Organizational Structure and Management: A Comprehensive Approach

Posted on Dec 26, 2024 in Other subjects

Organizational Structure and Management

Structure: A system outlining how activities are organized and directed to achieve goals. These activities generally include the rules to be followed and the roles and responsibilities of those within the company.

Organizational Design Tools

When designing the structure of any organization, we must be clear about the following:

• The structure of the company has to serve to achieve the real objectives that have been set.
• What is to be done? This refers to the functions that are essential in the company.
• How to do it? This refers to the processes necessary for its activity.
• Who has to do what? This refers to the people who are directly involved in the operation of the company.

Division of Labor: This consists of breaking a task into different parts so that each individual is responsible for and performs a limited set of parts and not the whole task.

Horizontal Specialization

• It occurs when the worker performs one or a few specialized tasks that are constantly repeated.
• It is the predominant form of division of labor. This way of dividing labor favors productivity gains based on repetition.
• It increases the repetition of the work, thus facilitating its standardization and allowing the results to be produced with greater uniformity and efficiency.
• It facilitates learning by dividing the work into a very small number of tasks.
• It allows individuals to adjust to tasks based on their physical conditions, skills, abilities, or knowledge.

Vertical Specialization

Vertical job specialization occurs when the worker is limited to performing his or her tasks without being able to control practically any aspect related to those tasks. It separates the performance of the work and the administration/control of it.

Problems Arising from Specialization

1. Communication Problems: Workers can isolate themselves in their own work, efficiently performing their tasks without concern for what is happening beyond the job. This inhibits any kind of communication that is crucial inside the company.
2. Coordination Problems: Where jobs are highly specialized, control over work and its coordination is mainly through standardization. This means that any event that is not foreseen cannot be dealt with because it is not specified in any job.
3. Problems Arising from High Specialization: High horizontal specialization creates balance problems in the organization when the volume of activity is not so great and there are so many specialized positions. The vertical specialization of the job separates the performance of the work and the administration of the job.
4. Alienation from Work: Excessive specialization in both dimensions creates problems, especially emotional problems, of the worker towards the job and affects his or her motivation to do it well. Highly specialized jobs strip the work of any intellectual component and even the meaning of work itself, causing individuals to perform tasks like a machine.

Solutions to Specialization Problems

1. Job Enlargement: It combines several job functions on the horizontal level of the organization, thus giving the staff more operations to perform. It attacks dissatisfaction by increasing the activities that they have to carry out.
2. Job Enrichment: It tries to deal with dissatisfaction by increasing the depth of the work. The activities of one segment of the organization are combined into one job so that employees feel more autonomy. Everyone is given the possibility to set their own pace of work, to correct mistakes, and to choose the best system of performing a particular task.

Organization Types

Departmentalization: The creation of operational work units in which people, resources, and functions are integrated. Basic characteristics:

• It has common goals.
• A common effective direction.
• Stability over time.

Departments can be grouped together, creating the company’s structure:

• By function
• By product
• Matrix

Control Limit: The maximum number of direct subordinates that a boss can manage efficiently. If this number is exceeded, the manager has difficulties in planning and controlling the work of his or her subordinates. The control limit may depend on:

• Boss’s ability
• Capacity of subordinates
• Complexity of the tasks
• Diversity of tasks
• Communication possibilities

Barriers to Effective Delegation

1. Waiver of Delegation:
   • Managers are risk-averse and unwilling to take responsibility for tasks performed by others.
   • Fear of losing power and image in the eyes of superiors if the subordinate performs very well.
   • Lack of capacity of managers due to disorganization and lack of flexibility.

Functional Structure

It is based on creating operational work units from people who perform the same function, and who perform functions for which very similar skills or the same type of tools are needed.

Commonly accepted basic functions:

• Production
• Sales
• Finance
• Marketing

General characteristics:

1. It is the most common and easiest form of organization; it refers to what companies do.
2. Terminology tends to vary between companies in different sectors: industrial, transport, hospitality, etc.
3. Often the core activities differ in importance.

Advantages of Functional Structure:

1. It is a logical reflection of the company’s functions.
2. It has been tested over time.
3. It follows the principle of specialization of occupations.
4. Improves internal efficiency by grouping people with similar skills.
5. It provides the means to exercise clear control from management.

Disadvantages of Functional Structure:

1. The responsibility for the results lies only at the top.
2. It narrows the viewpoints of key staff, focusing on their own area and leading to biased analysis.
3. It makes coordination between the different functional areas difficult.
4. It can generate more loyalty to the function than to the company itself, hindering its growth.
5. When work is developed by functions, the sense of integrality can be lost, and it can be difficult for workers to recognize their contribution to the final result.

Example: Shoe Company

Product/Project or Market Structure

It brings together in a work unit all those involved in the generation and sale of a product. That is to say, the different functions that have to be executed to make a product are not divided, but on the contrary, they are grouped in an organizational unit. Main criteria:

1. Division by Product/Project or Market: Used when a product requires a different technology or marketing methods than the others.
2. Division by Geographical Area: It is used when the business must be located as close as possible to its sources of raw materials or labor or, above all, to its market or customers.
3. Division by Customer: Used when a company’s various products have highly differentiated target audiences.

Advantages:

1. Facilitates coordination and work performance.
2. Improves the quality and speed of decision-making.
3. Responsibility is very clear, as all activities are grouped under a single head located very close to the area of action.

Disadvantages:

1. Difficulties for the development of certain functions in the organization because they are distributed among the different product departments.
2. Possibility that departmental interests are put before the needs or objectives of the organization as a whole.
3. It involves an increase in administrative and internal management costs, which are multiplied among the different areas or divisions.

Example: Beauty Company

Matrix Structure

It tries to combine the advantages of both departmentalization by function and by product while at the same time trying to avoid its limitations.

In practice, it is the combination of functional and product or market forms to departmentalize the same organizational structure, leading employees to work under dual authority. It is advisable to use it when the company has more than one project going on, so it gives enough flexibility.

Parts of the Organization

Strategic Summit: Located at the top of the pyramid, this group is formed by the people who are in charge of carrying out the management tasks of the organization. In addition, they are responsible for coordinating the other groups in the organization.

Middle Line: This is made up of the group of workers who occupy middle management positions in the company. They are in charge of organizing, coordinating, and supervising the work of the workers. They act as a link between the management and the base workers.

Operational Core: Located at the base of the organization, it comprises the set of workers who directly assume the production of goods or services.

Support Staff: It would be integrated by the group of people who are specialized in certain tasks that the company needs, without participating in its hierarchical organization. For example, legal advice, public relations, protocol.

Technostructure: It would be in charge of carrying out the standardization processes in the company and would be made up of technicians specialized in certain parts of the organization’s activity. For example, marketing, controller, process engineer, training.

Forms of Generic Organizations

Simple Structure

Basic organizational design structure: strategic summit and operative nucleus. Low departmentalization, little work specialization, wide spans of control, centralized authority (typically the owner has most of the power), and little formalization or rules that govern the operation. Its authority flows from top to bottom. Unlike other structures, specialized and supportive services do not take place in these organizations. Each department head has control over their departments.

Characteristics:

• Centralized hierarchy of authority
• Many teams
• Shared tasks sometimes
• Informal communication

Example of a simple structure: A small start-up

Mechanical Bureaucracy

A mechanistic structure is one that has divisions between departments, a centralized authority, and specialized tasks that operate independently of one another. Businesses with mechanistic organizational structures function like bureaucracies, where a pre-established chain of command oversees daily operations. Usually found in large companies operating for a long time. ‘Like a machine’.

Characteristics:

• Employees are found to work separately and on their own assigned tasks.
• Decisions are kept as high up the chain as possible.
• Communication is a process between managers and supervisors up to executives; there is little daily interaction, if any.
• High standardization of work

Relatively easier and simpler to organize, but rapid change is very challenging since it is very robust.

Professional Bureaucracy

It is a form of organization similar to the Mechanical Bureaucracy, but with the difference that its employees are highly qualified professionals. The organization depends on the extensive knowledge of the employees. The work processes are very complex and prevent any other type of standardization, giving the worker a high degree of power.

Characteristics:

• Clear hierarchy
• Internal coordination is based on the standardization of skills and knowledge
• They base the production of standardized goods or services on the skills and knowledge of the professionals

Adhocracy

“Adhocracy is a corporate culture based on the ability to adapt quickly to changing conditions.” It tends to be less hierarchical because the purpose is to address urgent problems that other organizational types have failed to solve. Unit/work groups are fluid and tolerate change.

Characteristics:

• It often involves the creation of groups of workers for specific projects, decentralizing authority to these work teams.
• Flexibility and high horizontal specialization of tasks.
• Employee empowerment.
• Emphasis on individual initiative.
• A creative orientation.
• Successful leaders are viewed as innovators, entrepreneurs, and visionaries.
• The underlying theory of effectiveness is “Innovativeness, vision, and new resources.”

Advanced Structure Types

Borderless Organization

Means the organization without external borders, with a greater capacity of interrelation with customers and suppliers and without internal limits, or at least flexible enough to make its response capacity faster and more agile. Quite tech-savvy and will use the latest and greatest tools brought by technology to make it even easier to break borders that would have traditionally been unbreakable. Flexible working schedules and virtual collaboration are a couple of examples of such tools.

Circular Organization

• In terms of functionality, there is not much difference between circular organization charts and other types.
• Instead of seeing the organization as authoritarian with executives barking out orders from the top, the circular structure gives the impression that the organization is more inclusive, has better communication, and has made management more accessible.
• It is a radial structure that comes from the inside instead of top-down.

Network Organization

• They are organizations that replace hierarchy and formalization with smaller units integrated by a culture or discipline, values, and informal means.
• The network organization prioritizes its “soft structure” of relationships, networks, teams, groups, and communities rather than reporting lines.
• It’s neither horizontal nor vertical.

Stakeholders

A stakeholder for a company is any group or individual that may be affected or is affected by the achievement of the company’s objectives.

Different stakeholders coexist in a company:

1. Shareholders
2. Managers
3. Owners
4. Other Stakeholders – Personnel

The interests of each group affect the setting of strategic objectives and decision-making.

Conflict of interests:

• Shareholders and Owners: They want the company to grow to increase their dividends.
• Employees: They want to increase their salaries and improve their working conditions.
• Management: They want the company to have success, but at the same time to be aligned with the mission, vision, values, and objectives.

Types of stakeholders:

• Economic stakeholders (external stakeholders)
• Social stakeholders (external stakeholders)
• Organizational stakeholders (internal stakeholders)

Control Mechanisms

The control mechanisms are defined as a means of control to verify the correct performance inside the company. They can be applied to different areas. Internal control mechanisms: Direct supervision and incentives to managers.

External control mechanisms: controlled by those outside an organization and serve the objectives of entities such as regulators, governments, trade unions, and financial institutions.

Good Corporate Governance and Codes of Business Conduct

Corporate governance is the system by which companies are directed and controlled. Transparency is the goal of good corporate governance measures.

Why is this important? Good corporate governance would lead to greater trust on the part of all stakeholders linked to the company, which, if adopted by the entire economic ecosystem, would endow the business fabric with greater solidity.

Code of Ethics / Code of Conduct:

• A Code of Ethics, also called a Code of Conduct, is a document created to establish the culture, feeling, and expectations for each member of your company.
• It covers major legal, ethical, and compliance risk areas to help employees make the right choices, even when they’re not easy. Because it contains such important information, you want to make sure your employees read and engage with your company’s code of conduct.
• This document sets requirements and benefits that offer a standard that all team members can be held accountable to live by.

Internal Management Control Mechanisms

Direct Supervision: The supervisory board or board of directors: A supervisory board or supervisory committee, often called the board of directors, is a group of individuals chosen by the stockholders of a company to promote their interests through the governance of the company and to hire and supervise the executive directors and CEO. It exercises the continuous control that ownership exercises over the performance of its managers to ensure that they act in accordance with its interests:

• The control of the Board of Directors.
• The hiring of external consultants or auditors to carry out control tasks or internal audits in different areas of the company.
• Mutual monitoring between managers through the internal organizational hierarchy.

Incentive Systems: Incentive systems seek to align the interests of management and owners by drafting contracts that link the objectives of management and owners to value creation. Types of incentive systems:

• Direct variable pay systems, based on linking managers’ pay to profit or value creation.
• Systems based on ownership participation, through the delivery to managers of fully or partially owned shares, rights to share value increases, or stock options.
• Professional promotion: linking their professional career to the successes achieved in their work.
• Other types of rewards: can take many different forms, the most common being remuneration in kind (housing, cars, etc.), provision of pension funds, social services (medical and life insurance, etc.), or public recognition.

External Management Control Mechanisms

• Tax Code: A body of rules under which a public authority has a claim on taxpayers, requiring them to transfer to the authority part of their income or property. The power to impose taxes is generally recognized as a right of governments.
• Legal Compliance: The process by which a company adheres to the complex rules, policies, and processes that regulate business practice in a particular jurisdiction. Compliance involves not only knowing and understanding the legislation that applies to the organization but also being able to demonstrate that the business and its entities are in compliance at all times.
• Laws and Regulations
• External Audits: Carried out by external auditors, can be candid and honest without it affecting daily work relationships within the company.

Corporate Social Responsibility (CSR)

Takes into account the impact that each of its activities, or all of them, generates on the environment that surrounds it. Complying with national and international legislation in the fields of labor, environment, and human rights.

5 Principles of CSR:

1. Compliance with legislation.
2. Global and transversal appliance.
3. Ethics and Coherence.
4. Impact management.
5. Satisfaction of expectations and needs.

CSR Communication

• Communication of CSR strategies and actions.
• Decalogue of good practices in corporate communication related to CSR.
• Examples of responsible production and consumption.
• Examples of Spanish companies that are benchmarks in CSR.

Compliance

What is it? Compliance is the establishment of appropriate and sufficient policies and procedures to ensure that the company, including its management, employees, and related parties, comply with the applicable regulatory framework. This regulatory framework will not only consist of laws and regulations but will also include internal policies, commitments to customers, and the Code of Ethics that the company has committed to uphold.

Why Compliance? To minimize risks such as damage to image, loss of confidence of suppliers and customers, difficulty in obtaining external financing, difficulties in retaining talent, or loss of shareholder value.

• Regulatory authorities and bodies are playing an increasingly active role in the fight against corruption and bad practices.
• Recent corporate scandals and increased social awareness of “business ethics”.
• The legislative environment in which the company operates is becoming more abundant and complex.
• Regulatory changes in the Criminal Code, with the possibility of avoiding criminal liability of companies, have increased awareness and implementation of prevention and control plans.

Content of the Compliance Program

1. Risk Map: Identification of the activities with risks and how to prevent them.
2. Decision-Making Protocol: Establishment of protocols or procedures that specify the process of the adoption of decisions and their execution in relation to those decisions.
3. Financial Resource Management Model: Provision of appropriate financial resource management models to prevent any situation that may happen.
4. Ethical Channel: Imposition of an obligation to report potential risks to the body monitoring the operation, and compliance with the prevention model.
5. Disciplinary System: Measures to enforce the prevention model.
6. Periodic Verification: Periodic verification of the model and its possible modification when relevant breaches of its provisions become apparent, or when changes in the organization, the control structure, or the activity carried out make them necessary.

Quality Management Systems (QMS)

A quality management system (QMS) is defined as a formalized system that documents processes, procedures, and responsibilities for achieving quality policies and objectives.

A QMS helps coordinate and direct an organization’s activities to meet customer and regulatory requirements and improve its effectiveness and efficiency on a continuous basis. The axis of the Quality Management System has three pivots:

1. The definition of a series of standardized and well-documented procedures that detail the coordination of a set of resources and activities to guarantee the quality of the products and its production.
2. The documentation of performance requirements in a quality manual.
3. Compliance with the guidelines stipulated in the procedures of the Management System.

ISO and UNE Standards

What are ISO and UNE, and how do they help me with compliance programs? The ISO (International Organization for Standardization) and the UNE (A Spanish Standard) are institutions that create, regulate, standardize, and normalize the technical documents that arise from a technical body and from the existing good practices at an international level, so that their standards allow us to ensure the effectiveness and efficiency of products, services, and processes within a security system. ISO is a federation made up of various national standardization organizations, including UNE, which is designated by the Ministry of Economy to the European Commission.

ISO 9001:2015

ISO 9001:2015 is defined as the internationally recognized standard for quality management systems (QMS). It is the most widely used QMS standard in the world, with more than 1 million certificates issued in more than 178 countries. ISO 9001 provides a framework and a set of principles to ensure a logical approach to managing your organization that satisfies your customers and stakeholders. To make it easier, ISO 9001 certification provides the basis for developing effective processes and personnel that result in effective products and services over time.

Benefits of ISO 9001 Implementation and Certification:

• Efficiency in the company’s processes or activities (Cost improvement).
• Substantial improvement in customer satisfaction.
• Communication tool to improve the company/brand image.
• Increased market access, without border limits.
• Improvement of internal communication.