ORGANIZATIONAL STRUCTURE

AND DESIGN

Ms. Iman Saleem Bukhari

Institute of Administrative Sciences, University of the Punjab

• Organizational Structure
 The formal arrangement of jobs within an organization.
• Organizational Design
 A process involving decisions about six key elements:
 Work specialization
 Departmentalization
 Chain of command
 Span of control
 Centralization and decentralization
 Formalization

10–2
Organizational Structure
• Work Specialization
 The degree to which tasks in the organization are
divided into separate jobs with each step completed
by a different person.
 Overspecialization can result in human diseconomies
from boredom, fatigue, stress, poor quality, increased
absenteeism, and higher turnover.

10–3
Departmentalization by Type
• Functional • Process
 Grouping jobs by  Grouping jobs on the
functions performed basis of product or
• Product customer flow
 Grouping jobs by product • Customer
line  Grouping jobs by type of
• Geographical customer and needs
 Grouping jobs on the
basis of territory or
geography

10–4
Exhibit 10–2 Functional Departmentalization

• Advantages
• Efficiencies from putting together similar specialties and
people with common skills, knowledge, and orientations
• Coordination within functional area
• In-depth specialization
• Disadvantages
• Poor communication across functional areas
• Limited view of organizational goals

10–5
Exhibit 10–2 (cont’d) Geographical Departmentalization

• Advantages
• More effective and efficient handling of specific
regional issues that arise
• Serve needs of unique geographic markets better
• Disadvantages
• Duplication of functions
• Can feel isolated from other organizational areas

10–6
Exhibit 10–2 (cont’d) Product Departmentalization

+ Allows specialization in particular products and services

10–7
Exhibit 10–2 (cont’d) Process Departmentalization

+ More efficient flow of work activities

10–8
Exhibit 10–2 (cont’d) Customer Departmentalization

+ Customers’ needs and problems can be met by specialists

10–9
Organization Structure (cont’d)
• Chain of Command
 The continuous line of authority that extends from
upper levels of an organization to the lowest levels of
the organization and clarifies who reports to who.

10–10
Organization Structure (cont’d)
• Authority
 The rights inherent in a managerial position to tell
people what to do and to expect them to do it.
• Responsibility
 The obligation or expectation to perform.
• Unity of Command
 The concept that a person should have one boss and
should report only to that person.

10–11
Organization Structure (cont’d)
• Span of Control
 The number of employees who can be effectively and
efficiently supervised by a manager.
 Width of span is affected by:
 Skills and abilities of the manager
 Employee characteristics
 Characteristics of the work being done
 Similarity of tasks
 Complexity of tasks
 Standardization of tasks

10–12
Exhibit 10–3 Contrasting Spans of Control

10–13
Organization Structure (cont’d)
• Centralization
 The degree to which decision-making is concentrated
at a single point in the organizations.
 Organizations in which top managers make all the decisions
and lower-level employees simply carry out those orders.
• Decentralization
 Organizations in which decision-making is pushed
down to the managers who are closest to the action.
• Employee Empowerment
 Increasing the decision-making authority (power) of
employees.

10–14
Exhibit 10–4 Factors that Influence the Amount of Centralization

• More Centralization
 Environment is stable.
 Lower-level managers are not as capable or experienced at
making decisions as upper-level managers.
 Lower-level managers do not want to have a say in decisions.
 Decisions are relatively minor.
 Organization is facing a crisis or the risk of company failure.
 Company is large.
 Effective implementation of company strategies depends on
managers retaining say over what happens.

10–15
Exhibit 10–4 (cont’d) Factors that Influence the Amount of
Centralization
• More 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.

10–16
Organization Structure (cont’d)
• Formalization
 The degree to which jobs within the organization are
standardized and the extent to which employee
behavior is guided by rules and procedures.
 Highly formalized jobs offer little discretion over what is to be
done.
 Low formalization means fewer constraints on how
employees do their work.

10–17
Organizational Design Decisions
• Mechanistic Organization • Organic Organization
 A rigid and tightly controlled  Highly flexible and
structure adaptable structure
 High specialization  Non-standardized jobs
 Rigid departmentalization  Fluid team-based structure
 Narrow spans of control  Little direct supervision
 High formalization  Minimal formal rules
 Limited information network  Open communication
(downward) network
 Low decision participation  Empowered employees

10–18
Common Organizational Designs
• Traditional Designs
 Simple structure
 Low departmentalization, wide spans of control, centralized
authority, little formalization (small scale organizations)
 Functional structure
 Departmentalization by function
– Operations, finance, human resources, and product
research and development
 Divisional structure
 Composed of separate business units or divisions with limited
autonomy under the coordination and control the parent
corporation.

10–19
Exhibit 10–7 Strengths and Weaknesses of Traditional
Organizational Designs

10–20
Exhibit 10–8 Contemporary Organizational Designs

Team Structure
• What it is: A structure in which the entire organization is made up of
work groups or teams.
• Advantages: Employees are more involved and empowered. Reduced
barriers among functional areas.
• Disadvantages: No clear chain of command. Pressure on teams to perform.

Matrix-Project Structure
What it is: A structure that assigns specialists from different functional
areas to work on projects but who return to their areas when
the project is completed. Project is a structure in which
employees continuously work on projects. As one project is
completed, employees move on to the next project.
• Advantages: Fluid and flexible design that can respond to environmental
changes. Faster decision making.
• Disadvantages: Complexity of assigning people to projects. Task and
personality conflicts.

10–21
Exhibit 10–8 (cont’d) Contemporary Organizational
Designs
Boundaryless Structure
What it is: A structure that is not defined by or limited to artificial
horizontal, vertical, or external boundaries; includes virtual
and network types of organizations.
• Advantages: Highly flexible and responsive. Draws on talent wherever it’s
found..
• Disadvantages: Lack of control. Communication difficulties..

10–22
Organizational Designs (cont’d)
• Contemporary Organizational Designs
 Team structures
 The entire organization is made up of work groups or self-
managed teams of empowered employees.
 Matrix and project structures
 Specialists from different functional departments are
assigned to work on projects led by project managers.
 Matrix and project participants have two managers.
 In project structures, employees work continuously on
projects; moving on to another project as each project is
completed.
e.g. NASA, IBM, Times Inc, hospitals, financial institutions

10–23
Exhibit 10–9 An Example of a Matrix Organization

10–24
Organizational Designs (cont’d)
• Contemporary Organizational Designs (cont’d)
 Boundaryless Organization
 An flexible and unstructured organizational design that is
intended to break down external barriers between the
organization and its customers and suppliers.
 Removes internal (horizontal) boundaries:
– Eliminates the chain of command
– Has limitless spans of control
– Uses empowered teams rather than departments
 Eliminates external boundaries:
– Uses virtual, network, and modular organizational
structures to get closer to stakeholders.

10–25
Removing External Boundaries
• Virtual Organization
 An organization that consists of a small core of full-time
employees and that temporarily hires specialists to work on
opportunities that arise.
e.g. small software houses, Dell Computers
• Network Organization
 A small core organization that outsources its major business
functions (e.g., manufacturing) in order to concentrate what it
does best.
e.g. BMW outsources 65% of total production of its cost
• Modular Organization
 A manufacturing organization that uses outside suppliers to
provide product components for its final assembly operations.
e.g. Electronics, toy industry

10–26