Fundamentals of Organizational Structure and Design
Organizational Design Fundamentals
Organizational Design is the process through which managers build, assess, and modify the formal organizational structure to facilitate the development of necessary tasks to achieve goals efficiently.
Design Structure: Differentiation
Differentiation consists of dividing the organization’s workload into basic tasks and assigning them to different people in different spaces, providing them with the necessary resources and responsibilities to perform them. This increases managers’ and employees’ productivity.
- Horizontal Differentiation: Division of workload into tasks within the same hierarchical level (departmentalization).
- Strengths: Efficiency, knowledge specialization, fast shipping and service, customer service, quality.
- Weaknesses: Only the CEO has a global perspective, no economies of scale, duplication of activities and resources.
- Vertical Differentiation: Division of workload according to hierarchical level. More levels imply higher vertical differentiation.
Design Structure: Integration
Integration is the process aimed at achieving efficiency between the different parts of the organization. Tasks are coordinated to achieve common objectives.
Structural Integration Mechanisms
- Standardization: Establishing models for input acquisition, guiding processes, and obtaining the desired output (e.g., instructions to elaborate a product).
- Formalization: Establishing rules and formal procedures for people to carry out tasks coordinately.
- Centralization: Concentrating responsibilities for decision-making.
- Scope of Control: The number of immediate subordinate job positions controlled or coordinated by a higher position. Wide scopes of control lead to flat structures, and narrow scopes lead to tall structures.
Non-Structural Integration Mechanisms
- Link Roles: Positions of horizontal union that link departments at the same level.
- Work Teams
- Information Systems
- Culture: Developing commonly accepted values, norms, and informal behavior patterns.
Job Design Principles
Job Design involves identifying tasks, skills, technical methods, tools, and materials necessary, as well as the people the employee will interact with in their position.
Key job design variables include:
- Horizontal specialization
- Vertical specialization
- Variety of knowledge and indoctrination
- Feedback or knowledge about job results
- Relationships among job positions
Operational Structure Types
The Operational Structure reflects the internal work of the basic organizational units and their connection with other units.
- Mechanistic Structure: An efficient but rigid structure with well-developed information systems. This structure allows addressing routine and repetitive tasks and is suitable for simple and stable environments (e.g., cost leadership strategies, mature markets).
- Organic Structure: A flexible structure suitable for complex and dynamic environments (e.g., product differentiation strategy, leading sectors).
Primary Structure Models
The Primary Structure refers to the disaggregation of the company into its main organizational units.
Simple Structure
No clear grouping or differentiation criterion is applied. It is highly informal, coordination occurs through direct supervision of tasks, has low formalization, and is centralized. Valid for small firms with niche or segmentation strategies.
Functional Structure
- Strengths: High degree of functional experience, improved communication within each functional area, economies of scale.
- Weaknesses: Difficulty coordinating between functional departments, decision-making at the top is difficult as many decisions involve multiple functional areas, inhibits innovation.
- Suitable for: SMEs with a single product or a few related products.
Divisional Structure
Each division has a high level of autonomy.
- Strengths: Focus on results, quicker adaptation to changes in customer needs or market conditions, autonomy of divisions (decentralized), efficiency and profit responsibility at the divisional level.
Hybrid Structure
- Strengths: Combines most advantages of functional design with output focus; the company obtains economies of scale and expert knowledge in functional areas while maintaining sensitivity to product, market, and regional differences.
- Weaknesses: Distance between headquarters and divisions, potential lack of shared vision between functions and divisions.
- Suitable for: Large, hybrid, multiproduct, and multimarket organizations operating in numerous dispersed geographical areas.
Matrix Structure
- Strengths: Flexible design that can respond to environmental changes, faster decision-making, suitable for non-routine and highly interdependent tasks needing close coordination.
- Weaknesses: Complexity in assigning people to projects, bidirectional authority flow may cause conflict.
- Suitable for: Large, hybrid, multiproduct, and multimarket organizations operating in numerous dispersed geographical areas (similar suitability to Hybrid).