.
Staff authority
Positions that have some authority (e.g., organization policy enforcement) but that are created to support, assist, and advise the holders of line authority.

13. Responsibility and unity of command
Responsibility is an obligation to perform an assigned duty.
Unity of command is principle that no person should report to more than one boss
Without unity of command conflicting demands and priorities from multiple bosses can create problems

14. Span of Control
The number of subordinates a manager can supervise efficiently and effectively
Number of interactions as a result of the size in span of management can be determined by the formula n(2n-1 +n-1)

15. Why is it important?
It determine the number and level of managers in an organization.
Determines the shape of an organization structure (taller or flatter)
There is a limited number of subordinates that a single manager can effectively and productively supervise
Increased complexity of managers job as span of control becomes wider

16. Shapes of organization structures

17. Span of control and managerial complexity

18. Do you agree with this ?
Ceteris paribus: the wider or larger the span of control, the more efficient the organization is

19. Span of control
Trends in recent years has been towards wider spans this is consistent with :
Managers efforts to reduce costs
The need to speed up decision making
The desire to get closer to customer
The need to empower employees

20. Span of Control Many factors affects the size of span of control
Skills and abilities of managers and employees
Characteristic of work being done
Physical proximity of the subordinates ???
Degree to which standardized procedures are in place
Nature and sophiscation of an organization's IS

21. Centralization And Decentralization
A function of how much decision-making authority is pushed down to lower levels in an organization; the more centralized an organization, the higher the level at which decisions are made
Managers are involved in day to day decision making
Decentralization
The pushing down of decision-making authority to the lowest levels of an organization
Fosters flexibility and responsiveness managers become accountable risk takers

22. Factors favoring Centralization
Environment is stable.
Top managers able to coordinate activities to keep the organization focused on its goals
Organization is facing a crisis or the risk of company failure.
Company is large- bureaucracy
Effective implementation of company strategies depends on managers retaining say over what happens.

23. Factors favoring Decentralization
Environment is complex, uncertain.
Lower-level managers are capable and experienced at making decisions.
Lower-level managers want a voice in decisions.
Decisions are significant.
Corporate culture is open to allowing managers to have a say in what happens.
Company is geographically dispersed.
Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions.

24. Formalization
Use of written rules and procedures to standardize operations
Jobs in formalized organisations are highly structured and standardized
Highly formalized jobs offer little discretion over what is to be done.
Very low level of mutual adjustment

25. Integration / Boundary spanning
Horizontal differentiation/ departmentalization is supposed to enable people to specialize and become more productive
Specialization often limits communication between subunits
People develop subunit orientation which results to communication and coordination failures
Subunit orientation: a tendency to view one’s role in the organization strictly from the perspective of the time frame, goals, and interpersonal orientations of one’s subunit

26. Types of Integration/boundary spanning Mechanisms
Hierarchy of authority: dictates “who reports to whom”
Direct contact: managers meet face to face to coordinate activities
Problematic that a manager in one function has no authority over a manager in another
Liaison roles: a specific manager is given responsibility for coordinating with managers from other subunits on behalf of their subunits

27. Types of Integration/boundary spanning Mechanisms
Task force: managers meet in temporary committees to coordinate cross-functional activities
Task force members responsible for taking coordinating solutions back to their respective functions for further input and approval
Teams: a permanent task force used to deal with ongoing strategic or administrative issues

28. Types of Integration/boundary spanning Mechanisms
Integrating role: a new, full-time role established to improve communications between divisions
Focused on company-wide integration
Integrating department: a new department intended to coordinate the activities of functions or divisions
Created when many employees enact integrating roles

29. Integrating Mechanisms

30. Integrating Mechanisms

31. Integrating Mechanisms

32. PART II: Organization Design Decisions

33. Design decisions
How do managers decide what organization design to use?
In principle the nature of an organization design depends upon certain contingency factors
However, contingency factors exist in two generic models which try to explain the choice of structure at two extremes

34. Mechanistic Organizations
Mechanistic organisations : designed to induce people to behave in predictable, accountable ways
Decision-making authority is centralized
Subordinates are closely supervised
Information flows mainly in a vertical direction along a clearly defined path
Hierarchy principal integrating mechanism
Tasks and roles coordinated primarily through standardization and formal written rules
Best suited to organizations that face stable, unchanging environments
Influence people to behave in a predictable manner and roles of people are clearly defined

35. Organic Organizations
Organic organisations : designed to promote flexibility, so people initiate change and can adapt quickly to changing conditions
Decision making distributed throughout the hierarchy
Coordination is achieved through mutual adjustments
Status conferred by ability to provide creative leadership
Encourages innovative behavior
Suited to dynamic environments

36. Organizational Design Decisions
Mechanistic Organization
A rigid and tightly controlled structure
High specialization
Rigid departmentalization
Narrow spans of control
High formalization
Limited information network (downward)
Low decision participation
Organic Organization
Highly flexible and adaptable structure
Non-standardized jobs
Fluid team-based structure
Little direct supervision
Minimal formal rules
Open communication network
Empowered employees

37. How the Design Challenges Result in Mechanistic and Organic Structures

38. Contingency Factors
The appropriateness of structure depends on four major factors:
Structure
Strategy
Size
Technology
Environment

39. Strategy and structure
An organization structure follows the organization strategy.
Its imperative that an organisational structure should facilitate the achievement of organisational goals
Therefore a change in strategy has to be followed by corresponding a change in structure

40. Strategy – structure relationships
Strategy Frameworks:
Innovation
Pursuing competitive advantage through meaningful and unique innovations favors an organic structuring.
Cost minimization
Focusing on tightly controlling costs requires a mechanistic structure for the organization.
Imitation
Minimizing risks and maximizing profitability by copying market leaders requires both organic and mechanistic elements in the organization’s structure.

41. Organisational Size-structure relationship
There is a compelling evidence in the literature which links a strong relationship between organisational size and structure
As an organization grows larger, its structure tends to change from organic to mechanistic with increased specialization, departmentalization, centralization, and rules and regulations

42. Size and organizational complexity

43. Technology –structure relationship
All organizations regardless of their size use technology to convert inputs into outputs
According to Woodwards technology is classified into three categories according to the level of complexity and sophisication

44. Technology –structure relationship
Woodward’s classification of technology:
Unit production of single units or small batches
Mass production of large batches of output
Process production in continuous process of outputs

45. Woodward’s Findings on Technology, Structure, and Effectiveness
Routine technology = mechanistic organizations
Non-routine technology = organic organizations

46. Environment –structure relationship
Organization should design its structure to fit its environment

47. Structure Environment Relationship ; Burns and Stalker
Found that organizations need different kinds of structure to control their activities based on the environment
Organic structures are more effective when the environment is unstable and changing
Mechanistic structures are more effective in stable environments

48. Relationship Between Environmental Uncertainty and Structure

49. Organisational Charts
The structure of an organization is depicted in the form of an organization chart
The organisational chart provides a pictorial representation of overall shape and structural framework of an organization

50. Organisational Charts
Organisational charts are useful in explaining the outline structure of an organization
They may be used as a basis of analysis and review of structure for training and management succession and for formulating changes

51. Organisational Charts
Organization chart may represent apparent weakness in structure such as ;
Too wide spans of control
Overlapping areas of control
Lack of unity of command
Too long chain of command
Unclear reporting relationships and/or lines of communication
Unstaffed functions

52. Organisational Charts
Organization chart should always give:
The date when it was drawn up
The name of the organization or branch or department to which it refers
Whether is an existing or proposed structure
The extent of coverage if it refers to management structure only or if it includes servicing departments

53. Limitation of organization chart
They depicts only a static view of the organisations
Charts do not show the comparative authority and responsibility of positions on the same level or lateral contacts and informal relations
Organization charts can become out of date quickly and are often slow to be amended to reflect changes in the actual structure
Charts do not show the extent of personal delegation from superior to subordinates or precise relationship between line and staff positions

54. Common Organization Designs

55. Functional Structure
A functional structure is a design that groups people on the basis of their common skills, expertise, or resources they use
Functional structure is the bedrock of horizontal differentiation/ departmentalization by functions
An organization groups tasks into functions to increase the effectiveness with which it achieves its goals

56. Functional Structure

57. Functional Structure (cont.)

58. Functional Structure: Advantages
Provides people with the opportunity to learn from one another and become more specialized and productive
People who are grouped together by common skills can supervise one another and control each other’s behavior
People develop norms and values that allow them to become more effective at what they do

59. Control Problems in a Functional Structure
Communication Problems: as more organizational functions develop, each with their own hierarchy, they become increasingly distant from one another
Measurement Problems: information needed to measure the profitability of any functional group is difficult to obtain

60. Control Problems in a Functional
Customer Problems: the ability to identify and satisfy customer needs may fall short and sales are lost
Strategic Problems: top managers spend too much time finding ways to improve coordination that they have not time to address the longer term
Managers can solve control problems by redesigning the functional structure to increase integration between functions

61. Solving Control: Improving Integration in a Functional Structure by Combining Sales and Marketing

62. From Functional Structure to Divisional Structure
Functional structure is appropriate if the organization:
Limits itself to producing a small number of similar products
Produces those products in one or a few locations
Sells them to only one general type of client or customer
As organizations grow, they produce more products and serve many different types of customers
A new structure is needed that will
Increase manager’s control of individual subunits
Integrate the operation of the whole company and ensure subunits are meeting organizational goals

63. Moving to a Divisional Structure
Organizations most commonly adopt the divisional structure to solve control problems that arise with too many products, regions, or customers
The type of divisional structure depends on the problem to be solved
Divisional structure creates smaller, more manageable subunits and takes the form
Product structure
Geographic structure
Market structure

64. Product Structure
Product structure: a divisional structure in which products (goods or services) are grouped into separate divisions according to their similarities or differences
Organizations need to decide how to coordinate its product activities with support functions

65. Product Division Structure

66. Divisional Structure II: Geographic Structure
When the control problems that companies experience are a function of geography, a geographic divisional structure is appropriate
Allows the organization to adjust its structure to align its core competences with the needs of customers in different geographic regions
Allows some functions to be centralized and others decentralized

67. Geographic Structure

68. Market Structure
A market structure aligns functional skills and activities with the needs of different customer groups
Each customer group has a different marketing focus, and the job of each group is to develop products to suit the needs of its specific customers
Each customer group makes use of centralized support function

69. Market Structure

70. Matrix Structure
Matrix structure: an organizational design that groups people and resources in two ways simultaneously, by function and product
A matrix is a rectangular grid that shows a vertical flow of functional responsibility and a horizontal flow of product responsibility
The members of the team are called two-boss employees because they report to two superiors: the product team manager and the functional manager
The team is the building block and principal coordination and integration mechanism

71. Matrix Structure

72. Advantages of a Matrix Structure
The use of cross-functional teams reduces functional barriers and subunit orientation
Opens communication between functional specialists
The matrix enables an organization to maximize its use of skilled professionals, who move from product to product as needed
The dual functional and product focus promotes concern for both cost and quality

73. Disadvantages of a Matrix Structure
Matrix lacks a control structure that leads employees to develop stable expectations of one another
The lack of a clearly defined hierarchy of authority can also lead to conflict between functions and product teams over the use of resources
People are likely to experience a vacuum of authority and responsibility
People then create their own informal organization to provide themselves with some sense of structure and stability
Copyright 2010 Prentice Hall

74. Hybrid Structure
Hybrid structure: large complex organizations that have many divisions make use of many different structures
Each product division’s manager selects the structure (functional, product, geographic) that best meets the needs of their particular environment and strategy

75. Thank you for listening