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Organization Design &

Identification of Activities Division of Work

Grouping of Activities Departmentation

Assigning Activities Hierarchy

Delegation of Authority
Factors Affecting Organizational

Determine design
Strategy or organizational Technology

Resources (Size)
Determinants of Structure
■ The environment: The quicker the environment
changes, the more problems face managers.
 Structure must be more flexible when environmental
change is rapid.

■ Strategy: Different strategies require the use of

different structures.
 A differentiation strategy needs a flexible structure, low
cost may need a more formal structure.
 Increased vertical integration or diversification also
requires a more flexible structure.
Determinants of Structure
 Technology: The combination of skills, knowledge, tools,
equipment, computers and machines used in the organization.
 More complex technology makes it harder for managers to
regulate the organization.

■ Human Resources: the final factor affecting organizational

 Higher skilled workers who need to work in teams usually need
a more flexible structure.
 Higher skilled workers often have professional norms (CPA’s,
Managers must take into account all four factors (environment,
strategy, technology and human resources) when designing
the structure of the organization.
Organization Structure
 Defines the primary reporting relationships
that exist within an organization.
 The chain of command and hierarchy of
responsibility, authority, and accountability are
established through organizational structure.
 Common Forms of Organizational Structure
 Functional structure
 Divisional structure
 Matrix structure
 Network structure
In a Line Organization all managers have direct authority over their
respective subordinates, through Scalar chain of command.
Scalar chain of command

Managing Director A direct relationship between superior

and subordinate works as:
As a chain of command
Production Manager
As a channel of communication
As a carrier of responsibility
Production Superintendent

i. Simplicity
ii. Clear-cut division of authority and responsibility.
iii. Strong discipline
iv. Unified control
v. Prompt decisions
vi. Flexibility

i. Heavy burden of work

ii. Concentration of authority
iii. Lack of specialization
iv. Lack of communication
v. Scope for favoritism
Line and Staff
The line and staff organization refers to an organization in which two
types of authority relationships co-exists. They are Direct or Line
authority and Advisory Authority.
Staff managers advice ,support and serve line managers.

Following are the characteristics of the line and staff organization:

 Managers are of two types-Line Managers and Staff managers.

 The line managers perform the functions of decision-making,

issuing orders and controlling while the Staff managers perform the
functions of advising, assisting and providing expert and
specialized services.

 There is a unity of command.

 There is a scalar chain.

Line & Staff Organization
StructureChief Executive
Asst. to Chief Executive

Personnel Manager R&D Manager Mfg. Manager Mktg. Manager

Qty. Ctrl. Manager Plant Manager Plant Manager

Industrial. Product
Industrial Relations Manager manager
Consumer Product
Training manager manager
Marketing Research
Employ service manager manager
1. Specialization
2. Encouragement to research and development
3. Balanced decisions
4. Less burden on line managers

1. Confusion
2. Ineffectiveness of the staff
3. Conflict between the line and staff.
Functional Organisation
 Members of the organization are grouped according
to the particular function that they perform within the
 Appropriate when an organization’s greatest source of
complexity comes from the diverse tasks that must be
performed rather than from its products, geographic
markets, or consumer groups.
 People with similar skills and performing similar
tasks are grouped together into formal work units.
 Members work in their functional areas of expertise.
 Are not limited to businesses.
 Work well for small organizations producing few
products or services.
Potential Advantages of functional
 Economies of scale.
 Task assignments consistent with expertise and training.
 High-quality technical problem solving, In-depth training and skill
 Clear career paths within functions.

Potential Disadvantages of functional

 Difficulties in pinpointing responsibilities.
 Sense of cooperation and common purpose break down.
 Narrow view of performance objectives.
 Excessive upward referral of decisions.
Sr. Feature Line Line and Staff Functional
No. Organization Organization Organization
1. Simplicity High Not So High Low

2. Suitability For small For medium and For large enterprises

enterprises large enterprises
3. Specialization Low Moderate High

4. Work load of High Moderate Uneven

5. Unity of Strictly observed Observed to great Not observed in
Command extent general
6. Economy High Moderate Low
Divisional Structures
 A division is a collection of functions working together to produce a

Product structure: divisions created according to the type of
product or service.

Geographic structure: divisions based on the area of a country
or world served.

Market structure: divisions based on the types of customers
Product Structure

C o r p o r a tio n

C o rp o ra te
M a n a g e rs

W a s h in g M a c h in e L ig h tin g T e le v is io n
D iv is io n D iv is io n D iv is io n
Geographic Structure

C o r p o r a tio n

C o rp o ra te
M a n a g e rs

N o rth e rn W e s te rn S o u th e rn E a s te rn
R e g io n R e g io n R e g io n R e g io n
Market Structure

C o r p o r a tio n

C o rp o ra te
M a n a g e rs

L a r g e B u s in e s s S m a ll B u s in e s s E d u c a tio n a l In d iv id u a l
C u s to m e rs C u s to m e rs In s titu tio n s C u s to m e rs
Matrix Organisation
A structure in which the tasks of the
organization are grouped along two
organizational dimensions simultaneously.
 Examples include:
 Product/function
 Product/geographic region