Key Components in the definition of Organization Structure:

1- The allocation of tasks and responsibilities to individuals and departments

2 - The formal reporting relationships among employees the grouping together of individuals into
departments and into the total organization.

3- The systems to ensure effective coordination and integration of effort among participants

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Organization chart reflects organizational structure :

The organization chart is the visual representation of a whole set of underlying activities and processes in an
organization.

The organization chart indicates reporting relationships, the grouping together of individuals, and to some
extent the allocation of tasks and responsibilities

Auxiliary documentation is normally needed to specify tasks and responsibilities in more detail

The systems to ensure coordination typically are not on the organization chart

Organization charts have been around for centuries

Churches / Industrial Revolution-railroads

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Information-Sharing Perspective on Structure

The structure must fit information requirements of the organization so people have neither too little nor too
much information.

The organization should be designed to provide both vertical and horizontal information flow as necessary to
achieve the organization’s overall goals.

Vertical linkages are designed primarily for control; horizontal linkages are designed for coordination and
collaboration.

Tension between horizontal and vertical mechanisms.

Organizations choose whither to orient toward a traditional organization, emphasizing control or toward a
learning organization which emphasizes horizontal communication and coordination.

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Efficiency versus Learning Outcomes

Vertical Organization Designed for Efficiency

Specialized tasks / Strict hierarchy, many rules / Vertical communication and reporting systems / Few teams,
task forces, or integrators / Centralized decision making .
Horizontal Organization Designed for Learning

Shared tasks, empowerment / relaxed hierarchy, few rules/Horizontal communication, face-to-face / Many
teams and task forces / Decentralized decision making.

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Vertical Information Sharing

Organization design should facilitate the communication among employees and departments that is
necessary to facilitate the communication’s overall task.

Linkage: The extent of communication and coordination among organizational elements.

Vertical linkages: Used to coordinate activities between the top and bottom of an organization and are
designed primarily for control of the organization.

Organizations use a variety of structural devices to achieve vertical linkage:

Hierarchical referral, rules, plans, formal management information systems.

Hierarchical Referral: the vertical lines which identify the chain of command.

Rules and Plans: To the extent that problems and decisions are repetitious, a rule or procedure can be
established so that employees know how to respond so that communication with supervisors is not
necessary. Plans also provide standing information for employees.

Vertical Information Systems: Periodic reports, written information, computer-based communication Make
communication up and down the organization more effective.

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Horizontal Information Linkages

Horizontal communication overcomes barriers between departments and provides opportunities for
coordination among employees to achieve unity of effort and organizational objectives-not traditionally
drawn on the organizational chart.

Horizontal linkage: Refers to the amount of communication and coordination horizontally across
organizational departments.

Information systems: Cross-functional (computer) information systems.

Direct contact: Liaison role-responsible for coordinating between departments.

Task forces: Temporary committee composed of representatives of various departments affected by the
problem

Full-time integrator: Product manager, project manager, brand manager. Responsible for coordinating
several departments.

Teams.

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Organization Design Alternatives

The overall design of organization structure indicates three things:

1- Required work activities: Marketing, HR, R&D, Manufacturing.

2- Reporting relationships : Chain of command-shows who reports to whom.

3- Departmental grouping options

a- Functional grouping: Places together employees who perform similar functions or work processes or who
bring similar knowledge and skills to the job.

STRENGTHS:

Allows economies of scale within functional departments

Enables in-depth knowledge and skill development

Enables organization to accomplish functional goals

Is best with only one or a few products

WEAKNESSES:

Slow response time to environmental changes / May cause decisions to pile up at the top, managers do not
respond fast enough/ Leads to poor horizontal coordination among departments / Results in less
innovation / Involves restricted view of organizational goals.

b - Divisional grouping: Divisions can be organized according to individual products, services, product groups,
major projects or programs, divisions, businesses, or profit centers.

STRENGTHS:

Suited to fast change in unstable environment

Leads to client satisfaction because product responsibility and contact points are clear

Involves high coordination across functions

Allows units to adapt to differences in products, regions, clients

Best in large organizations with several products

Decentralizes decision-making

WEAKNESSES:

Eliminates economies of scale in functional departments

Leads to poor coordination across product lines

Eliminates in-depth competence and technical specialization

Makes integration and standardization across product lines difficult

c – Multi focused grouping: Grouped by organizational users or customers.

d - Horizontal grouping: A more recent approach which organizes employees around core processes.

Reengineering: The redesign of a vertical organization along its horizontal workflows and processes.

Process: Refers to an organized group of related tasks and activities that work together to transform inputs
into outputs that create value for customers.

The horizontal structure emphasize core processes that cut horizontally across the organization and use
teams of employees working together to serve customers.

STRENGTHS:

Flexibility and rapid response to changes in customer needs / Directs the attention of everyone toward the
production and delivery of value to the customer / Each employee has a broader view of organizational
goals / Promotes a focus on teamwork and collaboration—common commitment to meeting objectives
/Improves quality of life for employees by offering them the opportunity to share responsibility, make
decisions, and be accountable for outcomes.

WEAKNESSES:

Determining core processes to organize around is difficult and time-consuming / Requires changes in culture,
job design, management philosophy, and information and reward systems / Traditional managers may balk
when they have to give up power and authority/

Requires significant training of employees to work effectively in a horizontal team environment / Can limit in-
depth skill development.

e - Vertical network grouping : With a virtual network structure, or modular structure, the firm subcontracts
many or most of its major processes to separate companies and coordinates their activities from a small
headquarters organization.

Outsourcing: Contract out certain corporate functions, such as manufacturing, information technology or
credit processing to other companies.

Strengths

Enables even small organizations to obtain talent and resources worldwide / Gives a company immediate
scale and reach without huge investments in factories, equipment, or distribution facilities /

Enables the organization to be highly flexible and responsive to changing needs / Reduces administrative
overhead costs

Weaknesses

Managers do not have hands-on control over many activities and employees / Requires a great deal of time
to manage relationships and potential conflicts with contract partners / There is a risk of organizational
failure if a partner fails to deliver or goes out of business / Employee loyalty and corporate culture might be
weak because they feel they could be replaced by a contractor.

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Matrix Structure

Multi focused with strong horizontal linkage

Conditions for Matrix:

1- Pressure exists to share scarce resources across product lines. It feels pressure for the shared and flexible
use of people and equipment across product lines.

2- Environmental pressure exists for two or more critical outputs, such as for in-depth technical knowledge
(functional structure) and frequent new products (divisional structure). This dual pressure means a balance
of power is needed between the functional and product sides of the organization

3- The environmental domain of the organization is both complex and uncertain. Frequent external changes
and high interdependence between departments require a large amount of coordination and information
processing in both vertical and horizontal directions

Largest weakness is that employees have two bosses and conflicting demands.

Matrix Organizational Structure

Strengths

Achieves coordination necessary to meet dual demands from customers. / Flexible sharing of human
resources across products./

Suited to complex decisions and frequent changes in unstable environment./Provides opportunity for both
functional and product skill development. / Best in medium-sized organizations with multiple products.

Weaknesses

Causes participants to experience dual authority. / Means participants need good interpersonal skills and
extensive training. /is time-consuming: involves frequent meetings and conflict resolution sessions. / Will not
work unless participants understand it and adopt collegial rather than vertical-type relationships. / Requires
great effort to maintain power balance.

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Hybrid Structures

Hybrid structures combine characteristics of various approaches tailored to specific strategic needs.

Most companies combine characteristics of functional, divisional, geographical, horizontal, or network

structures to take advantage of the strengths of various structures.

Hybrid structures tend to be used in rapidly changing environments because they offer the organization
greater flexibility.

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Applications of Structural Design

Structural Alignment: Ultimately, the most important decision that managers make about structural design is
to find the right balance between vertical control and horizontal coordination, depending on the needs of the
organization.
Vertical control is associated with goals of efficiency and stability, while horizontal coordination is associated
with learning, innovation, and flexibility.

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Symptoms of Structural Deficiency

1- Decision making is delayed or lacking in quality: Managers are overloaded/2 - The organization does not
respond innovatively to a changing environment: Lack of coordination horizontally/

3-Employee performance declines and goals are not being met: Structure does not provide clear goals or
responsibilities/4- Too much conflict is evident: Departmental goals conflict with organizational goals.

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