Design of Organization Structure 

Concept of Organization Structure 

Formal and Informal Organization   Departmentation 

Span of Management 

Organization Structure  

Organization Structure is a pattern in which various parts or components are interrelated or interconnected.

Organization structure is the pattern of relationship among various components or parts of the organization. This prescribes the relationship among various activities and positions. Since these positions are held by various persons ,the structure is the relationship among people in the organization. The organization structure is abstract and is invisible.

But the structure is visible in the case of biological and mechanical systems such as organism and machine. It can be studied through anatomy and physiology. Anatomy is the study of the structure of the organism whereas physiology deals with functions of living organism .The biological and mechanical system can be studied in both these terms- structure as well as functioning.. This is not possible in the case of social systems which do not have anatomy and physiology

The structure of a system is the arrangement of its subsystems and components at a given moment of time. Process is a dynamic change in the matter, energy or information of the systems overtime.The concept and process can be viewed as the static and dynamic features and both these aspects are related rather than opposite.The organization structure can be viewed as established pattern of relationship among the components of the organization.In large and complex organization ,structure is set forth initially by the design of the major components or sub systems and then by establishing relationship among these subsystems.It is the patterning of these relationships with some degree of permanency is referred to as organizationalstructure

Design of organization structure is concerned with such issues as how the work of the organization will be divided and assigned among various positions ,groups, divisions ,departments etc and how the coordination necessary to accomplish total organizational objectives will be achieved. In addition to the formally established organization structure people create informal relationship with in the organization. Organization structure is the totality of formal and informal relationship.  Operating mechanism or organizational process includes such factors as control procedures, information systems, reward and punishment systems ,rules and procedures so on. Basic structure and operating mechanism can be used to identify as to what is required of organizational members to achieve objectives and encourage them to take collective activities

In the design of the organization structure managers prescribe only the formal aspects which is expected to be followed. But in actual practice the interaction is based not only on the formal aspect but also based on informal organization .In an organization we find ,informal communication. These are not prescribed by managers but are important in the functioning of the organization.

Formal and Informal Organization. 

Formal organization ( referred to as structure) is deliberately designed to achieve some particular objectives. 

The formal organization is built on four pillars also known as principles of organization.

 -          Division of labor-         Scalar and functional processes-         Structure-         Span of Control

Characteristics of Formal Organization Organization structure is designed by the top management to fulfill certain requirements –performance of necessary activities thereby achieving organizational goals.

Organization structure is based on the principle of division of labor and efficiency of operations.

Organization concentrates more on the performance of jobs and not on the individuals performing the job.

The authority and responsibility assigned to each job have to be adhered to by the job holders.Based on the concept of authority and responsibility ,people are placed in hierarchy and their status is determined accordingly.

Coordination among members and their control are well specified through processes, procedures ,rules etc.

Informal organization is a shadow organization .It comes into existence spontaneously from the interactions of the people.It is unofficial and unauthorized relationship between people working in a formal organization. It exists with in the confines of the formal structure.. The interactions are not prescribed by the formal structure and also not with in the control of the formal system. It is the by product of the human nature.

Characteristics of informal organizations.  informal organization is a natural outcome at the work place .It is not designed and planned.

informal organization is created on the basis of some similarity among its members. The bases of similarity may be age, sex place of

origin,caste, religion, personality,characteristics ,likings and disliking.

Membership of informal organization is voluntary. A person may become member of many involuntary organizations.

Conduct members is governed by the norms of the informal organization and not that of the formal organizations. 

Formal and Informal Organizations Compared 

Basis Formal Informal 

Formation Planned and Deliberate Spontaneous Purpose Well–set goals Social interaction Structure Well structured Unstructured Nature Official Unofficial Focus Positions Persons Leadership Superior Any one Source of Power Delegated Given by Group Guidelines forBehavior Rules/Procedures Group norms Sources of Control Reward/Punishment Sanctions

Reasons for Informal Organizations 1.     Desire to socialize with others2.     Physiological fatigue of routine tasks3.     Hierarchical controls and communication4.     Due to various functions of informal organizations.

Contribute to the interest of membersProtecting their interest Working as regulatory deviceProtection of Cultural values of membersValidation of their beliefsOutlet for overcoming frustrationDevelopment of leadership potentialities.

 

Contributions to formal organization Filling gaps in managerial abilities

Restriction on managers area of operation Medium of Communication Source of Information

Need for formal organization 

Organization structure has the following roles 

Facilitating Management Action  Formal structuring is required to place people according to the needs of the

organization. All people perform various functions which are interdependent and interrelated.

There must be a plan for the systematic completion of the work of each person so that total activities accomplish common objectives. All these activities should be

completed in a coordinated way. Organization structure is the mechanism through which management directs, coordinates and control the organizations structure facilitating

both management and operation.

Encourages Efficiency 

In the functioning of an organization structure ,efficiency is the major criterion. Organizational members try to maximize the output of goods or services resulting from the input of resources. Disorganization is against efficiency and systematic ,orderly rational and coordinated efforts tend to increase efficiency and control waste and loss. Thus organizational design help to increase efficiency.

 Communication Organization structure creates pathways of communication

between members as well as between the organization and its environment. It creates reporting relationship with in the organization.

Communication may be in horizontal, vertical or lateral direction. A well designed organization structure provides lines of communication in all these directions.

Optimum use of Organizational resources 

Organization structure helps to make optimum allocation of resources by ensuring that it is made available to the points where they are needed most. Placing of activities according to their importance provides guidelines for resource allocation.

 Stimulating Creativity

 An organization structure based on specialization lead to

stimulation of creative thinking. Organization structure tries to put people at places where they are required.When people work on a job for a long period of time they become experts and contribute meaningfully to that area of association.

 

Job Satisfaction Organization structure provides for each person a place of status which confers a certain standing among his fellows. This works as motivating factor for them. Most of the people have long association with organizations. They expect their jobs and work to provide a reasonable degree of job satisfaction and the framework for this is the structure of the organization itself.

Features of Good Organization Structure 1.     Simplicity2.     Flexibility3.     Clear lines of Authority4.     Application of Ultimate Responsibility5.     Proper Delegation of Authority6.     Minimum possible managerial levels7.     Principle of Unity of Direction and Command8.     Proper emphasis on staff 9. Provision for top management

Approaches to Organizational Design Peter Ducker has proposed three types of analyses which should be undertaken to design the organizational structure. These are activities analysis, decision analysis and relations analysis. Another way of classification of approaches to organizational design is process approach, result approach and decision approach.

Result Approach

Organizational design based on result approach is more effective in those situations where strategy innovation is a prime need.

The steps involved are -          defining the business on the basis of potential area of market

opportunities -         

Establishing the objectives to be accomplished-        

Determining the requirement for success and functional skills needed to meet them.

-         Determining the degree of authority keeping in mind the degree of centralization best suited to decision making.

 

Process Approach In this approach the emphasis is on identification of activities involved and then directing the various units of organization .Combining various units and placing them in appropriate places so that activities are performed smoothly.The emphasis is on -         All activities necessary for achieving the objectives are performed-         There is no unnecessary duplication of performance of activities-         All necessary activities are performed in a synchronized way.

Various organizational units may be created based on the activities to be undertaken, their relationship will be based on the sequence of activities performed by these units, their relative importance will depend on the relative importance of the activities performed by them.

Result Approach Organizational design based on result approach is more effective in those situations where strategy innovation is a prime need.

The steps involved are -         defining the business on the basis of potential area of market

opportunities

-         Establishing the objectives to be accomplished

-         Determining the requirement for success and functional skills needed to meet them.

-         Determining the degree of authority keeping in mind the degree of centralization best suited to decision making.

 

Decision Approach 

This approach to organizational design mechanism puts certain questions about the decisions and the answers of these questions become the basis for designing structure.These questions are

 What decisions are needed to obtain results for achieving organizational objectives?What is the nature of such decisions?At what levels of the organization should such decisions be made?What are the activities involved in or affected by such decisions?

 The answers to these questions would determine the degree of authority in a position,its interaction with other positions and the placement

of the positions in the organizational hierarchy.

Departmentation 

Departmentation is a means of dividing a large and complex organization into smaller ,flexible administrative units. It is the ‘grouping of activities and employees into departments’. It is the arrangement of activities to facilitate the

accomplishment of organizational objectives.

Departmentation is essential because of  o      It permits an organization to take advantage of specialization o     Enables each person to know the particular part which he is

expected to play in the total activities of the organization.

o      Departmentation facilitates communication, coordination and control contributing to overall organizational success.

o      Departmentation provides an adequate platform around which the loyalties of organizational members may be built.

o      It enables a manager to locate the success of information skill and competence to take certain vital managerial decisions.

  

Advantages of Departmentation Increases EfficienceyFixation of AccountabilityDevelopment of Managerial FacultiesPerformance ApprasalBetter Control

Methods of Departmentation 

Departmentation by Number 

This involves putting together certain number of persons of undifferentiated skills to perform certain duties at the

direction of an executive or manager.The success of such departments depend on the manpower. This type of departmentation is used in tribes and armies.

 

Departmentation by function 

Departments are created on the basis of specified functions to be performed .Activities related to a function are grouped in a single unit with a view to give a well defined direction to the whole group.. In a production unit the functions are like production, purchases, finance, marketing ,personnel etc. In an Insurance company the departmentation may be achieved on the basis of functions like underwriting agency,claims adjustment and administration.

Departmentation by Product 

Followed in multi line large scale organization. All the activities related to a particular product line may be grouped together under the direction of semi-autonomous division manager. The division manager is given extensive authority over production ,sales, engineering and other functions related to the product line .

Departmentation by customer 

Departmentation by customer may be done in enterprises engaged in providing specialized services to different classes of customers.The management groups the activities on this basis to cater to the requirements of clearly defined customer groups. A automobile servicing enterprise may organize its departments as heavy vehicle servicing, car servicing division and scooter servicing division etc. marketing organization may be divided into wholesale, retail and export departments etc.

Departmentation by Territory.  

Departmentation by territory or geographical area is used when several units of an enterprise are

geographically dispersed in different locations. All activities in a given area or territory are grouped together. The best example of such departmentation is Indian Railways which is divided into Northern Railways, Western Railways, Southern Railways etc. 

Departmentation by Process or Equipment 

In the case of a manufacturing enterprise having a number of production process may be done on the basis of production processes or equipments involved.The manpower and materials are brought together in such a department in order to carry out a particular operation. In a textile mill the various departments may be spinning, weaving, dyeing, bleaching, printing packing etc.

Composite Structure 

The basic objective of departmentation should be that attainment of organizational objectives economically and efficiently .In many cases it is not feasible to follow a single basis of departmentation. In big organizations the scheme of departmentation are composite based on several bases such as function, product, process , customer and territory. 

There is no ideal pattern to suit all occasions and situations. Therefore the management has to be very careful and high

degree of imagination at the time of choosing a pattern of departmentation. Once a pattern is chosen ,it is very difficult and costly to switch over to another pattern. 

Span of Management 

Span of Management otherwise known as span of control or span of supervision denotes the number of subordinates which should be put under one supervisor. Span of

Management refers to the number of subordinates who can be managed effectively by a supervisor. The number of subordinates reporting to a supervisor has two implications. 

It is influential in determining the complexity of individual manager’s jobs.

The span of management determines the shape or configuration of the organization. The fewer the number of people reporting to the superior ,the larger the number of managers

required. 

The number of subordinates reporting to a superior should be fixed which in any case cannot go beyond a certain limit.

Determination of Span of Management 

The classical writers have suggested between three to eight subordinates as ideal depending on the levels of management , with lower levels of management higher the number of subordinates. 

Graicunas a French Management Consultant has suggested the fixation of number of subordinates based on mathematical

calculations. He has analysed superior –subordinate relationship and developed mathematical formulae. He has identified three types of superior –subordinate relationship. They are

Direct Relationship 

Direct Single Relationship arises from the direct individual contacts of the superior with his subordinates. Thus if there are three subordinates A,B,C under X there will be three direct single relationships.

  Direct Group Relationships 

Direct group relationship arises between the superior and his subordinates in all possible combinations. Thus the superior may consult his subordinates with one or more , providing assistance. With three subordinates there will be nine such relationship. With three subordinates there will be nine such relationships like A with B , A with C, B with C and so on with the superior associated with all groups.

 

Cross Relationships 

Cross relationships arise because of mutual interaction of subordinates working under the common superior such as A and B , A and C , B and A and so on. The relationship is quite different between A and B than B and A from management point of view because the type of interaction will be different in both the cases.

The number of subordinates being ‘n’ ,the number of various relationships will be as follows 

Direct Relationship = n  n-1

Direct Group Relationship = n (2 - 1 ) 

Cross Relation ships = n ( n-1) 

Total relation ships = n (2n --- + n - 1 ) 2

Relationship with variable number of subordinates 

No.of Subordinates No. of Relationships

1 12 63 184 445 1006 2228 106010 521012 2470818 2359602

According to Graicunas the most ideal span of management is six subordinates involving 222 relationships. Graicunas has given a mathematical treatment of the problem ,showing how the problem of managing subordinates increases with the number of subordinates. All the relationships are not equally important from the management point of view. These cannot increase the complexity of managing. The recognition that potential managerial effectiveness decreases as subordinates increases has led others to propose definite limits to the span of management.

Davis distinguishes between two categories of span of control.

    an executive span and      an operating span .

Executive span includes the middle and top management positions. The span for these managers should vary from 3 to 9 and operating span as many as 30 subordinates. Urwick has proposed span for top management as 4 and 8 to 12 for supervisory management.

Factors affecting Span of Management  Capacity of SuperiorCapacity of SubordinatesNature of WorkDegree of DecentralizationDegree of PlanningCommunication TechniquesUse of staff assistanceSupervision from others 

Various research studies have suggested the actual span to be followed under various situations. On the basis of review of such studies house and Minor concluded that  Under most circumstances the optimal span is likely to be in the range of 2 to 10. The larger spans say 8 to 10 are most appropriate at the highest policy making levels of the organization where greater resources for diversified problem solving appear to be needed. The breadth of effective spans of first –line supervisors is contingent on the technology of the organization and 

In presenting the span of control various factors like desirability of high group cohesiveness ,the performance demands of the task, the degree of stress in the environment ,task interdependence ,need of member’s satisfaction and the leadership skills available to the organization

Wide or Narrow span Classical writers have suggested a narrow span of management ,where as modern management suggests a wider span of management.. A narrow span throughout an organization causes tall or vertical structure and a wide span causes a flat or horizontal structure. In the first case more supervisory personnel are required.

Wide and Narrow Span of Management 

Organisational Level Members at Each Level

At span 4 At span 8

1 1 1 2 4 83

16 644

64 5125

256 40966

1024 327687

4096 262144

Thus for the same (4096) workers requirement of supervisory personnel at span 4 is 1365 and at span of 8 is only

585.Looking into the cost of employment of personnel and their availability ,it is preferable to go in for wider span of management. Wider span of management is made possible by the following factors.

 Trends towards decentralizationImproved communication technologyIncreasing size of organization andThe new pattern of leadership with more emphasis on democratic style

 Tall Structure

 Flat Structure

Departmentation by Function

Departmentation by Product

Departmentation based on Customers

Departmentation based on Process