Organizational Structures and Designs: Key Concepts
Chapter 10: Organizational Structure
Organizational Structure: Formal distribution of employees within an organization.
Organization: The process of creating the organizational structure.
Organizational Design: It is the process in which managers change or redesign the organizational structure, which consists of six steps:
- Work distribution
- Departmentalization
- Chain of command
- Amplitude control
- Centralization and Decentralization
- Formalization
- Specialization of labor (Adam Smith)
Used to describe the extent to which the tasks of an organization are divided into separate tasks. This means that the tasks are divided into stages and each stage concludes with a different individual.
Advantage: Currently, managers see this tool as a mechanism to increase and improve productivity levels, being an efficient and effective use of resources.
Disadvantage: The work becomes routine (low motivation) and creates a high dependency on the skills of others. This is preventable with job rotation, a change of functions in a prudent period determined by the company.
Departmentalization
It is the basis by which similar tasks are grouped and classified, where each company is determined according to their own specific needs.
Types of Departmentalization:
- Functional: Work is grouped according to the functions performed.
- Product: Work groups by product line.
- Geographic: Working groups on the basis of territory or geography.
- Process: Working groups based on the product or customer flow.
- Client: Work groups based on customers who have common needs and problems.
The current trend is the use of departmentalization to improve company performance, using the departmentalization of clients and functional teams. (E.g., logistics, purchasing, finance, and quality control).
Cross-Functional Teams
A group of individuals who are experts in various specialties and work together.
Chain of Command
A continuous line of authority that extends from the highest levels of the organization to the lowest and defines who depends on whom and who reports to whom.
Authority
Inherent rights that a management position has, to designate work and expect results.
Responsibility
Obligation to perform any work.
Control Unit
That a person must respond to a single manager.
Extent of Control
The number of employees that a manager can direct efficiently and effectively.
This capacity is limited by two variables: the first is the skills and experience that the manager and employees have. Therefore, the lower the direct supervision of the manager, the more its amplitude will increase.
Centralization and Decentralization
Centralization
It is the degree to which decision-making is concentrated at a single point of the organization.
More Centralization:
- More stable environment
- Lower managers want no voice in decision-making
- The company is bigger
- The decisions are important
- Lower-level managers are not as capable as the high levels for decision-making
Decentralization
It is the extent to which lower-level employees provide information or make decisions.
More Decentralization:
- The work environment is more complex, uncertain
- Decisions are relatively less important
- Lower-level managers want to have a say in decision-making
Companies cannot be completely centralized or decentralized because it would not work. They need a balance in decision-making on the part of managers and employees.
Empowerment: Increased power of employees in decision-making.
Formalization
It is the degree to which workers in an organization are standardized, and the rules and procedures guiding the behavior of employees.
Here the employee performs tasks mandated to him and nothing more, only meeting them in the most efficient way possible.
More Formalization:
- The description of the work is specific
- Many organizational standards
- Clearly defined work processes
Less Formalization:
- Performance of staff unstructured
- Much freedom to do their job
For example, a newspaper reporter has the freedom to do the work as he pleases. He investigates how and writes it, but unlike the daily chart, he does not. He has restrictions because of the space, time, and adopted standards for the journal to their making it.
Organizational Design
Mechanistic Organizations
Rigid and very controlled organizational design. They are more efficient and rely on rules, regulations, standardized tasks, and similar controls.
- High degree of specialization
- Rigid departmentalization
- Defined chain of command
- Centralization
- High level of training
Organic Organization
Organizational design that is very adaptable and flexible. Jobs are not standardized and are highly skilled employees and empowers them for decision-making.
- Functional teams
- Free flow of information
- Large control amplitudes
- Decentralization
- Limited education
Strategy and Structure
The organizational structure should facilitate the achievement of the objectives through strategies, giving a close relationship between the two, but if the strategy of the organization changes, the structure of the company must change to adapt and embrace change.
Strategic Frameworks:
- Innovation (significant and unique)
- Minimize costs (costs controlled)
- Imitation (benchmarking)
Size and Structure
Affect the organization because of the number of employees that count:
If a company has 2000 employees it is more mechanistic. If you join 500 new employees, not much will happen, but if another company has 300 it is more organic. But if this company had 500 new employees, this company would have to be more mechanistic because of its new human capital structure.
Technology and Structure
Companies have different needs for technologies to perform their productive activities. Analyzing this we find three points of analysis of the technology:
Production Units: Production of items in units or small batches.
Mass Production: Large-scale production of batches.
Production Processes: Manufacture of continuous processes.
Common Organizational Designs
More mechanistic, less risk.
Simple Structure
Organizational design with low departmentalization, large control amplitudes, and little formalized centralized authority.
- They occupy small businesses where the same owner is the manager.
Functional Structure
Organizational design that groups similar or related occupational specialties.
- Employees are grouped with others who have similar tasks.
Divisional Structure
Organizational design composed of units or divisions separated and partially autonomous.
- These divisions have relative autonomy to a division manager responsible for the performance, which holds authority over his unit.
Contemporary Organizational Designs
Team Structure
Organizational structure in which the entire organization is made up of working groups or teams.
- Employees design the way they do their work and are responsible for the results of their respective areas.
Matrix Structure
Organizational structure that assigns specialists from different functional departments to work on one or more projects.
- Here there are two department managers: the functional and project manager.
Structure of Projects
Organizational structure is that employees work continuously on projects.
- Here there is a department manager, if not that workers sign work teams, where they develop their knowledge and skills.
Unlimited Organization
Organization whose design is not defined or restricted by the external vertical or horizontal boundaries imposed by a predetermined structure.
- Such an organization is trying to remove the chains of command, have limitless control amplitudes, and replace departments with work teams which gives them work, in order to be more efficient and the company not limited by a rigid structure.
Virtual Organization
It is an organization formed by a small group of full-time employees who temporarily subcontract to outside specialists to work on emerging opportunities.
- An advertising agency based in Amsterdam has a network of 50 people around the world working alone and without a structure and its cost.
Network Organization
Small central organization that performs the external supply of important business functions.
- Example: Nike and Ericsson
Modular Organization
Manufacturing organization that uses outside vendors to cater to the product components or modules which are then assembled into final products.
- GM has a factory in Brazil which modulation is supplied by an external company to produce cars where within the company are assembled into a finished product.
Learning Organization
It is the organization that developed the ability to learn, adapt, and change continuously. It is the ability of employees to learn and apply knowledge in knowledge management.
- A learning organization revolves around the organizational design, information participation, leadership, and culture.
Learning Organization
Leadership
- Shared Vision
- Collaboration
Organizational Design
- Without limits
- Teams
- Empowerment
Share Information
- Open
- Timely
- Exact
Sense of Community Organizational Culture Care Trust
In a learning organization, it is critical that your employees share information to improve outcomes and not be limited to structures. Minimizing the structural limits in a more open work environment, results are improved because of collaboration between employees and learning from each other. Because of this need for employees to work in teams and give them authority for making decisions about their work to solve problems. With employees and teams who have the power to make decisions, there is little need for “bosses” to direct and control.