Organizational Structure

Presented by :
2015-ME-301
2015-ME-315
2015-ME-319
Organizational Structure
An organizational structure consists of activities such as task
allocation, coordination and supervision, which are directed
towards the achievement of organizational aims.

10-2
Factors Affecting Organizational Structure
Importance of Organizational Structure
• Define responsibilities

• Respective roles and responsibilities

• Minimal duplication

• Avoid overlapping
 Departmentalization

Departmentalization is defined as the process of grouping individual

jobs into departments
The grouping into departments of work activities that are SIMILAR and
LOGICALLY connected
Basis of Departmentalization
• Functional

• Geographic

• Product

• Process

• Customer
Functional Departmentalization
Advantages
• Simplicity

• Better Coordination

• Optimum Utilization Of Resources

Disadvantages
• Slow Decision Making
• Lack of coordination among departments
• High Supervision Cost
• Lack Of Innovation And Creativity
• Limited view of organization goals
• Inter competition among departments
Geographic departmentalization
Advantages
• The regional staffs get opportunity to improve their skills and
experience
• Local people can get job opportunity by departmentation by territory.
• Departmentation by territory adopt the environmental changes.
• Territory-based departmentation helps to expand business operation
into different geographical location.
Disadvantages
• Duplication of functions
• Departmentation by territory is more costly than other forms if
departmentation. Although the cost of production is low,
administrative expenses and other expenses are very high.
• It needs more people with managerial skills.
• This is complex form of departmentation.
• Territory-based departmentation suffers from the possibility of
duplication
Product departmentalization
Advantages
• Helps in managing product well

• Closeness to customer

• Manager become more expert in their devision

Disadvantages
• There is high chance of conflict between different departments

• Due to low demand, resources may not be fully utilized

• Top level management has to face difficulty to control production

division

• It is very costly and not suitable for small and medium sized firms
Process departmentalization
Advantages
• In process departmentation, there is proper division of work. So, it is
effective form of departmentation

• There is clear authority and responsibility in each department

• Departmentation by process follows the principles of specialization

Disadvantages
• There is high chance of conflict in process departmentation

• This type of departmentation is only suitable for large manufacturing

firms

• It is difficult to maintain effective coordination

Customer departmentalization
Advantages
• This type of departmentation emphasis on customer satisfaction by
providing better products and services
• Product departmentation adopts different environmental changes
according to the situation
• Managers are more responsible of each departments and products
• Customers departmentation create goodwill and good image in front
of the clients
Disadvantages
• It is very difficult for top management to maintain proper
coordination between different departments and functional areas

• In customer departmentation, there is high chance of duplication of

different activities

• There is a chance of staffs being idle in this type of departmentation

 Centralization:

Centralization of an organization can be defined as a hierarchy

in which all the decisions and processes are handled by the
top level management.
• Policies set by the top management ensures that the
employees follow the direct orders of executives
• Even decisions regarding everyday operations are made by
upper level executives
Hierarchy of Management:
Decentralization:
• Decentralization refers to a hierarchical level within an organization
where the decision making responsibilities are delegated to the
middle and frontline management
• There are no definite policies to be followed, the employees work
with the mutual cooperation of middle and top level management
• Everyday decisions made by the frontline management and conveyed
to the workers
Centralization Decentralization
• Decision making power is exclusive • Power of decision and processes
only to the top management are delegated to middle
management from top executives
• Policies are made by the top level • Policies are made by mutual co-
executives operation of all three levels of
management.
• No authority is given to frontline • Everyday decisions are made by
and middle management frontline and middle management
Advantages of Centralization
• Quick implementation of decisions
• In case of emergency there are set of rules which can be followed
• There is a focused vision
• A clear chain of command, where everybody know his authority
• Reduced costs
• Improved quality of work
• No chance of conflict between departments.
Disadvantages of Centralization
• Bureaucratic leadership: Centralized management resembles
dictatorship, where the employees are unable to contribute
• Employees work under tremendous pressure, where they are
expected to deliver results no matter what are the circumstances
• Delays in work, where employees depend totally upon the direction
through top management
• Employees lack loyalty, as there are not free in everyday decisions
• No innovation
• No motivation of employees.
 Differentiation

Process of deciding the work in an organization.

Ensure that tasks are being assigned to one or more jobs
(Differentiation refers to how a business separates itself into key components)
• This is common among larger companies. The larger a company
grows, the more differentiated it tends to become. Businesses with a
large amount of differentiation give these separate components a
great deal of autonomy.
• Small companies have don’t big differential system because they
don’t need like small café to 5 star restaurant, organizational structure
varies
• And it varies with respect to company and company.
 Examples:-
Like car production company have different organizational structure
and differentiation system
May have different departments like
• Sales and Marketing.
• Production Planning and Control (PPC) IR (Industrial Relations) and Administration
• Production/Manufacturing Maintenance and Utilities
• Manufacturing Engineering. Quality Assurance and Quality Systems.
• Packaging and Dispatch. Production Engineering.
• Supply Chain and Logistics Design & Development.
• Research & Development. Testing and Validation.
• HR, IT.
• Similarly IT company have different differentiation structure
• Similarly if we take example of Descon, we will se there are multiple
different departments exists in the company like rotatory, piping,
package equipment, business department and many other exists.
• But in small company , we see there only one manager who controls
everything includes HR, financial etc.
Four dimensions of Differentiation by
Lawrence and lorsch:

i. Managers goal orientation

ii. Time orientation
iii. Interpersonal orientation
iv. Formality of structure
Forms of Differentiation
• Horizontal differentiation
• Vertical differentiation
• Spatial differentiation
Horizontal Differentiation
• Differentiation between organizational subunits
• Based on employs specialization
• Increases with specialization and departmentalization
Departmentalization:
Breaking of organization into coherent units
• Functional organization. Types of departmentalization based on the
activities or functions performed
• Product organization. Types of departmentalization based on the
product (product lines) produced
• Matrix organization. Types of departmentalization in which a product
or project form is superimposed on a functional form
Vertical Differentiation
• Difference in authority and responsibility in organizational hierarchy
• Tall, narrow organization-greater vertical differentiation
• Flat, wide organizations-less vertical differentiation
• Tall structures have many levels of authority relative to the
organization's size
• Flat structure have lower levels of authority but wide spans of
controlling
Figure 1: Flat organizational structure Figure 2: tall organizational structure
Spatial Differentiation
• Geographic dispersion of offices, plants and personnel
• Increase in no. of locations-increases complexity but necessary
• May give organization political and legal advantages in a country

Horizontal, vertical and spatial differentiation indicate the width,

height and breadth of an organizational structure needs
 Formalization

Formalization is the extent to which the rules and procedures are

followed in an organization
The degree to which organizations standardize behavior through rules,
procedure, formal training and related mechanism
Example
• Like detailed rules of nasa, Toyota , honda, etc
Types of Formalization
• High formalization
• Job description
• Implementation of rules
• Procedure covering work process
• Low formalization
• Non programed job behavior
• Employees have max discretion
Advantages:-
• Formalization makes the process of succession routine.
• Increases the nationality of organization
• Make explicitly and visible the structure of relations among
organizational participants
Disadvantages:-
• Employees are not allowed to exercise their own judgment
• Discrimination of work load between employees
• Formal structure are the norms and behaviors that exist regardless of
individuals involvement
Examples of rules and regulations of
organization:-
Todays view about Formalization:-
Although some formalization is necessary for consistency and control,
many organizations today rely less on strict rules and standardization to
guide and regulate employee behavior.