33 Organizational Design
Dr. Radha Kanwal Sharma
1. Learning Outcomes:
After completing this module the students will be able to:
· Understand the concepts of organizational design.
· Principles of organizational design.
· Different types of designs.
· Benefits and drawbacks of different designs.
2. Introduction
Design is a plan for arranging elements in such a way as best to accomplish a particular purpose.
Charles Eames, 1969
Organizational design is the design of the organizational structure. While the organization structure is the design of the pattern of positions and functions in the organization; organizational design includes organizational structure as well as the design of the organizational process of work, with emphasis on the decision making process. Organization design is the outcome of shaping and aligning all the components of an enterprise towards the achievement of an agreed mission. It is the whole sequence of work that results in an alignment of vision/mission, values/operating principles, strategies, objectives, tactics, systems, structure, people, processes, culture and performance measures in order to deliver the required results in the operating context.
3. Principles of organization design
Organization design revolves around five principles:
1. Design is driven by the business strategy and the operating context
2. Design means holistic thinking about the organization – its systems, structures, people, performance measures, processes and culture, and the way the whole operates in the environment.
3. Design is done for the future of the organization, rather than for present. It is thus a pro active function.
4. Design is not to be undertaken lightly – it is resource intensive even when it is going well.
5. Design is a fundamental process not a repair job.
4. Different Organizational Designs
Due to dynamic nature of business environment, majority of the managers are dissatisfied with the traditional ways of designing of their organizations. Till recently, only limited modifications were attempted in classical structures. Practitioners have been shying away from innovation and experimentation. Major challenges that organizations are facing these days are:
· The need for flexibility;
· Adaptability to change;
· Creativity;
· Innovation;
· Ability to overcome environmental changes.
But now a days, due to continuous technological advancement and unexpected environment changes; practitioners have overcome their inhibitions and have started to make drastic changes in organizational design. Different modern organizational designs are:
1. The Simple Structural Design
2. The Bureaucratic Design
3. The Matrix Design
4. The Horizontal Organizational Design
5. The Network Design
6. The Virtual Organization
7. The Project Organization
8. Free Form Organization
Let us discuss each one of these.
4.1 Simple Structural Design
Simple structural design is a traditional and a basic organizational design. In this mostly, the manager and the owner are the one and the same. This design is characterised by low departmentalization, little work specialization, wide spans of control, centralized authority (as the owner has most of the power) and little formalization or rules that govern operation. Organizations that use a simple structure are typically flat, in that there are not many hierarchical levels. When the company expands, it will more than likely outgrow its simple design structure and move into a more complex structure.
Fig 32.1 Simple Structural Design
Source: www.businessmate.org
Advantages: Benefits of this design are:
1. It is very simple to understand and operate.
2. It is very inexpensive to understand
3. It is very fast and flexible.
1. This design is suitable only for small organization. It becomes inadequate as the organization grows.
2. There is very high information overload at the top due to low formalisation and high centralisation.
3. This design is very risky as everything depends on the single person at the top. The system tends to collapse without that person.
4. Decision making process is very slow because a single person has to make all the decisions.
4.2 The Bureaucratic Design
This design is based upon Max Webber‗s bureaucratic theory of organization and management. Bureaucracy refers to ―certain characteristics of organizational design‖. Webber developed the bureaucratic model of organization which is the most rational means of carrying out imperative control over human beings. In Webber‘s views bureaucratic organisation is the most efficient form of organisation. It is also referred as rational-legal. It is rational because specific objectives of the organisation are laid down and organisation is designed to achieve them and it is legal because authority flows from a clearly defined set of rules, procedures and roles.
Features of Bureaucratic Design are:
1. Administration is done through well-defined rules
2. Highly routine operating tasks achieved through specialisation.
3. A hierarchy of authority and chain of command exists throughout the organization, with a regulated system of appeal.
4. Very formalised rules and regulations.
5. Assignment of activities to individuals is done as fixed duties.
6. Grouping of tasks into functional departments.
7. Centralisation of authority.
8. Narrow span of control.
9. Decision making on rational and objective criteria so that all decisions are impersonal.
10. Employment and promotion based on demonstrated competence; protection against arbitrary dismissal, and training of officials.
11. Office holding as a career within the hierarchical order.
This design is prevalent in bureaucracies like government offices, banks etc. It is preferred in those enterprises where change is not anticipated.
Benefits of Bureaucracy
1. The rules and procedures are decided for every work, it leads to consistency in employee behaviour. As employees are bound to follow the rules etc., the management process becomes easy.
2. In bureaucracy, specialities are put together in functional departments, which results in economies of scale and minimum duplication of personnel and equipment.
3. The duties and responsibilities of each job are clearly defined; there is no question of overlapping or conflicting job duties.
4. No importance is given to informal groups. But nowadays, lot of importance is given to informal groups.
5. The selection process and promotion procedures are based on merit and expertise. It helps in putting right persons on right jobs. There is optimum utilisation of human resources.
6. The division of labour assists workers in becoming experts in their jobs. The performance of employees improves considerably.
7. The enterprise does not suffer when some persons leave it. If one person leaves then some other occupies that place and the work does not suffer.
Disadvantages of Bureaucracy
- This system suffers from too much of red tape and paper work.
- Extreme specialisation creates inter departmental conflicts. Also functional departmental goals can over ride the goals of the organization.
- The employees do not develop belongingness to the organisation.
- The excessive reliance on rules and regulations and adherence to these policies inhibit initiative and growth of the employees. They are treated like machines and not like individuals. There is neglect of human factor.
- The employees become so used to the system, they resist to any change and introduction of new techniques of operations.
4.3 The Matrix Design
Matrix design combines two forms of departmentalisation: functional and product. Reporting relationships are set up as a grid, or matrix, rather than in the traditional hierarchy. In other words, employees have dual reporting relationships – generally to both a functional manager and a product manager.
The authority of a functional manager flows vertically downwards, and the authority of the project manager flows sideways. Since these authorities flow downward and sideways, this structure is called the matrix organization structure. The functional manager may look after the functional part of the project; he may decide how to do the work, and may distribute the project work among his subordinates. The project manager will have authority over the administrative part of the project such as what to do, follow-up the schedule, evaluate the performance, etc.
Fig 32.2 A Matrix Design
Source: www.designbuildings.co.uk
The most important characteristic of this design is that it straightway violates the principle of
unity of command. As discussed in above paragraph, it follows dual chain of command. The
functional departmental heads have line authority over the specialists in their departments
(vertical structure).the functional specialists are assigned to different product line (horizontal
structure).
Advantages:
1. Highly skilled and capable resources can be shared between the functional units and projects, allowing more open communication lines which help in sharing the valuable knowledge within the organization.
2. The matrix structure is more dynamic than the functional structure because it allows employees to communicate more readily across the boundaries, creating a good working and cooperative environment which helps in integrating the organization.
3. Employees can learn and widen their skills and knowledge areas by participating in different kind of projects. The matrix structure provides a good environment for professionals to learn and grow their career.
4. In functional departments employees are very skilled, and project teams can get these highly skilled employees whenever their services are needed.
5. It reduces the drawbacks of bureaucratic design. The dual line of authority reduces the tendency of departmental heads to put departmental goals first before the organizational goals.
6. Since there is a sense of job security, employees tend to be loyal to the organization and perform well, and hence the efficiency of a matrix organization is higher.
Disadvantages:
1. Employees may have to report to two bosses, which adds confusion and may cause conflict. This usually happens in a balanced matrix organization where both bosses have equal authority and power.
2. A conflict may arise between the project manager and the functional manager regarding the authority and power.
3. If the priorities are not defined clearly, employees may be confused about their role and responsibility, especially when they are assigned a task which is different from what they were doing.
4. If any resource is scarce there might be competition to use it, which may cause hostility within the workplace and could affect the operation.
5. It is generally seen that matrix organizations have more managers than required, which make overhead cost high.
6. In a matrix organization, workload tends to be high. Employees have to do their regular work along with the additional project related work, which exhausts them. It is also possible that the employee may ignore either his functional responsibilities or project management responsibilities.
7. A matrix structure is expensive to maintain. Organizations have to pay extra to keep resources because not all resources will be occupied at all times. Some resources are needed only for a short duration.
How to overcome the shortcomings of a Matrix Organization Structure
1. Roles and responsibilities must be clearly documented and communicated to employees to avoid confusion.
2. There must be close cooperation between the project manager and the functional manager. This will help avoid confusion and conflict.
3. There should be well defined and strong communication in all directions. This is important to gain support from executives, managers, supervisors and employees. Organizations must communicate their vision, objective, and goal with their employees.
4. Any conflict between the project manager and the functional manager must be resolved as early as possible, and in private.
5. There should be a proper and balanced distribution of authority and power between the project manager and the functional manager. Both managers should get the required power and authority. Any imbalance may impact the effectiveness of operations.
4.4 Horizontal Organization Design
Horizontal organizational design is a form of managing workers in which decision-making is spread among workers along horizontal lines, as opposed to a hierarchical or pyramidal management structure. The philosophy behind this form of design is that a collaborative model improves morale, productivity and creativity. It is a method often used in organizations that are heavily focused on product development or core business processes. Cross-functional work teams, where workers with expertise in different areas work together on one project, are a common feature of a horizontal organizational structure.
Horizontal (flat) organizational structure has become very popular in recent years. It supports the idea that employees need and thrive with lots of responsibility and authority, and suggests that no one individual should take charge of an entire organization. It supports teamwork and innovation. Frank Ostroff and Doglas Smith are pioneers for developing principles of horizontal design.
1. Organization revolves around process, not the task. Each process has an owner and specific performance goals.
2. To reduce the levels of supervision, fragmented tasks are combined and activities within each process are cut to minimum. It helps to flatten he organizational design
3. Self managed teams are the building blocks of the organization. Teams have a common purpose and are accountable for measuring performance goals.
4. Customer satisfaction, not profits, is the primary goal of the organization.
5. Reward systems are focussed on team results, not just on individual performance. Employees are rewarded for multiple skill development rather than a specified expertise.
6. Employees are into direct contact with suppliers and customers.
7. All employees need to be fully informed and fully trained about all data and not on just some information on a ―need to know‖.
4.5 Network Design
The network design is a newer type of organizational design viewed as less hierarchical (i.e., more “flat”), more decentralized, and more flexible than other structures. It totally abandons the classical, hierarchical and functional designs of the organization.
Fig 32.3 Network vs. Hierarchical Design
partners (both internally and externally) are key components of social networks. This design is the combination of different types of organizations whose actions are coordinated by contracts and agreements rather than through a formal hierarchy of authority. Usually one firm takes the lead in creating the network. This design consists of several satellite organisations clustered around a core firm. The core firm coordinates the network process and provides services with regard to specialised areas like marketing and product development, etc. Network designs accommodate strategic alliances among competing firms and give quick response to threats and opportunities to the satellite organisations.
The network design is more agile than other designs. Because it is decentralized, a network organization has fewer tiers, a wider span of control, and a bottom-up flow of decision making and ideas. Unlike traditional designs, that are old, inflexible hierarchical pyramids, network designs are flexible, spherical structures that can rotate, are competent, consist of self managing teams around a common knowledge base.
A disadvantage of the network structure is that this more fluid structure can lead to more complex relations in the organization.
4.6 The Virtual Organization Design
The term virtual organization is used to describe a network of independent firms that join together, often temporarily, to produce a service or product. Virtual organization is often associated with such terms as virtual office, virtual teams, and virtual leadership. The ultimate goal of the virtual organization is to provide innovative, high-quality products or services instantaneously in response to customer demands. These have neither central office nor organization chart. These have no hierarchy and no vertical integration. Simply, a virtual organization is a temporary alliance between two or more organisations to undertake a specified venture. The basic aim behind creating a virtual organisation is to generate synergy through temporary alliances.
Key features of virtual organizations are:
1. These are based on electronic contracts and informational networks.
2. The partnership is less permanent, less formal and more opportunistic.
3. There exists no traditional border of a company. There is lot of cooperation among competitors, suppliers and customers.
4. As fate of each partner depends upon the other, there is lot of trust among these companies.
5. All participating companies strive towards excellence
4.7 Project Organization
The idea behind project organization is that as the environment changes rapidly, the organization must take up various activities on project basis. A project organization is a structure that facilitates the coordination and implementation of project activities. Its main reason is to create an environment that fosters interactions among the team members with a minimum amount of disruptions, overlaps and conflict. One of the important decisions of project management is the form of organizational structure that will be used for the project. Each project has its unique characteristics and the design of an organizational structure should consider the organizational environment, the project characteristics in which it will operate, and the level of authority the project manager is given. A project structure can take on various forms with each form having its own advantages and disadvantages. One of the main objectives of the structure is to reduce uncertainty and confusion that typically occurs at the project initiation phase. The structure defines the relationships among members of the project management and the relationships with the external environment.
The project organization structure is opposite to the functional organization structure. Here, either there will be no functional manager, or if he exists, he will have a very limited role and authority.
In project organization:
· The project manager has full power and authority over resources to be utilized in the project. He controls the budget, resources, and work assignments.
· The project manager has full-time team members working under his control who directly report him.
· When the project is completed the team is disbanded, and team members and all other resources are released.
Advantages:
- Since the team members directly report to the project manager, there is a clear line of authority. This reduces conflict, and makes decision making faster and more flexible.
- Due to a single reporting system, there are shorter lines of communication which creates strong and effective communication within the project management team and response to stakeholders‘ concerns is fast.
- Due to a sense of urgency, milestones, good communication, and cooperation, the learning curve is faster for any new member.
- Team members become versatile and flexible due to experience in different kinds of projects.
Disadvantages:
- Since the project manager has full authority and power over his team members, he can become arrogant. A lack of power is a problem for project managers in functional organizations, while abundance of power of a project manager can be a problem in project organizations.
- In projects, there is always a deadline and usually a tight schedule, which makes the work environment stressful.
- If the organization has multiple projects, there can be poor communication among them, causing resources to be duplicated.
- There is a sense of insecurity among the team members, because once the project is completed, they feel that they may lose their jobs. Therefore, they tend to be less loyal towards the organization.
- The cost of employees and equipment can be higher because company may be hiring skilled people and specialized equipment for a shorter period of time. If the project gets delayed, the cost of equipment and other resources can be much higher.
4.8 Free Form Organization
This modal is based on the assumption that organization is an open system and the main task of the manager is to facilitate change in the organization. Two extreme form of this design are ―mechanistic‖ at one end and ―organic‖ at the other.
Mechanistic structures are characterized by narrow spans of control; high centralization, specialization, and formalization; as well as by rigid departmentalization. And the chain of command, whether long or short, is always clear. There exist precisely defined rights, obligations and methods. Control, authority and communication follow hierarchical patterns
Fig 32.5 Mechanistic vs. Organic designs
Source: http://blog.hubspot.com/
- Organic structures (also known as ―flat‖ structures) are characterized by wide spans of control; decentralization; low specialization and formalization; and loose departmentalization. And the chain of command, whether long or short, can sometimes be difficult to decipher. There exists Wide network of control, authority and communication. Interaction is more lateral than vertical
Thus the discussion proves that modern organization designs are far different from traditional, classis designs and are becoming increasingly popular to meet challenges of business environment.
- Summary
Organization design is the outcome of shaping and aligning all the components of an enterprise towards the achievement of an agreed mission. It is the whole sequence of work that results in an alignment of vision/mission, values/operating principles, strategies, objectives, tactics, systems, structure, people, processes, culture and performance measures in order to deliver the required results in the operating context. It revolves around five principles. There are eight different types of organizational designs. Most appropriate design is the one that can offset the effect of environmental changes.
Learn More:
- Aswathappa,K. (2008). Organizational Behaviour. Himalaya Publishing House, New Delhi
- Gupta, S.K., Joshi, Rosy. (2013). Organizational Behaviour. Kalyani Publishers, New Delhi
- Prasad, L.M. (2009). Organizational Behaviour. Sultan Chand & Sons, New Delhi
- Robbins, S., Timothy.A.J.,Sanghi, S. (2009). Organizational Behaviour: Text and Cases.Pearson Prentice Hall, New Delhi
- http://kalyan-city.blogspot.in/2011/04/bureaucratic-theory-of-management-by.html
- http://www.yourarticlelibrary.com/management/max-webbers-bureaucratic-model/
- http://pmstudycircle.com/2012/08/what-is-a-matrix-organization-structure/
- http://www.wisegeek.com/what-is-a-horizontal-organizational-structure.htm
- https://www.boundless.com/management/textbooks/boundless-management-textbook/
- http://www.yourarticlelibrary.com/organization/organisational-designs/
- http://www.classtoolkit.org/sites/default/files/documents/ProjectManagementStructures.pdf
- http://www.referenceforbusiness.com/management/Tr-Z/Virtual-organizations.html