Organizational Structure
Three components define organizational structure:
- Organizational structure designates formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers and supervisors.
- Organizational structure identifies the grouping together of individuals into departments and of departments into the total organization.
- Organizational structure includes the design of systems to ensure effective communication, coordination, and integration of efforts across departments.
The organizational chart is a picture of the organizational structure providing us a virtual representation of how people officially react with each other. While the organizational chart dates back many years, it was not till the industrial revolution that it became prominent. The type that formed then was a vertical structure with authority and decision making at the top and physical labor at the bottom and it suited the times quite well.
Information-Processing Perspective on Structure
The organizational structure of a firm should reflect the informational requirements of the organization but this can cause problems because there is a tension between horizontal and vertical mechanisms. Firms will tend to gravitate towards one or the other, vertical reflecting strong control or horizontal (decentralized) reflecting sharing of information and authority at lower levels.
Vertical Information Linkages
Vertical linkage is used to coordinate activities between the top and bottom of an organization with authority and goals at upper levels and activities to meet goals done by lower level employees.
Hierarchical Referral
When a problem arises a lower level employee does not know how to handle, it will climb up the vertical lines till a problem is figured and then the solution will work its way back down for now and future use.
Rules and Plans
Rules, plans and repetition help lower level employees know what they need to do.
Vertical Information Systems
Vertical information systems revolve around the tools used to send reports and communications to managers at upper levels.
Horizontal Information Linkages
Horizontal linkage refers to the amount of communications between the various departments in an organization. Though they may not be drawn on the organizational chart, horizontal linkages are often part of the structure of an organization. Often though they need to be forced in an organization.
Information Systems
Computer information systems provide for information horizontal information sharing easily. By sharing of information people in the organization avoiding making the same mistakes others have made as well as share the successes.
Direct Contact
One way to get horizontal linkage is to have a person in a liaison role. A liaison is a person in one department that has responsibility for creating communications and coordination within an organization. Another way is to locate people close to each other so they will have regular direct contact.
Task Forces
A liaison usually links two departments but a task force will link several departments together. They are by nature formed to solve a problem and then dissolved.
Full-time Integrator
A full time integrator is a person from outside the vertical linkage and does not report to any one in the linkage. This person is outside the departments but coordinates the several departments. In an organizational chart they are drawn off to one side. They often will not have direct authority over the people that they people that they are coordinating. They need excellent people skills to do their job.
Teams
Teams are permanent task forces and are often used with a full-time integrator. A virtual team is made up of people in various places that come together through tools available including the internet.
Organization Design Alternatives
Required Work Activities
As an organization needs it, departments will be created to do things that are strategically important to the organization.
Reporting Relationships
Once activities and departments are defined a chain of command can be created. This would be a line to the person above an employee that he reports to directly. There should be an unbroken line of command for all employees up to the head of an organization.
Departmental Grouping Options
Departmental groupings reflect who employees report to and what resources they share. They can be of many types.
- Functional grouping – brings people together who have similar work functions, knowledge or skills.
- Divisional grouping – people are organized according to what they produce.
- Multifocused – embraces both of these types and creates a matrix
- Horizontal grouping – employees are gathered together around core processes from start to finish
- Virtual networking grouping – departments are connected together electronically
Functional, Divisional, and Geographical Design
The functional and divisional grouping are the most common approaches to structural design.
Functional Structure
In a functional structure activities are grouped together by common functions (engineering, sales, etc) with a vice president in charge of that group. All information and skills to do a job are kept within the department. The strength of this is the economies of scale that can be produced especially if employees doing the same thing can be located together. The weakness is that it is slow to respond to changes in the environment.
Functional Structure with Horizontal Linkage
The structure that is becoming popular in organizations is the flatter horizontal format. Since it is hard to maintain this it is done with vertical hierarchy with strong horizontal linkages.
Divisional Structure
Divisional structure is another name for product structure or strategic business units and the organization grouping is based on the organizational outputs. Instead of sharing departments, each division gets its own people responsible for the various jobs. This decentralizes the decision making. This type of organization is great for coordination across functional departments. Large organizations can use this to break themselves self-controlled units. Product lines are the most common way that these are done. A disadvantage here is that the economies of scale are lost because each division duplicates many processes. Unless it is forced, horizontal structure is virtually non existent.
Geographical Structure
Another grouping would be geography. Since different areas have different tastes in products or different needs this organization can be helpful. This structure can work well for multinational corporations.
Matrix Structure
When an organization needs both styles, a matrix structure can be used. A matrix is a strong form of horizontal linkage. It is similar to the full time integrator or product manager talked about earlier.
Conditions for the Matrix
When these conditions are met a dual-authority structure is needed. True matrix format is hard to maintain so often one or the other will take precedence. The common variations are the functional matrix and the product matrix.
Strengths and Weaknesses
The matrix works best when there is a high environmental change and goals reflect dual requirements. It also works when unexpected problems rapidly happen. The strength is that it allows employees to meet dual needs. A major disadvantage is that employees have two bosses and get confused who they really report to. Bosses must also spend a lot of time in meetings in this design.
Horizontal Structure
The horizontal structure organizes employees around related tasks and activities which are called processes. An example would be putting together a team to handle insurance claims processing rather than pass from one department to another.
Characteristics
- Structure is created around cross-functional core processes
- Self-directed teams are the basis of the organizational design
- A process owner has responsibility for each core process
- People on the team are given what they need to get the job done and are often crossed trained
- Teams are allowed to think creatively and respond flexibly
- Customers drive the horizontal corporation
- Culture is one of openness, trust and collaboration
Strengths and Weaknesses
The major strength is that it can increase flexibility of an organization. It directs everyone’s attention to the customer. Unless management determines the core processes that bring value to a customer, this system can be more harmful. Another weakness is the culture change and resistance to it that needs to take place.
Virtual network Structure
The virtual network structure moves the boundaries out side of the traditional organization. In this format, an organization outsources the work to subcontractors and coordinates activities from headquarters.
How the Structure Works
Networked computers are used to transport information through the contractors so that they can act as one organization. Subcontractors flow in and out of the organization as needed.
Strengths and Weaknesses
Major strength of this type of organization is that can be global no matter how small they are. It also allows for rapid development of a product to market. The major weakness is that it is so decentralized there is a lack of control. Another problem is that a partner can fail to do its job, or even go out of business. There is also a high turnover rate of employees because there job may be the next to go.
Hybrid Structure
Many organizations do not exist in the true forms described here but are a hybrid by nature. One form is to combine the functional and divisional structures. Another is the combination of functional and horizontal structures.
Applications of Structural Design
Structures are applied in different situations to meet different needs.
Structural Alignment
The most important decision managers must make is the right mix of vertical (control, goals) and horizontal (flexibility, innovation) that is right for the firm.
Symptoms of Structural Deficiency
Many organizations try one structure and then may change if it does not work well. Symptoms of deficiency include:
- Decision making is delayed or lacks in quality
- The organization does not respond innovatively to a changing environment
- Employee performance declines and goals are not being met
- Too much conflict is evident
Summary and Interpretation
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