Organizational structure, how organisations arrange themselves


1.1 Organizational Structure

Organizational Structure is the strategic manner by which organizations arrange (or rearrange) themselves (Galbraith, 1973). This is essentially important in determining how organizations plan on utilizing their resources , particularly their human resources. To do so efficiently, certain questions need to have precise answers such as the specific responsibilities of each individual within the organization, to whom exactly they report and most importantly the coordination process that is to be implemented to bring together all these people and processes simultaneously.

Bearing in mind that any framework followed needs to be consistent with the organizations main objectives, a formal channel defining the lines of authority from top to bottom (i.e. Hierarchy of Authority) is established which identifies clearly who is responsible for which personnel and/or tasks (Perrow, 1986). Traditionally, the authority of decision-making has been a centralized process (i.e. directed to higher-level management), but with increasing challenges & innovation in recent times, many organizations now encourage a decentralized decision making model which gives its members the authority to make decisions without the need to consult their superiors. This has the advantage of producing a real-time response to problems by people who are specialized in that process while at the same time giving employees certain autonomy which creates a sense of job satisfaction and motivation. However this could lead to the undermining of upper management if not tackled properly.

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There exist 2 primary dimensions to organizational structure:

The Vertical Dimension relates to the hierarchy within a company by distinguishing the decision makers and people in charge. Such organizations are considered to have either a tall or a flat structure (See Fig.1 in Appendix A). It includes the Span of Control of these individuals, which refers to the number of people they are responsible for and in effect, those groups who report to a single manager (these differ in quantity based on the nature of the work, skill-sets available, organizational culture, management style and level of Formalization, i.e. documentation of processes, rules and regulations (Noshria, 1991). Due to the high number or levels found in a Tall Structure (can exceed twelve), managers tend to have a Narrow Span of Control; where only 5 or 6 people report to any single supervisor. The converse holds for Flat Structures which have a Wide Span of Control; where up to 10 to 12 people could be reporting to a single manager, depending on the tasks involved. In short, the taller the structure, the more the Span of Control decreases.

The Horizontal Dimension addresses the division and assignment of tasks and functions across various departments within the organization. Such organizations are considered to be either wide or narrow.

The structure that an organization adopts for itself is contingent upon a number of considerations like its products and services, the sort of customer base it caters to, the business strategy it employs and the management of different departments & processes. The most common organizational types can be classified as follows (Fontaine, 2007):

The Functional Structure which is more in line with the Vertical Dimension is perhaps the most common structure in the business world due to its simplicity and ease. By this structure, organizations set up themselves into different departments with similar skill-sets, managed by someone who is an expert in that trade. (See Fig.2 in Appendix A) (Ouchi & Dowling, 1974)

The Divisional Structure is more concerned with utilizing people with similar abilities across the entire business, wherever the need may be. Thus such a structure lies within the Horizontal Dimension. Such divisions may be based on different product lines, consumer markets and even geographical markets. (See Fig.3 in Appendix A)

The Matrix Structure is an incorporation of both Functional and Divisional Structures, although interestingly, it operates like neither. The foundation of this structure is still functional; however different projects would require the pooling of these human resources from the various departments to serve their purpose. The project managers borrow their staff who are then involved in the project from start to finish. This is sometimes a challenge as there is a limited number of staff in each department and each project would have its own specific needs. However it is the most efficient of all organizational structures. (See Fig.4 in Appendix A) (Davis & Lawrence, 1977)

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The Horizontally Linked Structure is a relatively new concept whereby an organization groups its people along the value chain of activities and processes that produce, market, deliver, and service the firm's offerings (Spector, 2007). (See Fig.5 in Appendix A)

1.2 Organizational Culture

Culture is a complex yet powerful force present in any organization that encompasses its workers values, beliefs, attitudes, behavior and shared assumptions. It is the moral compass that guides individuals in their actions at an unconscious level in all aspects of its internal and external relationships. Organizational Culture can be identified by 4 basic types: (Cameron & Quinn, 1999) (See Fig.6 in Appendix A)

Collaborative (Clan) Culture: This sort of culture is characterized by its open and friendly environment where people genuinely invest a lot of themselves in the work they do. A family system is at play where managers play parental and/or mentor figures. There is a great deal of focus on group coordination & consensus, and the organization's belief is that its greatest assets are its workers.

Create (Adhocracy) Culture: Entrepreneur and Innovative skills are highly valued in this culture with focus on individual initiative and freedom. The organization thrives by being market leader by continually introducing new products or services , hence their stress upon risk-taking measures and experimentation as a unifying quality. Long-term strategies focus on growth and acquiring new resources.

Control (Hierarchy) Culture: Behavior is governed by a strict set of rules and policies in this setting. Formal structures intend on maintaining dependency and low cost of their product with workers being commended on their performance, efficiency and consistency. Leaders are required to be efficiency-conscious with ultimate goals of security and predictability.

Compete (Market) Culture: This culture is perhaps the most cut-throat of all with worker competitiveness and goal oriented. Leaders need to be demanding, active and most importantly productive with the common unifying goal of success. The organization is in a constant battle to increase market share and penetration by providing competitive pricing and holding the position of market leader. Long-term focus is on achieving measurable goals and targets, and building a strong reputation.

It is important to understand that no one culture is better than the other. Each culture plays a critical role in an organization's success so long as it is in sync with the organization's goals. Recent studies conducted have shown that even within a single organization, there may exist multiple cultures (sub-cultures) besides the dominating one which once again should not be construed as a negative element. In fact many scholars believe the existence of sub-cultures to be a source of healthy competition and the driving force behind innovation within the industry. The understanding of organizational cultures is equally important for managers and owners not only to be aware of their employees needs but also in designing a workplace that complements such a culture.

1.3 Effects on Business

The relationship between Organizational Structure and Culture is one that is not clearly distinguishable. In general, the structure is designed to exist within a particular culture , in effect, aiding the culture to run with the consistency and efficiency that would be the sign of a successful system. Thus, organizational structure is primarily concerned with the setup of the culture. Traditionally, certain cultures have been associated with certain structures and each of these setups have their benefits and disadvantages.

Functional Structure + Control Culture: Since centralized decision making is prevalent here, top-management is in control of most aspects of the business. This could be beneficial if the management is highly skilled and there isn't as much competence on the lower levels of the business but could be equally disastrous if such skills are in short supply in management. As a bonus, employees have the opportunity to learn a great deal from their seniors which could help in their career paths to take on decision making positions. Since this setup fosters stability and efficiency, there is better collaboration with similar processes per group while making use of the economies of scale. The biggest disadvantage here is of lack of communication not only between the different levels of the hierarchy but also between the different departments , leading to serious conflicts. This in turn affects each individual's priority on goals which tend to be more department-focused than that of the organization as a whole. Customers are usually also affected by such systems where they are passed on from department to department regarding issues they might have.

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Divisional Structure + Create Culture: Since the structure is one which brings together different departments and the culture one in which individuals are encouraged to think innovatively, the result is a well-functioning unit with greater opportunities to learn about the different aspects of the business. In addition to better response time to customers issues due to greater accountability, the wider span of control helps in developing managerial and executive skills. The disadvantage here is of a great deal of duplication of tasks because of the different units with all departments in it performing the same function. This also spells out a reduction in specialization as well as a great deal of in-house competition between the different divisions of the business.

Matrix Structure + Compete Culture: The efficiency of this model is extremely high due to the continuous utilization of highly skilled personnel from different departments on different projects. Since these sorts of projects depend on a vast amount of technical knowledge, individuals often have the authority to make critical decisions which also exposes others to a great amount of learning potential, even in scopes of fields beyond their own. Also departmental conflict is reduced due to the regular re-shuffling between projects , rather the competition is between different teams. Unfortunately it is because of these same hasty groupings that employees can tend to get frustrated and confused about their new functions and who they now report to. Also a great deal of time is wasted in meetings to decide on the allocation of these valuable human resources.

The above examples were just a few of many forms of different structures and cultures combined. It is important to note that for the specific needs of a particular business, some forms of combination of any 2 factors could serve them better than if the same set-up were used elsewhere. Numerous factors need to be taken into consideration before a decision is reached on which option is to be implemented , and it may also require the trial-testing of the different combinations practically before anything conclusive can be said in that regard.

1.4 Individual Behavior

The term Organizational Behavior actually relates to the collective dominant behaviors of individuals within an organization. As such positive individual behavior would have the potential to do the following in an organization (See Fig.7 in Appendix A). The factors which distinguish a happy satisfied employee from a disgruntled unmotivated employee are highlighted in the MARS Model of Individual Behavior (McShane & Von Glinow, 2008) which identifies 4 elements effecting employee performance; Motivation, Ability, Role Perception and Situational Forces (See Fig.8 in Appendix A)

Motivation is the set of internal influences behind an employee's voluntary actions. In the workplace Maslow's hierarchy of needs describe the fundamentals that serve such actions (Maslow, 1954):

Level 1 Physical: the need for air, water, food exercise, rest, freedom from diseases & disabilities

Level 2 Security: the need for job security, safe working conditions and overall stability

Level 3 Social: the need for being loved, a sense of belonging, inclusion and workplace camaraderie

Level 4 Esteem: the need for recognition, prestige and promotion

Level 5 Self-Actualization: The need for autonomy, development and creativity

An employee's Ability are the natural aptitudes and learned capabilities that are required to successfully complete a task. This requires proper analysis of a person's core competencies and then matching them with the appropriate job.

Role Perceptions refer to the beliefs held about what behavior is required to achieve the end results which include an understanding of what tasks need to be performed, their relative importance and preferred behaviors to accomplish them.

Situational Factors encompass the environmental conditionals beyond an individual's short-term control that constrain or facilitate behaviors such as time, people, budget and work facilities.

Types of Behavior in Organizations

A significantly important aspect influencing organizational behavior is a person's Personality. Personality can be described as a set of feelings and behaviors that have been significantly formed by genetic and environmental factors and that explain a person's behavioral tendencies. Some major forces influencing personality include cultural and hereditary forces, family relationships and social class. These factors along with others, contribute towards the 5 big personality dimensions:

Openness to Experience : Sensitive, Flexible

Conscientiousness : Careful, Dependable

Extroversion : Outgoing, Talkative

Agreeableness : Courteous, Caring

Neuroticism : Anxious, Hostile

The importance of the study of different behavioral patterns is essential in unleashing the potential of any organization by unleashing the potential of all individuals who work therein. The Locus of Control determines the degree towards which individuals believe their behaviors influence what happens to them. Whereas Internals believe in their efforts and abilities Externals believe events are mainly due to external causes. It is the presence of such personalities spread throughout an organization which deems necessary appropriate maneuvers to maintain positive behavior in as many of its employees as possible. In addition to the benefits already discussed brought about by such behavior to organizations, an equally important aspect is that of self-efficacy and motivation. The ability to adapt one's behavior to a given situation is not only an important learning tool but a vital quality to have in your possession in order to cope with the different cultures that now exist within organizations, while retaining one's unique identity. Furthermore the visualization of reactions to constraints posed to oneself might give them a clearer idea of the reactions of others to the same situation and possible tactics to handle it better.

1.5 Organizational Theory

Organizational theories can be broadly classified as follows:

Classical Organizational Theory deals with formal organization and its concepts to improve upon management efficiency.

i) Taylors Scientific Management Approach (1947): This approach focused on achieving efficiency, standardization, specialization and simplification brought about by the planning of work. It also stressed on mutual respect between management & workers to increase productivity by implementing measures to reduce physical & emotional stress of workers, providing them with appropriate training to develop their capabilities and by eliminating the traditional boss concept. Taylor suggested 4 principles of scientific management for improved productivity:

- An employee's work should be tackled in a scientific methodology, rather than by a rule-of-thumb.

- Hiring of members should be based on some analysis who are then trained, taught and developed.

- Management should apply a policy of cooperation rather than conflict with labors to achieve goals.

- Training of workers be carried out by experts using scientific methods.

ii) Weber's Bureaucratic Approach (1947): This approach took into consideration the organization as a segment of broader society, but was criticized for its rigidness, impersonality, unfeasible to bigger objectives and lack of initiative to improve status (Hicks and Gullett, 1975). The basis of the approach was on the following principles:

- Existence of hierarchy system with clear amounts of responsibility and authority defined for each position.

- Rules and Regulations should govern the behavior of organizations to maintain predictability and stability.

- Hiring and selection of employees should be impartial.

- Designations and not people should be delegated responsibility and authority to maintain democracy.

iii) Fayol's Administrative Theory (1949): This theory relates to the accomplishment of tasks and touches on management principles & functions and concepts of line, staff & committees.

- Productivity of technical and managerial work can be improved by dividing and/or specialization of the work.

- Authority and due responsibility are essential in achieving organizational objectives.

- Being answerable to and taking orders from a single supervisor would be most efficient in unity of command.

- All members of the organization should have a common goal to provide them with direction.

- Organization's interests should be given priority over individual and/or group interests.

- Measures to retain employees by several methods (e.g. time incentives, bonuses, profit-sharing, etc.)

- Management should utilize a blended system of both centralized & decentralized decision making.

- Members on the same level of hierarchy should work together to accomplish work (Scalar chain).

- The organization should try to establish equity, fairness and justice.

- Employees should be given time to settle into their work and be assured of the security of their jobs.

- Members should be encouraged to show initiative.

- Measures to strengthen unity and allegiance should be practiced which would yield better performance.

- Concept of line and staff holds equally as important in organizations as anywhere else.

- Members from different departments at same hierarchal level can form committees around common goals.

- Functions of management include planning, organizing, training, commanding and coordinating functions (Fayol, 1949) as well as staffing, directing, reporting and budgeting (Gulick & Urwick, 1937).

Neoclassical Theory shed light upon the importance of individual & group behavior and good social relations between all hierarchal levels to improve productivity as a result of high-morale brought about by such measures (Roethlisberger and Dickson, 1943). The neoclassical approach was based on the following principles:

- All members of an organization should be treated with the respect that a human deserves rather than be classified as a tool and as such requires fulfillment beyond economic and security factors.

- The approach highlighted informal groups at work within the formal organization and its importance.

- Workers should be allowed opportunities in decision making processes that would allow for a new and more effective form of management besides increasing productivity.

Modern Theories define an organization as a designed and structured process in which individuals interact for objectives (Hicks and Gullet, 1975). The theories can be broadly classified as follows:

i) The Systems Approach: This takes on the view that organizations are composed of systems and sub-systems which are mutually dependent on each other and may be composed of some components, functions and processes (Albrecht, 1983). So the organization has 3 basic elements (Bakke, 1959):

1. Components; that include the individual, formal and informal organization, patterns of behavior emerging from role demands of the organization, role comprehension of the individual, and the physical environment in which individuals work.

2. Linking processes; like communication, balance and decision making between the different components to operate in an organized and correlated manner.

3. Organizational Goals; like growth, stability and interaction between all members of the organization.

ii) Socio-Technical Approach: This considers an equilibrium between people (the social system), techniques & knowledge (the technical system) and consumers (the external environment) to be of great significance in determining the organization's effectiveness (Pasmore, 1988).

iii) The Contingency or Situational Approach: The situational approach takes into account that as organizations are highly dependent of their external environments, there can be no universal guideline suited for all situations (Selznick, 1949; Burns and Stalker, 1961; Woodward, 1965; Lawrence and Lorsch, 1967). The contingency approach suggests that social, legal, political, technical and economic factors need to be taken into consideration before determining an organizations relations to different environments (Hellriegel and Slocum, 1973).