9 – Organization Structure and Design

Introduction

An organisation is a group of people who work together to achieve goals and build and maintain relatively stable and predictable behaviour patterns, even if the individuals within the organisation change. Typically, we describe organisations in terms of how they differ along three dimensions: complexity, formalisation, and centralization. These three elements differ among organisations and these ‘significant disparities’ lead to observed patterns of conduct.

Complexity refers to the variety of various activities, functions, and levels that occur in organisations. Because there are more task activities to do and more methods to design links, more complex organisations have more coordination and control challenges. Larger organisations are more complicated.

Formalisation refers to policies, processes, and norms that limit members’ choices. The constraints defined by these organizational devices limit members’ discretion and freedom of action in a minimally formalised organisation. There is more freedom of action and decision-making in less formalised organisations. The term centralization refers to the dispersion of power and authority. Those in higher organizational positions preserve power and authority in centralised organisations.

Decentralised organisations distribute decision-making, rights, and responsibilities to persons at lower organisational levels. The collaboration of complexity, formalisation, and

Two variables indicate centralization: organisational structure and organisational culture.

8.1 Organization Structure

The intricate relationships between the tasks that each member of an organization performs form its fabric. These relationships are fundamental to achieving organizational goals, encompassing several crucial components:

i. Division of Labour: To chart the course towards organizational objectives, meticulous identification of necessary work is imperative. This identified work is then methodically divided and sub-divided, aligning each component with individuals possessing specialized skills for optimal task execution. This practice introduces the principles of specialization and motivation and enhances efficiency by eliminating redundant efforts. Additionally, it establishes a control mechanism, holding individuals accountable for their roles.

ii. Identifying Sources of Authority: Every individual within the organization is a crucial component in the collective machinery. Beyond the formal authority-responsibility structure, power and authority emanate from various sources, such as the consent of the governed, superior physical strength, intelligence, or other influential factors. Aligning individual efforts with the joint organizational objective necessitates a nuanced understanding of authority dynamics.

iii. Relationship Dynamics: Within the organizational structure, diverse relationships form an integrated whole to propel the collective pursuit of organizational goals. These relationships manifest in administrative or operational dimensions, spanning vertical, horizontal, or diagonal orientations, and can be formal or informal. Hierarchical arrangements denote the varying levels of authority, with individuals working at the same tier expected to share comparable authority. The hierarchical thread binds individuals operating at different levels, fostering collaborative efforts.

iv. Co-ordination: At the heart of organizational functionality lies coordination, an indispensable element for achieving organizational goals. The executive charged with this pivotal function is tasked with harmonizing the efforts of individuals and groups. This coordination ensures the optimal efficiency of goal attainment by minimizing wastage while concurrently addressing each individual’s ego satisfaction. Organizational structure plays a pivotal role in influencing behavioural stability, and noticeable distinctions in behaviour patterns emerge, particularly between organizations operating in disparate fields.

In essence, the synergy of these task relationships forms the backbone of organizational success, guiding the collective efforts towards a shared vision while upholding principles of efficiency, accountability, and harmonious collaboration.

8.2 Organization Environment

The organizational environment serves as a reservoir of resources, presenting itself as novel materials, financial assets, human capital, and information. These invaluable resources are assimilated into the organizational framework, undergoing transformative processes that culminate in creating products or services. Subsequently, these offerings are exchanged within various segments of the organizational environment, typically yielding revenues essential for sustaining the organizational system.

The pertinent environment of an organization is a mosaic of groups or institutions that furnish immediate inputs, exert considerable influence on decision-making processes within the organization, or consume the outputs generated by the organization. At any given juncture, some external entities wield more proximity and profoundly impact the organization’s operations than others. For instance, customers and suppliers engage in perpetual interaction with a business organization, forming its most pertinent environment. A sudden flux in consumer demand can precipitate internal organizational adjustments, exemplified by layoffs in response to a sales slump. Situations that prompt alterations in the pertinent environment may necessitate adaptive measures. For instance, enacting equal opportunity laws compelled numerous firms to overhaul their hiring practices and promotion criteria.

The pertinent external environment of an organization encompasses:

i. Markets

ii. Suppliers

iii. Unions

iv. Competitors

v. Public pressure groups

vi. Government agencies

vii. Investors

viii. Technology and science

The complexity of an organization’s environment can vary, ranging from relatively simplistic to highly intricate. Simplicity is discernible when the environment comprises a modest number of relatively homogeneous sectors, as exemplified by the market environment for a small firm specializing in personal computer manufacturing. Conversely, complexity prevails when the environment encompasses diverse and heterogeneous sectors, as seen in the case of an engineering firm specializing in installing manufacturing plants across different countries. Understanding and adeptly navigating the organizational environment emerge as critical imperatives for sustained success and adaptability in both scenarios.

8.3 Environmental Sectors

Our exploration delves into the market environment and the technological landscape, pivotal sectors that are crucial in comprehending challenges and steering the course of most business organizations.

These two sectors have been bedrocks of traditional significance in the governance of economic organizations. Markets serve as arenas where customers exchange their monetary resources for the products and services offered by a firm. Concurrently, organizations must harness available technologies to craft these outputs. Furthermore, these two sectors constitute the focal points of predominant theories and extensive research within organizational studies.

The market environment denotes the specific array of individuals, groups, or institutions that leverage an organization’s outputs. These outputs encompass values such as commodities, products, or services, with the market reciprocating through some form of exchange. For business organizations, this spans products like automobiles, computers, steel, television sets, or intellectual and service-oriented offerings from advertising agencies, consulting firms, or travel agencies.

On the other hand, the technological environment manifests through two distinct components. Firstly, it encapsulates an organisation’s techniques and processes to manufacture products or render services. In this context, technology refers to the available methodologies and hardware. The organization selectively adopts certain technologies from the spectrum available, thereby defining the structure of its production subsystem. It’s imperative to note that an organization’s production system cannot surpass the technological advancements at its disposal, although the utilization of all available technology is not obligatory.

For instance, computers might seamlessly orchestrate the management of customer credit accounts in a large department store, while a smaller specialty store could opt for manual methods to perform the same function. Moreover, technology extends beyond tangible tools; it encompasses the ideas and knowledge underpinning the production or distribution of products and services. It delineates the translation of scientific principles into pragmatic applications.

8.4 Characteristics Of The Environment

The extent of transformation in the external environment holds profound implications for an organization’s internal fabric. It shapes the profile of individuals likely to affiliate with it and moulds the perceptions, attitudes, and values within. A pivotal determinant of this impact is whether the organizational structure tends towards high-routine or non-routine characteristics.

1. Stability: In a stable environment, changes unfold gradually, occurring in incremental steps with minimal disruption to the organization’s structure, processes, and output. Shifts are more likely to influence size dimensions (e.g., the volume of beer or insurance sold) than alter the core product. Technological advancements, if any, tend to progress steadily. Adaptation strategies may involve short-term workforce adjustments while maintaining product consistency. For instance, commercial bakeries may employ efficient production systems, but the fundamental product—bread—remains constant. The ability to predict market trends is relatively high in stable environments, leveraging common indexes for accurate predictions, such as estimating automobile sales based on population and income changes.

2. Volatility: Contrastingly, a volatile environment is marked by turbulence and intense and rapid changes, where customer preferences fluctuate and demand levels vary widely. Industries like women’s high fashion epitomize this volatility, where product decisions hinge on swiftly changing customer tastes. In technologically volatile environments, the generation of new ideas and concepts is rapid, influencing production processes and altering the nature of products. With breakthroughs in integrated circuits and miniaturization, the electronic industry exemplifies how technological shifts can impact both product nature and marketing strategies.

The transformation IBM is going through serves as an example. While the company traditionally thrived on large mainframe computers, the evolution of microchips and computing costs led to the rise of powerful personal computers. Networking further reduced the demand for mainframes. IBM’s reluctance to delve into software development amidst these technological shifts posed a challenge as the market dynamics shifted towards personal computers. This example underscores the critical role of adaptability in the face of volatile technological landscapes.

8.5 Organizations As Systems

An organization’s various sub-systems conduct a symphony in orchestrating its adaptation to the external environment. These sub-systems are not mere departmental divisions but interconnected functional activities crucial for absorbing inputs, transforming them into outputs, transferring them to users, and ensuring seamless coordination. Let’s delve into the vital organizational sub-systems:

i. Production Sub-Systems: At the organisation’s heart lies the production sub-system, the technical core responsible for crafting products, services, or ideas consumed by the market. In a business firm, this may manifest as assembly lines or bank tellers, while in healthcare, it encompasses care facilities, operating rooms, and emergency services.

ii. Boundary Spanning Sub-Systems: Engaging in transactions with the environment, boundary-spanning sub-systems process inputs, dispose of outputs, or aid in these functions. Though the activities unfold within the organization, their essence lies in connecting with external touchpoints. Examples include selling, purchasing, recruiting, and acquiring capital resources.

iii. Adaptive Sub-Systems: To navigate environmental shifts, organizations deploy adaptive sub-systems, which monitor or sense the evolving nature of their operational landscape. Activities such as research and development or lobbying to influence government policies fall under this category.

iv. Maintenance Subsystems: By addressing operational challenges within other subsystems, maintenance subsystems ensure the internal machinery functions smoothly. Activities encompass maintaining motivation through socialization, rewarding, punishing, training, and performance appraisal. Setting standards for work, raw materials, and product or service quality are also pivotal maintenance functions.

v. Managerial Sub-Systems: Operating as the architects of organizational control, coordination, and direction, managerial sub-systems form the cohesive force overseeing the myriad subsystems. This slice of the organizational structure focuses on general policy and strategy to interact with the environment for long-term survival. It tackles internal department conflicts and utilizes the authority structure to disseminate directives.

8.6 Generic Types Of Organizations

In the intricate interplay between the environment and organizational sub-systems, a model emerges to encapsulate their dynamic interplay. This organization environment model delineates four generic types of organizations, positioning them on two axes: the technological dimension, representing the environment, and the market dimension. These dimensions bear the hallmarks of uncertainty, stability, and volatility at their extremes.

 

 

 

 

 

 

 

 

 

 

 

 

 

Technological Dimension: The Environment:

Uncertainty, Stability, and Volatility: This axis reflects the varying levels of uncertainty, stability, and volatility in the technological environment. Organizations are situated along this spectrum based on their interactions with the external landscape.

Market Dimension: Uncertainty, Stability, and Volatility:

Like the technological dimension, the market dimension captures the uncertainty, stability, and volatility levels within the market environment, shaping the organization’s positioning.

Four Generic Types of Organizations:

1. Routine-Stable Organizations: Positioned at the intersection of low technological and market volatility, these organizations exhibit routine characteristics within their subsystems. Stability in both technological and market environments allows for predictable and standardized interactions.

2. Flexible-Volatile Organizations: Thriving in high technological and market volatility settings, these organizations embrace flexibility within their subsystems. Adapting to the ever-changing environment becomes a hallmark of their internal relationships.

3. Routine-Volatile Organizations: Navigating a stable technological environment but a volatile market, these organizations showcase routine characteristics in their sub-systems while remaining adaptable to the market’s dynamic nature.

4. Flexible-Stable Organizations: These organizations thrive in an environment with stable technology and a volatile market while maintaining internal flexibility.

Sub-System Relationships:

• Proximity to the Organization Boundary: The nature of sub-system relationships hinges on their proximity to the organization boundary. Closer proximity demands adaptability, while those farther away may adhere to routine characteristics.
• Effect on Internal Relationships: The nature of the external environment, whether stable or volatile, influences the internal relationships among sub-systems. Stability encourages routine interactions, while volatility demands flexibility and adaptability.

This organization environment model serves as a foundational framework, offering insights into the diverse patterns of interaction among sub-systems within organizations. Each type represents a unique approach to harmonizing with the external environment, shaping the demands placed on organizational members.

Organization subsystem	Mechanistic	Type of Organization Organic	TD-Mixed	MD-Mixed
Environmental characteristics	•  Stable technology •  Stable market	•  Volatile technology •  Volatile market	•Volatile technology •  Stable market	•  Stable technology •  Volatile market
Production	•  Repetitive market •  High division of labour •  Low skill level •  Jobs well defined	•  Non-routine work •  Intensive technology • Jobs Jobs loosely defined	• Intensive and mediating technologies •  Highly skilled staff	•  Long-linked or repetitive technology
Boundary- spanning	•  Fixed distribution Channels •  Well-defined	• Various systems for distribution •  Requires highly adaptive skills	• Fixed marketing channels •  High prices	•  Distribution channels influenced by “style”
External monitoring	•  Simple system • Good information base •  Very important	•  Clinical skills required to judge changes in technological function	• Extensive RPO •  Clinical skills required for the environment •  Simple monitoring of the market • R&D	•  Clinical skills required in marketing areas •  Little R and D • Marketing’s most influential
Control	• Standard budgeting •  Historical costs and standards • Possible inversion of ends and means	• Evaluation based on projection best way •  Minimal use of historical data	•  Standard historical costs and standards in the marketing function • More subjective evaluation in technical areas	•  Subjective evaluation in marketing areas •  Standard costs in technical and production areas
Managerial	• Centralised decision-making • Rigid hierarchy • Standard budgeting • Conflict between higher and lower levels	• Decentralised decision-making •  Flexible structure and work assignments • Conflict between professionals	•Decentralised control in technical functions • Hierarchical role in marketing • Interface management problems	•Decentralised control in the marking function • Centralized control of other areas • Interface management problems

1.  The Mechanistic Organization (MO)

The Mechanistic Organization (MO) is a product of stable and predictable market and technological conditions, where efficiency becomes a paramount requirement for survival. In the production subsystems, tasks are characterized by high repetition and distinct divisions of labour, leading to standardized and narrow work activities. Marketing and procurement, as the major boundary-spanning activities, operate within well-defined and standardized parameters due to the stable market. Procurement often involves significantly influencing suppliers, akin to forming a subsidiary relationship.

Adaptive subsystems in a stable environment follow set rules, leveraging experience to interpret environmental changes systematically. Maintenance subsystems maintain stability using historically accepted information for control purposes. Managerial subsystems exhibit highly centralized control at the top, enabling quick decision-making based on centralized information. Control and monitoring are centralized in this structured environment, with relatively low discretion.

2. The Organic Organization (OO)

The Organic Organization (OO) thrives in a volatile market and technological sector, featuring loosely defined structures to adapt to the dynamic environment. The production sub-system relies on general-purpose technology, allowing flexibility in rearranging production elements to match market or technological changes.

Boundary-spanning activities involve unstructured distribution channels that vary from customer to customer. Procurement is dynamic, necessitating constant exploration of diverse raw materials and resources. Adaptive subsystems, crucial for unpredictable environments, require individual skills to assess and initiate organizational changes.

Maintenance sub-systems base performance on cost standards and forecast estimates, emphasizing subjective evaluations over historical data. Managerial sub-systems are less structured, with few policy guidelines and a variable authority structure. Teams are formed for specific projects, introducing flexibility but requiring a high tolerance for ambiguity and role conflict.

3. Technology Dominated Mixed Organization (TDM)

In a Technology Dominated Mixed Organization (TDM), technological units wield significant policy and strategic influence, addressing uncertainties in the technological environment while maintaining a stable market. Market-related units display mechanistic characteristics, while technology-related units operate with more flexibility.

The production subsystem utilizes general-purpose processes, extending the equipment’s productive life expectancy. Adaptive subsystem monitoring technology prioritizes advanced knowledge development. Maintenance subsystems face challenges in developing controls for units with different structural characteristics, leading to potential tension and conflict.

Managerial sub-systems feature varied authority structures, with marketing sectors adhering to well-defined responsibilities and limited discretion. Technological functions allow more freedom of action, creating a dynamic tension between maintaining product stability and adopting newer production methods.

4. Market Dominated Mixed Organization (MDM)

The Market-Dominated Mixed Organization (MDM) derives major strategies from the marketing unit to stay attuned to a constantly changing consumer or client group. Production subsystems use objective cost metrics to assess programmed production tasks with low skill requirements.

Adaptive activities require less scientific research, relying on experience and intuition for market dynamics. Distribution systems are simple, and product changes are often related to style or design alterations. Maintenance sub-systems grapple with collecting historical cost data due to changing distribution patterns.

Managerial subsystems feature hierarchical structures in technical segments and looser structures in marketing and distribution, allowing individual discretion and decision-making freedom. Decisions made in the marketing sector activate control systems and set the tone for the organization’s response to the volatile environment.

In both technological and market-dominated firms, coordinating organic and mechanistic segments poses challenges due to structural differences, emphasizing the need for adaptability and effective communication.

8.7 Formal Organizations: Design And Structure

An organizational structure is a blueprint that delineates how job tasks are divided, grouped, and coordinated within an entity. When designing organizational structures, it is imperative to consider several vital elements. These elements play a crucial role in shaping an organization’s efficiency, functionality, and adaptability. The primary elements include work specialization, departmentalization, the line of command, the span of control, centralization, decentralization, and formulation.

1. Work Specialization

Work specialization, synonymous with the division of labour, defines the extent to which tasks are subdivided into different jobs within an organization. Originating from Henry Ford’s pioneering efforts in the early 20th century, work specialization demonstrated that breaking down a job into distinct steps executed by specialized individuals enhances efficiency. This practice led to the emergence of highly specialized and skilled roles, contributing to increased efficiency and superior product quality.

2. Departmentalization

Following work specialization, the next step involves grouping jobs to facilitate the coordination of everyday tasks. This grouping, known as departmentalization, can be based on various criteria, such as functions performed, product types, geographic territories, or customer types. Each approach has its merits, and a well-designed organization may incorporate multiple forms of departmentalization, particularly on a global scale.

3. Line of Command

The line of command establishes an unbroken hierarchy of authority from the top to the bottom of the organization, clarifying reporting structures. It encompasses the concepts of authority and unity of command. Authority represents the managerial right to issue orders, while unity of command ensures that individuals have a single supervisor to whom they are accountable. In contemporary settings, hierarchical structures are evolving towards horizontal frameworks, reducing the traditional significance of the line of command.

4. Span of Control

The span of control refers to the number of employees a manager can effectively direct. A balance must be struck, as a wider span enhances organizational efficiency, but beyond a specific limit, it diminishes effectiveness. A smaller span allows for closer managerial control, which may lead to communication complexities and discourage employee autonomy. Current organizational trends emphasize cost reduction, often achieved through measures like voluntary retirement schemes.

5. Centralization

Centralization and decentralization pertain to decision-making processes within an organization. Centralization concentrates decision-making at a single point, ensuring swift decision-making and reducing employee alienation from decision-makers. However, contemporary trends indicate a shift towards decentralization, providing organizations greater flexibility and responsiveness.

6. Formulation

Formalization refers to the degree of standardization within organizational jobs. Standardization minimizes discretion, ensuring consistent and uniform output. Organizations with high formalization possess explicit job descriptions, defined work procedures, and clear organizational rules.

Major sub-units, often termed divisions or departments, are established through structural differentiation and integration processes in crafting formal organisations. Unbundling subsystem activities is what structural differentiation is all about. On the other hand, structural integration connects differentiated subunits to coordinate different departmental activities. Strategic considerations, environmental factors, and managerial preferences impact organizational design.

8.8 Division Of Labour And Task Interdependence Structure Relationship