The foundations of an organizational change

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Organizational structure can be defined as the way or method through use of a hierarchy that a group, business, organization, people or objects collaborate to achieve success on one common goal. It is perhaps the least understood and most under-appreciated topic in business.


Starting a new organization can be a hard task, no matter how big or small it may be. Whether you are starting a new company, business, or you're a school board member, your organization needs a good structure to keep it going.

If you choose the options that best fit your organization then you're more likely to succeed in your market. By having the right people in the right place, it can lead to better networking opportunities, higher sales, increased interest in your organization, and overall success.

We all go to work every day, go to assigned locations, and perform our jobs and we don't ever think about how our organization is arranged. However, Organizational Structure is critical both for a company and its employees. People should think very carefully about the organizational structure of the companies for which they work or of companies for which they intend to work. In the long run, Organizational Structure can spell the difference between success and failure for a company, as well as for the individuals who work there.

Key elements of organizational structure:

There are six key elements that managers need to address when they design their organizational structure. In any discussion of Organizational Structure, it's helpful to become acquainted with these few key elements that describe specific aspects of business organization practices. These are:

1. Work specialization,

2. Departmentalization

3. Chain of command,

4. Span of control,

5. Centralization and decentralization

6. Formalization

Very simply, Organizational Structure is the manner in which an organization arranges (or rearranges) itself.


It refers to the degree to which tasks in the organization are subdivided into separate jobs. In work specialization; the whole job is broken down into parts, each part completed by a separate individual. It involves the repetitive performance of a few skills. Individual workers are focus in doing part of an activity. It can be viewed as a means to make the most efficient use of employee's skills. Some task requires highly developed skills while others can be performed by the untrained individuals.

The spirit of work specialization is that, in an organization a project has been designed by one individual and the work will be separated into many steps and every work has been done by a separate individual specialist enable the work to be completed quickly. This is what we call as work specialization.

For example, in a tailor shop, one person is responsible for cutting the cloth, other stitches, one is assign to stitch the buttons and then finally another person would finalize the shirt that its finally completed or not.


When the jobs have been classified through work specialization, now they are grouped so that those common tasks can be coordinated. Departmentalization is the basis on which work or individuals are grouped into manageable units. There are five traditional methods for grouping work activities.

Departmentalization by function organizes by the functions to be performed. The functions reflect the nature of the business. The advantage of this type of grouping is to obtain efficiencies from the similar specialties and people with common skills, knowledge and orientations together in common units. E.g. in any organization there are separate finance, accounting, marketing and HR departments. So the people who are specialized in finance are grouped into finance department and so as with other departments.

Departmentalization by product assembles all functions and techniques needed to make and market a particular product are placed under one administrative. E.g. major departmental stores like Macro are structured around product groups such as home accessories, appliances, kitchen cutleries, women's clothing, men's clothing, and children's clothing.

Departmentalization by geographical regions refers to group jobs on the basis of territory or geography. In which large number of people would have similar needs belonging to same location. For example, Sandoz, a major pharmaceutical company, has its domestic sales departmentalized by regions such as Northeast, Southeast, Midwest, Southwest, and Northwest.

Departmentalization by process groups jobs on the basis of product as well as customers. Each process requires specific skills and offers a basis for homogeneous categorizing of work activities. E.g. a patient preparing for an operation would first appoint in preliminary diagnostic tests, then go through the admitting process, undergo a procedure in surgery, receive post operative care, be discharged and then receive out-patient attention. These services are each administered by different departments.

Departmentalization by customer groups jobs on the basis of a common set of needs or problems of specific customers. For example, a plumbing firm may group its work according to whether it is serving private sector, public sector, government, or not-for-profit organizations (angios).


Chain of command is the continuous line of authority that connects each level of organization with the next level. The chain of command helps organizations function efficiently by making two things clear: who would be responsible for each task, and who has the power to make executive decisions.

Every organization have a chain of commands, chief head of the organization to low level employee has a command like what to do, who is responsible for the given task each department has a command by team leader, department head, head of organization, the command has been passed through one by one in chain form so that this is called as chain of command.

In organizations, employees are assigned:

Responsibility for their jobs; they are required to perform those duties and to achieve tasks and objectives linked with their positions.

Accountability for reporting their results to supervisors or the other team members and clarifying outcomes that falls below potential.

Manager's duty is to ensure that tasks are accomplished by exercising authority. Authority is the power to make decisions, subject orders, carry out actions, and assign resources.

Delegation is the assignment of work and the relocate of authority and responsibility to do that work.

Organizational structure is a means of facilitating the achievement of organizational objectives. Such structures are not static, but dynamic. They reorganize in response to changing conditions that occur in the environment, new technology, or organizational growth. Organization structures are dependent upon the employees whose activities they guide. Supervisors rely upon power and authority to ensure that employees get things done on specific time.

For example, in a hospital, doctors have freedom in selecting treatments, drugs, and methods for treating patients. However, the hospital physical plant staff has a strict schedule for cleaning buildings, mowing lawns, and maintaining the facilities.

Authority is the legitimate power of a supervisor to direct subordinates to take action within the scope of the supervisor's position. For example, industrial firms have an informal arrangement of employees and centralization of decision-making authority, the owner.


The Span of Control in an organization is defined as the number of employees reporting directly to one supervisor. For example, If you have two or three organizations, the common question will be raised that how a manager efficiently and effectively handle how many employees. To handle this problem, span of control is important in every organization.

Wider spans of management increase organizational efficiency. While the narrow span would have some drawbacks like, it will increase the complexity of vertical communication. There would be encouragement of overly tight supervision and discouragement of employee autonomy. And will include expenses of additional layers of management.

Span of Control is simply the number of people who can report to a single manager inside of the hierarchy. It's major impact is on organizational effectiveness. In an organizational chart for General Motors, for examples, there may be as many as twelve, fourteen, sixteen or more levels between the top of the structure and the lowest level person in the organization.


The decision making is done at a single point from the top of the organization is known as centralization of decision making and the decision making that has done by the any level staff in the organization is known as decentralization.

Centralization is the retaining of power or authority to upper-levels of management. The advantages to centralization involve a closer control of company operations-including policies and practices. By retaining power at the top, those decisions that directly affect a company will be made by the proper governing board.

Decentralization refers to the degree to which authority is dispersed throughout the lower levels of an organization. One of the main advantages to decentralization is that decisions can be made considerably faster, without having to seek approval from upper levels of authority. Also, the presence of decentralization acts as a motivational tool for employees to work their way through the ranks. Decentralization also eases the workload for busy administrative who may not have time to oversee all aspects of the company.

Reasons to Move from Centralization to Decentralization

Considerable company growth- A company may find it advantageous to switch to a decentralization model in order to keep organized. In this manner, a company may establish new divisions or departments to keep track of its growth.


Geographic- Decentralization could involve the dispersing of power from a centralized headquarters to localized branches. This designation of power is most commonly used in the situations where a domestic company has offices in a foreign country.


Technological complexity- A company may also choose to decentralize its chain of command in order to better facilitate its technological departments. This trick may also indirectly demonstrate a sense of confidence to the technology employees, as it proves a company has confidence in their actions. A positive side effect could be the creation of an environment where ideas can be freely explored and where they may flourish.

Time- Decentralization is sometimes necessary as a time solution. For example, a company might experience a time limit to finish a project, and the most feasible solution would be to appoint lower-level mangers that are more directly involved in the project to supervise.


Formalization is the process in which rules and procedures are followed in an organization. It is the degree to which jobs within the organization are standardized. Every organization has a procedure to do jobs. There needs to be some sort of formalization in the work process. This work processes is known as formalization.

This element varies greatly across organizations. For example, in some organizations the timings of arrival and departure from work are specified to the minute, with time clocks used to control such behavior. In other organizations the overall time to do a specific job is understood and the employees have to complete work on that time.

In some organizations many rules are defined in huge manuals, but no one pays attention to them. In others little is written down, but rules are informally understood and followed. Thus the most useful definition of formalization is that it represents the use of rules in an organization. The degree to which rules are followed, not the degree to which they are codified,is the key factor.

Organizations usually use formalization to increase their rationality. In one sense formalization is an attempt to make behavior more predictable by standardizing it. Standard procedures for production workers or quality control checklists that must be used and submitted before a product can be shipped are examples of this kind of formalization.


Organizational Structure is critical both for a company and its employees. People should think very carefully about the organizational structure of the companies for which they intend to work. In the long run, Organizational Structure can be the difference between success and failure for a company, as well as for the individuals who work there.