ORGANIZATION STRUCTURE

Organizational Structure and Firm Survival

One partial explanation for the success of companies they have to create, maintain, and modify their organization structure so as to continue to meet the changing demands of their stakeholders and external environments. By modifying or reinventing their organization structure, many successful companies have emerged from this topsy-turvy period stronger and more responsive than before. Organization structure results form managerial decisions about four important attributes of all organizations: division of labor, bases for departmentalization, size of departments, and delegation of authority.

The Concept of Organization Structure

Organization Structure

            It is pattern of jobs and groups of jobs in an organization. It is an important cause of individual and group behavior. It is an abstract concept. No one has ever actually seen one. What we see is the evidence of structure. Then from that evidence we infer the presence of structure.

Structure as an Influence on Behavior

All of us worked in organizations and we have experienced the way our behavior was controlled. We didn’t simply go to work and do what we wanted to do; we did what the organizations wanted and paid us to do. All organizations have a structure of jobs. The most evidence of structure is the familiar organizational charts.

For example in an academic department, each of these departments contains individual performing different jobs that combine to produce a larger outcome than is possible from the efforts of any single job or department.

Structure as Recurring Activities

This emphasizes persistence and regularity of activities. Work is predictable, without these predictable activities the work of the organization could not be achieved.

Designing an Organization Structure

Organizational Design     

            It is a management decisions and actions that result in a specific organization structure. Managers who set out to design an organization structure face difficult decisions.

1.    Managers decide how to divide the overall task into successively smaller jobs.

2.    Managers decide the bases by which to group the individual jobs.

3.    Managers decide the appropriate size of the reporting to each superior.

4.    Managers distribute authority among the jobs.

The four key design decisions are division of labor, departmentalization, span of control and authority.

Generally speaking, organization structures tend toward one extreme of the other along each continuum. Structures tending to the left are characterized by a number of terms including classical, formalistic, structured, bureaucratic, system 1 and mechanistic.

Division of Labor

 It is the process of dividing work into relatively specialized jobs to achieve advantages of specialization. It concerns the extent to which jobs are specialized. The economic advantages of dividing wok into specialized jobs are the principal historical reasons for the creation of organizations. As societies became more and more industrialized and urbanized, craft production gave way to mass production.

Division of labor in organizations can occur in three different ways:

1.    Work can be divided into different personal specialties.

2.    Work can be divided into different activities necessitated by the natural sequence of the work the organization does.

3.    Finally, work can be divided along the vertical plane of an organization

Departmental Bases

Departmentalization

Process in which an organization is structurally divided by combing jobs in departments according to some shared characteristics or basis. The specialized jobs are separate, interrelated parts of the total task, whose accomplishment requires the accomplishment of each of the jobs. The crucial managerial consideration when creating departments is determining the basis for grouping jobs.

Functional Departmentalization

            Managers can combine jobs according to the functions of the organization For example the necessary functions of a commercial bank include taking deposits, making loans, and investing the bank’s funds.

            A major disadvantage of this departmental basis is that because specialists are working with and encouraging each their areas of expertise and interest, organization goals may be sacrificed in favor of departmental goals.

Geographic Departmentalization

            Another basis for departmentalizing is to establish groups according to geographic area. The logic is that all activities in a given region should be assigned to a manager. This individual would in be charge of all operation in that particular geographic are. Geographic departmentalization provides a training ground for managerial personnel.

Product Departmentalization

            Managers of many large diversified companies group jobs on the basis of product. All jobs associated with producing and selling a product or product line will be placed under the direction of one manager. This form of organization allows personnel to develop total expertise in researching, manufacturing and disturbing a product line. It fosters initiative and autonomy by providing division managers with the resources necessary to carry out their profit plans. But such organizations face the difficult issue of deciding how much redundancy is necessary.

Customer Departmentalization

            Customers and clients can be a basis of grouping jobs. The importance of customer satisfaction has stimulated firms to search fir creative ways to serve people better. Some institutions have regular courses and extension divisions. Some department stores departmentalized to some degree on a customer basis.

Combined Basis for Departmentalization: Matrix Organization

Matrix Organization

Organizational design superimposes product or project based design on existing function based design. Matrix organizations achieve the desired balance by superimposing, or overlaying, a horizontal structure of authority, influence, and communication on the vertical structure. The matrix organization facilities the utilization of highly specialized staff and equipment. Each project or product unit can share the specialized resource with other units, rather than duplicating it to provide independent coverage for each.

Span of Control

It is the number of individuals who report to a specific manager. The number of potential interpersonal relationships between a manger and subordinates increases geometrically as the number of subordinate increases arithmetically. This relationship holds because managers potentially contend with three types of interpersonal relationships: direct single, direct group, and cross.

Required Contact                

                                     

            In research and development as well as medical a production work, there’s a need for frequent contact and a high degree of coordination between a superior and subordinates. For example, the research and development team leader may have to consult frequently with team members so that a project is completed within a time period that will allow the organization to pace a product.

Degree of Specialization

            The degree to which employees are specialized is a critical condition in establishing the span of control at all levels of management. It is generally accepted than a management at the lower organizational level can oversee more subordinates because work at the lower level is more specialized and less complicated than at higher levels of management.

Ability to Communicate

            Instructions, guidelines and policies must be communicated verbally to subordinates in most wok situations. The wide spread practice of downsizing and flattening organizations of all kinds has direct implications for the span of control decisions.

Delegation of Authority

            It is the process of distributing authority downward in an organization. Managers decide how much authority should be delegated to each job and each jobholder. Delegation of authority refers specifically in making decisions, not doing work,

Reasons to Decentralize Authority

            First, relatively high delegation of authority encourages the development of professional managers. Second, high delegation of authority can lead to a competitive climate within the organization. Finally, managers who have relatively high authority can exercise more autonomy, and thus satisfy their desires to participate in problem solving.

Reasons to Decentralize Authority

            Managers must be trained to make decisions that go with delegated authority. Formal training programs can be quite expensive, which can more than offset the benefits. Second, many managers are accustomed to making decisions and resist delegating authority to subordinate. Third, administrative costs are incurred because new or altered accounting and performance system must be developed to provide top management with the information about the effects of their subordinates’ decisions.

Decision Guidelines

            Like most managerial issues, whether authority should be delegated in high or low degree cannot resolve simply. Managers faced with the issue should answer the following four questions:

1.    How routine and straightforward are the job’s or units’ required decisions?

2.    Are individuals competent to make the decision?

3.    Are individual motivated to make decisions?

4.    Finally, to return to the points we made earlier, do the benefits of decentralization overweigh its costs?

Mechanistic and Organic Models of Organization Design

The Mechanistic Model

            Organizational design emphasizing importance of achieving high levels of production and efficiency through expensive use of rules and procedures, centralized authority, and high specialization of labor.It emerged during 20^th century considered the problem of designing the structure of an organization. Henri Fayol, proposed a number of principles that he had found useful in managing large coal mining company in France.

1.    The principle of specialization. Fayol stated that specialization is the best means for making use of individuals and group of individuals.

2.    The principle of unity of direction. According to this principle, job should be grouped according to specialty.

3.    The principle of authority and responsibility. Fayol believed that managers should be delegated sufficient authority to carry out her assigned responsibilities.

4.    The scalar chain principle. The natural result of implementing the preceding three principles is a graded chain of managers form the ultimate authority to the lowest ranks.

Bureaucracy

            The traditional usage is the political science concept of government by bureaus but without participation by the government. Organizational design involves domination in the sense that authority involves the legitimate right to exact obedience from others.

The Organic Model

           

               Organizational design emphasizing importance of achieving high levels of flexibility and development through limited use of rules and procedures, decentralized authority, and relatively low degrees of specialization      

               The organic organization is flexible to changing environmental demands because its design encourages greater utilization of the human potential. Managers are encouraged to adopt practices that tap the full range of human motivations through job design that stresses personal growth and responsibility.

Contingency Design Theories

            It is Organizational design approach that emphasizes the importance of fitting a design to demands of a situation, including technology, environmental uncertainty, and management choice. Under circumstances and in what situations is either the mechanistic or the organic design relatively more effective?

Technology and Organizational Design

               It is the physical and mental actions by an individual to change the form or content of an object or idea. The effects of technology on organization structure can be readily understood at an abstract level of analysis.

The Classical Study of Technology and Organizational Design

               Joan Woodward gained considerable attention when she released the findings of analyses of 100 manufacturing firms’ organization structures in southern England. While she and her colleagues had sought to answer a number of questions regarding contributions of organization structure to organizational effectiveness, it was their conclusions regarding technology and structure that were widely claimed. Applying the measure to inform about firms’ manufacturing methods resulted in a continuum of technology with job-order manufacturing and process manufacturing methods at extremes, separated by mass production manufacturing.

Understanding the Relationship between Technology and Structure

               The relationship between technology and organizations can be understood with reference to the natural business functions: product development, production, and marketing. At the extreme of the technological continuum is the process manufacturer. In these firms, the cycle begins with product development. The key to success is the ability to discover new product through scientific research. The mechanistic design is effective for firms that use mass production technology.

Environment and Organizational Design

Differentiation

               It is the degree of differences among units of an organization due to individual and structural differences. This concept refers in part to the idea of specializations of labor, specifically to the degree of departmentalization.

Integration

               It is an achieving unity if effort among different organizational units and individual through rules, planning, and leadership. It can be achieved in a variety of ways. Proponents of the mechanistic model argued for integration through the creation of rules and procedures to govern subsystem members behaviors.

Environment

               The independent variable environment was conceptualized from the perspective of the organization members as they looked outward. Consequently a basic reason for differentiating into subsystems is to deal more effectively with subenvironments. These three subenvironments are the marketing, production and research. These departments represent parts of the total organization or researchers’ terms, subsystems of the total environment.

Sociotechnical Systems Theory

               An influential theory develop in the early 1950s by the researchers of the London-based Tavistock Institute of Human Relations, sociotechnical systems theory suggests that production processes consist of social and technical dimension. The technical dimension refers to the equipment and methods in precaution used to create products and services.

Creating Virtual Organizations

One of the fastest developing practices in business throughout the world involves rims in cooperative relationships with the suppliers, distributors and even competitors. Some organizations develop relationships only with key suppliers. Other organization develops relationships with marketers and distributors. How these relationships should be organized and managed is being empirically examined. It achieves both efficiency and flexibility by establishing networks of relationships with variety of groups including suppliers, distributors, customers, and strategic alliance partners, and even competitors.

Prepared by Group B2:

Cereno, Kristine

Danga, Carla Sheine

Ferrer, Katherine

Gamones, Rina Yolita

Paglinawan, Precious