BASIC CHALLENGES OF

ORGANIZATIONAL
DESIGN

Instructor

Group Members

Agenda
Differentiation
Balancing Differentiation and integration
Balancing centralization and
decentralization
Coordinating the Formal and Informal
Organization
Balancing Standardization and Mutual
Adjustment
Mechanistic and Organic Organizational
Structures

Overview
Designing structure with clear idea of
What is to achieve
Effect of the choices made on the stakeholders

Organizational design is an evolving

process
It involves
How to control coordinate and motivate
The tasks in organization and people who
perform them
Maximization of organizations ability to create
value

Overview
In short, the chapter is about,
How an Organization develops
value creation skills and
abilities in order to survive and
grow

Differentiation
The process by which an organization allocates
people and resources to organizational tasks
Establishes the task and authority relationships
that allow the organization to achieve its goals
(who is responsible for what and who report to
whom)
Division of labor: the degree of specialization in
the organization
In a simple organization, differentiation is low
because the division of labor is low because
Individuals typically perform all organizational
tasks
In a complex organization, differentiation is high
because the division of labor is high

Organizational Roles
Set of task-related behaviors
required of a person by his or her
position in an organization
As the division of labor increases,
managers specialize in some roles and
hire people to specialize in others
Specialization allows people to develop
their individual abilities and knowledge
within their specific role

Organizational structure is based on a

system of interlocking roles

Organizational Roles
Authority:
the power to hold people accountable
for their actions and to make
decisions concerning the use of
organizational resources
Control:
the ability to coordinate and motivate
people to work in the organizations
interests

Subunits: Functions and

Divisions

Function: a subunit composed of a group

of people, working together, who possess
similar skills or use the same kind of
knowledge, tools, or techniques to
perform their jobs
Division: a subunit that consists of a
collection of functions or departments
that share responsibility for producing a
particular good or service
Organizational complexity: the
number of different functions and
divisions possessed by an organization
Degree of differentiation

Function Types

Support functions
Purchasing, sales and marketing, PR
and legal affairs
Production functions
Production operations, Production
controls and quality control
Maintenance functions
Personnel, engineering, and janitorial
services
Adaptive functions
R&D, Market Research, long range
planning
Managerial functions

Vertical and Horizontal

Differentiation
Vertical Differentiation
The way an organization designs its
hierarchy of authority and creates
reporting relationships to link
organizational roles and subunits
Horizontal Differentiation
The way an organization groups
organizational tasks into roles and roles
into subunits (functions and divisions)

Vertical and Horizontal

Differentiation

Organizational Design
Challenges
Coordination of organizational activities
Who will make decision
How strictly organization control
employees activities
Influencing the informal personal
relationship

Balancing Differentiation and

Integration

Horizontal differentiation is supposed to

enable people to specialize and become more
productive
Specialization often limits communication
between subunits
People develop subunit orientation
Subunit orientation: a tendency to view
ones role in the organization strictly from the
perspective of the time frame, goals, and
interpersonal orientations of ones subunit
When subunit orientation occurs,
communication fails and coordination becomes
difficult

Balancing Differentiation
and Integration
Integration
the process of coordinating various
tasks, functions, and divisions so that
they work together and not at crosspurposes

Types of Integration
Mechanisms

Hierarchy of authority
Direct contact: Liaison roles
Liaison roles
Task force
Teams
Integrating role
Integrating department

Balancing Differentiation and

Integration

Managers facing the challenge of

deciding how and how much to
differentiate and integrate must:
Carefully
guide
the
process
of
differentiation so that it develops the
core competences that give the
organization a competitive advantage
Carefully integrate the organization by
choosing appropriate integrating
mechanisms that allow subunits to
cooperate and that build up the
organizations core competences

Differentiation vs Integration
A

B
C

D
I

Balancing
Centralization and
Decentralization
Centralized organization: the authority to

make important decisions is retained by top

level managers
Top managers able to coordinate activities
to keep the organization focused on its goals
Decentralized organization: the authority
to make important decisions is delegated to
managers at all levels in the hierarchy
Promotes flexibility
responsiveness

Pros and cons

Balancing Centralization and

Decentralization (cont.)

Ideal balance entails:

Enabling middle and lower managers
who are at the scene of the action to
make important decisions
Allowing top managers to focus on
long-term strategy making

Centralization VS
Decentralization
A

B
C

BALANCING
HIGHLY DECENTRALIZE

HIGHLY CENTRALIZE

C
D

Coordinating the formal and

informal organizations

FORMAL
Org
Belifes
assumption

INFORMAL
org
Goals and
objective
Authority
structure

Manager must achieve a fit between

the formal and informal organization

Status and power

Organization is a network of informal
social and status relations as well as a
hierarchy of formal task and authority
,relations manager must harness the power
of the informal organization in order to
achieve organizational goals.

Balancing Standardization and

Mutual Adjustment
Standardization: conformity to
specific models or examples that are
considered proper in a given situation
Defined by rules and norms

Mutual adjustment: the process

through which people use their
judgment rather than standardized
rules to address problems, guide
decision making, and promote
coordination

Balancing Standardization and

Mutual Adjustment
Formalization: the use of
written rules and procedures to
standardize operations
IBM Example

Balancing Standardization and

Mutual Adjustment
Socialization: Understood Norms
Rules: formal, written statement that specify
the appropriate means for reaching desired
goals
Norms: standards or styles of behavior that
are considered typical for a group of people
May arise informally
External rules may become internalized norms

Socialization: the process by which

organizational members learn the norms of an
organization and internalize these unwritten
rules of conduct

Standardization versus
Mutual Adjustment
Challenge facing managers is:
To find a way of using rules and norms
to standardize behavior, and
to allow for mutual adjustment to give
managers opportunity to discover
new and better ways to achieve goals

Standardization versus
Mutual Adjustment
A

B
C

M
A

M
A

M
A

Mechanistic and Organic

Organizational Structures
Mechanistic structures: designed
to induce people to behave in
predictable, accountable ways
Decision-making authority is centralized
Subordinates are closely supervised
Information flows mainly in a vertical direction
along a clearly defined path
Hierarchy principal integrating mechanism
Tasks and roles coordinated primarily through
standardization and formal written rules
Best suited to organizations that face stable,
unchanging environments

Mechanistic and Organic

Organizational Structures
Organic structures: structures that
promote flexibility, so people initiate
change and can adapt quickly to
changing conditions
Decision making distributed throughout the
hierarchy
Coordination is achieved through mutual
adjustments
Status conferred by ability to provide
creative leadership
Encourages innovative behavior
Suited to dynamic environments

How the Design Challenges Result in

Mechanistic and Organic Structures

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Task and Role Relationships

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Contingency Approach
A management approach in which
the design of an organizations
structure is tailored to the sources of
uncertainty facing an organization
Organization should design its
structure to fit its environment

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