Managers select and manage various dimensions and components

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Organizational Structure

Organizational design - is the process by which managers select and manage various dimensions and components of organizational structure and culture so that an organization can achieve its goals.

Organizational structure - is the formal system of task and reporting relationships that

controls, coordinates, and motivates employees so that they cooperate to achieve an

organization's goals.

Your task as a manager is to create an organizational structure and culture that

1. Encourages employees to work hard and to develop supportive work attitudes

2. Allows people and groups to cooperate and work together effectively.

Structure and culture affect:




Teamwork and cooperation

Intergroup and Interdepartmental relationships

What bearing does organizational design have on organizational behaviour?

The way a structure or culture is designed or evolves over time affects the way people

and groups behave within the organization.

Once an organization decides how it wants its members to behave, what attitudes it

wants to encourage, and what it wants its members to accomplish, it can then design its

structure and encourage the development of the cultural values and norm to obtain

these desired attitudes, behaviours, and goals.

How does an organization determine which attitudes and behaviours encourage?

An organization bases these design decisions on the contingencies it faces (a

contingency is any event that might possibly occur and thus must be taken into account

in planning).

The three major contingencies that determine what kind of structure and culture an

organization designs:

1. Organization's environment

2. Technology an organization uses

3. Organization's strategy

An organization do structure on basis of two key terms;

1. Distribution of authority and

2. Distribution of responsibility

Distribution of authority is well-known as the infrastructure of the organization on the

other hand distribution of responsibility is known as superstructure.

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Distribution of Authority

Distribution of authority determines the chain of command or hierarchy of and

organisation and describes the role of areas of specialist operational expertise, such

as IT, finance or personnel.

Figure: Hierarchy of Authority

Hierarchy of authority features two key elements and determines whether or not the

organisation structure is tall or flat and the other feature looks at the span of control.

Tall or Flat:

A tall structure has many branches hence it is bit complicated even though it tries to

distribute responsibility at the most detailed level. One big problem with this type of

hierarchy is, there are always possible chances of leading the organisation to a messy

management due to the building gap between top and bottom management. On the

other hand a flat structure is the one which has a flatter hierarchy, means it has fewer

level of management. A flat structure does intend to cut the gap between top

management with bottom with an intention to motivate them and look after them from

the closest possible level. But it has a bigger setback as well and can be questioned

for it effectiveness to achieve an organisational goal(s). Due to the fewer level

managements are over-tasked hence stressed and slowly but surely take them off from

the destination, which is achieving organisational goal(s).

Span of Control:

Span of control signifies the number of people a manager should manage or supervise

and should lead to organisation's goal(s). In the tall structure ideally a manager does

not get a big number of people to supervise hence a manager always can be focussed

towards target on the other hand in flat structure a manager does get a relatively

bigger number of people to manage or supervise, hence the get over tasked and to

some point they guide themselves towards the dark and mostly outputs are lower.

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Like tall and flat structure there is an ongoing argument in this discipline (Span of

Control) and in reality organisations are full-filing the demand of the business to

achieve goals more effectively in a time consuming manner.

As mentioned earlier researchers, academics couldn't identify an ideal span of control

so far instead they said a span of control should reflect the nature of the task being

supervised and should concentrate on the importance to the achievement of

organisational objectives, complexity, precision, need for uniformity/consistency (as

opposed to diversity), speed of operation, etc. Thus, complex work normally requires a

narrow span of control, whereas workers doing relatively simple tasks can be

controlled in larger numbers (a broad span). The other significant variable is the

calibre of subordinate staff. Inexperienced staff generally needs close supervision so

a narrow span of control is appropriate, as is the case where there is ineffective

performance. In contrast, well-trained, experienced workers can operate within a wide

span of control.

Differentiation: Grouping Organizational Activities

Differentiation - is the grouping of people and tasks into functions and divisions to

produce goods and services.'

Function - is a set of people who work together and perform the same types of tasks

or hold similar positions in an organization.

As organizations grow and their division of labour into various functions increases, they

typically differentiate further into divisions.

As Campbell Soup started to produce different kinds of products, it created separate

product divisions, each of which had its own food research, quality, and manufacturing

functions. A division is a group of functions created to allow an organization to

produce and dispose of its goods and services to customers.

In developing an organizational structure, managers must decide how to differentiate

and group an organization's activities by function and division in a way that achieves

organizational goals effectively.'

The result of this process can be most easily seen in an organizational chart that shows

the relationship between an organization's functions and divisions.

Functional Structure

Functional structure - groups people together because they hold similar positions in an

organization, perform a similar set of tasks, or use the same kind of skills.

This division of labour and specialization allows an organization to become more


Advantages Of A Functional Structure

Coordination Advantages

1. Easy communication among specialists - People grouped together according to

similarities in their positions can easily communicate and share information with

each other.

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2. Quick decisions - People who approach problems from the same perspective

can often make decisions more quickly and effectively than can people whose

perspectives differ.

3. Learning - Makes it easier for people to learn from one another's experiences.

Thus a functional structure helps employees improve their skills and abilities and

thereby enhances individual and organizational performance.

Figure: Functional Structure

Motivation Advantages

1. Facilitates performance evaluation for supervisor - Supervisors are in a good

position to monitor individual performance, reward high performance, and

discourage social loafing. Functional supervisors find monitoring easy because

they usually possess high levels of skill in the particular function.

2. Facilitates performance evaluation for peers - Allows group members to

monitor and control one another's behaviour and performance levels.

3. Creates teamwork - Can also lead to the development of norms, values, and

group cohesiveness that promote high performance.

4. Creates a career ladder - Functional managers and supervisors are typically

workers who have been promoted because of their superior performance.

Disadvantages Of A Functional Structure

1. Serving needs of all products - When the range of products or services that a

company produces increases, the various functions can have difficulty efficiently

servicing the needs of the wide range of products. Imagine the coordination

problems that would arise, for example, if a company started to make cars,

then went into computers, and then went into clothing but used the same sales

force to sell all three products. Most salespeople would not be able to learn

enough about all three products to provide good customer service.

2. Coordination - As organizations attract customer with different needs, they may

find it hard to service these different needs by using a single set of functions.

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3. Serving needs of all regions - As companies grow, they often expand their

operations nationally, and servicing the needs of different regional customers

by using a single se of manufacturing, sales, or purchasing functions becomes

very difficult.

Divisional Structures: Product, Market, And Geographic

A divisional structure that overlays functional groupings allows an organization to

coordinate intergroup relationships more effectively than does a functional structure.

Product Structure

Each product division contains the functions necessary to that service the specific goods

or services it produces.

Figure: Product Structure

What are the advantages of a product structure?

Increases the division of labour so that the number similar products can be increased

(such as a wider variety of appliances like stoves, or ovens) expand into new markets

and produce totally new kinds of products (such as when an appliance maker starts to

produce computers or ai planes).

Market Structure

Market Structure - Group functions into divisions that can be responsive to the needs of

particular types of customers.

Geographic Structure

An organization facing the problem of controlling its activities on a national or

international level is likely to use a geographic structure and group functions into

regional divisions to service customers in different geographic areas.

Each geographic division has access to a full set of the functions it needs to provide its

goods and services.

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Advantages Of A Divisional Structure

Coordination Advantages

1. Quality products and customer service - Functions are able to focus their

activities on a specific kind of good, service, or customer. This narrow focus

helps a division to create high-quality products and provide high-quality

customer service.

2. Facilitates communication - between functions improve decision making, thereby

increasing performance.

3. Customized management and problem solving - A geographic structure puts

managers closer to the scene of operations than are managers at central

headquarters. Regional managers are well positioned to be responsive to local

situations such as the needs of regional customers and to fluctuations in

resources. Thus regional divisions are often able to find solutions to regionspecific

problems and to use available resources more effectively than are

managers at corporate headquarters.

4. Facilitates teamwork - People are sometimes able to pool their skills and

knowledge and brainstorm new ideas for products or improved customer


5. Facilitates decision making - As divisions develop a common identity and

approach to solving problems, their cohesiveness in- creases, and the result is

improved decision making.

Motivation Advantages

1. Clear connection between performance and reward - A divisional structure

makes it relatively easy for organizations to evaluate and reward the

performance of individual divisions and their managers and to assign rewards

in a way that is closely linked to their performance. Corporate managers can

also evaluate one regional operation against another and thus share ideas

between regions and find ways to improve performance.

2. Customized service - regional managers and employees are close to their

customers and may develop personal relationships with them-relationships that

may give those managers and employees extra incentive to perform well.

3. Identification with division - employees' close identification with their division

can increase their commitment, loyalty, and job satisfaction.

Disadvantages Of A Divisional Structure

High operating and managing costs - because each division has its own

set of functions, operating costs- the costs associated with managing an

organization-increase. The number of managers in an organization, for

example, increases, because each division has its own set of sales

managers, manufacturing managers, and so on. There is also a

completely new level of management, the corporate level, to pay for.

Poor communication between divisions - Divisional structures normally

have more managers and more levels of management than functional

structures have, communications problems can arise as various managers

at various levels in various divisions attempt to coordinate their


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Conflicts among divisions - divisions may start to compete for

organizational resources and may start to pursue divisional goals and

objectives at the expense of organizational ones.

Matrix Structure

A complex form of differentiation that some organizations use to control their activities

results in the matrix structure, which simultaneously groups people in two ways by the

function of which they are a member and by the product team on, which they are

currently working.

Figure: Matrix Structure

In practice, the employees who are members of the product teams in a matrix structure

have two bosses-a functional boss and a product boss.

Coordination Advantages

1. Facilitates rapid product development

2. Maximizes communication and cooperation between team members

3. Facilitates innovation and creativity

4. Facilitates face-to-face problem solving (through teams)

5. Provides a work setting in which managers with different functional expertise

can cooperate to solve non-programmed decision-making problems.

6. Facilitates frequent changes of membership in product teams

Motivation Advantages

The matrix structure provides a work setting in which such employees are given the

freedom and autonomy to take responsibility for their work activities.

Disadvantages of a Matrix Structure

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1. Increase role conflict and role ambiguity - Two bosses making conflicting

demands on a two-boss employee cause role conflict. Reporting relationships in

the matrix makes employees vulnerable to role ambiguity.

2. High levels of work stress - Conflict and ambiguity can increase feelings of

stress. Difficulty employees have in demonstrating their personal contributions

to team performance because they move so often from one team to another.

3. Limited opportunities for promotion - because most movement is lateral, from

team to team, not vertical to upper management positions.

The extent of these problems explains why matrix structures are used only by

companies that depend on rapid product development for their survival and that

manufacture products designed to meet specific customer needs. Matrix structures are

especially common in high-tech and biotechnology companies.

Differentiation Summary

1. Examine the way your organization groups its activities by function, and

determine whether this grouping meets the organization's current product or

customer needs.

2. If the number of goods and services you are producing has increased, examine

whether you should change to a product structure.

3. If you are currently servicing the needs of a number of different groups of

customers, examine whether you should change to a market structures

4. If you are expanding nationally, examine whether you should change to a

geographic structure.

5. If your current need is to speed the development of new products, examine

whether you should choose a matrix structure.

Integration: Mechanisms for Increasing Coordination

Tall and Flat Hierarchies

The larger and more complex an organization is, the taller is its hierarchy. Tall

organizations have many levels in the hierarchy relative to their size; flat organizations

have few. Problems of integrating between hierarchical levels emerge when an

organization's hierarchy becomes too tall. More specifically, communication and

decision-making problems start to occur. As the number of management levels

increases, the time it takes to send messages up and down the hierarchy increases and

decision making slows. Information passed from person to person can be distorted or

filtered as messages become garbled and managers naturally interpret messages

according to their own interests. These problems further reduce the quality of decision


Decentralizing Authority

To reduce the communication and decision-making problems that accompany a

hierarchy's growth, organizations may prefer decentralization to centralization,

choosing to distribute authority to managers at all levels of the hierarchy and giving

them responsibility for making decisions.

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Authority is said to be centralized when only managers at the top of an organization

can make important decisions.

Authority is decentralized when managers throughout the hierarchy are allowed to

make significant decisions.

What are the benefits of decentralization of authority?

1. Communication and decision-making problems because lower-level managers

do not have to continually consult or report up the hierarchy to their superiors.

2. At the same time, greater job responsibilities can increase motivation by

making lower-level jobs more interesting and rewarding.

Mutual Adjustment

Mutual adjustment - the ongoing informal communication among different people and

functions that is necessary for an achieve its goals.

Mutual adjustment makes an organization's structure work smoothly, and managers

must constantly make efforts to promote it and do all they can to facilitate

communication and the free flow of information among functions.

Mutual adjustment, for example, prevents the emergence of different orientations that

can cause significant communication and decision-making problems between functions

and divisions.

An organization has to build into its structure integrating mechanism that facilitate

mutual adjustment and make it easy for managers and employees in different functions

and divisions to meet and coordinate their activities.

Direct Contact

In using direct contact, managers from different function try to establish face-to-face

working relationships that allow them to solve common problems informally, without

having to go through the formal channels of authority in the hierarchy.

Liaison Roles

Recognizing the importance of direct contact, organizations often establish liaison roles

that give specific functional managers the formal responsibility of maintaining a high

level of direct contact with managers in another function.

To facilitate communication and effective decision making, managers in liaison roles

meet regularly to exchange information, and members of one function transmit

requests to other functions through these liaison personnel. Over time, the personal

working relationships that develop among managers performing liaison roles enhance

coordination and integration throughout the organization.

Teams and Task Forces

When two or more functions are involved in decision making, organizations often

create inter-functional teams and task forces to facilitate communication and


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The third principal tool that organizations can use to control their activities and

integrate functions and divisions is standardization-the development of routine

responses to recurring problems or opportunities that specify how individual and

functions are to coordinate their actions to accomplish organizational goals.

Standardizing Inputs

Organizational inputs include the skills and capabilities of managers and workers, the

quality of the raw materials and component parts used to make products, and the

machinery and computers used in the production process.

Organizations can standardize the skills of their managers and workers by requiring

them to have certain qualifications and experiences.

Organizations that recruit and select workers who meet stringent criteria can be

relatively confident that their employees will respond in appropriate ways to uncertain


Standardizing Throughputs

To standardize throughputs (the conversion processes that an organization uses to

convert inputs into outputs), organizations develop performance programs that specify

the behaviours they expect from their employees.

When behaviours are specified, both individuals and groups act consistently in ways

that allow an organization to achieve its goals.

The principal way in which organizations standardize behaviours is by the use of rules

and standard operating procedures (SOPS)."

Because rules and SOPs specify the series of actions or decisions that employees are

expected to perform in a given situation, they standardize employee responses to the


Formalization - is the use of rules and standard operating procedures to control an

organization's activities.

The more an organization can rely on formalization to specify required behaviours, the

less it needs to use either direct supervision from the hierarchy or mutual adjustment.

Formalization can result in lower operating costs and thus increased organizational

performance. Once rules have been developed, they are inexpensive to use and cost

little to implement and maintain. All that is required is that new employees be taught

the appropriate rules to follow in certain situations. Although some rules are necessary

to the smooth running of an organization, too many rules can give rise to a number of


1. Excessive formalization can straitjacket employees and prevent them from

responding creatively and flexibly to new situations.

2. Employees' inclination to obey rules without thinking about their consequences

can reduce the quality of organizational decision making.

3. Too much emphasis on the use of existing rules and performance programs can

make it especially difficult for an organization to make changes and develop

new rules.

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Standardizing Outputs - Organizations can standardize outputs, the goods and

services they produce, by specifying the level of performance they require from their

employees and setting standards by which to measure actual employee outputs.

Instead of specifying the behaviours the organization can expect from its employees

(as rules and SOPs do), the organization specifies what the outputs of its employees

must be for the organization to achieve its goals."

Organizations try to standardize an employee's output by specifying sales goals for

salespeople, such as how much they should sell each month or how many customers they

should visit each day. Specifying goals for researchers is more difficult because their

work is so long-term and complex, but an R&D function can be measured by the

number of new products it develops or the number of new patents it files.