STRUCTURAL DIMENSIONS OF ORGANIZATIONS1

FORMALIZATION

Formalization refers to the degree to which the various activities, rules, procedures, instructions etc are mentioned, defined and standardized in an organization. The degree of formalization is higher and is directly proportional to the degree of division of labor, level of delegation of authority, degree of departmentation and span of control. There are various benefits of formalization they are:

Formalization reduces the unpredictability in the organization as the activities are standardized. It gives rise to coordination as the activities are defined and specified which leads to effective

coordination between the superiors and the subordinates. There is no scope of judgment as the decisions are taken on the basis of standard rules and

procedures.  The operating cost of the organization is reduced. It reduces the conflict and ambiguity as most of the activities are standardized.

Besides these benefits it has some criticisms also they are:

a) There is no creativity and flexibility in the organization as most of the activities are standardized.b) It becomes difficult to change the rules of the organization.c) Employees need to struggle a lot if new rules are formulated and implemented.

Even though there are some limitations of formalization, it is used in most of the organizations because it contributes a lot in the smooth and effective running of the organization. It enhances relationships and efficiency of the organizations also.

CENTRALIZATION

It refers to the degree to which decision-making is centralized in the organization. Centralization is one of the fourteenth principles of Henry Fayol. According to his principle, the decreasing the role of subordinates in decision-making is centralization while decentralization is just the opposite of it. In centralization, control and decision-making are made by the top level of management and little delegation of authority is the rule. It is almost impossible to have absolute centralization as it would deprive subordinates with power, authority and duties to large extent.

The concept of centralization plays a vital factor for survival in small organization as they face competitive market in the world. The urgency for decentralization arises in larger size industries as decision making has to be centered to the operating level. It is due to the complexity of large size industries in terms of their increasing size, interdependence of work flow, complexity of tasks and spatial physical barriers within and among groups. Decentralization refers to pushing down the authority and power of decision-making to the lower levels of the organization. It is systematic effort to hand over power and authority to the lowest levels. In decentralization, the centers of decision-making are dispersed throughout the organization. In other words, decentralization means the transference of authority from a higher to a lower level. The concept of

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decentralization is also referred to with fundamental principles of democratic management as every individual gets deserving respect for his inherent worth and constitution. 

COMPLEXITY

Complexity is a term that refers to the differences among jobs and units. Complexity reveals the degree of differentiation that exits within the organization. Complex organization structure arises due to the existing variety of jobs and units within the organization. Due to its complex structure, the management becomes very difficult and tedious. Complexity of the organization refers to the degree of coordination, communication and control within the organization. There are three types of differentiation that are based on complexity of activities within the organization. 

1. Horizontal differentiation: - It refers to the number of different units at the same level in the organization. The good examples of such types of differentiation are specialization and departmentalization. 

2. Vertical differentiation: - It refers to the number of levels in the organization. This type of differentiation reflects the depth of hierarchy in the organization. The increase in the hierarchal level will enhance the complexity in the organization. The important factors of working like coordination and communication becomes difficult. 

3. Spatial differentiation: - This type of differentiation refers to the degree to which location of units and the personnel’s are dispersed. The complexity of organization increases in multiple locations as coordination and interaction becomes difficult in the organization. 

All these dimensions contributes a lot to the efficiency, high centralization, high degree of specialization, centralized authority of functional departments and monitors a high degree of span of control. Therefore, all these dimensions are very important and integral part of the organization to run effectively and efficiently.

MECHANISTIC STRUCTURE2

Nearly one-half century ago, Burns and Stalker noted that mechanistic organizations are often appropriate in stable environments and for routine tasks and technologies. In some ways similar to bureaucratic structures, mechanistic organizations have clear, well-defined, centralized, vertical hierarchies of command, authority, and control. Efficiency and predictability are emphasized through specialization, standardization, and formalization. This results in rigidly defined jobs, technologies, and processes. The term mechanistic suggests that organizational structures, processes, and roles are like a machine in which each part of the organization does what it is designed to do, but little else.

It is easy to confuse mechanistic organizations with bureaucracies due to the considerable overlap between these two concepts. Yet despite the overlaps, a primary difference between mechanistic organizations and bureaucracy is the rationale for utilizing each of these. A goal of bureaucratic structures is to protect lower-level administrative positions from arbitrary actions of owners and higher-level managers. For example, an individual holding the job title of vice-president of production would, in a bureaucracy, be protected from indiscriminant changes in work hours, wages, and responsibilities through formal rules, regulations, and grievance procedures. The goal of the bureaucracy is protection of positions within the organization.

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Mechanistic organizations, on the other hand, are utilized to increase efficiency when tasks and technologies are relatively stable. The vice-president of production in a mechanistic organization would employ production processes and techniques that minimize waste and maximize outputs for a given quantity of inputs. The goal of mechanistic structures is efficiency. Thus, the rationale for bureaucracy is protection while the rationale for mechanistic organizations is efficiency. Clearly, the two are not mutually exclusive; an organization could be structured as a bureaucracy and also be mechanistic. On the other hand, many examples of inefficient bureaucracies can quickly come to mind, suggesting that while there is overlap between the concepts, there are distinctions as well.

Mechanistic structures are highly formalized, which simply means that nearly all processes and procedures have been administratively authorized. The organization considers processes and procedures out-side these established protocols as variances that must be brought under control. Such formalization is driven by efficiency; reduction in variance increases predictability, and increases in predictability allow for improvements in efficiency. Examples pertinent to product or service distribution include the processes a store clerk uses when presented with a customer's credit card or how returns of products by customers are to be handled. Examples pertinent to product or service production and assembly include how a book publisher manages the workflow from completed manuscripts to final bookbinding and how Dell Computer manages assembly of made-to-order personal computers. Decision making is largely concerned with application of the appropriate predetermined rule, policy, procedure, or criteria.

Environmental and technological stability allow work to be clearly defined and differentiated. The work of the organization is divided into specific, precise tasks. Created from one or more such specific tasks, specialized job positions rigidly define skills needed, task methodology and procedures to be used, and specific responsibilities and authority. In effect, lower-level managers and other employees simply follow procedures, and while this may have the side effect of stifling creativity, it also increases efficiency of established processes. In stable environments, however, stifling creativity may be worth the improvements in efficiency. Few customers, for instance, would want a McDonald's employee to use creativity in preparing their hamburger. Instead, the repetitiveness and stability of the procedures needed to cook a hamburger are more efficient when the employee follows established procedures and customers can trust that each hamburger they purchase will taste the same.

However, specialized tasks are repetitive and can sometimes be boring. For example, at a Sam's Club store, one person stands at the door to perform the single task of marking customer receipts. Because employees often work separately with little interaction, it is often hard for them to see how one's small, specialized task relates to overall organizational objectives. Also, the work of mechanistic organizations tends to be impersonal. Jobs are designed around the task rather than the individual. Personnel selection, assignment, and promotion are based on the possession of skills required for specific tasks. Other people, like interchangeable parts of a machine, can replace people in a position.

Specialization carries throughout the organization. Positions are grouped together into specialized work units and, ultimately, into specialized functional departments such as production, marketing, or finance. Each organizational unit has clear and specific responsibilities and objectives. Communication is primarily vertical, with more emphasis on down-ward directives than on upward communication. Thus, such matters as goals, strategies, policies, and procedures are determined by top-level management and communicated downward as instructions and decisions to be implemented.

Upward communication usually involves transmittal of reports and other information for management to consider, usually at the request of management. Coordination is maintained through the chain of command. For example, top-level management is responsible for coordination across functional

departments such as integrating marketing sales forecasts with production schedules. Within a department, the department manager is responsible for coordination across department subunits; production managers, for example, coordinate raw inventory requirements with work-in-process inventory.

At least two criticisms are generally made about mechanistic organizations. First, while focusing on task concerns such as efficiency and standardization, mechanistic organizations tend to ignore human needs and dynamics. Second, creativity, and thus innovation, are restricted by the rigidity of standardized and formalization. Thus, the appropriate environment for mechanistic organizations is a stable environment, while rapidly changing environments require more flexibility. Highly mechanized organizations operating in rapidly changing environments run the risk of becoming obsolete as competitors sacrifice maximum efficiency in exchange for flexibility to tackle new environmental conditions.

ORGANIC STRUCTURE3

The term "organic" suggests that, like living things, organizations change their structures, roles, and processes to respond and adapt to their environments. Burns and Stalker noted in The Management of Innovation that organic structures are appropriate in unstable, turbulent, unpredictable environments and for non-routine tasks and technologies. For organizations coping with such uncertainty, finding appropriate, effective, and timely responses to environmental challenges is of critical importance. Organic organizations are characterized by:

decentralization flexible, broadly defined jobs interdependence among employees and units multi-directional communication employee initiative relatively few and broadly defined rules, regulations, procedures, and processes employee participation in problem solving and decision making, often interactively and in groups

In organic organizations, the emphasis is on effectiveness, problem solving, responsiveness, flexibility, adaptability, creativity, and innovation. Such an organization is able to respond in a timely manner to environmental change because employees are empowered to be creative, to experiment, and to suggest new ideas. The process of innovation is triggered by employees throughout the organization in a "bottom-up" manner. The following four sections explain how these characteristics fit together in a cohesive organizational structure that allows for flexibility and ongoing change.

MEETING CHALLENGES

An unstable external environment increases the uncertainty and complexity with which an organization must contend. An organization is continually confronted with a variety of new and unexpected problems and opportunities, of which the nature and relevant factors are initially unclear and for which appropriate responses are not immediately obvious. Further, since the environment changes rapidly, responses to today's problems and opportunities may need to be modified or may even be inappropriate or irrelevant to tomorrow's challenges. In short, the organization cannot keep doing the same old things in the same old ways. Under conditions of uncertainty and complexity, the organization must design its structures

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and processes to be flexible and responsive to changes in customer desires, technology, governmental regulations, and economic conditions.

FLEXIBILITY AND SHARED AUTHORITY

The need for flexibility and responsiveness leads to the decentralization of decision-making authority in organic organizations. As a result, rules, regulations, procedures, and policies tend to be few, are defined broadly rather than precisely, loosely rather than rigidly, and are often informal rather than written. Employees are allowed to exercise a great deal of discretion. The authority to identify problems and opportunities and to devise responses is delegated to those best able to respond, regardless of their position, unit, or level in the organization. Emphasis is placed more on individual and group control than on managerial, hierarchical control. Top-level managers in organic organizations are more concerned with coordination and integration as opposed to passing directives down a vertical hierarchy, which is a common task of top-level managers in mechanistic organizations.

The need for flexibility and responsiveness also affects how work is designed and performed in organic organizations. Jobs are not clearly or precisely defined in these organizations. Positions, roles, job descriptions, and standard operating procedures are broad and generalized rather than specific and specialized. Employees accept general responsibility for getting things done, but the manner in which they accomplish their tasks is dictated more by autonomous or semi-autonomous teams than by standard operating procedures. Because the work of organic organizations is often interdependent, specific tasks and responsibilities vary from one situation to another and are refined through direct interaction and mutual adjustment among employees and work units. Too much direction from top-level management may hinder rather than assist the accomplishment of tasks.

A key issue in organic organizations is determining who has the knowledge, perspective, experience, expertise, or skills required to identify opportunities or find solutions to problems. Rather than assuming that top management is the fountainhead of all knowledge and wisdom, organic organizations assume that various people in the organization may have crucial insights or capabilities. Thus, communication is multidirectional, decentralized, and informal rather than hierarchical and formalized. In order to facilitate the sharing of information and ideas, employees are frequently empowered to communicate across traditional organizational boundaries regardless of position or level or unit.

Going one step further, pharmaceutical firms, for example, may collaborate across corporations and with academic researchers to conduct basic research leading to new drug development. Jack Welch, former CEO of General Electric, referred to this type of company as a "boundaryless organization." Coordination and integration with multiple constituencies beyond traditional organizational boundaries is a necessary component for success, especially in multinational organizations.

Diversity of information and perspectives is often the key to the development of creative responses to vague, complex problems and opportunities. Thus, in organic organizations, much work is done in groups composed of employees with different backgrounds and from different levels, units, or functional areas. Such teams are among the main coordination mechanisms in organic organizations.

THE HUMAN ELEMENT

Human needs and dynamics play an important role in organic organizations. The empowerment and participation of employees is motivational because it meets the human need for autonomy, responsibility, challenge, esteem, social interaction, and personal development. Furthermore, this empowerment and participation helps the organization develop and capitalize on its intellectual capital, which is becoming

increasingly valued by many organizations. By emphasizing initiative, direct interaction, open communication, and the creation of teams composed of various members of the organization, organic organizations are able to utilize their internal diversity to foster innovative responses to environmental challenges and changes.

MIXING STYLES

The organic organization is not entirely without hierarchy or formalized rules, regulations, procedures, and processes. Indeed, structural parameters, even if loosely or broadly defined, are necessary to prevent the chaos that would result from absolute decentralization (i.e., where everyone in the organization is completely free to decide what they want to do or not do). As an example of such structural parameters, while employees of Minnesota Mining and Manufacturing (3M) are encouraged to take the initiative in suggesting new products and seeking support from others in the organization, new product teams must still meet specific financial measures at each stage of product development. Nonetheless, the real control is found in constant interaction among peers and the normative rules that develop informally among them.

It is not always necessary for an entire organization to be organic. Some units, such as research and development departments, may benefit from an organic structure because they face an unstable environment. Units that have a more stable environment, such as routine, administrative departments, may favor a mechanistic structure. Some units may borrow from both models. Customer service departments, for example, can build flexibility into responding to exceptional circumstances while maintaining standardized protocols for more typical situations.

The structures of organic organizations are informal, fluid, and constantly changing to identify and develop responses to new problems and opportunities. Authority and responsibility shifts from one situation to another. Groups are established, complete their work, and disband, and a single employee may belong to several temporary teams at the same time. In organic organizations there is diminished emphasis on superior-subordinate roles in favor of dispersed initiative. Roles, tasks, and responsibilities are not limited by rigid, vertical boundaries of hierarchy for decision-making, communication, coordination, and control. Relations and interactions between personnel and units continually change, and managers and other employees must figure out which relations and interactions will be most effective for each particular problem or opportunity.

Mechanistic vs. Organic Organizational Structure (Contingency Theory)4

T. Burns & G.M. Stalker

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.

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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:

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 Tasks will not be differentiated much, because each subtask is relatively stable and easy to control.

Low integration of e.g. departments and functional areas

Due to the stability of tasks, there will be low integration between departments and functional areas, because tasks stay relatively stable, and because the functional areas are not heavily dependent on each other.

Centralized decision-making When the environment is stable, there is no need for complex decision-making that involves people at lower levels. Therefore, decision-making is centralized at the top of the organization.

Standardization and formalization

When tasks are stable, tasks should be standardized and formalized, so that operations can run smoothly without breakdowns.

Organic Structure

Dynamic and uncertain environment

This organizational structure works best when the environment is relatively dynamic and uncertain.

High differentiation of tasks

Because tasks are often changing, tasks may need to be differentiated, so specialists, each responsible for one or few tasks, are able to respond quickly.

High integration of e.g. departments and functional areas

In complex environments, rapid communication and information sharing is necessary. Therefore, departments and different functional areas need to be tightly integrated

Decentralized decision-making

When the environment is dynamic and uncertain, there is a 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 and formalization

When tasks change rapidly, it is unfeasible to institute 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.

DEPARTMENTALIZATION5

 After reviewing the plans, usually the first step in the organizing process is departmentalization.

Once jobs have been classified through work specialization, they are grouped so those common tasks can be coordinated. Departmentalization is the basis on which work or individuals are grouped into manageable units. There are five traditional methods for grouping work activities.

Departmentalization by function organizes by the functions to be performed. The functions reflect the nature of the business. The advantage of this type of grouping is obtaining efficiencies from consolidating similar specialties and people with common skills, knowledge and orientations together in common units.

Departmentalization by product assembles all functions needed to make and market a particular product are placed under one executive. For instance, major department stores are structured around product groups such as home accessories, appliances, women's clothing, men's clothing, and children's clothing.

Departmentalization by geographical regions groups jobs on the basis of territory or geography. For example, Merck, a major pharmaceutical company, has its domestic sales departmentalized by regions such as Northeast, Southeast, Midwest, Southwest, and Northwest.

Departmentalization by process groups jobs on the basis of product or customer flow. Each process requires particular skills and offers a basis for homogeneous categorizing of work activities. A patient preparing for an operation would first engage in preliminary diagnostic tests, then go through the admitting process, undergo a procedure in surgery, receive post-operative care, be discharged and perhaps receive out-patient attention. These services are each administered by different departments.

Departmentalization by customer groups jobs on the basis of a common set of needs or problems of specific customers. For instance, a plumbing firm may group its work according to whether it is serving private sector, public sector, government, or not-for-profit organizations. A current departmentalization trend is to structure work according to customer, using cross-functional

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teams. This group is chosen from different functions to work together across various departments to interdependently create new products or services. For example, a cross-functional team consisting of managers from accounting, finance, and marketing is created to prepare a technology plan.

BASIS FOR DEPARTMENTALIZATION6

As noted in the previous section, many organizations group jobs in various ways in different parts of the organization, but the basis that is used at the highest level plays a fundamental role in shaping the organization. There are four commonly used bases.

FUNCTIONAL DEPARTMENTALIZATION

Every organization of a given type must perform certain jobs in order do its work. For example, key functions of a manufacturing company include production, purchasing, marketing, accounting, and personnel. The functions of a hospital include surgery, psychiatry, nursing, housekeeping, and billing. Using such functions as the basis for structuring the organization may, in some instances, have the advantage of efficiency. Grouping jobs that require the same knowledge, skills, and resources allows them to be done efficiently and promotes the development of greater expertise. A disadvantage of functional groupings is that people with the same skills and knowledge may develop a narrow departmental focus and have difficulty appreciating any other view of what is important to the organization; in this case, organizational goals may be sacrificed in favor of departmental goals. In addition, coordination of work across functional boundaries can become a difficult management challenge, especially as the organization grows in size and spreads to multiple geographical locations.

GEOGRAPHIC DEPARTMENTALIZATION

Organizations that are spread over a wide area may find advantages in organizing along geographic lines so that all the activities performed in a region are managed together. In a large organization, simple physical separation makes centralized coordination more difficult. Also, important characteristics of a region may make it advantageous to promote a local focus. For example, marketing a product in Western Europe may have different requirements than marketing the same product in Southeast Asia. Companies that market products globally sometimes adopt a geographic structure. In addition, experience gained in a regional division is often excellent training for management at higher levels.

PRODUCT DEPARTMENTALIZATION

Large, diversified companies are often organized according to product. All the activities necessary to produce and market a product or group of similar products are grouped together. In such an arrangement, the top manager of the product group typically has considerable autonomy over the operation. The advantage of this type of structure is that the personnel in the group can focus on the particular needs of their product line and become experts in its development, production, and distribution. A disadvantage, at least in terms of larger organizations, is the duplication of resources. Each product group requires most of the functional areas such as finance, marketing, production, and other functions. The top leadership of the organization must decide how much redundancy it can afford.

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CUSTOMER/MARKET DEPARTMENTALIZATION

An organization may find it advantageous to organize according to the types of customers it serves. For example, a distribution company that sells to consumers, government clients, large businesses, and small businesses may decide to base its primary divisions on these different markets. Its personnel can then become proficient in meeting the needs of these different customers. In the same way, an organization that provides services such as accounting or consulting may group its personnel according to these types of customers. Figure 2 depicts an organization grouped by customers and markets.

Figure 2

Customer/Market Organization

Figure 3

Matrix Structure

MATRIX ORGANIZATIONAL STRUCTURE

Some organizations find that none of the afore-mentioned structures meet their needs. One approach that attempts to overcome the inadequacies is the matrix structure, which is the combination of two or more different structures. Functional departmentalization commonly is combined with product groups on a project basis. For example, a product group wants to develop a new addition to its line; for this project, it obtains personnel from functional departments such as research, engineering, production, and marketing. These personnel then work under the manager of the product group for the duration of the project, which can vary greatly. These personnel are responsible to two managers (as shown in Figure 3).

One advantage of a matrix structure is that it facilitates the use of highly specialized staff and equipment. Rather than duplicating functions as would be done in a simple product department structure, resources are shared as needed. In some cases, highly specialized staff may divide their time among more than one project. In addition, maintaining functional departments promotes functional expertise, while at the same time working in project groups with experts from other functions fosters cross-fertilization of ideas.

The disadvantages of a matrix organization arise from the dual reporting structure. The organization's top management must take particular care to establish proper procedures for the development of projects and to keep communication channels clear so that potential conflicts do not arise and hinder organizational functioning. In theory at least, top management is responsible for arbitrating such conflicts, but in practice power struggles between the functional and product manager can prevent successful implementation of matrix structural arrangements. Besides the product/function matrix, other bases can be related in a matrix. Large multinational corporations that use a matrix structure most commonly combine product groups with geographic units. Product managers have global responsibility for the development, manufacturing, and distribution of their own product or service line, while managers of geographic regions have responsibility for the success of the business in their regions.

SIX KEY ELEMENTS IN ORGANIZATIONAL DESIGN7

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:

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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 putting together similar specialties and people with common skills, knowledge, and orientations

o Coordination within functional area

o In-depth specialization

o Poor communication across functional areas

o Limited view of organizational goals

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

Different aspects on this type of departmentalization:

Positive Aspects Negative Aspects

o Allows specialization in particular products and services

o Managers can become experts in their industry

o Closer to customers

o Duplication of functions o Limited view of organizational

goals

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 efficient handling of specific regional issues that arise

o Serve needs of unique geographic markets better

o Duplication of functions o Can feel isolated from other

organizational areas

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 of work activities

o Can only be used 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 and problems can be met by specialists

o Duplication of functions 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 Lower-level managers are not as

capable or experienced at making decisions as upper-level managers.

Lower-level managers do not want to have say in decisions

Decisions are significant. Organization is facing a crisis or

the risk of company failure. Company is large. Effective implementation of

company strategies depends on managers retaining say over what happens.

Environment is complex, uncertain.

Lower-level managers are capable and experienced at making decisions.

Lower-level managers want a voice in decisions.

Decisions are relatively minor. Corporate culture is open to

allowing managers to have a say in what happens.

Company is geographically dispersed.

Effective implementation of company strategies depends on managers having 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.

HOW DOES STRATEGY AFFECT STRUCTURE?8

An organization’s structure is a means to help management achieve its objectives. Because objectives are derived from the organization’s overall strategy, it is only logical that strategy and structure should be closely linked. For example, if the organization focuses on providing certain services say, police protection in a community – its structure will be one that promotes standardized and efficient services. Similarly, if an organization is attempting to employ a growth strategy by entering into global markets, it will need a structure that is flexible, fluid, and readily adaptable to the environment. Accordingly, organization structure should follow strategy. And if management makes a significant change in its organization’s strategy, then it will need to modify structure to accommodate and support that change.

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The first important research on the strategy structure relationship was Alfred Chandler’s study of nearly 100 large US companies. After tracing the development of these organizations over 50 years an compiling extensive case histories of companies such as DuPont, General Motors, Standard Oil of New Jersey and Sears, Chandler concluded that changes in corporate strategy precede and lead to changes in an organization’s structure. Specifically, he found that organizations usually begin with a single product or line. The simplicity of the strategy requires only a simple or loose form of structure to execute. Decisions can be centralized in the hands of a single senior manager, and complexity and formalization will be low. As organizations grow, their strategies become more ambitious and elaborate. Research has generally confirmed the strategy structure relationship using strategy terminology. For instance, organizations pursuing a differentiation strategy must innovate to survive. Unless they can maintain their uniqueness, they may lose their competitive advantage. An organic organization matches best with this strategy because it is flexible and maximizes adaptability. In contrast, a cost leadership strategy seeks stability and efficiency. Stability and efficiency help to produce low cost goods and services. This, then, can best be achieved with a mechanistic organization.

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TIPS FOR SUSTAINABILITY INCLUDE KNOWING WHAT INCOME STREAMS ARE AVAILABLE,  BEING OPEN TO NEW APPROACHES AND ADOPTING A SUSTAINABLE AND DIVERSE MIX OF INCOME SOURCES, WHICH OFTEN MEANS ADOPTING NEW INCOME STREAMS

new opportunities need to be better understood and organisations need to take time to explore their

potential.

different income streams are accessed and managed in different ways and involve different relationships with

the individual or organisation supplying the funds.

the skills needs to access money from each income source also varies: for example, the ability to fill in a form

maybe useful in winning grant funding, but understanding how to negotiate, might be needed to obtain funds

through trading or contracting.

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whatever your organisation and its mission – the message of diversification is important to everyone.