ORGANIZATIONAL DESIGN

 Organization structure :

 Defination:
Organizational structure is the formal system of task and authority relationship that
control how people coordinate their actions and use resources to achieve an
organization’s goals.
Organizational structure determines how the roles, power and responsibilities are
assigned, controlled, and coordinated, and how information flows between the different
levels of management.

 Basic Types of Organizational Structure:

Formal Structure

Formal structure is primarily concerned with the relationship between authority and subordinate.
A typical organization chart illustrates the formal structure at work in a company or part of a
company. The hierarchical organization begins at the top with the most senior leader and then
cascades down to the subordinate managers and then subordinate employees below those
managers. There are job titles, financial obligations and clear lines of authority for each box on
the organization chart.
 Informal Structure-

Informal structures typically develop around social or project groups. Because informal
structures are based on camaraderie there is often a more immediate response from individuals.
This saves people time and effort, thus making it easier to work with in informal structures.
People also rely on informal structure if the formal structure has stopped being effective, which
often happens as the company grows or changes but doesn’t reevaluate its hierarchy or work
groups.

ORGANIZATION STRUCTURE

CEO

Vice President Vice President Director

Finance Manufacturing Human Resources

Chief Budget Plant Maintenance Training Benefits

Accountant Analyst Superintendent Superintendent Specialist Administrator

The Key Components of Organization Structure:

• Organization structure depicts formal reporting relationships, the no. of levels in the
hierarchy and the span of control of managers & supervisors.

• Organization structure identifies the grouping together of individuals into departments

and of departments into the total organization.

• Organization structure includes the design of systems to ensure effective communication,

coordination and integration of work across departments.
Information Processing Perspective:

Vertical Information Linkages:

Organization design should facilitate the communication among employees and departments that is
necessary to accomplish the organizations overall task. Linkage is defined as the extent of communication and
coordination among organizational elements. Vertical linkages are used to coordinate activities between the
top and bottom of an organization. Employees at lower level should carry out activities consistent with top-
level goals, and top executives must be informed of activities and accomplishments at the lower levels.
Organizations may use any of a variety of structural devices to achieve vertical linkage, including hierarchical
referral, rules and procedures, plans and schedules, positions or levels added to the hierarchy, and formal
management information systems.

Organization structural devices to achieve vertical linkages are—

Hierarchical Referral

Rules & Plans

Vertical Information Systems

Hierarchical Referral : The hierarchy of chain of command is illustrated by the vertical lines in
the organization chart.

Rules and Plans- Rules provide a standard information enabling employees to coordinate
without actually communicating about every job. Generally Plan refers to Budget plan.

Vertical Information Systems- This includes the periodic reports, written information, and
computer based communications.
Organizational structure Organizational design

 Organizational structure is the skeleton of an  Design in an organization is much the same

organization. It is an expression of who is as for buildings, clothing and vehicles -- it's a
performing the various functions and tasks of plan.
a company and how these people relate to
 When a company's leaders develop plans for
one another.
how their company should function or would
 Organizational structure encompasses a list perform better, they undertake the business
of the various job positions, titles and duties of organizational design.
of a business, and the reporting structure or
 Good design takes inventory of all the tasks,
chain of command among them.
functions and goals of a business, and then
 Structure is a statement of the current state of develops groupings and orderings of job
affairs, not the ideals, intentions or positions, departments and individuals to best
betterment of an organizations. and most efficiently achieve those ends.
Organizational structure does not include
"shoulds."

Key Elements of Organization Structure

• Work specialization

• Departmentalization

• Chain of command

• Span of control

• Centralization and decentralization

• Formalization

• Authority And Responsibility

• Work specialization: It is defined as the amount of task are divided into separate parts in
an organization. The main aim of the organizational design is distributing the several
tasks into various parts and every task is completed by different individual effectively.

• Departmentalization: After work are divided up through work specialization, they must
be collected so that common tasks can be coordinated. The basis on which jobs are
grouped together is called the departmentalization.

• Chain of Command: The chain of command is the constant line of authority that extends
from upper organizational levels to the lowest level and explains who reports to whom.

• Span of Control: Span of control is important to a large degree because it defines the
number of levels and managers are in an organization .it also helps in determining the
numbers of employee's managed by a manager efficiently and effectively.

• CENTRALIZATION AND DECENTRALIZATION:

Centralization refers to the degree to which decision making is concentrated at a single

point in the organization, level managers are not capable or experienced in decision making
as upper level managers.

Decentralization means power or authority to take decision is not in limited hands

.employee's can help the organization in solving the problems by giving their ideas, more
people provide input into decisions. Decentralized departments make it easier to address
customer concern as well.

• Formalization: It refers to the unit to which jobs within the organization are standardized
. In organizations that are highly formalized, there are explicit job descriptions, lots of
organizational rules, and clearly defined procedures covering work processes.

• Authority and Responsibility

Authority refers to the rights essential in a managerial position to give orders and expect
them to be followed.

Responsibility is Obligation to perform and it goes hand-in-hand with authority.

 Line Authority:
• Line authority refers to the authority that a manager has over other employees. It extends
from the top of the organization to the bottom.

• It is the Level of authority that entitles manager to direct the work of other employee.

• Contributes directly to the achievement of organizational objectives.

• Line Manager directs the work of employees and makes certain decisions without
concerning anyone.

• An Example of Line manager is a marketing Executive.

• Top Management has a complete control.

Concept of power:
In social science and politics, power is the ability to influence or outright control the behavior of
people. The term "authority" is often used for power perceived as legitimate by the social
structure. Power can be seen as evil or unjust, but the exercise of power is accepted
as endemic to humans as social beings.
Following are the five basic principles of power:-

1. Legitimate power:
Legitimate power is a power you derive from your formal position or office held in your formal
position or office held in your organization’s hierarchy of authority. For Example, the leader of
an organization had certain powers because of the position they holds within the organization.

2. Reward Power:
Reward power refers to offering monetary and non-monetary rewards by the leader to his
followers. Leader has a formal and informal control over organizational resources, opportunities
and decisions. Rewards include salary increase, promotions, transfers providing fringe benefits
and perquisites.

3. Coercive Power:
Coercive power is the ability or the capacity of the leader to coerce or punish his followers for
carrying out the assigned tasks. The source of coercive power include both personal and position.
Leader’s personally coercive powers which are derive from the superior power.

4. Expert Power:
Expert power is derived from the expertise, knowledge, information, skills, abilities that the
leader possesses over the jobs of his subordinates. The leader should acquire knowledge,
information and skills in carrying out their duties. Thus the leader can influence the subordinates
very much positively by possessing the expert knowledge, skills and abilities.

5. Referent Power:
Leader gets the referent power to a greatest extent from his personal expertise, characteristics
and knowledge rather than from his formal organizational position. The leader should be
resourceful in terms of knowledge and skill. He should be capable of rewarding the followers
properly.
The Degree of Centralization:

• The centralization refers to how much decision-making authority is pushed down to

lower levels in the organization.

• It is not an either-or concept, but is a matter of degree.

• Traditional organizations were structured in a pyramid, with power and authority

centralized at the top.

• Today’s organizations are using a blend of decentralization with centralization.

Types of Organizational Structure:-

Mechanistic Structure:-

• Tasks are highly specialized

• Tasks tend to remain rigidly defined unless changed by top management

• Specific roles are prescribed for each employee

• Hierarchical structure of control, authority, and communication

• Communication and decision making are primarily vertical, top-down

• Communication emphasizes directions and decisions issued by superiors

Organic Structure:-

• Tasks tend to be interdependent

• Tasks are continually adjusted and redefined through interaction and as situations change

• Generalized roles are accepted

• Network structure of control, authority, and communication

• Communication and decision making are both vertical and horizontal depending on
where needed information and expertise reside

• Communication emphasizes the forms of mutual influence and advice among all levels

Matrix Structure:-
 Matrix structure is a strong form of horizontal linkage. The unique characteristic of the
matrix structure is that both product division and functional structure (horizontal &
vertical) are implemented simultaneously. The product managers and functional
managers have equal authority within the organization, and employees report to both of
them.
 Matrix organizational structure is appropriate when:
1. Management attention is focused on two or more key issues.
2. Large amounts of diverse information are processed.
3. Problem solving is complex.
4. Economics of scale require the sharing of human resource expertise to achieve high
performance.
 Advantages:
o Achieves coordination necessary to meet dual demands from customers
o Flexible sharing of human resources across products
o Suited to complex decisions and frequent changes in unstable environment
o Provides opportunity for both functional and product skill development
o Best in medium-sized organizations with multiple products
 Disadvantages:

o Causes participants to experience dual authority, which can be frustrating and

confusing.

o Means participants need good interpersonal skills and extensive training.

o Is time consuming; involves frequent meetings and conflict resolution sessions.

o Will not work unless participants understand it and adopt collegial rather than
vertical-type relationships.

o Requires great effort to maintain power balance.