Chapter 8:

Organisational structure and design

Learning Outcomes
After studying this chapter, you should be able to:
• Define the managerial task of organising
• Define organisational structure
• Describe the main elements of organisational structure and how they are applied in
organisational design
• State the basic principles of coordination
• Describe authority and its use in an organisation
• Explain the factors that affect the centralisation or decentralisation of decision-making
• Understand organisational design and the use of an organisational chart
• Discuss the most common types of departmentalisation and choose the most suitable form for
an organisation
• Describe three methods of integration
• Analyse and manage organisational design.
Organisational structure
• Organisational structure is the formal arrangement of jobs within an organisation.
• Organisational structure determines how an organisation is run, which directly affects
its efficiency.
• Most organisations are built around some formal type of organisational structure,
while others develop flexible structure elements over time.
• Organisational structure helps employees work together effectively by:
• Assigning human and other resources to tasks
• Clarifying employees’ responsibilities and how their efforts should mesh through job
descriptions, organisational charts, and lines of authority
• Letting employees know what is expected of them through rules, operating procedures, and
performance standards
• Establishing procedures for collecting and evaluating information to help managers make
decisions and solve problems.
Elements of organisational structure
Specialisation
• The process of identifying specific tasks and assigning them to individuals or teams who
have been trained to do them.
• The essence of specialisation is that an entire job is not done by an individual, but is
broken down into tasks, and each task is completed by a different person.

Standardisation
• Refers to the uniform and consistent procedures that employees follow in doing their jobs

Coordination
• Comprises the formal and informal procedures and controls that synchronise and
integrate the activities and responsibilities of individuals, teams, and departments in an
organisation in order to attain set objectives.
The three basic principles of coordination are:
1. The unity-of-command principle
• states that an employee should have only one superior to whom he or she is
directly responsible
• managers should minimise any confusion over who makes decisions and who
implements them because uncertainty in this area can lead to serious
productivity and morale problems
2. The scalar principle
• clear and unbroken chain of command should link every person in the
organisation with someone at a level higher, all the way to the top of the
organisation
3. The span-of-control principle
• the number of people reporting directly to any manager should be limited
because one manager cannot supervise many subordinates effectively
Authority
• Authority is basically the right to decide and act
• Organisations often combine two approaches by centralising certain
functions and decentralising others

Responsibility
• The obligation of an employee to perform assigned tasks

Accountability
• The belief that employees would accept credit or blame for the results
of their work.
• Accountability is the point at which authority and responsibility meet
and is essential for effective performance.
Delegation of authority
• The process by which managers assign to subordinates the right to make decisions and
act in certain situations.

The following six principles are useful for improving delegation of

authority:
• Establish goals and standards in conjunction with subordinates
• Define authority and responsibility for delegated tasks to ensure accountability for
results
• Select appropriate candidates and involve these subordinates in decision-making
• Require that subordinates should complete work delegated
• Provide training as and when the need arises to build strengths and overcome
deficiencies
• Establish adequate controls to measure the performance of subordinates
Line and staff authority
• Line authority belongs to managers who have the right to
direct and control the activities of subordinates who
perform tasks essential to achieving organisational goals.
• Staff authority belongs to those who support line
functions through advice, recommendations, research,
technical expertise, and specialised services.
• Conflict can develop between the line and staff managers
when the latter overstep their authority by not adhering
to an advisory function only
Figure 8.2 Line and staff authority (p.232)
Centralisation and decentralisation
• Highly centralized → top managers make all the decisions, and lower-
level managers and employees simply carry out their directives
• Centralisation of authority is the concentration of decision-making at the top
of an organisation or department, with little delegation to middle and lower
managers
• Decentralised → decision-making is pushed down to the managers
who are closest to the action
• Decentralisation is an approach that requires managers to decide what and
when to delegate, to select and train personnel carefully, and to formulate
adequate controls.
Advantages of decentralisation
• It frees top managers to develop organisational plans and strategies while
lower-level managers and employees handle routine, day-to-day decisions.
• Managers can exercise more autonomy, which satisfies the desire to participate in
problem solving.
• This freedom leads to managerial creativity and ingenuity, contributing to the flexibility
and profitability of the organisation.
• It develops lower-level managers’ self-management competencies.
• Because subordinates are often closer to the action than higher-level managers,
they may have a better grasp of all the facts. This knowledge may enable them
to make sound decisions quickly. Valuable time can be lost when a subordinate
must check everything with the boss.
• Decentralisation fosters a healthy, achievement-orientated atmosphere among
employees.
Factors affecting centralisation and
decentralisation
Cost attached to the decision
Uniformity of policy
Organisational culture
Availability of managers
Control mechanisms
Environmental influences
Organisational design
• Organisational design is the process of aligning the structure of an
organisation with its objectives, with the ultimate aim of improving
efficiency and effectiveness.
• The choice of organisational design makes a difference because not all
structures support a particular strategy equally well.
• The structure-follows-strategy theory is based on the idea that an
organisation’s design, like a plan, should be a means to an end, not an
end in itself.
• The effective manager also constantly finetunes the organisation’s
design considering changes in the environment and technology
The organisational chart
• The organisational chart provides a pictorial representation of the
overall shape and structural framework of an organisation or group of
organisations.
• An organisational chart provides four important pieces of information
about an organisation’s structure:
1. Tasks
2. Subdivisions
3. Levels of management
4. Lines of authority
 Departmentalisation involves
subdividing work into tasks and
assigning these tasks to
specialised groups within an
organisation. It also includes
devising standards for the
performance of tasks.
Functional departmentalisation
Involves creating departments by grouping employees according to their areas of
expertise and the resources they draw on to perform a common set of tasks.
Table 8.1 Advantages and disadvantages of functional departmentalisation (p. 240)
Product or service departmentalisation
Product departmentalisation thus divides the organisation into self-contained units,
each with a different focus

Table 8.2 Advantages and disadvantages of product or service departmentalisation (p. 241)
Geographic departmentalisation
Geographic departmentalisation groups all functions for a geographic area at one
location under one manager, rather than dividing functions among different
managers or grouping all tasks in one central office.

Table 8.3 Advantages and disadvantages of geographic departmentalisation (p. 243)

Customer departmentalisation
Customer departmentalisation involves organising around the type of customer
served.

Table 8.4 Advantages and disadvantages of customer departmentalisation (p. 244)

Network departmentalisation
With network departmentalisation, the organisation subcontracts some or all its
operating functions to other organisations, and coordinates their activities
through managers and other personnel at its headquarters or by a virtual
organisation
Table 8.5 Advantages and disadvantages of network departmentalisation (p. 245)
Matrix departmentalisation
A matrix structure integrates activities and keeps costs down by eliminating
duplication of key functional activities for each product line.
Table 8.6 Advantages and disadvantages of matrix departmentalisation (p. 247)
Which type of departmentalisation is the
best?
• The choice depends on the situation
• Some organisations even use all types of departmentalisation
• Large organisations often combine most or all of these forms of
departmentalisation
• Each of these structures has advantages and disadvantages that
strategists must consider when choosing an organisational structure.
Organisational integration
To achieve organisational
goals, employees, projects,
and tasks must be properly
integrated.
Without integration,
employees’ efforts are likely
to result in delay,
frustration, and waste.

Managers can use a variety

of methods to integrate the
activities of their
employees to achieve the
goals of their organisation.
Job design
• Job specialisation
• The narrowing down of activities to simple, repetitive routines.
• Job expansion
• The process of making a job less specialised
• Job rotation involves employees performing different jobs for set periods.
• Job enlargement increases a job’s scope in order to break the monotony of a limited
routine.
• Job enrichment is implemented by adding depth to the job.
Integration through systems
Table 8.7: Differences between mechanistic systems and organic systems
Integration through technology
• Technological interdependence is the degree of coordination required between
individuals and departments to transform information and raw materials into
finished products.
• There are three types of technological interdependence:
1. Pooled technological interdependence
• involves little sharing of information or resources within a department or among
departments.
2. Sequential technological interdependence
• serialises the flow of information and resources between individuals within the same
department or among departments.
3. Reciprocal technological interdependence
• encourages every individual and department to work with every other individual and
department, ensuring that information and resources flow back and forth freely until the
task is completed.
Service technologies
• The use of technology is obvious in a manufacturing assembly line.
Technology’s role in the design of service organisations is often less
obvious.
• Two characteristics distinguish service organisations from
manufacturing organisations:
1. Intangibility:
• The output of a service firm is intangible and thus cannot be stored.
2. Closeness of the customer:
• The customer and client are involved simultaneously in the co-production of
services.
Organisational design and service technology
Table 8.8 Matching design features and service technologies (p. 255)
Figure 8.13 Service technology (p. 257) Source: Larsson & Bowen (1989)
 Navigating the shift to an automated
environment
• The mere scale of today’s global, matrixed organisations have made the exercise incredibly
complex.

Figure 8.14 Spectrum of certainty to uncertainty (p. 257)

Source: Brynjolfsson & McAfee (2014)
From an organisational design perspective, it is advisable to consider three key
principles during organisational design:
Openness: Learning:
• Make it as easy as possible • Assume that whatever
for people to access design you devise is
information they need to imperfect and make it easy
be successful. This means to quickly sense what is
that as organisational working and what needs
design choices are made, to change. Lean and agile
they need to be are not only for product
documented and shared in and software
open, digital cloud-hosted development. The same
formats, cyclical approach of
prototyping, testing,
learning, and iterating can
and should be applied to
organisational design.
Network:
• Make it easy for people to
contribute to your
organisational design,
regardless of who they are
or their position in the
organisation. No group of
‘experts’ has ever devised
an organisational design
that adequately predicted
and accounted for all of
the possible variations and
unique needs of the
people closest to
customers and closest to
the work, especially at
scale.
Analysing and managing organisational
design
Figure 8.15 The McKinsey 7S Model (p. 259)
Source: Waterman, Peters & Phillips (1980)
The most common uses for the McKinsey 7S model are:

To facilitate organisational change

To help implement a new strategy

To identify how each element may change in future

To facilitate the merger of organisations.

Step 1 Step 2 Step 3 Step 4 Step 5
• Identify the • Determine the • Decide where • Make the • Continuously
areas that are optimal and what necessary review the 7Ss
not effectively organisational changes should changes
aligned design be made
Chapter Summary
• This chapter focused on
organisational structure,
organisational design, and
the subsequent integration
through systems and
technology.
• To achieve organisational
goals, people, projects, and
tasks should be coordinated.
• Authority was explained, as •
well as the responsibility and
accountability associated
with it.
• Centralisation and
decentralisation of authority,
that is, where decisions are •
to be made, were discussed, goals, employees, projects,
highlighting the advantages and tasks must be properly
as well as the factors integrated
affecting centralisation and • An organisation’s technology
decentralisation. has a significant impact on
• When managers develop or how managers coordinate
change an organisation’s the organisation’s various
structure, they are engaged activities because different
in organisational design. types of technology generate
The use of an organisational various types of internal
chart to visualise the interdependence.
interrelationships of the • We concluded the chapter
basic elements of with a discussion on how to
organisational structure was analyse and manage
identified. organisational design using
To achieve organisational the McKinsey 7S Model.