Organizational Structure

An organizational structure consists of activities such as task

allocation, coordination and supervision, which are directed
towards the achievement of organizational aims. It can also be
considered the perspective through which individuals see their
organization and its environment.
An organization can be structured in many different ways,
depending on their objectives. The structure of an organization
will determine the modes in which it operates and performs.

Organizational structure allows the expressed allocation of

responsibilities for different functions and processes to different
entities.

Factors affecting organizational structure:

The environment: The quicker the environment changes, the

more problems face by managers.
• Structure must be more flexible when environmental
change is rapid.
 – Usually need to decentralize authority.

Strategy: Different strategies require the use of

different structures.
• 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.

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. Technology can be measured by:
– Task Variety: new problems a manager
encounters.
– Task Analyzability: programmed solutions
available to a manager to solve problems.
• High task variety and low analyzability present many
unique problems to managers.

– Flexible structure works best in these conditions.

• Low task variety and high analyzability allow managers to
rely on established procedure.
Human Resources: the final factor affecting organizational
structure.
• Higher skilled workers who need to work in teams usually
need a more flexible structure.

• Higher skilled workers often have professional norms

(CPA’s, physicians).

Human Resources: the final factor affecting organizational

structure.
• Higher skilled workers who need to work
in teams usually need
a more flexible structure.
• Higher skilled workers often have
professional norms (CPA’s,
physicians).

So, managers must take into account all four factors

(environment, strategy, technology and human resources)
when designing the structure of the organization.
Organizational structure affects organizational action in two big
ways. First, it provides the foundation on which standard
operating procedures and routines rest. Second, it determines
which individuals get to participate in which decision-making
processes, and thus to what extent their views shape the
organization’s actions.
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Present Trend: Organizational circle: moving back to flat

The flat structure is common in small companies (enterprenerial
start-ups, university spin offs). As the company grows it becomes
more complex and hierarchical, which leads to an expanded
structure, with more levels and departments.
In general, over the last decade, it has become increasingly clear
that through the forces of globalization, competition and more
demanding customers, the structure of many companies has
become flatter, less hierarchical, more fluid and even virtual.

Significance
Without a formal organizational structure, employees may find it
difficult to know who they officially report to in different situations,
and it may become unclear exactly who has the final responsibility
for what. Organizational structure improves operational efficiency
by providing clarity to employees at all levels of a company. By
paying mind to the organizational structure, departments can work
more like well-oiled machines, focusing time and energy on
productive tasks. A thoroughly outlined structure can also provide
a roadmap for internal promotions, allowing companies to create
solid employee advancement tracks for entry-level workers.
5 Contingency Factors Affecting Organisational Design

The contingency factors to be studied are briefly discussed in the following paragraphs:

Managers having the responsibility for organisational design, study the contingency factors that affect
organisational design and then design a structure to fit these contingency factors.

(i) Strategy:

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Logically structure follows strategy because organisational structures are built to achieve objectives by
implementing the strategies. When strategy changes, structures must change. At the corporate level,
strategies are formulated based on the company’s mission and strategic goals or objectives.

(ii) Environment:

Environment has an impact on decision making – specifically the difficulty of making decisions in an
uncertain or unpredictable environment. Similarly, the stability and predictability of the environment
have a direct bearing on the ability of the organisation to function effectively. An unstable environment
that changes rapidly and is less predictable has two requirements:
i. The organisation must be able to adapt to change, for which it needs to be flexible and responsive.

ii. The organisation needs greater coordination among departments.

(iii) Size of the organisation:

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The number of employers working in an organisation indicates its size. It is observed that large
organisations differ structurally from small ones in terms of division of labour, rules and regulations,
performance appraisal and budgeting procedures.

(iv) Age of the organisation:

With age; an organisation incorporates standardised systems, procedures and regulations. Like people,
organisations evolve through stage of life cycle – birth, youth, midlife and maturity. In the birth stage,
the organisation created by the entrepreneur is informal, with no rules and regulations. Decision making
is centralised with the owner and tasks are not specialised.

In the youth stage, the organisation is growing – it expands and hires more employees. It incorporates
division of labour and formal rules and policies. Decision making is still with the owner although it is
shared by few persons close to the owner.

In the midlife stage, the company has become quite large. It now has extensive sets of rules, regulations,
policies and systems to guide the employees. Control systems are used, professionals are hired, tasks
are decentralised and authority is delegated to functional departments. In the maturity stage, rules,
regulations, specialised staffs, budgets, a refined division of labour and control systems are in place.
(v) Technology:

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Some kind of technology is used to convert the resources into outputs in every organisation. Technology
includes the knowledge, machinery, work procedures, and materials that convert the inputs into
outputs. The technology used to manufacture the products decides the kind of the organisation for the
production system.

Factors Affecting Organization Structure

Organization structure is designed keeping in view the following factors:

1. Strategy:
Strategy determines a course of action to direct various organizational activities. It makes plans to
co-ordinate human and physical resources to work towards a common objective. Strategy is pre-
requisite to organization structure and also follows it. The relationship between strategy and
organization structure is depicted as follows:

Strategies to diversify product lines or markets require decentralized transition as decision-making is

done at wider level and strategies for organizations working in stable environment. Where managers
do not diversify their operations, require a centralized organization.
2. Technology :
The technology for manufacturing goods and services also affects the organization stricture.

In case of mass production technology, mechanistic organization structure is more appropriate, while
in case of continuous production or small scale production technology, the appropriate from is
organic structure. This is because mass production technologies involve standardization and
specialization of work activities and continuous or unit production technologies require low levels of
standardization and specialization.

3. People:
Organization structure defines work, groups it into departments and appoints people to run those
departments. People at different jobs must possess the skill, knowledge and efficiency to accomplish
the related tasks.

4. Tasks :
Activities performed by people who transform organizational plans into reality are known as tasks.
Various task characteristics are:

(a) Skill variety:

It is the extent to which creativity and variety of skills and talents are required to do a task.

People with high degree of task varieties (for example, a dress designer ) perform tasks that
increase their intellectual ability and give them high job satisfaction.

(b) Task identity:

Whether to produce a product in whole or in parts determines its task identity. When a product is
produced as a whole, it has greater task identity.

People performing tasks with high task identity y (for example, a computer programmer) perform
various job functions related to that task from beginning to the end, derive job satisfaction out of
their work and feel motivated to repeat those tasks.

(c) Task significance:

The importance of task affecting the well-being or lives of people working inside and outside the
organization determines significance of the task.

People performing tasks with high task significance, i.e., tasks which positively affect the well-being
and safety of others (for example, a traffic police inspector), feel satisfied with their job performance
and perform work of high quality and esteem.

(d) Autonomy:
Whether or not an individual plans the task on his own determines autonomy of
the task.

It determines the extent to which a person enjoys t freedom of performing various

Job activities and determines the steps or procedures to carry them out. People who are
responsible for all the functions and schedules related to a job (for example, a project manager) hold
accountability for that job and enjoy greater autonomy with respect to that task and derive greater
job satisfaction.

(e) Feedback:
It is the information that people receive about successful completion of their task.

5. Decisions:
Questions like who makes decisions-top managers or lower level managers, how information flows
in the organization so that decision-making is facilitated, affect the organization structure.

Centralized decision-making powers give rise to mechanistic structures and decentralized decision-
making processed give rise to organic or behavioral structures.

6. Informal organization:
Informal organizations are and outgrowth of formal organizations. Social and cultural values,
religious beliefs and personal likes and dislikes of members which form informal groups cannot be
overlooked by management.

7. Size:
A group known as Aston Group conducted research on firms of different sizes and concluded that as
firms increase in size, the need for job specialization, standardization and decentralization also
increases and organizations are structured accordingly.
8. Environment:
Organization structure cannot ignore the effects of environment. Organizations must adapt to the
environment, respond to incremental opportunities and satisfy various external parties such as
customers, suppliers, layout unions etc.

In case of stable environment where people perform routine and specialized jobs, which do not
change frequently, a closed or mechanistic organization structure is appropriate.

9. Managerial perceptions:
Organizations where top managers perceive their subordinated as active, dynamic and talented
entrepreneurs, prefer organic form of structure, If they hold negative opinion about their
subordinates, they prefer mechanistic organization structure.