Foundation of Organisation Structure

8/8/2019 Foundation of Organisation Structure

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Elements that make anorganisationalstructure


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Factors affectingOrganisation structure

EnvironmentStrategy

TechnologySizePeople


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Environment

An organisation is a system whichworks within a broader framework

of an environment.The organisation interacts with theenvironment continuously.

It is affected by the environment. It also affects the environment.Environment determines the various

organisational processes including

structure.


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The adjustment between anorganisation and its environment is

affected by the type oforganisation structure.Thus, an appropriate organisation

structure is one which is in

accordance with the needs of theenvironment.


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Two characteristics of the environmentare important for the organisation.Complexity and variability.

So, the organisation structure shouldbe able to,

1.monitor and process informationabout the environment.

2.increase organisation`s ability to pre-plan.

3. increase its flexibility to adapt. 4.decrease the level of performance

required for continued variability.


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Burns and Stalker studied 20electronic firms in Britain.

Mechanistic system-suitable forstable environment.Organic system suitable for dynamic

environment.


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Strategy

In implementing thestrategy,organisation structure isdesigned according to the needs of

the strategy. Structure should be utilised for strategyimplementation, because structure isa means to an end.

The most appropriate end is the veryobjectives for which the organisationexists, which is revealed by thestrategy.

Without coordination between strategy

and structre, the results areconfusion misdirection etc.


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According to Chandler, changes instrategy bring about new

administrative problems which inturn require a new refashionedstructure if the new strategy is tobe successfully implemented.


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Strategy-StructureRelationship

It can be analysed by consideringvarious stages of organisational

growth.Because at each stage,the type ofproduct, market,size of theorganisation and managerial

problems differ.


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Evolution oforganisations

Initial expansion and accumulationof resources.

Rationalisation of the use ofresources.Expansion into new products and

business lines.Development of a new organisation

structure to enable effectiveutilisation of resources.


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ree ypes oOrganisation Structure

according to ChandlerType IType II

Type III.


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Type I

Type I structure is characterised bycentralised decision making, a

single product line with emphasison one function-Production.


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Type II

Emphasis on efficiency and functionalcoordination with one or a fewrellated products.

Chief Executive entrusted with variouscomplex decisions.

Departmental heads entrusted with theresponsibility of various departments

So, departmental heads have noexperience or interest inunderstanding the needs andproblems of other departments and

total organisation.


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Type III

Highly decentralised anddivisionalised.

Successful firms with type IIstructure results in diversification.

It results in lot of problems.Administative problems-

Interdepartmental co-ordination.So, they may shift from functionalstructure to a divisional structure.

Two or more product divisions with

responsibility is assigned to


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Conclusion of Chandler`sstudy

The development occurs in threestages.

A small single product company to aspecialised functional companyand finally to a multi productdiversified company.


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Corporate level strategy

Single product strategy-Functionaldepartmentalization

Related Diversification-High level ofcoordination among various units.Unrelated diversification-Strong

hierarchical reporting system.


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Business LevelStrategies

Generic strategies also affectorganisational design.

Cost leadership strategy-Strongcommitment to efficiency andcontrol, more centralised.

Focus strategy-Location

Departmentalisation if its focus isgeographic region,customerdepartmentalisation if its focus is

customer groups.


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Technology

With the increase in technologicalcomplexity- a number of

managerial and supervisorypersonnel increases. The span of management for first

level managers increases as an

organisation moves from unit tomass production but it decreasewhen the organisation moves from

mass to process production.


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As an organisation`s technologicalcomplexity increases, its clerical

administrative staffs becomeslarger because managers needhelp with paperwork and non-production work so that they can

concentrate on their specialisedtasks.

Technology may be used to facilitate

task performance.


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Manpower requirement may reduce,necessitating the merger of various

units.Flatter organisations.


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Size.

Size affects some structuralcharacteristics.

A small organisation can workeffectively with a simple structure.

As the organisation grows,complexity increases.

The Size of an organisation affectsthe degree of formalisation ofvarious processes like,communication,authority and

responsibility, delegation,control


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People

Organisation structure is the resultof conscious actions on the part of

people who are engaged in theorganisation.The form of organisation structure is

expected to reflect the thinking

and way of working of its framersand participants.

The form of organisation structure is

a major source of satisfaction or


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Characteristics ofFramers

Top management philosophy aboutdegree of freedom and autonomy

required for people in theorganization affects structure. Top management approach to

interact with organization's

environmentReactive-Mere adjustment to

environmental changes.

Pro active-Agents of Change.


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Characteristics ofParticipants

People want to satisfy their needswhile working in an organisation.

Skilled/unskilled/non-professional.


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Departmentalisation


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Departmentalisation

The first real task in designing theorganization structure is the

identification of activities and togroup them properly. The process of grouping the

activities is known as

departmentalisation.


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The terms used to denoteDepartments.

In business organizations-Division,Department, Section.

Government-Branch, Department,Bureau and Section. In military-Batalion, Group,Company

etc.


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Need and Importance ofDepartmentalisation

Grouping of activities andconsequently of personnel into

departments makes it possible toexpand an organization to anyextent.

1. Advantages of Specialisation-

Specialisation results in efficiencywith which the work is performedbecause a person focuses his

attention on a narrow aspect of


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Fixation of responsibility

Results in accountability for theresults.

Responsibility can be dischargedproperly when it is clear, Preciseand definite.

D l f


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Development ofManagers

Managers focus their attention onsome specific problems which

provides them effective on the jobtraining.Need for training and its methods

can be easily identified.


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Feeling of autonomy

Departments are created withcertain degree of autonomy and

freedom. It motivates themanagers.

B f


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Bases ofDepartmentalisation

FunctionProduct

TerritoryProcessCustomerTime


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Function

Functional departmentation is themost widely used basis fororganisaing activities.

Basic Functions-Davis has calledthese functions as organicfunctions because their

performance is vital and essentialto the basic survival of theorganization.

Secondary Functions. When the

manager feels that his span of


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Ex. Marketing Dept-MarketingResearch, Sales, advertising.

Further advertising may be dividedinto Print media advertising, TVadvertising etc.


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Functional Structure

Activities are grouped together bycommon function from the bottomto the top of the organisation.

All engineers are located in theengineering department and theVP of engineering is responsible for

all engineering activities. The same is true with marketing, R

&D and manufacturing.


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With a functional structure, allhuman knowledge and skills withrespect to specific activities areconsolidated, providing a valuabledepth of knowledge for theorganization.

This structure is more effective whenin-depth expertise is critical tomeeting organizational goals and

when efficiency is important.


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Strengths Weaknesses

Allows economies of scalewithin functional departments

Slow response time toenvironmental changesEnables in-depth knowledge and

skill developmentMay cause decisions to pile ontop,hierarchy overload.Enables organisation to

accomplish functional goalsLeads to poor horizontalcoordination among departmentsIs best with only one or a few

productsResults in less innovation

Involves restricted view oforganisational goals.


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Product

Grouping together of all activitiesnecessary to manufacture aproduct or product line.

As the organisation grows in size, itwill be difficult for managers tocoordinate the activities of theexpanding product lines.

So, it is good to establishdepartments based on products.

Many large organisations are

diversifying in different fields and


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Territory

Territorial departmentation is usefulto large organisations havingactivities which are physically orgeographically spread such asbanking, insurance, transportationetc.

Ad t f t it i l


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Advantages of territorialDepartmentation

Provides efficiency in operation.Local factors such as customers,

culture, styles, preferences etcalways affect organisationalfunctioning.

Knowledge of local conditions is an

important element in effectivemanagement.

Some costs of operations can be

saved.


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Problems

CommunicationDistance between policy framers and

policy executers.Co-ordination problems.


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Process

Processes involved in production orvarious types of equipments usedare taken as basis fordepartmentation.

Advantage-Economicadvantages,specialisation


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Customer

Market oriented in whichdepartments are created aroundthe markets served or aroundmarketing channels.

Advantages-Focuses on customersDifferent types of customers can be

satisfied easily through specialisedstaff.


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Time

In some where work is performedthroughout day and night, work isdivided into shifts.

There will be one department foreach shift though thy all may bealike in terms of objectives and

activities.


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Span of Management

It represents the number ofsubordinates that can beeffectively managed by a superior.


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Wide or narrow span

Classical writers-Wide SpanModern approach-Narrow span.


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Tall Structure

Tall structure is one which fostersnarrow span of management.

More centralised decision making.Advantages-Close supervision, close

control of subordinates activities,fast communication between

superior and subordinates.


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Flat Structure

Reduces the levels of management.Widens span of control of managers

at various levels of theorganisation.

Often more decentralised withregard to decision making

authority.


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Divisional Structure

It is also called a product structureor Strategic Busineess Units.

Divisions can be organised accordingto individual products,services,product groups,major projects orprograms, divisions, businesses or

profit centers.Here grouping is based on

organisational outputs.

Functional Structure vs


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Functional Structure vsDivisional Structure

A functional structure can beredesigned into separate productgroups and each group containsthe functional departments of R &D, manufacturing,accounting andmarketing.

The divisional structure promotes

flexibility and change because


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Divisional structure decentralisesdecision making, functionalstructure is centralised, because itforces decisions all the way to thetop.

Strengths and


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Strengths andweaknesses


Suited to fast change in unstableenvironment

Eliminates economies of scale infunctional departmentsLeads to customer satisfaction

because product responsibility is

clear.

Leads to poor coordinationamong product lines.Allows units to adapt to

differences in products, regions,customers.

Integration and standardisation

Across product lines becomedifficult.

Best in large organisations withseveral products.Decentralises decision making


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Customers are able to contact thecorrect division and achievesatisfaction.

Coordination across functions isexcellent.

Each product can adapt to

requirements of individualcustomers or regions.

Divisional structure works well in

organisations that have multiple


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Ex. Johnson& Johnson, PepsiCo,Microsoft


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Problems

Johnson & Johnson Executive said-We have to keep remindingourselves that we work for thesame corporation.

One concern at J & J is that the newlystarted divisions may start offering

products and services whichconflict with one another.


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Unless effective horizontalmechanisms are in place, adivisional structure can cause realproblems.

Lack of technical specialization.Employees identify themselves

with product line rather than with afunctional speciality.

Professionals may not be satisfied

with this.


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Hybrid Structure

Many structures in the real world donot exist in the pure forms whichwe have discussed.

Organizations' often use a hybrid

structure that combinescharacteristics of variousapproaches tailored to specific

strategic needs.


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Many organisations combinecharacteristics of functional,divisional, horizontal or otherstructures to take advantage of thestrengths of various structures andto avoid some of the weaknesses.

Hybrid structures tend to be used inthe rapidly changing environment

because they offer the organisation


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Ex. Combine the characteristics offunctional and divisional structures.

When a corporation grows large and

has several products or markets , itis typically organized into variousdivisions.

But, some functions that arerelatively stable and requireeconomies of scale and in-depthspecialisation are centralised at

headquarters.


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Matrix Structure

Sometimes an organisation`sstructure needs to bemultifocussed in that both productand function or product andgeography are emphasised at thesame time.

One way to achieve this is throughmatrix structure.


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Matrix structure is a violation ofunity of command principle.

In matrix structure, a project

manager is appointed to manage aproject and personnel are drawnfrom their respective departments.

On completion of the project, thesepeople may return to their originaldepartments.

Thus, each functional staff has two

bosses, his administrative head

Strengths and


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Strengths andweeknesses


Flexible sharing of humanresources across products

Causes participants to experiencedual authority,which can befrustrating and confusing.

Suited to complex decisions andfrequent changes in unstable

environment

Participants need goodinterpersonal skills and extensive

training

Provides opportunity for both

functional and product skilldevelopment

Is time consuming. Involves

frequent meetings and conflictresolution sessions.

Best in medium sizedorganisations with multiple

products.

Will not work unless participantsunderstand it.Requires great effort to maintain

power balance.


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Unity of Command

Unity of command means that eachsubordinate reports to one and onlyone superior.

Individual has reporting relationship toa single superior.

Otherwise there will be conflict in

instructions. Fayol has considered unity of commandas an important aspect of managingan organization.

Documents

Foundation of Organisation Structure