05_1OrgStructure

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Org Structure

Org structure can be defined as the framework of tasks, reporting & authority relationships within whichan org functions. The building blocks for designing an org structure consist of six elements.

Work SpecializationWork specialization or division of labor refers to the degree to which activities in the org are subdividedinto separate jobs. The essence of work specialization is that rather than an entire job is being done by oneindividual, it is broken down into a number of steps with each step being completed by a separateindividual. In essence, individuals specialize in doing part of an activity rather than the entire activity.

Improves employee productivity and speed up the process of production in an org. Cost effective to train employees in a single sub task. Allows org to allocate tasks to employees depending on their abilities. This results in improved

employee productivity and efficiency in org.

Beyond a certain point, work specializations leads to a decline in productivity and efficiency sinceemployees get bored and experience fatigue and stress when they perform repetitive tasks for anextended period of time.

Org to provide employees the opportunity to perform a variety of activities to avoid the monotony thatresult from excessive work specialization. This can be done by increasing the scope of their jobs or through job rotation.

DepartmentalizationThe process in which jobs are grouped together to bring coordination among the org tasks is calleddepartmentalization. The jobs are grouped on the basis of either function, product, process, geography or customer.


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Chain of CommandThe chain of command is the line of authority extending from upper org levels to lower levels, whichclarifies who reports to whom. Chain of command is closely linked to the concepts of authority,responsibility and unity of command.

A superiors right to give orders to his subordinates and the obligations of the subordinates to act accordingto those instructions is referred to as authority. Managers are provided with authority to enable them tocarry out the responsibilities entrusted to them by the org.

According to the concept of unity of command, an employee should report to not more than one superior.The violation of this rule can lead to confusion and conflict in org.

When managers use their authority to assign work to employees, those employees take on an obligation to perform those assigned duties. This obligation or expectation to perform is known as responsibility.

Assigning work authority without responsibility and accountability can create opportunities for abuse.

However, modern org do not strictly follow these concepts. In many modern org, an employee at theoperation level can communicate directly with a senior manager if the need arises. Also, employees needno longer wait for their superiors to give them instructions since they are empowered to take decisionswhere delay in decision making could affect the org interests.

Span of ControlSpan of control refers to the ratio of managers to immediate subordinates. The number of subordinateswho are directly under the control of a manager differs from org to org.

In org having tall structures Span of control is very small. This allows managers to exercise tight control over their subordinates. But the number of layers of management is so high that it leads to a complex org structure. As communication pass through several layers, the message get distorted and the chances of employee receiving accurate information is low.

Decision making is very low in org with tall structures. Tall structure provides an opportunity for high level of interaction between the manager andsubordinates.

For a flat structure org Large span of control Large number of subordinates under a manager make management more difficult. Simple org structure. Smooth flow of communication that enable employee to receive information quickly andaccurately.

Fast decision making due to limited number of layers.


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The contemporary view of span of control recognizes that there is no magic number. Many factorsinfluence the number of employees that a manager can efficiently and effectively manage. These factorsinclude the skills and abilities of the manager and the employees, and the characteristics of the work beingdone. For instance, managers with well-trained and experienced employees can function well with a wider

span. Other contingency variables that determine the appropriate span include similarity and complexity of employee tasks, the physical proximity of subordinates, the degree to which standardized procedures are in

place, the sophistication of the organizations information system, the strength of the organizations culture,and the preferred style of the manager.

The trend in recent years has been toward larger spans of control, which is consistent with managersefforts to speed up decision making, increase flexibility, get closer to customers, empower employees, andreduce costs.

Centralization / DecentralizationThe term centralization refers to the degree to which decision making is concentrated at a single point inthe org. Typically, it is said that if top management makes the org key decisions with little or no input fromlower level personnel, then the org is centralized. In contrast, the more that the lower level personnel

provide input or actually given the discretion to make decisions, the more decentralization there is.

In a decentralized org, action can be taken more quickly to solve problems, more people provide inputs intodecisions, and employees are less likely to feel alienated from those who make the decisions that affecttheir work lives.

To make org more flexible & responsive, there has been a marked trend toward decentralizing decisionmaking. In large companies, lower level managers are closer to the action and typically have moredetailed knowledge about problems than top managers.

FormalizationFormalization refers to the degree to which jobs within the org are standardized. If the job is highlyformalized, then the job incumbent has a minimum amount of discretion over what is to be done, when is to

be done and how it is to be done. Employees can be expected always to handle the same input in exactly


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the same way resulting in a consistent and uniform output. There are explicit job descriptions, lots of orgrules and clearly defined procedures covering work process in org in which there is high formalization.

Standardization not only eliminates the possibility of employees engaging in alternative behaviors but iteven removes the need for employees to consider alternatives.

The degree of formalization can vary widely between org and within org. Certain jobs are well known tohave little formalization.

Although some formalization is necessary for consistency and control, many organizations today rely lesson strict rules and standardization to guide and regulate employee behavior.

Simple StructureA firm with a simple org structure has a wide span of control, few departments, centralized authority and a

low degree of formalization. Simple structures are easily managed as they have only a few levels of hierarchy. In simple structures, the decision making power for the entire org is vested in one person.

The simple structure is a flat org - it usually has only 2 or 3 vertical levels, a loose body of employees andone individual in whom the decision making authority is centralized.

Simple structure is generally used in small org like retail stores and small consultancies. In such structure,employees have clear reporting relationships, decision making is fast, maintenance costs are low and rulesare flexible. But this type of structure is not suitable for large org.

Moreover, as the entire power and authority is concentrated in a single person at the top, death or disabilityof the person is likely to have a negative impact on the business.

BureaucracyThis is a structure with highly routine operating tasks achieved through specialization, very formalized rulesand regulations. Under this structure, tasks are grouped under functional departments with centralizedauthority and narrow span of control.

The primary strength of bureaucracy lies in its ability to perform standardized activities in a highly efficientmanner. Bureaucracies can get by nicely with less talented and hence less costly middle & lower levelmanagers. The pervasiveness of rules and regulations substitute for managerial discretion. Standardizedoperations coupled with high formalizations allow decision making to be centralized. There is little need for innovative and experienced decision makers below the level of senior executives.

The major drawback of this structure is the obsessive concern with following the rules.

Matrix StructureMatrix is a structure that assigns specialists from different functional areas to work on projects who then


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return to their areas when the project is completed. Project is a structure in which employees continuouslywork on projects. As one project is completed, employees move on to the next project.

The main advantages are fluid and flexible design that can respond to env changes and faster decisionmaking.

Major disadvantages are complexity of assigning people to projects, task & personality conflicts.

Team StructureA structure in which the entire org is made up of work groups or teams. The primary characteristics isthat it breaks down departmental barriers and decentralizes decision making to the level of the work teams. Team structure also require employees to be generalists we well as specialist.

Under this structure, employees are more involved and empowered. This structure also reduces the barriers among functional areas. Major disadvantages are pressure on teams to perform.

Virtual OrganizationVirtual org have created networks of relationships that allow them to contract out manufacturing,distribution, marketing or any other business function for which managers feel that others can do better or more cheaply. The major advantage to the virtual org is its flexibility. The primary drawback to thisstructure is that it reduces managements control over key parts of its business.

Boundaryless OrganizationAn org that seeks to eliminate the chain of command, have limitless span of control and replacedepartments with empowered teams.

By removing vertical boundaries, management flattens the hierarchy. Status and ranks are minimized.Cross hierarchical teams, participative decision making practices and use of 360 degree performanceappraisals are common in such organizations.

Horizontal boundaries can be eliminated by replacing functional departments with cross functional teamsand to organize activities around process. Another way to cut through horizontal barriers is to use lateraltransfers, rotating people into and out of different functional areas. This approach turns specialists togeneralists.

When fully functional, the boundaryless org also breaks down barriers to external constituents like

suppliers, customers, regulators etc and barriers created by geography. Globalization, strategic alliances,telecommuting etc are examples of practices that reduce external boundaries.


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Why Do Structures Differ?

Strategy - The purpose of org structure is to meet org objectives, which are derived from overall

strategy. If management makes significant changes in strategy, the structure will also need to bemodified to accommodate and support this change. For an innovation strategy demands an organicorg structure whereas cost minimization strategy demanda a mechanistic structure.

Org Size - Large org tend to have more specialization, more departmentalization, more verticallevels and more rules & regulations than a small org.

Technology - Technology tend to toward either routine or nonroutine activities. Routine tasks areusually associated with taller and more departmentalized structures.

Environment - The more scarce, dynamic and complex the env, the more organic a structureshould be. The more abundant, stable and simple the env, the more mechanistic structure will be

preferred.

Implication For Managers

Documents

05_1OrgStructure