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ORGANIZATIONAL STRUCTURE MEANING

Structure refers to how tasks are divided, resources deployed and how the departments co-ordinate in order to achieve the goals.

It is the sum of ways an organization assigns its people/employees to distinct tasks/jobs and co-ordinates them.

It describes the existing divisions and clusters of tasks and people within an organization. It identifies the responsibilities, directing and reporting relationships of people and departments. For example, in a college, there would be divisions such as Biology, Chemistry, Mathematics, Physics etc. These are headed by a particular person who looks after the efficient running of the department. This is the structure of that college.

FEATURES/CHARACTERISTICS Structure has following characteristics:

Formalization is the degree to which jobs are standardized through rules, clear job descriptions and
standard procedures.

The standard procedure for obtaining a leave, or the way how a particular job has to be done or
how a product is to be priced.

Specialization i.e. the degree to which organizational tasks are sub divided into separate jobs. It is
sometimes also referred to as division of labor. Boeing has engineers who specialize in designing wings and others who design airplane doors. Among those who design doors, some focus only on the hinges, others on the locking mechanisms that keep the doors sealed at 35, 000 feet.

Hierarchy of authority describes reporting relationships and how many people report to a particular
manager i.e. the span of control of a manager.

Centralization restricts decision making to few individuals, usually at the top of the organization.

The span of control is influenced by the following factors: (the detailed explanation is given in the back-up document)

Job complexity Job similarity Geographic proximity of supervised employees Abilities of managers Amount of coordination Degree of employee empowerment Ability of management Technology

Span of Control or span of management is a dimension of organizational design measured by the number of subordinates that report directly to a given manager. This concept affects organization design in a variety of ways, including speed of communication flow, employee motivation, reporting relationships, and administrative overhead. Span of management has been part of the historical discussion regarding the most appropriate design and structure of organizations. HISTORICAL DISCUSSION OF SPAN OF CONTROL A small, or narrow, span of control results in each manager supervising a small number of employees, while a wide span of management occurs when more subordinates report directly to a given manager. A small span of management would make it necessary to have more managers and more layers of management to oversee the same number of operative employees than would be necessary for an organization using a wider span of management. The narrower span of management would result in more layers of management and slower communications between lower level employees and top level managers of the firm. Recent moves to downsize organizations and to eliminate unnecessary positions has resulted in many organizations moving to wider spans of management and the elimination of layers of middle-level managers. An argument for a narrow span of control was presented by V.A. Gaicunas, who developed a formula showing that an arithmetic increase in the number of a manager's subordinates resulted in a geometric increase in the number of subordinate relationships that a manager had to manage. According to Gaicunas, managers must manage not only one-to-one direct reporting relationships, but also relationships with various groups of subordinates and the relationships that exist between and among individual subordinates. The formula is shown below: where I is the total number of interactions

and N is the number of subordinates. Therefore, if a manager has two subordinates, there are 6 potential relationships to manage. However, if the manager's subordinates are increased to three, then the number of relationships is increased to 18. As the number of relationships increased, Gaicunas argued, the sheer number of interactions would exceed the abilities of the manager. Researchers generally argue that a small span of management and a "tall" organization structure will be more expensive to operate because of the large number of managers and it may have communication problems resulting from the multiple levels of management. Such organizations are often seen as well suited for a stable, certain type of environment. A "flat" organization design resulting from a wider span of management would require managers to assume more administrative duties since those activities would be shared by fewer employees. It will also result in more employees reporting to each manager, increasing the managers' supervisory responsibilities. However, some research also suggests the wider span of management may cause employees to feel greater ownership of their work and increase their motivation, morale, and productivity. This type of organization design is often seen as effective in more uncertain environments. FACTORS THAT MAY AFFECT SPAN OF CONTROL While early discussions of span of control often centered on pinpointing the optimal number of subordinates, a number of factors may influence the span of control most appropriate for a given management position. Assuming that all other aspects of a manager's job are the same, these factors would likely alter the span of management as follows: 1. Job complexity. Subordinate jobs that are complex, ambiguous, dynamic or otherwise complicated will likely require more management involvement and a narrower span of management. 2. Similarity of subordinate jobs. The more similar and routine the tasks that subordinates are performing, the easier it is for a manager to supervise employees and the wider the span of management that will likely be effective. 3. Physical proximity of subordinates. The more geographically dispersed a group of subordinates the more difficult it is for a manager to be in regular contact with them and the fewer employees a manager could reasonably oversee, resulting in a narrower span of management. 4. Abilities of employees. Managers who supervise employees that lack ability, motivation, or confidence will have to spend more time with each employee. The result will be that the manager cannot supervise as many employees and would be most effective with a narrower span of management. 5. Abilities of the manager. Some managers are better organized, better at explaining things to subordinates, and more efficient in performing their jobs. Such managers can function effectively with a wider span of management than a less skilled manager.

6. Technology. Cell phones, email, and other forms of technology that facilitate communication and the exchange of information make it possible for managers to increase their spans of management over managers who do not have access to or who are unable to use the technology. The trend in recent years has been to move toward wider spans of control to reduce costs, speed decision making, increase flexibility and empower employees. However, to avoid potential problems of wide spans of control, organizations are having to invest in training managers and employees and in technology enabling the sharing of information and enhancing communication between and among managers and employees.

IMPORTANCE TO THE ORGANIZATION

Structure translates the vision of the organization. It ensures flow of communication. Reporting relationships Career Path KRAs Span of control Power and authority

DETERMINANTS OF STRUCTURE External/outside business environment Technology used by the organization Objectives/Mission People and Culture Size of the organization

TYPES OF STRUCTURES I. FUNCTIONAL STRUCTURE

A simple single level of management structure.

It works best when the organization has few products, few locations, few types of customers, a stable environment and routine technology.

CEO

MANUFACTURING

SALES

R&D

ACCOUNTIN G AND FINANCE

II.

DIVISIONAL STRUCTURE A division is a collection of functions working together to produce a product. Divisions create smaller, manageable parts of a firm. These could be product-based, geographical location based or market based. PRODUCT STRUCTURE The divisions are created according to the goods and/or services produced such as detergents, soaps, cosmetics, clothes etc or the washing machine division, lighting division and the television division.

CEO

SOUP DIVISION

NUTS DIVISION

MANUFACTURING

SALES

MANUFACTURING

SALES

GEOGRAPHIC STRUCTURE Such divisions are based on the area or region of locations of the organization such as the Northern region, the Eastern region, the Western region and the Southern region. For example, Apple has a geographic structure with the Global Headquarters heading the Apple divisions of Apple U.S.A, Apple Europe, and Apple Pacific.

CEO

NORTHERN DIVISION

EASTERN DIVISION

WESTERN DIVISION

SOUTHERN DIVISION

MARKET STRUCTURE

The divisions are based on the type of customer and the market segments the organization caters to such as large business customers, small business customers, individual and institutional customers.

CEO

CORPORATE CUSTOMERS

INDIVIDUAL CUSTOMERS

CUSTOMER SALES SERVICE SALES

CUSTOMER SERVICE

III.

MATRIX STRUCTURE Used when both technical expertise and product innovation and change are important for meeting organizational goals. The product managers and functional managers have equal authority within the organization and employees report to both of them. Useful in a highly fluctuating environment where there is a pressure for two or more critical outputs, such as for in depth knowledge and new products.

IV.

TALL AND FLAT STRUCTURES

A tall structure has many levels of authority relative to the size. It is a centralized structure that discourages initiative and can distort verbal communication. A flat structure has few levels but a wide span of control i.e. more number of people report to a single manager.

This increases autonomy among the subordinates and is suitable in an unstable environment. A flat structure is getting maximum work done with the minimum number of people.

A STUDY ON STRUCTURE A study conducted had the following findings related to how structure is perceived to be in various sectors in India: The I.T. sector was less formal i.e. the employees have considerable freedom in carrying out work. The IT sector was also seen as least routine which means that newer tasks and challenges give multiple opportunities to the employees to grow and develop themselves.

The heavy industry sector was the most routine, with maximum adherence to rules and regulations. One possible reason for this outcome could be its requirements of assembly-line and automation, which leaves less room for non-routine activities.

The financial sector was in-between the heavy industry and IT sector. One of the possible reasons for this could be the reforms initiated in the financial sector post 1990s (when Indian economy was opened for globalization) changed the working styles of these organizations.

The results also showed that with the increase in age, experience and hierarchical level, routinization and adherence to rules and regulations increased. One can conclude from this finding that advancing age, experience and hierarchical level make a person rigid and inflexible in approach.

At the same time increase in age, experience, and hierarchical level also led to an increase in autonomy dimension. This means that empowerment enjoyed by people increases with age, experience and hierarchy. The autonomy dimension is often used in establishing informal relations and networking within the organizations. It enables to expedite the work irrespective of the bureaucratic hassles. It can be concluded that in the Indian context there is the presence of informal structure, which refers to the informal relationship network among people occupying higher strategic positions.

CASE EXAMPLES Reliance Industries in 2006, formulated its growth strategy to suit the changing business environment. It created such a structure that was less bureaucratic and enabled decisions to be made faster. It was flexible to adapt to the needs of the employees and hence Reliance went for a multidivisional structure with the operational and day to day decisions taken by the business units independently function wise i.e. manufacturing, HR, etc. Also, the coordination of these divisions was done by an Executive Committee while the top management had to take all strategic decisions.

Zee Telefilms Limited has a flat organizational structure with few levels of hierarchy. It provides ample opportunities for vertical as well as cross functional growth to its performers. According to the companys growth policy, a management trainee can reach the level of Executive Vice President within a span of 12-15 years.

In Sony Corporation each network company is delegated with authority from the corporate headquarters, and pursues the management of their respective business domains as self-contained, autonomous business units. To enable each network company to operate autonomously, essential support functions and R&D

laboratories are transferred from the corporate headquarters to each unit. In addition, companies and divisional companies were formed under the network company structure.

The organizational structure at Tata Power is as follows:

BOARD OF DIRECTORS

COMPANY SECRETARY

GENERAL MANAGER/CEO

MANAGER LOAD DISPATCH

MANAGER MARKETING

MANAGER FINANCE

Infosys Technologies Limited has adopted a free form organization devoid of hierarchies. Everyone is known as associates irrespective of his position in the company. Software development is undertaken through teams and the constitution of teams is based on the principle of flexibility. A member who might have been team leader in one project may be replaced by another member of the same team for another project. This system not only helps in creating the feeling of equality but also helps in developing project leaders.

Unilever's new organization provides single point accountability and has fewer management layers to deliver faster decisions and faster execution. HUL and group have about 15,000 employees with a total of 1200 managers. The Apex body consist of a Non-executive Chairman (Unilever), 4 Executive Directors and 5 Independent non-executive Directors. The functional distribution is as follows: Sales and Marketing Human resources Commercial Information Technology

Research Technical

The category distribution is as follows: Soaps and Detergents Exports Processed foods Beverages Personal products Ice-creams Others

For Wipro Technologies, the hierarchical structure is as follows:

CHAIRMAN

CEO
VERTICAL MANAGER

DELIVERY MANAGER PROJECT MANAGER MODULE LEADER PROJECT ENGINEER

NTPC i.e. the National Thermal Power Corporation has a complex structure with many levels of management.

ITC has a 3-tier management structure with the Chairman and the board of Directors at the top for strategic supervision followed by a Corporate Management Committee for strategic management and the SBU CEO is in the third tier for executive management.

Theory:

An organization, by its most basic definition, is an assembly of people working together to achieve common objectives through a division of labor. People form organizations because individuals have limited abilities. An organization provides a means of using individual strengths within a group to achieve more than can be accomplished by the aggregate efforts of group members working individually. Business organizations (in market economies) are formed to profit by delivering a good or service to consumers. Over the years there have been countless theories and models of how business organizations function and what their essential characteristics are. One widely held view, for example, is that at their core organizations are information processing systems, where information includes knowledge about products, markets, production methods, management techniques, finance, laws, and the many other factors involved in running a business. A successful organization, the theory goes, acts on relevant information and ignores the irrelevant. Ultimately, the organization that excels at processing information facilitates learning and the development of new knowledge. Other models of organizations focus on traits such as power and subordination, culture and adaptation, and efficiency. Organization theory is examined here primarily from a historical perspective that briefly summarizes its evolution. The open-systems theoryhe dominant school of thought throughout most of the 20th centurys examined in greatest detail, while organizational characteristics and structures are also reviewed. Organization Theory: According to D.S. Pugh, Organisation theory is the study of functioning and performance of organ sations and of the behaviour of groups and individuals working in them. It is a set of interrelated concepts definitions, and propositions which provide a systematic view of behaviour of individuals and groups in some relatively patterned sequence of activity.

Organisation theory is predominantly descriptive and predictive in nature. It describes what an organisation is and what will occur under certain types of structural designs. It also describes interactions between an organisation and its environment. It furnishes information about the state of affairs, rather than prescribing what. 2.2. Objectives and uses of organisation theory The basic objective of organisation theory is to explain and predict the process and behaviour patterns in organizational settings. It focuses attention on social or human grouping and provides a framework for understanding and explaining human behavour in organization. It provides a scientific basis for managerial actions designed to improve organisational

effectiveness. It seeks to analyse inner processes in organisations with a view to discover the important variables governing organisational behaviour. Organisation theory provides the practising managers guidelines as to how they should work in different situations. Managers can achieve efficiency and effectiveness without going through the costly trial-and-error methods. Organisation theory helps a researcher by providing a mechanism for testing hypotheses about organisations and to improve the theory further. In this way, future horizons of knowledge can be expanded. Organisation theory, however, has not yet emerged as a unified body. It is not a homogeneous science based on generally accepted principles. Intellectuals with widely varying backgrounds have made contributions which cause confusion and contradictions. These contributions have not been suitably integrated into a single theory of organisation. Each theory is based upon a different set of assumptions and value judgements. Consequently each theory prescribes different structures and processes. Yet each of them focuses on how organisations can be made more effective. 2.3. Different Theories of Organisation The different theories of organisation may be divided into four broad categories: 1. Classical organisation theory, 2. Neo-classical or Behavioural theory, 3. Systems organisation theory (Modern organisation Theory) and 4. Contingency theory 2.3.1. Classical Organisation Theory The classical theory is the beginning of a systematic study of organisations. This theory has dealt mainly with anatomy of formal organisations. Organisation is viewed as a machine and human beings as different components of that machine. Therefore, efficiency can be increased by making each individual working in organisation efficient. For example, F.W. Taylor stressed upon the division of labour, standardisation of tasks, analysis and measurement of jobs, etc., to make effective use of human beings in industrial organisations. That is why Taylors Scientific Management is often called physiological organisation theory or machine theory. Taylor and his associates gave a rigid and static machine model of organisations. 62 ________ ___________ _______ ___ ORGANISATION THEORY

While scientific management group was primarily concerned with problems at the operative level, Henri Fayol, the father of administrative management, viewed the organisational problems from the top level. Mooney and Reiley, Urwick, Gullick and Sheldon made significant contributions to classical organisation theory. But all of them were concerned with the structure of organisations. Like Taylor they treated organisations as closed systems and did not study the influence of external environment on organisations. Their approach is, therefore, known as structural theory. It focuses on the structure, processes and principles of organisations. Max Weber, a German social scientist, is regarded as the father of bureaucracy. The bureaucratic model is characterised by specialisation. hierarchy of authority, rules. Impersonal relations and trained personnel. Weber emphasised that bureaucratic organisation is the most rational means of exercising imperative control over human beings. The main pillars or elements of classical organisation theory are as follows: 1. Division of labour. Division of work is the pivot around which the classical theory revolves. It implies that work must be divided to obtain a clear-cut specialisation with a view to improve the performance of workers. It is based on the assumption that the more a particular job is broken down into its simplest component parts, the more specialised a worker can become in carrying out his part of the job. The more specialised a worker becomes in his particular job, the more efficient the whole organisation will be. Division of work requires identification and differentiation of tasks and their division into sub-tasks. 2. Departmentalisation. Division of work is followed by assignment of work to individuals responsible for its performance. This requires grouping of various activities and jobs into departments so as to minimise costs and to facilitate administrative control. This is known as departmentation. Gullick and Urwick have suggested five alternative bases for departmentation: purpose, process, clientele, place and time. 3. Coordination. The classical theory pointed out that the division of work should be balanced by unity of control. There should be a single centre of authority and control in the organisation so that various jobs leading to the final product can be coordinated. Each individual in the

organisation is related with others and his functions affect other functions. Therefore, orderly arrangement of group effort is necessary to provide unity of action in pursuit of common purpose. There should be harmony among diverse functions. 4. Scalar and functional processes. These processes deal with the vertical and horizontal growth of the organisation respectively. Scalar chain refers to a senes of superior-subordinate relationships from the top to the bottom of the organisation. It serves as a means of delegation of authority (command), communication (feedback) and remedial action (decision). It is based on the principle of unity of command which means that each subordinate is responsible to one superior only. The functional process is concerned with division of the organisation into specialised parts and sub-parts and their regrouping on the basis of similarity and compatibility. The emergence of line and staff in a formal organisation is denoted by this process.

Mintzbergs Model on Organisational Structures The Five Parts This note summarises the key features of Henri Mintzbergs theory on the structuring of organisations, which he presented in his book The Structuring of Organisations and Structure in 5's: Designing Effective Organizations in the early 1980s. According to Mintzberg organisations are formed of five main parts:

Operating core

Those who perform the basic work related directly to the production of products and services Strategic apex Charged with ensuring that the organisation serve its mission in an effective way, and also that it serve the needs of those people who control or otherwise have power over the organisation Middle-line managers Form a chain joining the strategic apex to the operating core by the use of delegated formal authority Technostructure The analysts who serve the organisation by affecting the work of others. They may design it, plan it, change it, or train the people who do it, but they do not do it themselves Support staff Composed of specialised units that exist to provide support to the organisation outside the operating work flow

Pressures Each of these five parts has a tendency to pull the organisation in a particular direction favourable to them

Strategic Apexes centralisation Support Staff - collaboration Technostructures - standardisation Operating Core professionalisation Middle Line - balkanisation

Five Generic Structures There are five generic organisation structures which can be described in terms of the five-part theory: Simple structure, Machine bureaucracy, Professional bureaucracy, Divisionalised form, Adhocracy.

Simple Structure

The simple structure, typically, has little or no technostructure, few support staffers, a loose division of labour, minimal differentiation among its units, and a small managerial hierarchy. The behaviour of simple structure is not formalised and planning, training, and liaison devices are minimally used in such structures.

Coordination in the simple structure is controlled largely by direct supervision. Especially, power over all important decisions tends to be centralized in the hands of the chief executive officer. Thus, the strategic apex emerges as the key part of the structure. Indeed, the structure often consists of little more than a oneperson strategic apex and an organic operating core Most organizations pass through the simple structure in their formative years. The environments of the simple structures are usually simple and dynamic. A simple environment can be comprehended by a single individual, and so enables decision making to be controlled by that individual. A dynamic environment means organic structure: Because its future state cannot be predicted, the organization cannot effect coordination by standardization Machine Bureaucracy

The design of a machine bureaucracy tends to be as follows: highly specialised, routine operating tasks; very formalised procedures in the operating core;

a proliferation of rules, regulations, & formalised communication; large-sized units at the operating level; reliance on the functional basis for grouping tasks; relatively centralised power for decision making; an elaborate administrative structure with sharp distinctions between line and staff.

Because the machine bureaucracy depends primarily on the standardization of its operating work processes for coordination, the technostructure emerges as the key part of the structure Machine bureaucratic work is found, in environments that are simple and stable. Machine bureaucracy is not common in complex and dynamic environments because the work of complex environments can not be rationalized into simple tasks and the processes of dynamic environments can not be predicted, made repetitive, and standardized The machine bureaucracies are typically found in the mature organizations, large enough to have the volume of operating work needed for repetition and standardization, and old enough to have been able to settle on the standards they wish to use The managers at the strategic apex of these organizations are mainly concerned with the fine-tuning of their bureaucratic machines. Machine bureaucracy type structures are "performance organizations" not "problem solving" ones. Professional Bureaucracy

The professional bureaucracy relies for coordination on: the standardization of skills and its associated parameters such as design, training and indoctrination. In professional bureaucracy type structures duly trained and indoctrinated specialists -professionals- are hired for the operating core, and then considerable control over their work is given to them. Most of the necessary coordination between the operating professionals is handled by the standardization of skills and knowledge especially by what they have learned to expect from their colleagues.

Whereas the machine bureaucracy generates its own standards the standards of the professional bureaucracy originate largely outside its own structure (especially in the self-governing association its operators join with their colleagues from other professional bureaucracies). The professional bureaucracy emphasizes authority of a professional nature or in other words "the power of expertise". The strategies of the professional bureaucracy are mainly developed by the individual professionals within the organization as well as of the professional associations on the outside. Divisionalised Form

Divisionalised form type organizations are composed of semi-autonomous units - the divisions. The divisionalised form is probably a structural derivative of a Machine Bureaucracy - an operational solution to co-ordinate and controls a large conglomerate delivering: 1. Horizontally diversified products or services 2. In a straight-forward, stable environment 3. Where large economies of scale need not apply. If large economies of scale were possible the costs and benefits of divisionalisation would need careful examination. The modern, large holding company or conglomerate typically has this form Like the Professional Bureaucracy, the Divisional Form is not so much an integrated organization as a set of quasi-autonomous entities coupled together by a central administrative structure. But whereas those "loosely coupled" entities in the Professional Bureaucracy are individualsprofessionals in the operating corein the Divisionalised Form they are units in the middle line. These units are generally called divisions, and the central administration, the headquarters The Divisionalised Form differs from the other four structural configurations in one important respect. It is not a complete structure from the strategic apex to the operating core, but rather a structure superimposed on others. That is, each division has its own structure. Most important, the Divisionalised Form relies on the market basis for grouping units at the top of the middle line. Divisions are created according to markets served and they are then given control over the operating functions required to serve these markets. Adhocracy

Adhocracy includes a highly organic structure, with: little formalization of behaviour; job specialization based on formal training; a tendency to group the specialists in functional units for housekeeping purposes but to deploy them in small, market-based project teams to do their work; a reliance on liaison devices to encourage mutual adjustment, the key coordinating mechanism, within and between these teams

The innovative organization cannot rely on any form of standardization for coordination. Consequently, the adhocracy might be considered as the most suitable structure for innovative organizations which hire and

give power to experts - professionals whose knowledge and skills have been highly developed in training programs. Managers (such as functional managers, integrating managers, project managers etc.) abound in the adhocracy type structures. Project managers are particularly numerous, since the project teams must be small to encourage mutual adjustment among their members, and each team needs a designated leader, a "manager." Managers are also functioning members of project teams, with special responsibility to effect coordination between them. To the extent that direct supervision and formal authority diminish in importance, the distinction between line and staff disappears.