Organization Theory n Design

Fundamentals of Organizational Structure

Ch-3

By Kaleem a. Barlas

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Learning Objectives • Organization Structure• Info-processing perspective on Structure• Organization Design alternatives• Functional, Divisional, Geographical Designs, • Matrix Structure• Horizontal Structure• Virtual Network Structure• Hybrid Structure• Application of Structural design• Summary

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Organizational Structure

Key Components A) Formal reporting structure, levels of hierarchy,

and span of control

B) Departmentalization

C) System of effective communication, co-ordination, n integration of efforts across departments

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Information Processing Persepective on Structure

Design must provide both vertical n horizontal information flow as necessary for achievement goals.

It must provide relevant n accurate info.

Conflict between horizontal n vertical info. flow

Vertical is for control n horizontal for coordination collaboration which reduces control

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Vertical linkages

Used for;• Coordination between top n bottom• Control over employees at each level• Lower level employees should carry out

activities as directed by top• Top level must be informed of progress • Hierarchical, rules, plans, n MIS

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Hierarchical Referral • Problems are referred up to the next level for

solution• Solution is passed by back accordingly

Rules n Plans• Provide standard info. For coordination• Plans also provide standard info. For employees • Eg. budget plans that make employees perform

activities independently

Linkages

Trust me he is a Great boss if you just follow rules n plans

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• V-MIS is an other strategy for increasing vertical info. Capacity, it includes;

A) Periodic reports

B) Written information

C) Computerized statements

D) Makes up n down comm. Very efficient

E) It provides tool to control frauds n saves from scandals n ethical disasters

F) Top managers use MIS as control tool

Vertical info. Systems

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Horizontal info. Linkages • Removes barriers between depart.• Creates unity of effort• Not drawn on org. charts• Are part of org. structure• Enables peoples to exchange info.• Plays important role in

Over all operations

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Information Systems

• Cross functional information systems• Exchange info. About problems, opportunities,

activities n decisions • Eg Siemens uses MIS for more half million

employees to provide better services to customers

• Orgs. Use HRIS, ERP n other packages for worldwide operations

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Direct contact

A higher level of horizontal linkage is between managers or employees affected by a problem, one way to promote direct contact is to create a liaison role, a liaison person is located in one department but has the responsibility for communicating n achieving coordination with other departments.

This linkage is also called focus person, who is an all rounder and can easily understand and communicate various problems faced by different departments for solution.

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Task Force

Liaison roles usually link two departments, for linking many departments a task force is required. It is a temporary committee composed of representatives from each organizational unit to be linked. Each member represents the interest of the department and carries back the information to the dept.

Task forces are an effective horizontal linkage device for temporary issues and are disbanded after the tasks are completed.

Organizations use task forces for every

Thing from organizing the co. picnic to

Solving complex problems

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Full time integrator A stronger horizontal linkage

device is to create full time position or dept. solely for the purpose of coordination, such as project manager, product manager, program or brand manager. He or she is located out side the department and has the responsibility for coordinating several departments.

Integrator needs excellent people

skills

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Teams

Project teams tend to be strongest horizontal linkage mechanism, teams are permanent task forces n are used in conjunction with full time integrator.

Cross functional teams become more effective for complex coordination

Special project teams may used when org. have large scale project, a major

Innovation or new product line.

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The over all design of org. structure indicates three things ;

• Required work activities• Reporting relationship• Departmental grouping

Organization Design Alternatives

Required work activities

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1. Are functions the departments perform

2. HRM recruits‘ Trains employee

3. Purchase dept. procures

4. Production dept, produces

5. Sales dept. sells

6. As orgs. Grow more function/dept, are added

7. ICT dept. are more impt.

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Reporting Relationships• Often called chain of command• Vertical/ horizontal • Unbroken line of authority• Who reports to whom• Shows how employees are to be grouped

intodepartments

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Departmental Grouping Functional groupingWho perform similar functions

Divisional groupingMarketing, manufacturing, sales

Multifocused grouping Matrix/hybrid

Horizontal groupingOrganized around core work process

Vertical groupingElectronically connected for sharing info.

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Functional, Division Geographical Designs

Functional grouping n divisional

grouping are the two most

common approaches to

structural design

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Functional Structure

Activities are grouped by common function

Strengths • Economies of scale • Knowledge/skills development• Accomplish functional goals • Is best with one or few products

Weaknesses• Slow response • Decisions pile on top• Poor coordination• Less innovation• Restricted view of org goals

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Functional Structure with Horizontal Linkage

Functional structure is difficult and expensive to maintain in today's world.

Organizations compensate for the vertical function by installing horizontal linkages through

ICT for sharing DATABASE

Information to efficiently control the operations

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Divisional structure

Product structure n strategic business units organized according to;

• Individual products • Services • Products groups• Major projects or programs• Divisions• Business • Profit centres

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Geographical Structure • Each region of a country may have distinct taste n needs• Each geographical unit needs includes all functions required to produce and

market products or services in the region• Multi-nationals create self contained units around the world like McDonald

Strengths and weaknesses of geographical structure are similar to the divisional organizational characteristics as discussed in the earlier slide

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Strengths n Weaknesses

Strength • Suited to fast changing environment • Leads to customer satisfaction• Involves high coordination • Best in large orgs. With several products • Desterilizes decision making

Weaknesses • Eliminates economies of scale • Leads to poor coordination• Makes integration n standardization across product line difficult

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Matrix Structure • Matrix is a strong form of horizontal linkage • Horizontal n vertical forms are implemented simultaneously • Product managers and functional managers have equal authority• Employees report to both of them • It is similar to use of full time integrator • Like sales manager and marketing manager report to same production

manager •

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Matrix Structure Conditions for the Matrix Condition 1 pressure exists to share scarce resources across product

line. For example the org is not large enough to assign engineers full time to each product line, so engineers are assigned part time to several products or projects

Condition 2 environmental pressure exists for two or more critical outputs, such as for in-depth technical knowledge (functional structure) n frequent new product (divisional structure) this dual pressure means balance needs to be maintained through dual authority.

Condition 3 the environmental domain of the organization is both complex n uncertain . Frequent external changes n high interdependence between departments needs both horizontal n vertical direction

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Matrix Structure Strength • Coordination for dual demands• Suited for complex decision making n frequent changes • Flexible sharing of human resources across products• Functional product skill development• Best for medium size orgs. With multiple products

Weaknesses• Reporting to 2 bosses causes confusion• Requires good interpersonal skills n extensive training• Time consuming for meeting n conflict resolving

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Horizontal Structure • Organizes employees around core processes• Its consequent of re-engineering • Means converting vertical org. structure into horizontal• For example in the past in case of causality insurance co. if an accident took place

the procedure would be ‘• Report accident to agent, to customer services, to claims manager, to appraiser, who

will inspect the vehicle, it will take weeks• Now through horizontal structure all these functions are performed simultaneously by

different teams organized over such functions• It provides easy access to each other team • Work is completed in a day or two rather than weeks• Leads to customer satisfaction

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Horizontal Structure Characteristics • Structure is created around core functions• Self-directed teams not individuals are basis of design • Process owners have responsibility• Teams are given skills, tools and authority to make decisions• Teams autonomy of work• Creates culture of openness, trust, collaboration, focused on continuous

improvement • Customer drive the horizontal corporations

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Virtual Network Structure

• Extends the concept of horizontal beyond the boundaries of Orgs. • Like outsourcing various functions like manufacturing etc. • This trend is affecting orgs. structure significantly• Also called modular structure for example Motorola

How structure works The VNO may be viewed as central hub, surrounded by network of outside

specialists rather than being housed under one roof, services are outsourced like

• Accounting, design, manufacturing, marketing, n distribution• Hub maintains control n decision making

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Virtual Network StructureStrengths• Enables small orgs. To obtain talent n resource worldwide• Saves huge investment by outsourcing• Enables orgs. To be flexible n responsive• Reduces administrative overhead costs

Weaknesses • Managers do not have hands on control over many activities • Requires time to develop relationship with contractors• Creates dependency • Employees feel threatened that they can be replaced by contractor

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Hybrid Structure • As a practical matter; such structure do not exist in pure form• Means combining characteristic of;

A) Functional

B) Divisional

C) Geographical

D) Horizontal

E) Network

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Application of Structural Design Each type of structure is applied in different situations n meets different needs.

In describing the various structures we touched briefly on conditions such as environmental stability or change n organizational size that are related to structure. Each form of structure ; functional, divisional, matrix, horizontal, network, hybrid, represent a tool that can help managers make an organization more effective depending on the demand of its situation.

Structural Alignment Symptoms of Structural Deficiency

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Assignment 2

What is Structural Alignment? ExplainDue date 5th week