Effect Of Good Organizational Design Business Essay


An organizations structure is defined by its configuration and interrelationships of positions and departments. Organizational design is the creation or change of an organization's structure. The organizational design of a company reflects its efforts to respond to changes, integrate new elements, ensure collaboration, and allow flexibility.

Organizing a business is difficult. Once an organization has a plan, the next step is to make it happen. The major characteristics of organizational structure is, in many ways, like the important parts of a jigsaw puzzle-you pick them out, one by one. In particular, the two basic forms of organizational structure are mechanistic and organic.

In the past, organizations were commonly structured as bureaucracies. A bureaucracy is a form of organization based on logic, order, and the legitimate use of formal authority. Bureaucracies are meant to be orderly, fair, and highly efficient. Their features include a clear-cut division of labor, strict hierarchy of authority, formal rules and procedures, and promotion based on competency.

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Today, many people view bureaucracies negatively and recognize that bureaucracies have their limits. If organizations rely too much on rules and procedures, they become unwieldy and too rigid-making them slow to respond to changing environments and more likely to perish in the long run.

But management theory doesn't view all bureaucratic structures as inevitably flawed. Instead, they ask these critical questions:

When is a bureaucracy a good choice for an organization?

What alternatives exist when a bureaucracy is not a good choice?

Research, conducted in England by Tom Burns and George Stalker in the early 1960s, attempted to answer these questions. Burns and Stalker studied industrial firms to determine how the nature of each firm's environment affected the way the firm was organized and managed. They believed a stable, unchanging environment demanded a different type of organization than a rapidly changing one. Although a stable environment worked well under a bureaucracy, managers in constantly changing, innovative environments needed an organizational structure that allowed them to be responsive and creative.

As a result, two distinct frameworks, the mechanistic and organic structures, were identified.

The mechanistic structure

The mechanistic structure, sometimes used synonymously with bureaucratic structure, is one that is highly centralized and has the common elements of bureaucracy. It lays emphasis on formal authority and communication patterns. In a mechanistic organization structure, there are rigid authority relationship, formal chain of command and fixed patterns of communication. The following characteristics of an organization uses mechanistic structure:

Tasks are clearly defined.

Definitions of the rights are in precise manner and obligations of members

Line and staff positions are clearly defined with having formal relationships between the two

Tendency toward formal communication throughout the organizational structure

Mechanistic structure is characterized by a greater degree of horizontal differentiation, high formalization(i.e. formal relations and communication), mostly downward communication, and little participation by low level members in decision making.

Perhaps the best example of a mechanistic structure is found in a college or university. Consider the very rigid and formal college entrance and registration procedures. The reason for such procedures is to ensure that the organization is able to deal with a large number of people in an equitable and fair manner. Although many individuals do not like them, regulations and standard operating procedures pretty much guarantee uniform treatment. But those same rules and procedures, with their time-consuming communication and decision-making processes, tend to bog down organizations.

The organic structure

Organic structure is one that is highly characterized by high degree of decentralization and flexibility and under which individuals are more likely to work in a group setting rather than alone.

It represents low horizontal differentiation, low formalization, free communication, and participation by low level members in decision making. It utilizes upward, downward, and lateral communication network for creating efficiency and quick decision making.

The organic structure tends to work better in dynamic environments where managers need to react quickly to change. Organic structures are characterized by

Not highly defined roles.

Tasks are redefined in an continuous manner.

Less reliance on formal authority.

Control is decentralized.

Decision making is faster.

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Informal patterns of both delegation and communication.

Because the atmosphere is informal and the lines of authority may shift depending on the situation, the organic structure requires more cooperation among employees than does a bureaucracy.

One example of an organic structure is the Salvation Army. Although branches are located throughout the nation, the organization does not have a complex structure; it encourages different units to take on new challenges. The Salvation Army does not rely heavily on written rules and procedures. Therefore, this organization can create the procedures that work best as different situations arise. The Salvation Army's ability to take on new tasks and to fulfill its mission regardless of the circumstances it faces is one reason why it's a hallmark of organic organizations.

Difference between mechanistic structure and organic structure.

Mechanistic structure

Organic structure

Rights and obligations of each position are precisely defined and assigned

Responsibility and obligation are loosely defined

There are rigid hierarchial relationships in the organization

The relationships are not rigid

Decision making is centralized

Decision making is decentralized.

Coordinatioan and control processes tend to be tightly structured.

Coordination and control tale place through reciprocal adjustments among the members.

Loyalty to the concern and obedience to superiors is highly insisted upon.

Commitment to the organizational goals is more valued than loyalty and obedience.

Factors Affecting Organizational Design

Although many things can affect the choice of an appropriate structure for an organization, the following five factors are the most common: size, life cycle, strategy, environment, and technology.

Figure Determinants of Organizational structure

Organizational size

A small organization has a simple organic structure like in case of a retails store, a small restaurant etc has the simple structure, but as size of the organization increases, the level of complexity also increases.

So, a large sized organization has more complicated and complex structure, as compare to a firm of the small size.

Generally, formal structure does not operate in small organization. Individuals of small organization simply perform the tasks on their likes, dislikes, need, and ability, rather than following organizational chart or job functions.

The complexity increases with the increase in the size or growth in the size of the organization, that's why there are formal structures exist in big organistaions. There are detailed rules, regulations and guidelines for the work. The flow of communication is primarily from superior to subordinate, and there are hierarichal relationships serve as the foundation for control, responsibility, and authority.

Organization life cycle

Organizations, like humans, tend to progress through stages known as a life cycle. Like humans, most organizations go through the following four stages: birth, youth, midlife, and maturity. Each stage has characteristics that have implications for the structure of the firm.

Figure Lifecycle of an organisation

Birth: a firm is just beginning, in the birth state. An organization in the birth stage does not yet have a formal structure. In a young organization, there is not much delegation of authority. The founder usually "calls the shots."

Youth: the organization tries to expand in this phase. The importance in this stage is on getting larger. The company shifts its attention from the wishes of the founder to the wishes of the customer. During this phase, the organization becomes more organic in structure. It is during this phase that the formal structure is designed, and some delegation of authority occurs.

Midlife: This phase occurs when the organization has achieved a high level of success. An organization in midlife is larger, with a more complex and increasingly formal structure. More levels appear in the chain of command, and the founder may have difficulty remaining in control. As the organization becomes older, it may also become more mechanistic in structure.

Maturity: Firm tends to become less innovative, when it reaches its maturity phase, as that time it is more interested in maintaining itself in a stable, secure environment and less interested in expanding,. The emphasis is on improving profitability and efficiency. However, in an attempt to improve profitability and efficiency, the firm often tends to become less innovative. Stale products result in sales declines and reduced profitability. Organizations in this stage are slowly dying. However, maturity is not an inevitable stage. Firms experiencing the decline of maturity may institute the changes necessary to revitalize.


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Design of the structure begins with the identification of organizational objectives. There is no way of devising what the main structure of an organization should be, without an understanding of what the organization is for and what it is trying to achieve.

Since an organization is a goal oriented system, it is quite legitimate that its goals have decisive roles in designing its structure. The goal determine its tasks and strategies .

Alfred Chandler's studies demonstrate that structure follows strategy. If management makes a significant change in its strategy, the structure will need to be modified to accommodate and support such change.

However , in some cases, it may be true that strategy follows structure, particularly where the manager has no choice but to cope with the existing structure.


Organization is a system and every system has its boundaries. Beyond the boundaries, there exists external environment which affects not only the formation and functioning of the organization but also its structure. To cope with changing environment, among other things, organizational process, goals and structure are changed and made in line with changes.

Environment includes all those economic, social, cultural, political, and technological factors which directly or indirectly affect the functioning of the organization. Therefore, the structure of the organization is to be designed in view of changes likely to take place in environment. Added to it, organization being a sub-system of environment interacts with the environment on regular basis for getting inputs and supplying output.so the structure of the organization is bound to be affected by the environment. If the organization operates in fast changing uncertain environment, its structure should be more adaptive, dynamic and flexible. On the other hand, if the environmental changes have slow pace and are less complex in nature, the structure of the organization will be marked by higher degree of stability.


Organization are formed by and operated through people. Large number of people are employed for both managerial and non managerial jobs and various activities are assigned to them and finally they are put in an authority relationships. These people carry some goals, values, perceptions, beliefs and attitudes which have direct reflection on the structure of the organization.

Therefore, these factors must be taken care of at the time of designing the organizational structure. Indeed, the tasks, activities, goals and technology will gain more meaning if they are built around the people. Moreover, organizational operates through the people and its efficiency to a large extent depends on the level of efficiency of its employees. And the efficiency of its employees is affected by factors such as supportive supervision, participation, and problem solving, exiatence of cohesive groups, democratic leadership etc.


An organization is a socio-technical system. Technological aspect which refers to the manner in which various activities will be perfomed, is an important part of organizational structure. As the activities are related to objectives, they are also related to technology. Because every activity to be perfomed required some kind of technology, the type of technology being used in the organization for performing different activities would also affect the structure of the organization directly and indirectly.

For example:

Use of sophisticated technology leading to the greater degree of specialization may complicate pattern of relationships among the employee.

The span of management, shape of the organization , length of chain of command, number of managerial and non managerial employees and flow of work etc. might be greatly influenced by the technology used by the organization.


Five Approaches to Organizational Design

Managers must make choices about how to group people together to perform their work. Five common approaches - functional, divisional, matrix, team, and networking-help managers determine departmental groupings (grouping of positions into departments). The five structures are basic organizational structures, which are then adapted to an organization's needs. All five approaches combine varying elements of mechanistic and organic structures. For example, the organizational design trend today incorporates a minimum of bureaucratic features and displays more features of the organic design with a decentralized authority structure, fewer rules and procedures, and so on.

Functional structure

In functional structure, activities are grouped and departments are created on the basis of specified functions to be perfomed. Activities related to a function are grouped in a single unit with a view to give a well defined direction to the whole group.


As the simplest approach, a functional structure features well-defined channels of communication and authority/responsibility relationships. Not only can this structure improve productivity by minimizing duplication of personnel and equipment, but it also makes employees comfortable and simplifies training as well.

Advantages of functional structure:

It is easier to organize departments based on functions and sub functions

It allows giing balanced weightage to the basic function on which the survival of a firm depends.

It introduces specialization leading to higher productivity and economical operations.

It ensures effective utilization of personnel in different departments.

It helps in training of managers rather that generalist managers.

It facilitates better coordination of activities within each department.

Disadvatnges of functional structure:

Each department concentrates on a narrow range of activities relationg to its function only.

It may be difficult to achieve coordination between departments because of their different orientations.

There may be lack of understanding between different departments. The atmosphere of mistrust may lead to inter-deppartmental conflicts.

Decisions are delayed where decision making involves two or more departments.

But the functional structure has many downsides that may make it inappropriate for some organizations. Here are a few examples:

The functional structure can result in narrowed perspectives because of the separateness of different department work groups. Managers may have a hard time relating to marketing, for example, which is often in an entirely different grouping. As a result, anticipating or reacting to changing consumer needs may be difficult. In addition, reduced cooperation and communication may occur.

Decisions and communication are slow to take place because of the many layers of hierarchy. Authority is more centralized.

The functional structure gives managers experience in only one field-their own. Managers do not have the opportunity to see how all the firm's departments work together and understand their interrelationships and interdependence. In the long run, this specialization results in executives with narrow backgrounds and little training handling top management duties.

Divisional structure

Divisional structure is formed by creating a set of autonomous units or divisions which are coordinated by the central headquarters.

For example: a company may have three divisions to manage textiles,cement and shipping. But to coordinate their functioning, certain essentialservices such as corporate planning,finance, legal and research and development are organized at headquarters.

However, divisional structure does have its drawbacks. Because managers are so specialized, they may waste time duplicating each other's activities and resources. In addition, competition among divisions may develop due to limited resources.

Matrix structure

Matrix structure, also called grid organization, is a hybrid structure combining two contemporary structures namely, functional departmentation with pure project structure.

It has a permanent featrure of the matrix organization and retains authority for overall operation of the functional units. Project teams are created whenever specific projects require a high degree of technical skills and other resources for a temporary period.

Matrix structure is a two dimensional structure, acombination of pure project structure and the traditional functional departments.



Figure 3

The matrix structure.

Employees in a matrix structure belong to at least two formal groups at the same time-a functional group and a product, program, or project team. They also report to two bosses-one within the functional group and the other within the team.

This structure not only increases employee motivation, but it also allows technical and general management training across functional areas as well. Potential advantages include

The matrix structure is an efficient means for bringing together the diverse specialized sklls required to complete a complex assignment or execute a project.

It is flexible in nature. It can be applied more usefully to an orghanisation involved in projects ranging from small to large.it can better respond to the changes in technology, market conditions.

It provides a balance between time, cost and performance.the balance can be achieved through the built in checks and balances and the continuous negotiations carried on between projects and functional personnel.

It helps in improving flow of communication around the organization as required information is communicated both vertically as well as horizontally.

It also results in better cooperation and problem solving, Better customer service, Better performance accountability, Improved strategic management..

Predictably, the matrix structure also has potential disadvantages. Here are a few of this structure's drawbacks:

The matrix organization violates the classical principle of unity of command. The personnel from functional departments have to face the situation of two bosses, project manager and functional manager. As a result, a functional group mat side track his esponsibility easily unit falls in achieving its goals.

In matrix organization, the problem of coordination is more complicated because neither functional head has an authority over project unit in a direct manner nor the project manager has full authority over project activities.

Apart from formal relationships, informal ones also operate in the matrix organization. Thus, the organizational relationships become more complex and they create the problem of coordination.

Dual reporting relationship in matrix organization can contribute to in discipline, ambiguity and role conflict. The functional representative who is subject to dual command cannot satisfy the priorities of both the bosses.

Team structure

Team structure organizes separate functions into a group based on one overall objective. These cross-functional teams consist of members from different departments who work together as needed to solve problems and explore opportunities. The intent is to break down functional barriers among departments and create a more effective relationship for solving ongoing problems.


Figure 4

The team structure.

The team structure has many potential advantages, including the following:

Intradepartmental barriers break down.

Decision-making and response times speed up.

Employees are motivated.

Levels of managers are eliminated.

Administrative costs are lowered.

The disadvantages include:

Conflicting loyalties among team members.

Time-management issues.

Increased time spent in meetings.

Managers must be aware that how well team members work together often depends on the quality of interpersonal relations, group dynamics, and their team management abilities.

Network structure

The network structure is a temporary network between a network of companies that come together to accomplish a specific venture. It is also called virtual structure. It is created to exploit fast changing opportunities and share skills and even facilitate access to global markets.



Figure 5

The network structure.

Network structure is created around a central organization that relies on other organizations to perform manufacturing, distributing, financing and other crucial business function on a contract basis.

It allows different organizations engaged in research and development, consultancy, manufacturing, financing, transportation, security etc to bring their resources and capabilities together. The core of the network structure is the central organization which coordinates relationships and activities with other organizations in the network.

Organisational structure of Coco cola

Coca-Cola was invented 1885 by a pharmacist, John Stith Pemberton. It was initially an alcoholic beverage intended to cure morphine addiction,but the alcohol was removed when the temperance movement gained momentum. In 1886,Pemberton began to sell the product at a local pharmacy. Pemberton's partner andbookkeeper actually came up with the name Coca-Cola, and was also the creator ofthe famous Coca-Cola script that is still used today. Coca-Cola was named after amain ingredient: coco leaves, which cocaine comes from. Coca-Cola was initiallymarketed as a fix-all tonic, used to cure morphine addiction, headaches,impotence, and many other ailments (Coca-Cola). In 1887, Pemberton sold it to AsaGriggs Candler, who incorporated it as The Coca Cola Company a year later. In thesame year Pemberton also sold it to two other businessmen, while his son also soldhis own version. After some legal actions, Candler once again incorporated thecompany in 1892, this time using the name The Coca-Cola Company

The Coca-Cola Company has a multidivisional structure based on geography.

This structure is used because it allows each division to be independent and haveits' own set of support functions. This structure works well because it gives thecompany more flexibility to help deal with its uncertain environment and it allowseach product to be tailored to each individual market in some way. Themultidivisional structure allows each division to be accountable for its resultsand responsible for creating profits.

The following are the drawbacks associated with the multidivisional structure.

Integration and coordination: There may be the problem of integration among different divisions and it is also very difficult to get the coordination among various divisions.

Communication problem: Since tall structures are present in divisional structure, so it becomes very difficult for individuals and groups to communicate in the organization.

High bureaucratic costs: It results in the duplication of personnel and physical facilities. Each product division maintains its separate facilities and personnel. It may become uneconomical where full use cannot be made of the specialized skills and equipment of each department.

Unclear goals: Because of tall structure and weak communication from upper management, the company's goals are unclear.

Figure Disadvantage of multidivisional structure

There are about 71000 employees employed in the Coca-Cola Company and about 5 hierarchical levels exist at the corporate level of the company. For example: Canadian division's head reports to chief operating officer and President of North American group. The Chief Financial Officer, get reported by the president, who reports to the General Counsel's Office, and after that Chief executive officer get reported by general counsel. It is fair to assume that there are at least a few more steps in the hierarchy at the local level.

The organization has faced problems in communication, due to its tall structure. Another problem found was that due to communication problems, there was lack of clear understanding of goals among the people and the company. Motivation problems are also caused by tall hierarchies.

Coca Cola is a global company , exists in more than 120 countries, so the political and social differences of each market derives another problem for the company. Since different countries have different laws, like some countries have stringent environmental laws, whereas some have relaxed laws.

In some market, giving bribe to government officials are considered normal and expected. However, it is the policy of the company to follow the laws, rules, regulations of every country, in which it is operating; even still, the company faces a strong criticism from the other parts of the world for its actions. The company faced a lot of criticism, as the company's bottling plants are alleged to have killed workers.

The Coca-Cola Company faces a number of challenges, many of which stem from the fact that the organization operates on such a large level. Each market has its own trends and demands. Consumers in some markets have become more heath conscious.

Stakeholders for the company:

Figure Main Stakeholders of the Coca-Cola company

There are many stakeholders exists in the company. Some of them are Shareowners, governmental agencies, consumers, local communities and retail customers, bottling partners. Every group of stakeholders has different interests, goals, objectives, resulting in arising of conflicts. Profit earning is the goals of shareowners, suppliers want to create more revenues by charging as much as they can, local communities concerned about labor standards and issues related to environment.


The Coca-Cola Company realizes that a divisional structure gives the organization the best opportunity to react to the changes in its uncertain environment, but also allow it to maintain a level of stability.

Divisional structure are also having problems. If the company creates divisional competition, coordination may decrease because each division wants to have an advantage over everyone else. Communication problems may also exist because information can become distorted when it has to travel up and down tall hierarchies .

The Coca-Cola Company is moving towards a more decentralized structure. The company is divided by region. Groups are as follows: Africa, Eurasia, European Union, Latin America, North America, and Pacific. Changes in structure freed up the Chief Marketing Office from the day to day operations so she could focus on the direction of the company. In2006, the organization moved the Africa operating group from the United Kingdom to South Africa (Annual Review, 2006). Since its inception, the organization believed that the love for Coca-Cola was universal. This led to a strong centralized organization. In the 1990's, Coca-Cola's growth slowed significantly. The CEO at the time, Douglas Daft pushed power down the organization, and let the countries have more autonomy. For example, the decision to sponsor the 2002 world cup was made at the corporate level. The implementation however was up to the local markets. Each type of advertisement was tailored to each specific market

The organization's structure is extremely suited for their differentiation strategy. The outline says that three factors affect a firm's choice of a structure to create a competitive advantage. An organization that produces a greater number of products will need control over development, marketing and production. As previously mentioned, the organization's marketing function is mostly centralized, to make sure the message being sent is constant.The chapter 8 outline also says that an organization seeking new customers willneed a structure that will serve the new customers' needs. With divisions basedupon region and the extensive market research the company does, the organizationis always looking to serve its customers. The third factor says that as the needfor new product development increases, an organization will need to be able tocoordinate all of its functions. The integrating mechanisms that Isdell beganusing in 2004, especially the revamped intranet, allows the entire organization tocoordinately quickly and effectively (Fox, 2007). The benefits of such a match areevident in the fact that return on equity went from being negative to being

the organization is making more efforts to increase operational effectiveness by increasing standardization. Horizontal differentiation has a major affect on the shape of the organization. They are divided into separate subunits for each of their operating groups (i.e. Eurasia, Pacific, North America, etc.). Each manager for an operating group is responsible for everyone else in their division, and they report to the CFO of corporate headquarters. This helps them keep a more organic perspective because each operational group is basically run by itself.

The organization is extremely formal. There is a strict code of conduct which Coca-Cola rigidly enforces. The code of conduct is expansive, and if violated, employees will be disciplined. Every employee hired is trained on the code

It is very hard to say, wth complete surety, regarding whether the company is following mechanistic or organic structure, due to recently introduced changes in the organizational structure of the company. However the decentralization or participation of lower level employees has increased in the company, still it seems to be work like a centralized organization. But the company authorities are making efforts to enhance the standardization and simplification. These are characteristics of a mechanistic structure. With the strong approach to marketing and consumer research, the focal point of the organization is on responsiveness and flexibility. Complex integrating mechanisms are being used, and with the use of surveys, information has been flowing from the bottom-up as wells the typical bottom-down .When employees are trained, they learn multiple skills so they are able to provide back up and are able to rotate, decreasing specialization. These are characteristics of an organic structure


A good job of management oh hierarchy of authority is shown by Coca Cola. Even by having a tall structure, company is still able to have an organic management style, which allows the structure of the company to be flexible and become adaptable to changing conditions.

Each operating group has six or less divisions, except of North American operating group, which have ten divisions. By giving responsibility to lower hierarchy regarding routine decisions , the upper management can emphasize on long term strategies and planning.

The flow of information can be facilitated by conducting surveys of the employees , frequent meetings and to increase the communication use of technology like intranet has increased.