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ARTICLE 1:

Six Key Elements in Organizational Design By Claudia Gardea.

From www.emytrix.com.

Organizational design is engaged when managers develop or change an organization's


structure. Organizational Design is a process that involves decisions about the following
six key elements:

I. Work Specialization
Describes the degree to which tasks in an organization are divided into separate jobs. The
main idea of this organizational design is that an entire job is not done by one individual.
It is broken down into steps, and a different person completes each step. Individual
employees specialize in doing part of an activity rather than the entire activity.

II. Departmentalization
It is the basis by which jobs are grouped together. For instance every organization has its
own specific way of classifying and grouping work activities.

There are five common forms of departmentalization:

1. Functional Departmentalization. As shown in the Figure 2-1, it groups jobs by


functions performed. It can be used in all kinds of organizations; it depends on the
goals each of them wants to achieve.

Figure 2-1Functional Departmentalization example


Different aspects on this type of departmentalization:

Positive Aspects Negative Aspects


o Efficiencies from o Poor
putting together similar communication across
specialties and people with functional areas
common skills, knowledge,
o Limited view of
and orientations
organizational goals
o Coordination
within functional area

o In-depth
specialization

2. Product Departmentalization. It groups jobs by product line. Each manager is


responsible of an area within the organization depending of his/her specialization

Figure 2: Product Departmentalization example


Source: Bombardier Annual Report
Different aspects on this type of departmentalization:

Positive Aspects Negative Aspects


o Allows o Duplication of
specialization in particular functions
products and services
o Limited view of
o Managers can
organizational goals
become experts in their
industry

o Closer to customers

3. Geographical Departmentalization. It groups jobs on the basis of territory or


geography.

Figure 2-3: Geographical Departmentalization example


Different aspects on this type of departmentalization:

Positive Aspects Negative Aspects


o More effective and o Duplication of
efficient handling of functions
specific regional issues
o Can feel isolated
that arise
from other organizational
o Serve needs of areas
unique geographic markets
better

4. Process Departmentalization. It groups on the basis of product or customer


flow.

Figure 2-4: Process Departmentalization example


Different aspects on this type of departmentalization:

Positive Aspects Negative Aspects


o More efficient flow o Can only be used
of work activities with certain types of
products

5. Customer Departmentalization. It groups jobs on the basis of common


customers

Figure 2-5: Customer Departmentalization example

Different aspects on this type of departmentalization:

Positive Aspects Negative Aspects


o Customers' needs o Duplication of
and problems can be met functions
by specialists
o Limited view of
organizational goals

III. Chain of command


It is defined as a continuous line of authority that extends from upper organizational
levels to the lowest levels and clarifies who reports to whom. There are three important
concepts attached to this theory:
• Authority: Refers to the rights inherent in a managerial position to tell people
what to do and to expect them to do it.
• Responsibility: The obligation to perform any assigned duties.
• Unity of command: The management principle that each person should report to
only one manager.

IV. Span of Control


It is important to a large degree because it determines the number of levels and managers
an organization has. Also, determines the number of employees a manager can efficiently
and effectively manage.

V. Centralization and Decentralization

More Centralization More Decentralization


• Environment is stable • Environment is complex,
• Lower-level managers are uncertain.
not as capable or • Lower-level managers are
experienced at making capable and experienced at
decisions as upper-level making decisions.
managers. • Lower-level managers want a
• Lower-level managers do voice in decisions.
not want to have say in • Decisions are relatively
decisions minor.
• Decisions are significant. • Corporate culture is open to
• Organization is facing a allowing managers to have a
crisis or the risk of company say in what happens.
failure. • Company is geographically
• Company is large. dispersed.

• Effective implementation of • Effective implementation of


company strategies depends company strategies depends
on managers retaining say on managers having
over what happens. involvement and flexibility
to make decisions

VI. Formalization
It refers to the degree to which jobs within the organization are standardized and the
extent to which employee behavior is guided by rules and procedures.

ARTICLE 2: from www.businessmate.org.

Mechanistic vs. Organic Organizational Structure (Contingency Theory)

T. Burns & G.M. Stalker

This article deals with describing the differences between mechanistic and organic
organizational structures. The article is based upon the work done by the theorists T.
Burns and G.M. Stalker (1961).

The theorists argued that organizations need different kinds of structure to control their
activities that will allow the company to adapt and react to changes and uncertainties in
the environment. Changes in the environment can be analyzed through a PESTEL
analysis, where changes in the factors found in the PESTEL analysis may either
stabilize or destabilize the environment of a given company.

Companies facing a dynamic and uncertain environment may have to develop or


maintain an organic organizational structure, whereas companies operating in a stable
environment may benefit from developing or maintaining a mechanistic organizational
structure.

The reason for this is that organic structures can process and distribute information and
knowledge faster within the organization, which thus results in an increased ability to
respond or react to changes in the environment.

However, mechanistic structures may act as an effective and efficient organizational


structure for companies operating in a more stable and certain environment.
Companies operating in a stable environment may not need to make decisions quickly.
Likewise, many of the day-to-day decisions and operating procedures may be
formalized and centralized, because there is no inherent need for constant change or
innovation.

Some characteristics for each type of organizational structure are listed below:

Mechanistic Structure

Stable environment This organizational structure works best when the


environment is relatively stable.
Low differentiation of Tasks will not be differentiated much, because each subtask
tasks is relatively stable and easy to control.
Low integration of e.g. Due to the stability of tasks, there will be low integration
departments and between departments and functional areas, because tasks
functional areas stay relatively stable, and because the functional areas are
not heavily dependent on each other.
Centralized decision- When the environment is stable, there is no need for
making complex decision-making that involves people at lower
levels. Therefore, decision-making is centralized at the top
of the organization.
Standardization and When tasks are stable, tasks should be standardized and
formalization formalized, so that operations can run smoothly without
breakdowns.
Organic Structure

Dynamic and uncertain This organizational structure works best when the
environment environment is relatively dynamic and uncertain.
High differentiation of Because tasks are often changing, tasks may need to be
tasks differentiated, so specialists, each responsible for one or few
tasks, are able to respond quickly.
High integration of e.g. In complex environments, rapid communication and
departments and information sharing is necessary. Therefore, departments and
functional areas different functional areas need to be tightly integrated
Decentralized decision- When the environment is dynamic and uncertain, there is a
making need for complex decision-making that involves people at
lower levels. Therefore, decision-making power should be
distributed to lower ranks, which should get empowered in
making decisions.
Little Standardization When tasks change rapidly, it is unfeasible to institute
and formalization standardization and formalized procedures. Instead, tasks
should be mutually adjusted, so that each subtask is balanced
with other subtasks.
As said, Burns and Stalker studies show business leaders that organizations should
design their structure to match the dynamism and uncertainty of their environment.

ARTICLE 3:

Factors Affecting Organizational Design from www.cliffnotes.com

Although many things can affect the choice of an appropriate structure for an
organization, the following five factors are the most common: size, life cycle, strategy,
environment, and technology.
Organizational size
The larger an organization becomes, the more complicated its structure. When an
organization is small — such as a single retail store, a two-person consulting firm, or
a restaurant — its structure can be simple.
In reality, if the organization is very small, it may not even have a formal structure.
Instead of following an organizational chart or specified job functions, individuals
simply perform tasks based on their likes, dislikes, ability, and/or need. Rules and
guidelines are not prevalent and may exist only to provide the parameters within
which organizational members can make decisions. Small organizations are very
often organic systems.
As an organization grows, however, it becomes increasingly difficult to manage
without more formal work assignments and some delegation of authority. Therefore,
large organizations develop formal structures. Tasks are highly specialized, and
detailed rules and guidelines dictate work procedures. Interorganizational
communication flows primarily from superior to subordinate, and hierarchical
relationships serve as the foundation for authority, responsibility, and control. The
type of structure that develops will be one that provides the organization with the
ability to operate effectively. That's one reason larger organizations are often
mechanistic—mechanistic systems are usually designed to maximize specialization
and improve efficiency.

Strategy
How an organization is going to position itself in the market in terms of its product is
considered its strategy. A company may decide to be always the first on the market with
the newest and best product (differentiation strategy), or it may decide that it will produce
a product already on the market more efficiently and more cost effectively (cost-
leadership strategy). Each of these strategies requires a structure that helps the
organization reach its objectives. In other words, the structure must fit the strategy.
Companies that want to be the first on the market with the newest and best product
probably are organic, because organic structures permit organizations to respond quickly
to changes. Companies that elect to produce the same products more efficiently and
effectively will probably be mechanistic.

Environment
The environment is the world in which the organization operates, and includes conditions
that influence the organization such as economic, social-cultural, legal-political,
technological, and natural environment conditions. Environments are often described as
either stable or dynamic.
• Ina stable environment, the customers' desires are well understood and probably
will remain consistent for a relatively long time. Examples of organizations that
face relatively stable environments include manufacturers of staple items such as
detergent, cleaning supplies, and paper products.
• Ina dynamic environment, the customers' desires are continuously changing—
the opposite of a stable environment. This condition is often thought of as
turbulent. In addition, the technology that a company uses while in this
environment may need to be continuously improved and updated. An example of
an industry functioning in a dynamic environment is electronics. Technology
changes create competitive pressures for all electronics industries, because as
technology changes, so do the desires of consumers.
In general, organizations that operate in stable external environments find mechanistic
structures to be advantageous. This system provides a level of efficiency that enhances
the long-term performances of organizations that enjoy relatively stable operating
environments. In contrast, organizations that operate in volatile and frequently changing
environments are more likely to find that an organic structure provides the greatest
benefits. This structure allows the organization to respond to environment change more
proactively.

Technology
Advances in technology are the most frequent cause of change in organizations since they
generally result in greater efficiency and lower costs for the firm. Technology is the way
tasks are accomplished using tools, equipment, techniques, and human know-how.
In the early 1960s, Joan Woodward found that the right combination of structure and
technology were critical to organizational success. She conducted a study of technology
and structure in more than 100 English manufacturing firms, which she classified into
three categories of core-manufacturing technology:
• Small-batch production is used to manufacture a variety of custom, made-to-
order goods. Each item is made somewhat differently to meet a customer's
specifications. A print shop is an example of a business that uses small-batch
production.
• Mass production is used to create a large number of uniform goods in an
assembly-line system. Workers are highly dependent on one another, as the product
passes from stage to stage until completion. Equipment may be sophisticated, and
workers often follow detailed instructions while performing simplified jobs. A
company that bottles soda pop is an example of an organization that utilizes mass
production.
• Organizationsusing continuous-process production create goods by
continuously feeding raw materials, such as liquid, solids, and gases, through a
highly automated system. Such systems are equipment intensive, but can often be
operated by a relatively small labor force. Classic examples are automated
chemical plants and oil refineries.
Woodward discovered that small-batch and continuous processes had more flexible
structures, and the best mass-production operations were more rigid structures.
Once again, organizational design depends on the type of business. The small-batch and
continuous processes work well in organic structures and mass production operations
work best in mechanistic structures.

ARTICLE 4:
Types of Organizational Designs By Adam Garcia from www.emaytrix.com

Organizational designs fall into two categories, traditional and contemporary. Traditional
designs include simple structure, functional structure, and divisional structure.
Contemporary designs would include team structure, matrix structure, project structure,
boundaryless organization, and the learning organization. I am going to define and
discuss each design in order to give an understanding of the organizational design
concept.

I. Traditional Designs

1. Simple Structure
A simple structure is defined as a design with low departmentalization, wide spans of
control, centralized authority, and little formalization. This type of design is very
common in small start up businesses. For example in a business with few employees the
owner tends to be the manager and controls all of the functions of the business. Often
employees work in all parts of the business and don’t just focus on one job creating little
if any departmentalization. In this type of design there are usually no standardized
policies and procedures. When the company begins to expand then the structure tends to
become more complex and grows out of the simple structure.

2. Functional Structure
A functional structure is defined as a design that groups similar or related occupational
specialties together. It is the functional approach to departmentalization applied to the
entire organization.

Revlon, Inc. is
organized around the
functions of
operations, finance, human resources, and product
research and development. Visit Revlon, Inc at
http://www.revlon.com/

3. Divisional Structure
A divisional structure is made up of separate, semi-autonomous units or divisions. Within
one corporation there may be many different divisions and each division has its own
goals to accomplish. A manager oversees their division and is completely responsible for
the success or failure of the division. This gets managers to focus more on results
knowing that they will be held accountable for them.

Wal-Mart Stores, Inc. is


organized by its divisions
such as Wal-Mart Realty,
Wal-Mart International, Wal-Mart Specialty Stores,
Sam's Clubs, and Supercenters. Visit War-Mart Inc. at
http://www.walmart.com/

II. Contemporary Designs

1. Team Structure
A team structure is a design in which an organization is made up of teams, and each team
works towards a common goal. Since the organization is made up of groups to perform
the functions of the company, teams must perform well because they are held accountable
for their performance. In a team structured organization there is no hierarchy or chain of
command. Therefore, teams can work the way they want to, and figure out the most
effective and efficient way to perform their tasks. Teams are given the power to be as
innovative as they want. Some teams may have a group leader who is in charge of the
group.

Whole Foods Market, Inc. is structured


entirely around teams. Each store
composed of an average of 10 self-
managed teams with a designated team
leader, and the team leaders in each
store are a team -- called store team. Visit Whole Foods
Market, Inc at http://www.wholefoodsmarket.com/
2. Matrix Structure
A matrix structure is one that assigns specialists from different functional departments to
work on one or more projects. In an organization there may be different projects going on
at once. Each specific project is assigned a project manager and he has the duty of
allocating all the resources needed to accomplish the project. In a matrix structure those
resources include the different functions of the company such as operations, accounting,
sales, marketing, engineering, and human resources. Basically the project manager has to
gather specialists from each function in order to work on a project, and complete it
successfully. In this structure there are two managers, the project manager and the
department or functional manager.

3. Project Structure
A project structure is an organizational structure in which employees continuously work
on projects. This is like the matrix structure; however when the project ends the
employees don’t go back their departments. They continuously work on projects in a
team like structure. Each team has the necessary employees to successfully complete the
project. Each employee brings his or her specialized skill to the team. Once the project is
finished then the team moves on to the next project.

Previously known as Oticon


Holding A/S, William Demant
Holding A/S has no
organizational departments or employee job titles. All
work activities are project based, and these project
teams form, disband, and form again as the work
requires. Once the project is completed, employees
move on to the next one. Visit William Demant Holding
A/S at http://www.demant.com/

4. Autonomous Internal Units


Some large organizations have adopted this type of structure. That is, the organization is
comprised of many independent decentralized business units, each with its own products,
clients, competitors, and profit goals. There is no centralized control or resource
allocation.

Asea Brown Boveri (ABB) is a global


organization. It is actually about 1,000
companies operating in more than 140 countries around
the globe. The whole operation is managed by just eight
top executives at headquarters in Zurich, Switzerland,
but each individual company has its own products,
resources, and so on. Visit Asea Brown Boveri at
http://www.abb.com/

5. Boudaryless Organization
A boundaryless organization is one in which its design is not defined by, or limited to, the
horizontal, vertical, or external boundaries imposed by a predefined structure. In other
words it is an unstructured design. This structure is much more flexible because there is
no boundaries to deal with such as chain of command, departmentalization, and
organizational hierarchy. Instead of having departments, companies have used the team
approach. In order to eliminate boundaries managers may use virtual, modular, or
network organizational structures. In a virtual organization work is outsourced when
necessary. There are a small number of permanent employees, however specialists are
hired when a situation arises. Examples of this would be subcontractors or freelancers. A
modular organization is one in which manufacturing is the business. This type of
organization has work done outside of the company from different suppliers. Each
supplier produces a specific piece of the final product. When all the pieces are done, the
organization then assembles the final product. A network organization is one in which
companies outsource their major business functions in order to focus more on what they
are in business to do.

ChevronTexaco now
sends most of their
accounting to the Philippines in order to cut costs. They
also send all their computer programming to India .

6. Learning Organization
A learning organization is defined as an organization that has developed the capacity to
continuously learn, adapt, and change. In order to have a learning organization a
company must have very knowledgeable employees who are able to share their
knowledge with others and be able to apply it in a work environment. The learning
organization must also have a strong organizational culture where all employees have a
common goal and are willing to work together through sharing knowledge and
information. A learning organization must have a team design and great leadership.
Learning organizations that are innovative and knowledgeable create leverage over
competitors.

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