TOPIC 5

BASIC ORGANISATIONAL DESIGN

1-1
 INTRODUCTION
• Organizational structure based on hierarchical
encourage efficient mass production,
uniformity in rules & centrally controlled
• When organizations expand in size, a re-
evaluation of existing structure became
necessary
• Organizational design is normally carried out
by top management
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 STRUCTURAL ELEMENTS
1. Specialization
2. Chain of Command
3. Span of Control
4. Authority & Responsibility
5. Centralization & Decentralization
6. Departmentalization
 1. Specialization
• Break-down of labor into several divisions
– Work had to be divided into various stages
– Each work step be undertaken by different person
• Every individual specialized in a particular area
of activity
• Specialization requires multi-skilled &
competent workers
• E.g: restaurant :–
- staff A takes orders;
- staff B cuts vegetables;
- staff C cooks
- staff D makes drinks
- staff E serves customers
*outcome – can serve more customers at one
time (rather than one staff doing all jobs at
one time)
 2. Chain of Command
• The line of authority and responsibility that
flows throughout the organization.
• A clear and distinct line of authority among
the positions in an organization
• The continuous line of authority that extends
from upper levels to lower levels and clarifies
who report to whom.
Chain of command
 3. Span of Control
• Refers to the number of subordinates who
report directly to a given manager of
supervision.
• Two types of span of control/management:
– Wide/flat span of management
– Narrow/tall span of management
Tall & Flat Span of Management
 4. Authority & Responsibility
Authority Responsibility
• Power that has been • An obligation on the
legitimized by the part of an employee to
organization. complete assigned
• Right of a manager to activities.
make decisions, issue
orders, and allocate
resources.
• Flows top down
through the hierarchy.
 5. Centralization &
Decentralization
• Centralization
– The process of systematically retaining power and
authority in the hands of upper-level managers.

• Decentralization
– The process of systematically delegating power
and authority throughout the organization to
middle- and lower-level managers.
 Centralization
• Advantages of Centralization
– Absolute controls over the organization
– Administratively convenient
– Common standards throughout the organization
• Disadvantages of Centralization
– Control can be autocratic and inflexible
– Lead to frustration – staffs are forced to operate to
inflexible rules
– Upper level managers who give orders may not aware of
what is needed
 Decentralization
• Advantages of Decentralization
– Unburdening top managers of ordinary task and
freeing them for other activities
– Flexibility and faster decision making
– Enable subordinates to appreciate their action and
activities
– Improved decision making because decisions are
made closer to the scene of action.
• Disadvantages of Decentralization
– Upper level managers may lose control over the
organization
– Without coordination and leadership from the top,
staffs will become disorganize
 6. Departmentalization
1. Functional Departmentalization
2. Product Departmentalization
3. Customer Departmentalization
4. Geographical Departmentalization
5. Process Departmentalization
 Functional Departmentalization
• Members of the organization are grouped
according to the particular function that they
perform within the organization.
• Appropriate when an organization’s greatest
source of complexity comes from the diverse
tasks that must be performed rather than
from its products, geographic markets, or
consumer groups.
Example of a Functional Structure
 Product Departmentalization
• Most appropriate for organizations with
relatively diverse product lines that require
specialized efforts to achieve high product
quality.
• E.g: Nestle Product Departmentalization:
Maggi Manager, Kit Kat Manager, Milo
Manager, etc.
Geographical Departmentalization
• Most appropriate for organizations with
limited product lines that either have wide
geographic coverage or desire to grow
through geographic expansion.
Geographic Divisional Structure
 Process Departmentalization
• Most appropriate when group all activities
based on work-flow or customer-flow
• E.g: Road Transport Department: Verification
Division Manager, Licencing Division Manager,
Finance Division Manager
 Customer Departmentalization
• Most appropriate for organizations that have
separate customer groups with very specific
and distinct needs.
• E.g: Unilever Customer Departmentalization:
Individual Manager, Business Manager, Retail
Manager
Process & Customer Divisional
Structure
CONTINGENCY FACTORS THAT
INFLUENCE STRUCTURE
 ORGANISATIONAL DESIGN
APPLICATION - Simple Structure
ADVANTAGES DISADVANTAGES
• Decision can be made • Only works well for
quickly small organizations
• More flexible • Lack of policies & rules
• Low operational costs • High degree of
• Clear accountability centralization
• Decisions depend on
one person only
 Functional Structure
• ADVANTAGES • DISADVANTAGES
• Work specialization • Focuses more on
• Facilitates economies of achievement of
scale functional objectives
• Reduces duplication of over organizational
personnel & equipment objectives
 Divisional Structure
ADVANTAGES DISADVANTAGES
• Emphasis on decision • Duplication of functions
• Divisional managers are which involve high costs
fully responsible for the
services & products that
are offered.
• Frees the HQ from
dealings & problems on
daily basis
 Matrix Structure
• A structure in which the tasks of the
organization are grouped along two
organizational dimensions simultaneously.
• Examples include:
– Product/function
– Product/geographic region
 Matrix
Structure
 Matrix Structure
ADVANTAGES DISADVANTAGES
• Can coordinate inter- • Confusion because of
connected complex power struggles among
tasks managers
• Maintain the functional
expertise that has been
put together