Sub: Principles of Management

CHAPTER 7
ORGANIZATIONAL DESIGN
AND STRUCTURE
Lecturer: Mr. Ali Mohamed Alim (Ali yare)

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 Chapter 7
ORGANIZATIONAL DESIGN
AND STRUCTURE

© HOR 2021, Ali Mohamed Alim

 Chapter outline

Organizational Design Defined

Bureaucracy Basics
Factors Affecting Organizational Design
Five Approaches to Organizational Design

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 Organizational Design Defined

An organization’s structure is defined by its

configuration and interrelationships of
positions and departments.
Organizational design is the creation or
change of an organization’s structure. The
organizational design of a company reflects
its efforts to respond to changes, integrate
new elements, ensure collaboration, and
allow flexibility.

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 Bureaucracy Basics

In the past, organizations were commonly

structured as bureaucracies.
A bureaucracy is a form of organization based
on logic, order, and the legitimate use of formal
authority. Bureaucracies are meant to be orderly,
fair, and highly efficient. Their features include a
clear-cut division of labor, strict hierarchy of
authority, formal rules and procedures, and
promotion based on competency.

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 Bureaucracy Basics

As a result, two distinct frameworks, the

mechanistic and organic structures, were
identified.
The mechanistic structure
The mechanistic structure, sometimes
used synonymously with bureaucratic
structure, is a management system based on
a formal framework of authority that is
carefully outlined and precisely (exactly)
followed.

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 Bureaucracy Basics

An organization that uses a mechanistic

structure is likely to have the following
characteristics:
1. Clearly specified tasks
2. Precise definitions of the rights and
obligations of members
3. Clearly defined line and staff positions with
formal relationships between the two
4. Tendency toward formal communication
throughout the organizational structure

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 Bureaucracy Basics

The organic structure

The organic structure tends to work better
in dynamic environments where managers
need to react quickly to change. An organic
structure is a management system
founded on cooperation and knowledge-
based authority. It is much less formal than
a mechanistic organization, and much more
flexible.

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 Bureaucracy Basics

Organic structures are characterized by

 Roles that are not highly defined.
 Tasks that are continually redefined.
 Little reliance on formal authority.
 Decentralized control.
 Fast decision making.
 Informal patterns of both delegation
and communication.

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 Factors Affecting Organizational Design

Although many things can affect the

choice of an appropriate structure for an
organization, the following five factors
are the most common: size, life cycle,
strategy, environment, and
technology. The following sections
examine these roles in organizational
design.

© HOR 2021, Ali Mohamed Alim

 Factors Affecting Organizational Design

1. Organizational size
The larger an organization becomes, the more
complicated its structure. When an organization is
small — such as a single retail store, a two-person
consulting firm, or a restaurant — its structure can
be simple.
In reality, if the organization is very small, it may not
even have a formal structure. Instead of following an
organizational chart or specified job functions,
individuals simply perform tasks based on their likes,
dislikes, ability, and/or need.

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 Factors Affecting Organizational Design

2. Organization life cycle

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.

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Factors Affecting Organizational Design
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
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.
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.

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 Factors Affecting Organizational Design

3. Organizational Strategy
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.

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 Factors Affecting Organizational Design

4. Organizational Environment
5. 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.

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 Factors Affecting Organizational Design

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 (confused).

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 Factors Affecting Organizational Design

5. Organizational Technology
Advances in technology are the most frequent cause
of change in organizations since they generally result
in greater efficiency and lower costs for the firm.
Technology is the way tasks are accomplished using
tools, equipment, techniques, and human know-how.

© HOR 2021, Ali Mohamed Alim

 Five Approaches to Organizational Design

Managers must make choices about how to group

people together to perform their work. Five
common approaches — functional, divisional,
matrix, team, and networking—help managers
determine departmental groupings (grouping of
positions into departments).
The five structures are basic organizational
structures, which are then adapted to an
organization’s needs. All five approaches, outlined
in the following sections,

© HOR 2021, Ali Mohamed Alim

 Five Approaches to Organizational Design

Functional structure
The functional structure groups positions into
work units based on similar activities, skills,
expertise, and resources (see Figure 7-1 for a
functional organizational chart). Production,
marketing, finance, and human resources are
common groupings within a functional structure.
As the simplest approach, a functional structure
features well-defined channels of communication
and authority/responsibility relationships.

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Figure 7.1

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Continue…
But the functional structure
has many downsides that
may make it inappropriate
for some organizations.
Here are a few examples:

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Continue…
 The functional structure can result in
narrowed perspectives because of the
separateness of different department work
groups. Managers may have a hard time
relating to marketing, for example, which
is often in an entirely different grouping.
As a result, anticipating or reacting to
changing consumer needs may be
difficult. In addition, reduced cooperation
and communication may occur.

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Continue…
 Decisions and communication are slow to take
place because of the many layers of hierarchy.
Authority is more centralized.
 The functional structure gives managers

experience in only one field—their own.

Managers do not have the opportunity to see
how all the firm’s departments work together
and understand their interrelationships and
interdependence. In the long run, this
specialization results in executives with narrow
backgrounds and little training handling top
management duties.

© HOR 2021, Ali Mohamed Alim

 Five Approaches to Organizational Design

Divisional structure
Because managers in large companies may have
difficulty keeping track of all their company’s products
and activities, specialized departments may develop.
These departments are divided according to their
organizational outputs. Examples include departments
created to distinguish among production, customer
service, and geographical categories. This grouping of
departments is called divisional structure
These departments allow managers to better focus
their resources and results.
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Figure 7.2

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 Five Approaches to Organizational Design

Matrix structure
The matrix structure combines functional
specialization with the focus of divisional structure
(see Figure 7-3). This structure uses permanent
cross-functional teams to integrate functional
expertise with a divisional focus. Employees in a
matrix structure belong to at least two formal
groups at the same time—a functional group and a
product, program, or project team. They also
report to two bosses—one within the functional
group and the other within the team.

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 Five Approaches to Organizational Design

This structure not only increases employee

motivation, but it also allows technical and general
management training across functional areas as
well. Potential advantages include
■ Better cooperation and problem solving.
■ Increased flexibility.
■ Better customer service.
■ Better performance accountability.
■ Improved strategic management.

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Figure 7. 3

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 Five Approaches to Organizational Design

Team structure
Team structure organizes separate functions into a
group based on one overall objective (see Figure
7-4). These cross-functional teams are
composed of members from different departments
who work together as needed to solve problems
and explore opportunities. The intent is to break
down functional barriers among departments and
create a more effective relationship for solving
ongoing problems.

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Figure 7.4

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 Five Approaches to Organizational Design

The team structure has many potential

advantages, including the following:
■ Intradepartmental barriers break down.
■ Decision-making and response times speed up.
■ Employees are motivated.
■ Levels of managers are eliminated.
■ Administrative costs are lowered.
The disadvantages include:
■ Conflicting loyalties among team members.
■ Time-management issues.
■ Increased time spent in meetings.
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 Five Approaches to Organizational Design

Network structure
This approach provides flexibility and reduces
overhead because the size of staff and operations
can be reduced. On the other hand, the network
structure may result in unpredictability of supply
and lack of control because managers are relying
on contractual workers to perform important work.

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Figure 7.5

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THE END

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Questions and Comments

© HOR 2021, Ali Mohamed Alim