Organization structure

Lecture 2
 Organization
• A social unit of people that is structured and
managed to meet a need or to pursue collective
goals.
• All organizations have a management structure
that determines relationships between the
different activities and the members, and
subdivides and assigns roles, responsibilities, and
authority to carry out different tasks.
• Organizations are open systems--they affect and
are affected by their environment.
 Organizational structure
• It is hierarchical arrangement of lines of authority, communications,
rights and duties of an organization.
• Organizational structure determines how the roles, power and
responsibilities are assigned, controlled, and coordinated, and how
information flows between the different levels of management.
• A structure depends on the organization's objectives and strategy.
• In a centralized structure, the top layer of management has most of
the decision making power and has tight control over departments
and divisions.
• In a decentralized structure, the decision making power is
distributed and the departments and divisions may have different
degrees of independence.
 Types of organizational structures
• Organizational structures typically use one of two
approaches:
– A centralized structure gives most of the authority and decision-
making power to the team at the top.
– A decentralized structure distributes authority and decision-
making power at lower levels, which might include
departments, groups, or business units.
• There are four types of organizational structure. These are:-
– divisions
– functions
– geography,
– matrix
 Divisional organizational structure
• The divisional structure or product structure consists of
self-contained divisions.
• A division is a collection of functions which produce a
product. It also utilizes a plan to compete and operate
as a separate business or profit center.
• Employees who are responsible for certain market
services or types of products are placed in divisional
structure in order to increase their flexibility.
• The divisions may have their own departments such
as marketing, sales, and engineering.
 Disadvantages of Divisional structure
• it can support unhealthy rivalries/oppositions
among divisions.
• May increase costs by requiring more qualified
managers for each division.
• Also, there is usually an over-emphasis on
divisional more than organizational goals which
results in duplication of resources and efforts like
staff services, facilities, and personnel.
 Advantages of Divisional structure
• it uses delegated authority so the performance can be directly measured
with each group.
• it is more efficient in coordinating work between different divisions, and
there is more flexibility to respond when there is a change in the market.
• Also, a company will have a simpler process if they need to change the size
of the business by either adding or removing divisions.
• When divisional structure is utilized more specialization can occur within
the groups.
• When divisional structure is organized by product, the customer has their
own advantages especially when only a few services or products are
offered which differ greatly.
• When using divisional structures that are organized by either markets or
geographic areas they generally have similar function and are located in
different regions or markets. This allows business decisions and activities
coordinated locally.
 Functional structure
• It is a structure that consists of activities such as
coordination, supervision and task allocation.
• The organizational structure determines how the
organization performs or operates.
• It is best suited as a producer of standardized goods
and services at large volume and low cost.
• Coordination and specialization of tasks are centralized
in a functional structure,
• Some common functions within an organization
include production, marketing, human resources, and
accounting.
Adv and disadv of Functional structure
• This organizing of specialization leads to
operational efficiency
• Communication within the company can be
rather rigid, making the organization slow and
inflexible. Therefore, lateral communication
between functions becomes very important
 Geographical structures
• It suits organizations that have offices or units
in different regions or geographical areas. This form of
structure enables organization to:
– have a reporting and functional system across multiple
locations
– operate separate sites according to local demand but still
be directed by business policy
• Depending on the size of the organization, each
geographic unit may report to an executive who
oversees several locations.
• Alternatively, it may report directly to top management
located at the organization' headquarters.
Advantages of Geographical structures
• Geographical structure can offer a number of operational and
strategic advantages, including:
– close communication with local customers
– strong collaborative teams at each location
– the ability to better serve local needs and tailor their approach to the
local market
– the ability to encourage positive competition between different
departments
• It makes sense to divide an organization by region if different
cultures, rules, languages and customer preferences exist in the
area where the organization operates.
• Logistics relating to shipping, resources and staff also sometimes
make geographical structure a good choice.
 Disadvantages of Geographical
structures
• The main downside of a geographical organisational
structure is the potential conflict between local and
central management, as individual divisions often take
on a great deal of autonomy.
• Other disadvantages include:
– potential duplication of jobs, resources and functions
– some economies of scale may be lost
• Geographic organisational structure suits mainly
industries like retail and hospitality, transportation and
other businesses that need to be near sources of
supply and customers (eg for deliveries, production or
on-site support).
 Matrix structure
• It groups employees by both function and
product simultaneously.
• It frequently uses teams of employees to
accomplish work, in order to take advantage
of the strengths, as well as make up for the
weaknesses, of functional and decentralized
forms.
 Advantages of Matrix structure
• It allows the sharing of highly skilled resources between functional units
and projects. Communications are open, which helps knowledge move
throughout the organization with less obstruction.
• It can serve as a great boon/advantages for employees who are looking to
widen their experience and skill sets. They can be part of many different
aspects of various projects. It puts them in an environment that facilitates
learning and gives them an opportunity to grow professionally.
• Plus, the functional departments have highly skilled people, and those
people are available to help the project team if needed. This creates a
pool of valuable resources that can be dipped into and provides more
flexibility to resolve issues without having to source new resources.
• Furthermore, efficiencies are enhanced, and teams remain loyal because
the structure provides a more stable environment where job security is
strengthened. People work harder and have more buy-in to projects when
they feel the rug isn’t going to get pulled out from under them.
 Disadvantages of Matrix structure
• There can be some confusion when a team member is subject to
two managers. That can also create unnecessary conflict. This is
especially true if both managers have equal authority.
• There are a lot of managers in a matrix organizational structure,
which is not to everyone’s liking. And there can be a financial
downside to that too. Having more people in managerial positions
is going to have an impact on the organization’s bottom line.
• Team members can feel the strain of working in a matrix
organizational structure, in that their workload can be heavy.
• Finally, there’s the overall expense of the matrix organizational
structure. This goes beyond having multiple managers but also the
added expense of keeping on resources that might not be used all
the time.
Factors affecting organization structure
• The following five factors are the most
common:
– Size of an organization
– life cycle of an organization
– Strategy of an organization
– environment of an organization
– technology used by organization.
 Size of an organization
• The larger an organization becomes, the more
complicated its structure.
• As an organization grows, it becomes increasingly
difficult to manage without more formal work
assignments and some delegation of authority.
• Therefore, large organizations develop formal
structures.
– Tasks are highly specialized, and detailed rules and
guidelines dictate work procedures.
– Interorganizational communication flows primarily from
superior to subordinate, and hierarchical relationships
serve as the foundation for authority, responsibility, and
control.
 Life cycle of an organization

• Organizations, like humans, tend to progress through stages known

as a life cycle. Like humans, most organizations go through the
following four stages: birth, youth, midlife, and maturity. Each stage
has characteristics that have implications for the structure of the
firm.
• Birth: In the birth state, a firm is just beginning. An organization in
the birth stage does not yet have a formal structure. In a young
organization, there is not much delegation of authority. The founder
usually “calls the shots.”
• Youth: In this phase, the organization is trying to grow. The
emphasis in this stage is on becoming larger. The company shifts its
attention from the wishes of the founder to the wishes of the
customer. The organization becomes more organic in structure
during this phase. It is during this phase that the formal structure is
designed, and some delegation of authority occurs.
 Life cycle of an organization

• Midlife: This phase occurs when the organization has

achieved a high level of success. An organization in midlife
is larger, with a more complex and increasingly formal
structure.
• More levels appear in the chain of command, and the
founder may have difficulty remaining in control.
• As the organization becomes older, it may also become
more mechanistic in structure.
• Maturity: Once a firm has reached the maturity phase, it
tends to become less innovative, less interested in
expanding, and more interested in maintaining itself in a
stable, secure environment. The emphasis is on improving
efficiency and profitability
 Strategy of an organization

• How an organization is going to position itself in

the market in terms of its product is considered
its strategy. A company may decide to be always
the first on the market with the newest and best
product (differentiation strategy), or it may
decide that it will produce a product already on
the market more efficiently and more cost
effectively (cost‐leadership strategy).
• Each of these strategies requires a structure that
helps the organization reach its objectives. In
other words, the structure must fit the strategy.
 Environment of an organization

• The environment is the world in which the organization operates,

and includes conditions that influence the organization such as
economic, social‐cultural, legal‐political, technological, and natural
environment conditions.
• Environments are often described as either stable or dynamic.
– In a stable environment, the customers' desires are well understood
and probably will remain consistent for a relatively long time.
– In a dynamic environment, the customers' desires are continuously
changing—the opposite of a stable environment. This condition is
often thought of as turbulent.
– In addition, the technology that a company uses while in this
environment may need to be continuously improved and updated. An
example electronics industry. Technology changes create competitive
pressures for all electronics industries, because as technology
changes, so do the desires of consumers.
 technology used by organization.

• Technology affects organizational structure and productivity by improving

the efficiency of communication and resource flow.
• Two essential technological contingencies which affect the type of
organizational structure are the variety and analyzability of work
activities.
• Variety indicates the number of exceptions to standard procedure but can
occur in the team or work unit.
• Analyzability means to the extent that the transformation of input
resources to outputs could be decreased to a number of standardized
steps.
• Technology consists of the knowledge, machinery, work procedures, and
materials which transform the inputs to outputs.
END OF THE LECTURE