Chapter one- Introduction of Organization Design

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Chapter one: Introduction

Basic concepts of organization and organizing:
The tem organization derives from the Greek word organon meaning tool or an instrument.
From this viewpoint, organizations are the instruments to accomplish the goals or objectives of
the certain groups. Chester Bernard (1938) defines an organization as a system of consciously
co-coordinated activities of two or more persons. S.P. Robbins states an organization as a
consciously co-coordinated social entity with a relatively identifiable boundary that function on a
relatively continuous basis to achieve a common goal or set of goals.
The words consciously co-coordinated imply management. Social entity means that the unit is
composed of people or group of people who interact with each other. An organization has a
relatively identifiable boundary. This boundary can change over time and it may not always be
perfectly clear but a definable boundary must exist in order to distinguish members from nonmembers. People in an organization have some continuing bond. This bond of course doesnt
mean time-long membership. On the contrary, organizations face constant change in their
membership, although while they are members, the people in an organization participate with
some degree of regularity.
Finally organizations exist to achieve something. These some things are goals and they usually
either are unattainable by in individuals working alone or if attainable individually are achieved
more efficiently through groups effort.
On the basis of above definition, we can enumerate the organizational features as follows;
Goal orientation: goal serves as the reason for the organization to exist. They provide
direction and guide actions of organizations.
Collection of people: organization is a human association. It consists of two or more
people working together.
Structure: structure defines jobs and relationship. It implies differentiation of activities
and integration of efforts.
Technology: organizations transform inputs to outputs. People in organizations are
technology to perform activities and achieve. Goals.
Continuity: most organizations tend to stay alive and have continuity.

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Environment: organization exists and operates in a dynamic environment. It influences

and is influenced by environment. It receives its inputs from environment and fetched its
output to environment.
By above analysis, we can conclude the followings;

Organization as a social structure (patterned or regularized aspects of the relationships

among members)
o Normative structure (values, norms, role expectations)
o Behavioral structure (activities, interactions, sentiments)
o Formal (position vs. person) vs. informal (position=person)

Organizations as participants: individuals who make contribution to organizations in

return for inducements

Organizations as goals: conditions that participants attempt to effect

Organizations as technology: transforming inputs into outputs, differ in routinization,

how well understood

Organizations as environment: physical, technological, cultural, social

Definitions of organizations:

Organizations as rational system: organizations are collectivities oriented to the pursuit of

relatively specific goals and exhibiting relatively highly formalized social structures

Organizations as natural systems (organic): organizations are collectivities whose

participants share a common interest in the survival of the system and who engage in
collective activities, informally structured, to secure this end

Organizations as open systems: organizations are coalitions of shifting interest groups

that develop goals by negotiation, the structure of the coalition, its activities, and its
outcomes are strongly influenced by environmental factors.

Organizations as bureaucracy: those functions that maintain the organization itself,

specialized administrative staff.

What is organizing?
Organizing involves the assignment of functions and tasks to group and to individual employees.
It includes delegation of authority to subordinates and operating employees so that they can
properly carry out their duties. Thus organizing establishes the pattern of relationship observed

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by all members of an organization. Organizing is also the structuring of a work system. By

structuring, we mean co-coordinating, establishing relationship and assigning task responsibility.
Organizing in simple view is a process of dividing work, assigning it to employees and then
allocating resource for them to use. Every department with related jobs are assigned resources
such as equipment and material to carry out their tasks. So organizing doesnt mean only
departmentation but also the allocation of resources to perform the job.
Organization design and structure:
Organization structure
By organizational structures we mean organizational divisions, organizational sub-unit
boundaries, and internal administrative layout (Weber 1947), which partition work into
different, largely independent but occasionally overlapping segments. These structures are
reflective and affect the division of labor within a larger organization. Thus, organizational
structure, as (narrowly) defined here, consists of the way in which the task environment is
partitioned and relegated to permanent or transient organizational sub-units. The most
important forms of these sub-units are the divisions individuals belong to (e.g., the Ministry
of Defense vs the Ministry of Foreign Affairs; or the Directorate of Intelligence vs the
Directorate of Relations within the Ministry of Foreign Affairs), which define both the major
tasks and objectives, and the activities undertaken by their members. In addition, some
structures may be more transient, and consist of inter-divisional groupings.
Organization structure defines how task are to be allocated, who reports to whom and the
formal coordinating mechanisms and interaction pattern that will be followed. Organization
structure has three components: complexity, formalization and centralization.

Complexity: considers the extent of differentiation within the organization. This

includes degree of specialization or division of labor, the number of levels in the
organization hierarchy and the extent to which the organization units are dispersed
geographically.

Formalization refers the degree to which an organization relies on rules and

procedures to direct the behavior of employees. Some organizations operate with a
minimum of such standardized guide lines; other some of which are even quite small
in size have all kinds of regulation instructing employees as to what they can and
cannot do.

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Centralization: considers where the locus of decision-making authority lies. In some

organizations decision-making is highly centralized, problems flow upward, and the
senior executives choose the appropriate action. In other cases decision-making is
decentralized, authority is dispersed downward in the hierarchy.

Organizational structure is important as it impacts routines and the stimulus-response

patterns in an organization. The concept of a routine draws on evolutionary economics and
the Carnegie Tradition. This refers to recurring, learned and practiced modes of organized
response. A routine is a patterned sequence of learned behavior involving multiple actors
who are linked by relations of communication and/or authority. It is an executable
capability for repeated performance in some context that has been learned by an
organization. A routine rests on, though is not limited to the confines of standard operating
procedures (SOPs).
Routines and SOPs are closely related to structures: structures dictate SOPs, which are salient
in large organizations and particularly so in public organizations. SOPs, themselves based on
structures, provide the basis for routinized patterns of action. These patterns of action define
and constrain what organizations do; they affect the way organizations respond not only to
external stimuli, but also to internal requests for change from the hierarchy.
Organizational structure also contains or quasi-resolves intra-organizational conflict through
the creation of the divisions that attend, fairly autonomously, to particular parts of the task
environment of an organization. It dictates which participants tackle particular issues, defines
their organizational objectives and determines patterns of interaction, and the issues that will
be addressed. Thus, the partitioning of activities provides a potent and under-studied
mechanism of conflict quasi-resolution that helps shape intra-organizational truces and
routines.
Finally, organizational structure moulds the political economy of an organization the
incentive systems that not only drive individual action, but also affect the nature and the
robustness of organizational routines. It dictates the objectives and expected action of
organizational sub-units and provides the template against which organizational objectives
are achieved. Thus, direct and indirect incentives help focus attention, and likewise the learnt
but perhaps implicit patterns of activities within organizations shape the way individuals
view the world- not only in terms of the conscious mental processing of decision-makers, but

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also in terms of the way individuals look at the world. Thus, organizational structure affects
cognitive frames.
Organization design:
It is concerned with constructing and changing an organizations structure to achieve the
organizational goals. So design emphasizes the management side of organization theory.
constructing or changing an organization is not unlike building or remodeling a house.
Both begin with an end. The designer then creates a means or plan for achieving that
goal. In organization building the analogous document is an organization chart.
Organizational effectiveness: (OE)
Effectiveness refers to the degree of congruence between organization goal and some
observed outcome. Organizations can be effective or ineffective in a number of different
ways and these ways may be relatively independent of one another. Productivity
efficiency, employee absenteeism, turnover, goal consensus, conflict, participation in
decision making, stability and communication are the variables on the basis of which OE
can be measured. But there is no one-consensus approach among the authors about the
measurement of OE.
Researchers have often used different non- overlapping criteria, thus limiting the
accumulation of empirical evidence about organizational effectiveness. The following are
the different approaches to measure/define OE.
Goal Model:
The goal model is the most common theoretical perspective on effectiveness. It is both
simple and complex. In its simplest form the goal model defines effectiveness as the
degree to which organization realizes its goals. The model posits that organizations can
be understood as rational entities. Evaluators assume that an organizations goals can be
identified and organizations are motivated to meet these goals and progress toward them
can be measured.
Process approach:
Under this model effectiveness is described as a process rather than an end state, as might
be the case under the goal model. The process approach consists of three related
components:
Goal optimization
A system perspective

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and an emphasis on behavior within organizations.

Goal optimization refers to the need to balance goals and thus to optimize multiple goals
rather than achieve a particular one.
A system view incorporates concepts for changes in an organizations environment; the
behavioral emphasis suggests attention to the possible contributions of individual
employees to OE.
The effective organization is one in which goals are responsive to the environment,
optimization of multiple goals is pursued and employees contribute to meeting those
goals
System resource approach:
This approach focuses on criteria which will increases long term survival of the
organization- such as organizations ability to acquire resources maintain itself internally as a
social organism and interact successfully with its external environment. A system approach to
OE implies that organizations are made up of interrelated subparts. If any one of these
subparts performs poorly it will negatively affect the performance of the whole system. The
factors that are considered under system approach are as follows
Relation with environment to assure continued receipts of inputs and facourable
acceptance of outputs.
Flexibility of response to environmental changes
The efficiency with which the organization transforms inputs and outputs.
The clarity of internal communication.
The level of conflict among the groups
The degree of employee job satisfaction
This approach suggests that the critical system inter relationship can be converted into OE
variables or ratios. These include output/ input (O/I) transformations/input (T/I)
transformations/Output (T/O), changes in input/input (DI/I) and so on.
Strategic constituencies approach:
This is the recent perspective of OE. It believes that an effective organization is one that
satisfies the demands of those constituencies in its environment from whom it requires
support for its continued existence. Success then is the ability to placate those individuals
groups and institutions upon which the organization depends for its continued operation.

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The typical OE criteria of selected strategic- constituencies are given below:

Owners: return on investment, growth in earnings
Employees: compensation, fringe benefits, satisfaction with working conditions.
Customers: satisfaction with price, quality, service.
Suppliers: satisfaction with payment; future sales potentials
Creditors: ability to pay indebtedness
Unions: competitive wages and benefits, willingness to bargain favorably
Local community officials: involvement of organizations members in local
affairs, lack of damage to the communitys environment
Government agencies: compliance with laws, avoidance of penalties and
reprimands
Competing values approach:
According to this approach OE criteria are classified into three basic sets of competing
values.
The first set is flexibility versus control. These are two incompatible dimensions of an
organizations structure. Flexibility values innovation, adaptation and change. In contrast
control favors stability order and predictability
The second set deals with whether emphasis should be placed on the well-being and
development of the people in the organization or the well being and development of
organization itself. It is another set of incompatible dimension: the concern for the
feelings and needs of the people within the organization versus the concern for the
productivity and task accomplishment.
The third set of values relates to organizational means versus ends; the former stressing
internal processes and the long-term latter emphasizing final outcomes and the short
term.
These three sets of values can be depicted in three dimensional diagram as shown in the
figure A. these values can further be combined to form eight cells or sets of OE criteria.
For example combining people, control and ends (PCE) creates one cell combining
organization flexibility and means (OFM) creates another and so on.

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Figure A: Three-dimensional Model of OE

Means

Flexibility

People

Organization

Control

Ends

Then the eight OE criteria sets are as under:

Cells

Description

Definition

OFM
OFE
OCM
OCE
PCM

Flexibility
Acquisition of resources
Planning
Productivity and efficiency
Availability of information

Able to adjust in external environment

Able to increase external support
Goals are clear and well understood
Volume of output is high
Channel of communication facilitate informing people

PCE
PFE
PFM

Stability
Skilled work force
Cohesive work force

Sense of order continuity and respect

Skilled trained employee to work
Employee trust, respect and team work

On the basis of eight above cells we can create four diverse models of organization effectiveness;
Human relation model (PFM, PFE): define OE in terms of a cohesive (as means) and
skilled (as ends) work force.
Open system model (OFM&OFE): define OE in terms of flexibility and ability to
acquire resources (as ends).
Rational goal model (OCM & OCE): OE defined as goal and productivity.
Internal process model (PCM&PCE): focuses on adequate dissemination of information
and stability and order in the assessment of OE.
Dimension of organization structure:
The structural dimensions of organization can be categorized into the following variables:

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Administrative component: the ratio of number of line supervisor and managers with the
total number of employees.

Autonomy: the extent to which top management has to refer certain typical decisions to a
higher level of authority.

Centralization: concentration of power arrangement: the proportion of jobs whose

occupants participate is decision-making and the number of areas in which they
participate.

Complexity: the number of occupational specialties; the professional activities and the
professional trainings of the employees.

Delegation of authority: the ratio of the number of specific management decisions the
CEO has delegated to the number he has the authority to make.

Differentiation: the number of specialty functions represented in an organization.

Formalization: the extent to which the employees rate is defined by format

documentation

Integration: the quality of the state of collaboration that exists among departments those
are required to achieve unity of effort.

Professionalisation: the degree to which employees use a professional organization as a

major reference belief in service to the public belief in self-regulation dedication to ones
field and autonomy.

Span of control: the number of subordinates that an individual manager can and should
supervise.

Specialization: the degree to which highly specialized requirements are spelled out in
format job description for various function.

Standardization: the range of variation that is tolerated within the rules defining the jobs

Vertical span: the number of levels in the authority hierarchy from the bottom to the top.

Different theorists have differently viewed the dimensions of organization structure.

However, the following three core components represent all the aspects of dimensional
differentiations of organizations structures.
formalization and centralization

These three components are complexity

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A. Complexity: it refers to the degree of all differentiation that exists with in an

organization they are of three types;

Horizontal differentiation: it refers to the degree of differentiation between units

based on the orientation of members, the nature of the task they perform and their
education and training. Specialization and departmnetation evidences the
horizontal differentiation in organization.

Specialization refers to the particular grouping of activities performed by an

individual. Specialization can be grouped into two types:
i. Functional specialization- in which jobs are broken down into simple and
repetitive tasks. It is also known as division of labor functional
specialization creates high substitutability among employees and
facilitates their easy replacement by management.
ii. Social specialization: if individuals are specialized rather than their work,
it is social specialization it is achieved by hiring professional who hold
skills that cant be readily routinized

An increase in either form of specialization results in increased complexity within the

organization, because an increase in specialization requests more sophisticated and
expensive methods for co-ordination and control.

Departmentation: division of labour creates groups of specialists. The way in which we

group these specialists is called departmentation. Departmentation is therefore the way in
which organization typically co-ordinate activities that have been horizontally
differentiated.
o Vertical differentiation: how much the depth in the structure is answered by
vertical differentiation. The number of hierarchical levels in the organization
determines the depth in structure and vertical differentiation. As differentiation
increases so the complexity. The more levels that exist between top management
and operatives, the greater the potential of communication distortion, the more
difficult it is to coordinate the decisions of managerial personnel and more
difficult it is for top management to oversee the actions of operatives.
Whether to construct tall organization with many layers of hierarchy or flat organization,
with few levels depends on the span of control.

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o Span of control: it refers to the number of subordinates that a manager can

supervise and direct and control directly. If the span is wide managers will have a
number of subordinates reporting to them. If it is narrow smaller the span the
taller the organization.
o Spatial differentiation: it refers to the degree to which the location of an
organizations offices plants and personnels are dispersed geographically. Spatial
differentiation extends the dimensions of horizontal and vertical differentiation.
That is it is possible to separate tasks and power centers geographically this
separation includes dispersion by both number and distance. Existence of such
power and control locus in multiple locations increases complexity.
B. Formalization:
Formalization refers to the degree to which jobs within the organization are standardized.
If a job is highly formalized the job incumbent has a minimum amount of discretion over
what is to be done, when it is to be done and how it should be done. There are explicit job
descriptions, lots of organizational rules and clearly defined procedures covering work
process in organizations where there is high formalization. Where formalization is low
employees behavior would be relatively non-programmed. Such jobs would offer
employees a great deal of freedom to exercise discretion in their work. So formalization
is measure of standardization the i.e. high standardization means the less input the
employee has into how his work is to be done and vice- versa. The degree of
formalization can vary widely among and within organization. The narrowest of unskilled
jobs those that are simplest and repetitive are most amenable to high degree of
formalization. The greater the professionalisation of a job the less likely it is to be highly
formalized. Formalization differs not only with whether the jobs are unskilled or
professional but also by level in the organization and by functional departments.
Employees higher in the organization levels have lesser-formalized job in comparison of
jobs performed by lower level employees.
Similarly, the kind of work in which people are engaged influences the degree of
formalization. Jobs in production are typically more formalized than are those in sales or
research. Organizations use formalization because of the benefits that accrue from

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regulating

employees

behavior.

Standardizing

- PCMS
behavior

reduces

variability.

Standardization promotes co-ordination and economy of job performance. The greater the
formalization the less discretion required from a job incumbent. This is relevant because
discretion costs money. Jobs those are low in formalization, demand greater judgment.
Given that sound judgment is a scarce quality, organization has to pay more (in terms of
wages, salaries and benefits) to acquire the services of individuals who possess this
ability
C. Centralization:
Centralization refers to the degree to which decision-making is concentrated at a single
point in the organization. A high concentration implies high centralization where as low
concentration implies decentralization. Formal authority in the organization encompasses
with the centralization of decision-making. Many organizations push the making of
decisions down to lower levels but then the decision makers are bound by policies. Even
though employees low in the organization are making many decisions, if those decisions
are programmed by organizational policies a high degree of centralization exists. The
following points are important to understand the concept of centralization:
o Centralization is concerned with formal structure, not with the informal organization.
o Centralization looks at decision discretion.
o Concentration at a single point of decision-making implies a high degree of
centralization.
o Information processing system that closely monitors decentralized decisions doesnt
maintain centralized control.
o Centralization adds a comprehensive perspective to decisions and can provide
significant efficiencies. On the other hand decentralization reduces the probability of
information overload facilitates rapid response to new information provides more
detailed input into a decision instills motivation and represents a potential vehicle for
training managers in developing good judgment.
Organization theory vs. organization design and organization behavior
Organization behavior takes a micro view-emphasizing individuals and small group. It
focuses on behavior in organizations and a narrow set of employees performance and

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attitude variables- employees productivity, absenteeism, turnover, and job satisfaction are
those most frequently looked at. Individual behavior including perception, values,
learning, motivation and personality and group behavior including roles, status,
leadership, power, communication and conflict are the study area of OB.
In contrast, organization theory takes a macro perspective. Its unit of analysis is the
organization itself or its primary subunits. OT focuses on behavior of organizations and
uses a border definition of organizational effectiveness OT is concerned not only with
employee performance and attitudes but with the overall organizations ability to adopt
and achieve its goals.

End of chapter One