Ch 4- Organisational Structure and Design

Organisational structure

the formal arrangement of jobs within an organisation

Organisation design

a process involving decision about six key elements:
Work specialisation
Departmentalisation
Chain of command
Span of control
Centralisation and decentralisation
Formalisation

Work Specialisation

When tasks in the organisation are divided into separate jobs with each step completed by a different person

overspecialisation

results in human diseconomies from boredom, fatigue, stress, high turnover…

Departmentalisation

Grouping different tasks based on different criteria

Functional

grouping jobs by functions performed
Advantages: efficient, coordination within functional area
Disadvantages: poor communication, limited view of organisational goals

Process

grouping jobs based on the product or customer flow
Adv: more efficient flow of work activities
Disadv: can only be used with certain products

Product

grouping by product line
Adv: allows specialisation in particular products and services, Managers can become experts in their industry, closer to customers
Disadv: duplication of functions, limited view of organisational goals

Customer

grouping by type of customer and needs
Adv: customers’ needs and problems can be met by specialists
Disadv: duplication of functions, Limited view of organisational goals

Geographical

grouping based on territory or geography
Adv: more effective and efficient handling of specific regional issues that arise
Disadv: isolation from other organisational areas, duplication of functions

Chain of Command

Continuous line of authority that extends from upper levels of an organisation to the lowest levels of the organisation to the lowest levels of the organisation and clarifies who reports to who

Authority

rights inherent in a managerial position to tell people what to do and to expect them to do it

Responsibility

obligation or expectation to perform

Unity of Command

concept that a person should have one boss and should report only to that person

Span of Control

Number of employees who can be effectively and efficiently supervised by a manager

Centralization

The degree to which decision-making is concentrated at a single point in the organisations

factors of centralisation

Top managers make all the decisions and lower level employees carry out these orders
Stable environment
Large company
Effective implementation of company strategies

Decentralisation

Organisations in which decision-making is pushed down to the managers who are closest to the action

factors of decentralisation

Complex environment
Decisions are significant
Lower level managers have a voice in decisions
Company is geographically dispersed
Effective implementation of company strategies

Formalisation

Degree to which jobs within the organisation are standardised and the extent to which employee behaviour is guided by rules and procedures

factors of formalisation

Highly formalised jobs offer little discretion over what is to be done
Low formalisation = fewer constraints on how employees do their work

Employee Empowerment

Increasing the decision making authority of employees

Mechanistic Organisation

a rigid and tightly controlled structure (usually for large businesses)

factors of mechanistic organisation

High specialisation
Rigid departmentalisation
Narrow spans of control
High formalisation
Limited information network
Low decision participation

organic organisation

highly flexible and adaptable structure (usually for small businesses)

factors of organic organisation

Non-standardized jobs
Fluid team based structure
Little direct structure
Minimal formal rules
Open communication network
Empowered employees

Innovation

pursuing competitive advantage through meaningful and unique innovations favours an organic structuring

Cost minimization

focusing on tightly controlling costs requires a mechanistic structure for the organisation

Imitation

minimising risks and maximising profitability by copying market leaders requires both organic and mechanistic elements in the organisation’s structure

Strategy and structure

achievement of strategic goals is facilitated by changed in organisational structure that accommodate and support change

Size and structure

as an organisation grows larger, its structure tends to change from organic to mechanistic with increased specialisation, departmentalisation, centralisation, and rules and regulations

Technology and Structure

organisations adapt their structures to their technology

Unit production

of single units or small batches

Mass production

of large batches of outputs

Process production

continuous process of outputs

Routine technology

mechanistic organisations

Non-routine technology

organic organisations

Environmental Uncertainty and Structure

Mechanistic organisational structures tend to be the most effective in stable and simple environments
The flexibility of organic organisational structures is better suited for dynamic and complex environments

Simple structure

low departmentalisation, wide spans of control, centralised authority, little formalisation

Functional structure

departmentalisation 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 with parent corporation

Team structures

the entire organisation 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
Have two managers
Employees work continuously on projects

Boundaryless Organisation

A flexible and unstructured organisational design that is intended to break down external barriers between the organisation and its customers and suppliers

Virtual organisation

an organisation that consists of small core of full-time employees and that temporarily hires specialists to work on opportunities that arise

Network organisation

small core organisation that outsources its major business functions in order to concentrate what it does best

Modular organisation

a manufacturing organisation that uses outside suppliers to provide product components for its final assembly operations