Organizational structure

Objectives: Students should be able to analyze the structure of an organization based on the
theoretical model displayed within this chapter. Also, the students should be able to use the
accumulated knowledge to connect with organizational evolution - the role of the structure
within this process.
Keywords: system, organizational structure, complexity, horizontal, vertical and spatial
differentiation, formalization, standardization, centralization, decentralization.

There are various definitions and different points of view regarding describing and
explaining organizational structure. The notion of "structure" can be defined as the order relation
that exist between the components of a system, as the network of relationships that exists among
various positions and position holders. When talking about the organizational structure, we refer
to the relationships between the components of the organizational system.
Organizational structure can be analyzed from the perspective of the major components
that make up, of the variables which define the construction, the architecture of an organization.
Obviously, the organizational structure can clarify on organizational behavior due to various
situations, on the organization's trend to address different kinds of problems, on which are the
strengths and weaknesses regarding the communication, the reaction speed to changes in its
environment, on what kind of activities the organization should undertake. Analyzing
organizational structure can represent the diagnosis' main objective and can cause changes within
management, organizational culture, personnel policies. The following table is presenting the
main variables that based on the organizational literature, can define and describe the
organizational structure.
Table 1. Organizational Structure Variables
Administrative Component - it refers to the ratio between the number of supervisors,
managers, administrators and the total number of employees.
Autonomy - it refers to the degree in which the management department needs to appeal to a
higher authority when taking certain decisions.
Centralization - it refers to the percentage of positions that are part of the decision-making
process and the number of levels where the decision-making process happens, or the degree to
which the decision-making power and control are concentrated.
Complexity - it refers to the number of specialized positions (division of labor), professional
activities (standardization) and employees training activities that exists within the organization.
Delegation of Authority - it refers to the ratio between the number of managerial decisions that
the higher authorities are delegating down within the hierarchy and the total numbers of
decisions specific to the management positions.
Differentiation - it refers to the number of specialized functions that exists within the
organization.
Formalization - it refers to the extent to which the employee's role is defined by formal
documentation.
Integration - it refers to the condition of the effort of working together (collaboration), made by
the organizational units.
Professionalism - it refers to the degree to which the employees are using as a reference the
major professional achievements, believe in self-discipline, commitment to professional ethics
and professional autonomy.
Span of Control - it refers to the number of subordinates that a manager can and need to rule
over them (supervise).
Specialization - it refers to the number of specialized tasks that exists within the organization
and the training period required by each of these specialized activities.
Standardization - it refers to the degree of behavioral variation that is tolerated by the rules and
regulations that define the activities specific to each position within an organization.

As we mentioned at the beginning of this chapter, there is no consensus regarding the

manner in which organizational structure is composed ("bricks" and rules that turn them into a
system). In this chapter we will attempt to define the organizational structure based on three
dimensions: complexity, formalization and centralization.

1. Complexity

The easiest way to define complexity is that it refers to the differentiation degree that
exists within an organization. According to Robbins there are three types of differentiation:
horizontal, vertical and spatial.
Horizontal differentiation - refers to the differences among organizational units, distinctions
based on the professional (occupational) orientation among members of an organization, on the
nature of the undertaken tasks and activities and on the educational and training level of the
members. In other words, the horizontal differentiation is direct proportional with the number of
diverse occupations that exists within the organization.
One of the main challenges resulted from this dimension of the organizational structure is
assigned to the communication obstacles, cooperation and attempts of effort coordination
difficulties among different groups of the organization. Horizontal differentiation can be better
understood if it is analyzed from the perspective of two dimensions connected with
communication and coordination: specialization and compartmentalization.
Specialization can be understood through group actions performed by different
individuals. There are two types of specialization:
 a. Functional specialization, a process in which the specific activity is fragmented into
simple and repetitive tasks, thereby creating division of labor, can easy cause substitution of
employees by management. In other words, this process is labor specialized.
b. Social specialization, process which refers to hiring professionals who have skills,
abilities and skills that do not exceed the level of routine activities. During this process
individuals are specialized.
Specialization is directly proportional to the complexity, resulting in horizontal
differentiation. In other words, as the organization needs in the order to fulfill its activity, a
higher level of specialization, then the organization will have a greater number of units and
departments - will be an "wide" organization.
Compartmentalization refers to the grouping procedure, way that brings together the
specialists resulted from the division of labor. It is how to try to overcome the problems caused
by specialization in an effort aimed at coordinating the work. In other words, is about joining
multiple organizational units within departments.
There are several criteria for creating departments:
• Number (simply divide the employees of an organization into departments by number)
• Function (what function it performs in the organization that department: production,
marketing, etc.)
• The product / service (what is the department producing)
• Client (the target group served by the department)
• Territory (the geographical area covered by the department)
In an organization it can be used multiple criteria in the order to achieve
compartmentalization. Example: if the basic criterion is the function, then we have the
department of finance, personnel, production and sales, etc. Also within the production
department we can have another grouping, clustering based on the criterion of product/service.
Then within the sales department we have another division based on the criterion of territory.
Vertical differentiation refers to the number of hierarchical levels within an organization.
"Height" of an organization represent the response to a high level of horizontal differentiation due
to the need for coordination. Determining factor for the vertical differentiation is "field control"
(span of control).
The span of control refers to the number of subordinates that a manager can effectively
and efficiently manage and oversee. The smaller the span of control is , the taller (higher) the
organization is (see figure).

Figure 1. The organizational "height" levels based on the span of control

Organizational Span of 4 Span of 8
Levels
1. 1 1
2. 4 8
3. 16 64
4. 64 512
5. 256 4096
6. 1024
7. 4096

The span of control differs based on the activity type (even within the same organization)
from one department to another department, from a scale (ranking) level to a hierarchical level.
Vertical differentiation along with the horizontal differentiation are both affecting the
way how the organization functions, the communication system, the management activity, etc. A
short comparison between the "tall" and "short" organizations is presented bellow (figure 2).

Figure 2. Comparison between "tall" and "short" organizations

Tall Organizations
• close supervision
• control is exercised and maintained by
the superior (leader)
• the functions of coordination and
communication are more complicated
• the organization is adapted to well-
structured tasks
• relatively low speed for the circulation
of information from top to bottom
Short Organizations
• communication chain is shorter and
simpler (easier)
• more relaxed supervision
• less chances/opportunities for
advancement/promotion
• personnel (employees) motivation is
harder (difficult) to be achieved
• the organization is adapted to non-
structured activities and tasks

The "height" of an organization can be classified based on two criteria (factors), (at least):
a) the size of the organization; bigger organizations tend to be "taller" at the
structural level.

b) the activity type; some processes and areas of activity need or require more
coordination and supervision.
Spatial differentiation refers to the geographical dispersal level within the organization. This
particular component of the organizational structure (spatial differentiation) is in relation of
direct proportionality with complexity, horizontal and vertical differentiation.

Like the vertical differentiation, the spatial differentiation is also influenced by certain
aspects and organizational features:
a) the number (as many units/branches within as many places/areas)

b) the distance ( the distance between those units/branches)

It should be mentioned that the three types of differentiation (horizontal, vertical, spatial)
are not a mandatory component for every type of organization. In some situations, there can be
organizations with a high level of horizontal differentiation and a lower level of vertical and
spatial differentiation (e.g. high schools). But the combination of them can accurately describe
the size of the organizational complexity.

2. Formalization

The formalization can be defined as the degree to which jobs activities (occupations)
within an organization are standardized using rules and procedures, job descriptions, etc. The
main object of the formalization is rendered by the employees' behavior, in other words the
attempt in trying to reduce variations in the behavior patterns of the staff. In this way the chance
of emergence of unwanted behavior alternatives by the organization, is eliminated (or reduced).
The formalization can be carried out by formal or informal means. In this course we refer
only to "formal", standardization based on written rules; in other words, only the explicit
(specific) formalization.
Regarding the degree of formalization, there are various differences between
organizations, based on:
a) the type of activity/work. Simple and repetitive job tasks are better suited to a high
degree of formalization. In other words, if we are talking about well-structured problems,
we can afford a high degree of formalization

b) the hierarchical level. The formalization tends to be inversely (oppositely) proportional

with the hierarchical level, which is logically a logical extension of the previous point
(point a).

Through formalization we can achieve:

 • Standardization of the behavior. This reduces the number of behavior's
alternatives among employees and it facilitates the coordinating and bringing into
uniformity the organizational performance standards. E.g. : one of the
organizations with the highest degree of formalization is McDonalds; the
company manual is 385 pages long and it provides everything starting from the
employees' appearance through how they (employees) should act and behave (e.g.
welcoming and greeting the customers) and also to the manner and conditions that
delineate the company's promotions.
• Standardization facilitates coordination. When things are clear and well defined,
coordination is more efficient and easier.
• Standardization generates economies of scale (savings). High standardized jobs
do not require special skills, so those jobs can be paid less because they do not
require to hire specialists ( this is one reason that many large organizations,
including McDonalds are encouraging a high degree of formalization).

Obviously, not all departments of an organization have the same degree of formalization,
just as the standardization is not the same for all hierarchical levels. It resembles the
organizational span of control.
At this level of acknowledgement, we shall discuss a particular problem: the
object of formalization is the behavior. It (behavior) can be externalized or internalized.
The first type of behavior (externalized) can be standardized through written policies and
procedures, clearly defined, issued by the management staff. The purpose of this
formalization are simple and routine job tasks (work chores). The second type of
standardization and behavior (internalized) concerns the professionalization, the
internalization of a behavior pattern through social specialization (see the horizontal
differentiation). The process we refer here is the socializing process that implies that
some type of employees come into the organization "pre-programmed" due to their
previous professional training (education and training both at work and within previous
educational institutions). As Robbins says: "(...) one of the main tasks of a business
school is to socialize students according to the attitudes and behaviors that companies
want or require ". So the problem is this: the organization is able to build its behavioral
patterns, apply it to its employees, and through formalization to bring the employees to a
common denominator; OR the organization can buy (employ) individuals who already
have internalized the behavioral patterns that the organization desires and needs only
"adjustments". Management must decide on the degree of formalization that wants to
have within organization and on the way of achieving the standardization - meaning
"buying" or acquiring through own effort.

Regarding the ways to obtain the wanted degree of formalization, the literature
considers that there are five main techniques:

1. Personnel Selection - by selecting only those candidates that fit and have the
behaviors desired by the organization. One of the most used techniques by
 organizations is selecting an individual who is a good professional and fits the
moral and behavioral profile of the organization. Obviously, the selection must be
carried out carefully in the case of unskilled workers, since the "professionals" are
coming into the organization exhibiting an already established (patterned)
behavior.

2. Job Requirements - it implies mainly the job description; it comprises a

summary of job specific activities and the means of fulfilling them - a precise
method regarding standardization of behaviors.

3. Rules, Procedures and Policies - they have a direct and clear impact on behavior
by being the most explicit form of formalization. For details, see table 3.

Table 3. Definition of Rules, Procedures and Policies

Rules are explicit (distinct) assertions that tell an employee what should or should
not do, how and when. Example: the dispatch/receiving reports should be written
on forms B-446 in duplicate, in 30 days of arrival or dispatch of goods.
Procedures refer to the number of interconnected and sequential stages that
employees are following during the implementation of their activities; they are
used to standardize the work process. Example: what do you do when you receive
a commodity (merchandise), what do you sign, where and how do you deposit the
commodity. Procedures are a set of rules that are applied and linked within a
process.
Policies are general guidelines that limit or guide the decisions adopted by the
employees. Policies are using general terms. Example: "The management
department aims to pay high/competitive/sufficient wages" - it reflects three
different personnel policies.

4. Professional Training - there are two types of professional training: at the workplace
or outside it, both are intended to confer standardized attitudes and behaviors on
employees of the organization (of course, in addition to appearance of the vocational
training).

5. Rituals - this technique is used as a mean of formalizing, especially for those members
and organizational positions which have a strong impact on organization. The employee-
candidate is extensively tested, to see if he is worth (suitable) to the job position X, then
he is given that position X, which is considered a reward in and of itself. The difference
between ritual and promotion/selection is the symbolic dimension of the first technique.
Due to this, it is only used for top management positions or job positions where
attachment to the organization and exhibition of "the right type of behavior" are
particularly important (spokesman of the organization, person-image of the organization,
positions of "senior management", etc.).

3.Centralization

Centralization can be defined as the degree to which decision-making process is

concentrated at a single level within the organization. It is not about other form of spatial
differentiation, what interests us here is the dispersion of authority and not the
geographical one.
Given the approach adopted so far, it is clear that we are interested only in formal
authority. From this point of view the things are clear: centralization is directly
proportional to the formal authority, to the hierarchical levels. Informally, things are less
clear: individuals who are occupying lower positions within the organizational hierarchy
can influence due to their organization's informal status. Moreover, formal relationships
and prestige/authority/power that are conferred by them may not be consciously
concentrated at a single level.
Yet, another specification should be made: the concentration of the decision-
making at one level refers either to an individual, either to an organizational unit or
hierarchical level. Usually, we talk about concentration of the decision-making at a single
level that is located in the upper areas of the organizational pyramid.
Since we are talking about the decision-making process, we must include in the
discussion the dissemination of information and communication system. The quality of
information and communication, the information flowing direction, the degree of access
and control - are the main items that we are interested in the field of the prospect of
discussions about centralization. For example, through the process of filtering and
selective transmission of information, the subordinates are able to influence the
management and its decisions. When we used the term "control" we meant the control of
the communication from top to bottom and vice-versa in the process.
Summarizing, we can say about centralization the following:
• Centralization refers only to the formal structures

• Centralization is inversely proportional to the decisional autonomy - the

organization's policy may favor or disfavor centralization
 • Concentration of the decision-making in a single point involves grouping the
decision-making at a high level, no matter what the phrase " in a single point"
means

• Centralization is strongly influenced (positively or negatively) by the

communication system of the organization, especially by the extent to which this
system is controlled by the management and is used as means of control

• Centralization / Decentralization are strongly influenced by the extent to which

lower levels of the organizational hierarchy have a say in the decision-making
process, through the use of information transmission, by/due to the explicit rules,
procedures and policies and also by/due to the degree of complexity and
formalization within the organization
The discussion about centralization can be best carried by comparing it with its
opposite process - decentralization:
a) Managers have limitations in terms of information processing capacity;
therefore it is not recommended a centralization level that is too high -
decentralization can help in many situations. In other words, decentralization
represent only an efficient management measure, and not a value in and of
itself.

b) Organizations need often, a quick response to the environmental changes and

pressures - again, decentralization is recommended (less hierarchical levels
reduce the reaction time).

c) Decentralization encourages a better understanding of the phenomenon,

problem that needs to be solved (situation is controlled by the individuals who
are at the closest level to the solving problem)

d) Decentralization allows employees' participation in decisions: increases the

level of motivation

e) Decentralization provides greater learning opportunities to the members of the

organization, at all hierarchical levels.
 f) Decentralization is not recommended in all cases. For example, for legal or
financial decisions, a certain centralization level is required. Also, setting the
organization' strategy involves a high position within the hierarchy of the
organization, and also collecting, synthesizing and analyzing information
necessary for strategic planning are necessarily requiring an overview.
g) Decentralization can create activity coordination problems and problems
regarding standards compliance (of performance, ethical, etc.) of the
organization.

In conclusion, the recommendation would be to encourage decentralization

(autonomy at the position level, autonomy at the lower levels of the organizational hierarchy) in
the context of a coherent and well-organized plan, and unified for the entire organization.