Determinants Of Organisation Structure Business Essay


Many of the big organizations have failed to understand the importance of effect of good organizational design on their company's effectiveness and performance. Select any one organization which experienced enormous adjusting problem due to the poor organizational design and explain in detail its structure and consequences of that organizational structure.



An organizational structure consists of activities such as task allocation, coordination and supervision, which are directed towards achievement of the organizational aims. It can also be considered as viewing glass or perspective through which individuals see their organization and its environment.

Organizations are a variant of clustered entities. An organization can be structured in different ways, depending on the objectives. The structure of an organization will determine modes in which it operates and performs its operations.

Organizational structure allows expressed allocation of responsibilities for different functions and processes to different entities such as the branch, department, workgroup and individuals.

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Organizational structure affects the organizational action in two big ways i.e. 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.



Organizational goals influence the way an organization is designed. The high value placed on productivity and quality as well as shareholder value had a major influence on the redesign of Westinghouse as a more diversified and decentralized firm. Indeed, goals are the prime determinants of structure of an organisation.


Social customs at the time of an organization's birth helps to determine how it is to be structured. This has been very important in the history of business. For example, the organizational structures adopted by the first companies in the automobile industry are not the same as the structures being adopted now. Earlier, production was structured around the assembly line. Some workers always built chassis, which were then sent down the assembly line to other workers, who did such jobs as putting axles and engines onto those chassis. Currently, many automakers are adopting work-group or team concept in which a group of workers is responsible for more than just one portion of the car. At the time the auto industry began, no one thought about using a group approach to building cars, given that it was not consistent with the existing values about manufacturing.


Environmental constraints include legislation, government regulation, court orders, market characteristics, social issues, and societal norms etc. Laws concerning entry into or exclusion from certain businesses, the imposition or removal of regulations, and such court-ordered actions as the breakup of American Telephone and Telegraph Company affect the structure of organizations. The birth of People Express and other air carriers was direct result of the Airline Deregulations Act of 1978, which enabled new carriers to enter the airline business for the first time in decades.


Technology is another determining factor that will affect the new forms organizations will take. Rapidly changing telecommunications technology and removal of certain regulations are opening new market niches in which the regional telephone companies can compete. Another example is robotics and other modern production methods. As these technologies have developed, they have changed the American automobile industry as significantly as did foreign competition. Some research demonstrates that the technological change offers occasions for restructuring.


There are several criteria to determine size of an organisation such as number of persons employed, amount of capital invested, volume of turnover etc. As an organisation grow in size its structure naturally becomes complex. Therefore size though an element of organisation structure is a factor that determines type of organisation structure.



Organizational structure is very important for decision making. Most companies either have a tall or flat organizational structure. Small companies usually use a flat organizational structure i.e. a manager can report directly to the president instead of a director, and its assistants are only two levels below the president. Flat structures enable small companies to make quicker and better decisions, as they are often growing rapidly with new products and need this flexibility. The Business Plan, an online reference website, says small companies should not even worry about organizational structure, unless they have at least 15 employees. The reason behind it is that employees in extremely small organizations have numerous responsibilities, some of which can include multiple functions. For example, a product manager also might be responsible for both marketing research and advertising. Therefore, it is important to know which people oversee certain functions.


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The importance of organizational structure is very crucial for communication. Organizational structure enables distribution of authority. When a person starts a job, he knows from day one to whom he has to report. Most companies funnel their communication through department leaders. For example, marketing employees will discuss various issues with their director. The director, in turn, will discuss these issues with the vice president or upper management people.

Evaluating Employee Performance

Organizational structure is important in evaluating employee performance. The linear structures such as functional and product organizational structures allow supervisors to better evaluate the work of their subordinates. Supervisors can also evaluate the skills employees demonstrate, how they get along with other workers, and the timeliness in which they complete their work. Consequently, supervisors can more readily complete semiannual or annual performance appraisals, which are usually mandatory in most of the companies.

Achieving Goals

Organizational structure is particularly important in achieving goals and results. Organizational structure allows for the chain of command. Department heads are in charge of delegating tasks and projects to subordinates so that the department can meet project deadlines. In essence, organizational structure fosters teamwork, where everyone in the department works toward achievement of a common goal.


Organizational structure enables companies to better manage changes in the marketplace, including consumer needs and wants, government regulations and new technology. Department heads and managers can meet, outline various problem areas, and come up with a solution as a group. Changes can be expected in any industry. Company leaders always should strive to find the best organizational structure to meet these changes.


An organizational structure allows information to flow to different parts of business and becomes the framework for the entire organization. During implementation of an organizational structure, problems may be faced because initially there is no structure in place. One can appreciate the importance of a strong organizational structure when you are working without one and trying to get one functional.


Part of the purpose of a strong organizational structure is to facilitate smooth flow of communication within departments and from one department to another. When you are trying to implement an organizational structure, you are working with a makeshift communication network until planned network is put in place. This can cause information to be dropped at every level of the company.


A company runs smoothly when it has a hierarchy to follow and While it can be easy to understand the basic hierarchy of the company from the owner or president down to the rest of the executive staff, the hierarchy among managers and supervisors is confused without an organizational structure. While you are implementing a company framework, you will come across instances when various managers or supervisors may take on authoritative roles they were not intended to have, which can cause confusion among the staff and other members.


When you are trying to implement a new organizational structure, it can be difficult to delegate responsibility to departments or individual employees. It may be confusing for employees and managers to understand their responsibilities when there was no official delegation used to be in past. Staff members have been doing what they needed to get the job done, and it will be difficult to move responsibilities around while implementing a new structure.


Implementing an organizational structure can be expensive. During the time it takes to get a structure in place, productivity will be affected and company's ability to generate revenue will drop. The planning time necessary to create the structure implement costs you because your management staff is spending time on developing its part of the structure instead of making sure that company production numbers are achieved.


Pre-bureaucratic structures

Pre-bureaucratic (entrepreneurial) structures are those which lack standardization of tasks. This structure is most common in smaller organizations and is best used to solve simple and less complicated tasks. The structure is totally centralized. The strategic leader makes all key decisions and most communication is done by one on one conversations. It is particularly useful for new (entrepreneurial) business as it enables the founder to control growth and development.

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They are usually based on traditional domination or charismatic domination in the sense of Max Weber's tripartite classification of authority.

Bureaucratic structures

Weber gives the analogy that "the fully developed bureaucratic mechanism compares with other organizations exactly as does the machine compare with non-mechanical modes of production. Precision, speed, strict subordination, reduction of friction and of material and personal costs- these are raised to the optimum point in the strictly bureaucratic administration." Bureaucratic structures have a certain degree of standardization. They are better suited for complex or larger scale organizations, usually adopting a tall structure. The Weberian characteristics of bureaucracy are: Clear defined roles and responsibilities, hierarchal structure and Respect for merit.


Term of post bureaucratic is used in two senses in the organizational literature: one generic and one much more specific. In the generic sense the term post bureaucratic is often used to describe a range of ideas developed since the 1980s that specifically contrast themselves with Weber's ideal type bureaucracy. This includes total quality management, culture management and matrix management, amongst others. Hierarchies still exist, authority is still Weber's rational, legal type, and organization is still rule bound. It shifts focus from organizational structure to the organization's culture'.

Another smaller group of theorists have developed theory of the Post-Bureaucratic Organization provides a detailed discussion which attempts to describe an organization that is fundamentally not bureaucratic. Charles Heckscher has developed an ideal type, the post-bureaucratic organization, in which decisions are based on dialogue and consensus rather than authority, the organization is a network rather than a hierarchy, open at the boundaries.

Functional structure

Employees within the functional divisions of an organization perform a specialized set of tasks, for instance the engineering department would be staffed only with software engineers. This leads to operational efficiencies within the group. However it could also lead to a lack of communication between the functional groups within an organization, making the organization slow and inflexible.

As a whole, a functional organization is best suited as a producer of standardized goods and services at large volume and low cost. Coordination and specialization of tasks are centralized in a functional structure, which makes producing a limited amount of products or services efficient.

Divisional structure

The divisional structure also called product structure groups each organizational function into a division. Each division within a divisional structure contains all the necessary resources and functions within it and divisions can be categorized from different points of view. One might make distinctions on a geographical basis (for example a US division and an EU division) or on product/service basis (different products for different customers: households or companies etc). Each division may have its own sales, engineering and marketing departments.

Matrix structure

The matrix structure groups employees by both the function and product. This structure can combine the best of both separate structures. A matrix organization frequently uses teams of employees to accomplish task, in order to take advantage of the strengths, as well as make up for weaknesses, of functional and decentralized forms. An example would be a company that produces two products, "product x" and "product y". Using the matrix structure, this company would organize functions within the company as follows: "product x" sales department, "product x" customer service department, "product x" accounting, "product y" sales department, "product y" customer service department, "product y" accounting department. Matrix structure is amongst the purest of organizational.


The Coca-Cola Company had centralised form of organisation structure which created lots of problems such as it was not able to meet the ever changing demands of its customer. Therefore it realizes the need of decentralization and therefore pushed towards decentralization. The organization has two operating groups called Bottling Investments and Corporate. There are also operating groups divided by different regions such as: Africa, Eurasia, European Union, Latin America, North America, and Pacific. Each of these divisions is again divided into geographic regions. By allowing decisions to be made on a more local level, the organization can quickly respond to changing market demands, and higher-level management can focus more on long-term planning. But again there were problems of organization's extremely low growth rate in 2004. Therefore, Isdell began to using more complex integrating mechanisms and used teams of top managers to create solutions to the organization's most pressing problems. Face-to-face meetings were held regularly at local levels so employees could remain informed.


The Coca-Cola Company currently employs approximately 94,800 employees. There are more than 5 hierarchical levels at the corporate level. Due to its tall structure, the organization has experienced many communication problems. One of the problems discovered through a survey, was that the people and the company lacked clear goals. Tall hierarchies also cause motivation problems, which is why the organization is attempting to get employees more engaged in decision making. The increased usefulness of the company's intranet will greatly increase the communication between every level of employees, and allow upper managers. The move to decentralization has caused structural changes for The Coca-Cola Company. New offices have been opened to facilitate decisions being made closer to the local markets. The organization has also undergone centralization of some of the company's departments. It appears that the organization is striving for a hybrid structure, which allows them to have advantages of both the mechanistic and organic structures, while trying to minimize the negative consequences of each. The strategic structural changes that organization has gone through in recent years have created a much needed positive impact on the company. Sales growth increased and employees are much more satisfied and there is better communication. The organization is trying to create a more innovative culture by pushing towards decentralization.