ORGANIZATIONAL DESIGN. LECTURE 6
What is Organizing?
Organizing is defined as arranging and structuring work to accomplish Organizational
goals. It is an important process during which managers design an Organization’s structure.
- Organizational Structure is the formal arrangement of jobs within an Organization.
- Organizational Chart is the visual representation of an Organization’s structure.
- Organizational Design means creating or changing an Organization’s structure.
Organizational Design
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Organizational design is a process that involves decisions about six key
elements:
- Work specialization
- Departmentalization
- Chain of command
- Span of control
- Centralization and decentralization
- Formalization
(Elements of Organizational Design)
Work Specialization
•In work specialization, work activities are divided into separate job tasks. Individual employees “specialize” in doing part of an activity rather than the entire activity in order to increase work output.
•Also known as division of labour.
•There is efficient use of the diversity of skills that workers have. Some tasks require highly developed skills; others can be performed by employees with lower skill levels.
•If all workers were engaged in all steps of a manufacturing process, all would need the skills necessary to perform both the most demanding and the least demanding jobs. Thus except when performing the most highly skilled tasks, employees would be working below their skill levels.
•Work Specialization increases productivity.
•In work specialization, work activities are divided into separate job tasks. Individual employees “specialize” in doing part of an activity rather than the entire activity in order to increase work output.
•Also known as division of labour.
•There is efficient use of the diversity of skills that workers have. Some tasks require highly developed skills; others can be performed by employees with lower skill levels.
•If all workers were engaged in all steps of a manufacturing process, all would need the skills necessary to perform both the most demanding and the least demanding jobs. Thus except when performing the most highly skilled tasks, employees would be working below their skill levels.
•Work Specialization increases productivity.
(Elements of Organizational Design)Departmentalization
•After deciding what job tasks will be done by whom, common work activities need to be grouped together so that work gets done in a coordinated and integrated way.
•Departmentalization refers to how jobs are grouped together.
•Five common forms of departmentalization are used, although an Organization may develop its own unique classification.
1.Functional Departmentalization: Jobs are grouped according to function.
2.Geographical Departmentalization:Jobs are grouped according to geographic region.
3.Product Departmentalization:Jobs are grouped according to product line.
4.Process Departmentalization: Jobs are grouped on the basis of product or customer flow.
5.Customer Departmentalization: Jobs are grouped on the basis of specific and unique customers who have common needs.
2.Geographical Departmentalization:Jobs are grouped according to geographic region.
3.Product Departmentalization:Jobs are grouped according to product line.
4.Process Departmentalization: Jobs are grouped on the basis of product or customer flow.
5.Customer Departmentalization: Jobs are grouped on the basis of specific and unique customers who have common needs.
One popular departmentalization trend is the increasing use of customer departmentalization.
Because getting and keeping customers is essential for success, this approach
works well because it emphasizes monitoring and responding to changes in
customers’ needs.
(Elements of Organizational Design)Chain of Command
•People need to know who their boss is. That’s what the chain of command is about.
•The chain of command is the line of authority extending from upper Organizational levels to lower levels, which clarifies who reports to whom.
•Three important concepts of chain of command:
Authority: The rights inherent in a managerial position to tell people what to do and expect them to do it.
Responsibility: The obligation or expectation to perform any assigned duties.
Unity of Command: The principle that each person to report to only one manager.
(Elements of Organizational Design)Span of Control
•The span of control refers to the number of employees a manager can effectively and efficiently manage.
•Determining the span of control is important because to a large degree, it determines the number of levels and managers in an Organization –an important consideration in how efficient and Organization will be.
•All other things being equal, the wider or larger the span, the more efficient an Organization is.
The contemporary view of span of control recognizes that there is no magic number. Many factors influence the number of employees that a manager can effectively and efficiently manage: Skills and abilities of manager and employees.
(Elements of Organizational Design)Centralization and Decentralization
At what Organizational level are decisions made?
Centralization is the degree to which decision making takes place at upper levels of the Organization.
On the other hand, the more lower-level employees provide input or actually make decisions, the more decentralization there is.
Centralization-decentralization is not an either-or concept. The decision is relative, not absolute –that is, an Organization is never completely centralized or decentralized. Thus the degree of centralization or decentralization depends on the situation. 10
(Elements of Organizational Design)Formalization
•Formalization refers to how standardized an Organization’s jobs are and the extent to which employee behaviour is guided by rules and procedures.
•In highly formalized Organizations, there are explicit job descriptions, numerous Organizational rules, and clearly defined procedures covering work processes.
•Employees have little discretion over what’s done, when it’s done, and how it’s done.
•Where formalization is low, employees have more discretion in how they do their work.
(Elements of Organizational Design)Chain of Command
•People need to know who their boss is. That’s what the chain of command is about.
•The chain of command is the line of authority extending from upper Organizational levels to lower levels, which clarifies who reports to whom.
•Three important concepts of chain of command:
Authority: The rights inherent in a managerial position to tell people what to do and expect them to do it.
Responsibility: The obligation or expectation to perform any assigned duties.
Unity of Command: The principle that each person to report to only one manager.
(Elements of Organizational Design)Span of Control
•The span of control refers to the number of employees a manager can effectively and efficiently manage.
•Determining the span of control is important because to a large degree, it determines the number of levels and managers in an Organization –an important consideration in how efficient and Organization will be.
•All other things being equal, the wider or larger the span, the more efficient an Organization is.
The contemporary view of span of control recognizes that there is no magic number. Many factors influence the number of employees that a manager can effectively and efficiently manage: Skills and abilities of manager and employees.
(Elements of Organizational Design)Centralization and Decentralization
At what Organizational level are decisions made?
Centralization is the degree to which decision making takes place at upper levels of the Organization.
On the other hand, the more lower-level employees provide input or actually make decisions, the more decentralization there is.
Centralization-decentralization is not an either-or concept. The decision is relative, not absolute –that is, an Organization is never completely centralized or decentralized. Thus the degree of centralization or decentralization depends on the situation. 10
(Elements of Organizational Design)Formalization
•Formalization refers to how standardized an Organization’s jobs are and the extent to which employee behaviour is guided by rules and procedures.
•In highly formalized Organizations, there are explicit job descriptions, numerous Organizational rules, and clearly defined procedures covering work processes.
•Employees have little discretion over what’s done, when it’s done, and how it’s done.
•Where formalization is low, employees have more discretion in how they do their work.
Mechanistic and Organic Structures
Designing (or redesigning) an Organizational structure that works is important.
Basic Organizational design revolves around two Organizational forms: mechanistic
Organization, and organic Organization.
•Mechanistic Organization: This is an Organizational design that is rigid and tightly controlled.
•Organic Organization: This is an Organizational design that is highly adaptive and flexible.
Contingency Factors Affecting Structural Choice
Top managers put a lot of thought into designing an appropriate Organizational structure. What that appropriate structure is depends on four contingency variables:
The Organization’s strategy
Size
Technology
Degree of environmental uncertainty
(Contingency Factors Affecting Structural Choice)Strategy and Structure
•An Organization’s structure should facilitate goal achievement because goals are an important part of the Organization’s strategies.
•Research has shown that certain structural designs work best with different Organizational strategies:
The flexibility and free-flowing information of the organic structure works well when an Organization is pursuing meaningful and unique innovations.
The mechanistic Organization with its efficiency, stability, and tight controls works best for companies wanting to tightly control costs.
(Contingency Factors Affecting Structural Choice)Size and Structure
•An Organization’s size affects its structure.
•Large Organizations (> 2000 employees) tend to have more specialization, departmentalization, centralization, and rules and regulations than do small Organizations.
•Once an Organization grows past a certain size, size has less influence on structure. Why?
Essentially, once there are around 2000 employees, it’s already fairly mechanistic. Adding another 500 employees won’t impact the structure much.
On the other hand, adding 500 employees to an Organization that has only 300 employees is likely to make it more mechanistic.
(Contingency Factors Affecting Structural Choice)Technology and Structure
•Every Organization uses some form of technology to convert its inputs into outputs; structure is adapted to technology depending on how routine their technology is for transforming inputs into outputs.
•The more routine the technology, the more mechanistic the structure can be;
•Organizations with more non-routine technology are more likely to have organic structures.
(Contingency Factors Affecting Structural Choice)Environmental Uncertainty and Structure
•Some Organizations face stable and simple environments with little uncertainty; others face dynamic and complex environments with a lot of uncertainty. Managers try to minimize environmental uncertainty by adjusting the Organization’s structure.
•In stable and simple environments, mechanistic designs can be more effective.
•The greater the uncertainty, the more an Organization needs the flexibility of an organic design.
Traditional Organizational Designs
When designing a structure, managers may choose one of the traditional Organizational designs: Simple Structure,Functional Structure,Divisional Structure.
Simple Structure: An Organizational design with low departmentalization, wide spans of control, centralized authority, and little formalization.
Functional Structure: An Organization design that groups together similar related occupational specialties
•Mechanistic Organization: This is an Organizational design that is rigid and tightly controlled.
•Organic Organization: This is an Organizational design that is highly adaptive and flexible.
Contingency Factors Affecting Structural Choice
Top managers put a lot of thought into designing an appropriate Organizational structure. What that appropriate structure is depends on four contingency variables:
The Organization’s strategy
Size
Technology
Degree of environmental uncertainty
(Contingency Factors Affecting Structural Choice)Strategy and Structure
•An Organization’s structure should facilitate goal achievement because goals are an important part of the Organization’s strategies.
•Research has shown that certain structural designs work best with different Organizational strategies:
The flexibility and free-flowing information of the organic structure works well when an Organization is pursuing meaningful and unique innovations.
The mechanistic Organization with its efficiency, stability, and tight controls works best for companies wanting to tightly control costs.
(Contingency Factors Affecting Structural Choice)Size and Structure
•An Organization’s size affects its structure.
•Large Organizations (> 2000 employees) tend to have more specialization, departmentalization, centralization, and rules and regulations than do small Organizations.
•Once an Organization grows past a certain size, size has less influence on structure. Why?
Essentially, once there are around 2000 employees, it’s already fairly mechanistic. Adding another 500 employees won’t impact the structure much.
On the other hand, adding 500 employees to an Organization that has only 300 employees is likely to make it more mechanistic.
(Contingency Factors Affecting Structural Choice)Technology and Structure
•Every Organization uses some form of technology to convert its inputs into outputs; structure is adapted to technology depending on how routine their technology is for transforming inputs into outputs.
•The more routine the technology, the more mechanistic the structure can be;
•Organizations with more non-routine technology are more likely to have organic structures.
(Contingency Factors Affecting Structural Choice)Environmental Uncertainty and Structure
•Some Organizations face stable and simple environments with little uncertainty; others face dynamic and complex environments with a lot of uncertainty. Managers try to minimize environmental uncertainty by adjusting the Organization’s structure.
•In stable and simple environments, mechanistic designs can be more effective.
•The greater the uncertainty, the more an Organization needs the flexibility of an organic design.
Traditional Organizational Designs
When designing a structure, managers may choose one of the traditional Organizational designs: Simple Structure,Functional Structure,Divisional Structure.
Simple Structure: An Organizational design with low departmentalization, wide spans of control, centralized authority, and little formalization.
Functional Structure: An Organization design that groups together similar related occupational specialties
.
Divisional Structure: An Organizational structure made up of separate, semi-autonomous units or divisions.
Divisional Structure: An Organizational structure made up of separate, semi-autonomous units or divisions.