CAE10 - MANAGEMENT SCIENCE

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CHAPTER 8 – ORGANIZATIONAL DESIGN

I. Learning Objectives
 Define organizational design;
 Discuss the principles and types of organization; and
 Understand the common organization structures.

II. Introduction
 Organizational Design is a sequential method of identifying the performing aspects and
liabilities in a system, so that they can be re-aligned as per the needs of the company,
such as current goals and implementing new business changes. It focusses on
improving technical and interpersonal side of the workplace. Implementing an efficient
organizational design leads to a more effective organization, a more focused workforce
and a workplace of better productivity by improving internal operations,
interdepartmental relationships, working efficiency, all of which leads to better
productivity and customer satisfaction.
 During the implementation of Organization Design, a management may enforce
numerous strategic changes as per their strategy to deliver the desired results. In this
process, there are chances of clashes between work-processes and the occasional
trade-offs. Sometimes, there will be situations where the management realizes that they
have to sacrifice smaller benefits to ensure larger benefits in the future.
 Due to these reasons, changes in Organizational Design are always not as smooth as
the management will like them to be. However, successful companies have managed
to implement such changes with an eye on the big picture and have communicated
their strategies with transparency to their employees, which has helped them to bring
future-embracing changes in their structure without getting any negative press or
reputation to their names.
 Example A notable example would be the Belgian giant, DuPont that decided to enter
into the international market and diversify its business in 1921. To ensure that these
ventures remain profitable, they implemented changes to many fundamental structures
of their management, thereby bringing a new structure to their working, which has held
them high through all the effects of the fluctuating global economy. This case will be
explored in greater detail in a case study. Designing changes in any organization is a
step-by-step process and involves focusing on different phases of planning.
o In the first phase, people develop a vision for their company for the future. Once
that’s done, they identify their goals and the areas that they need to bring
changes in to reach these goals.
o The next step involves drawing out a clear set of objectives and what changes
to implement, so that these objectives are realized.
o This is followed by a crucial phase called Organizational Grouping during which
the management decentralizes their workforce and divides them into separate
groups that take care of different departments with enough autonomy to take
their own decisions, with clear and timely communication with interlinked
departments.
 President George H. W. Bush had once asked a friend to help him identify some
pressing issues for the election campaign, who suggested that he go alone to Camp
David for a few days and figure out what direction he wants to lead the country towards,

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an incensed Bush told, “Oh, the vision thing". This exposed his inability to articulate
important policies in a concise manner. He was one of the few incumbent US presidents
who didn’t win a second term.

III. Defining Organizational Design

 Organization design is a framework architecture for an organization according to which
an organization runs its business. It structures the workforce and the management in
the most efficient working method through which they can realize their company’s
mission statement. A successful and comprehensive design process is defined by the
holistic approach it envisions for the organizational improvement. To design such a
framework that addresses all the vital areas of a company, the management will have
to draw objectives that ensure the following –
o Business Growth Model
o Improved Efficiency and Profits
o Outstanding Customer Service
o Improved Process Management
o Improved Workforce Productivity
o Decreasing Operational Expenses
o Improved Employee Engagement
 Based on this framework, work is deployed, teams are formed, responsibilities are
delegated and core values are implemented. As a result of this, high-quality output is
produced, which is then offered to the clients. Following this chain of operations for
every project ensures trust, quality-assurance, timeefficiency and more business.
 However, unlike what many people assume, there is no particular super-design that fits
all. In fact, companies have lost their fortunes and brought severe losses upon
themselves in chasing after the elusive formula that will set everything in order for them.
They kept implementing repeated changes in their organization’s structure, but didn’t
end up improving their business.

IV. Principles and Types of Organization

 An organization is a social unit of individuals that is designed and managed to achieve
collective goals. As such organizations are open systems that are greatly affected by
the environment they operate in. Every organization has its own typical management
structure that defines and governs the relationships between the various employees,
the tasks that they perform, and the roles, responsibilities and authority provided to
carry out different tasks.
 An organization that is well structured achieves effective coordination, as the structure
delineates formal communication channels, and describes how separate actions of
individuals are linked together.
 Organizational structure defines the manner in which the roles, power, authority, and
responsibilities are assigned and governed, and depicts how information flows between
the different levels of hierarchy in an organization.
 The structure an organization designs depends greatly on its objectives and the
strategy it adopts in achieving those objectives.
 An organizational chart is the visual representation of this vertical structure. It is
therefore very important for an organization to take utmost care while creating the

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organizational structure. The structure should clearly determine the reporting

relationships and the flow of authority as this will support good communication –
resulting in efficient and effective work process flow.

V. Common Organization Structures

 Managements need to seriously consider how they wish to structure the organization.
Some of the critical factors that need to be considered are −  The size of the
organization  Nature of the business  The objectives and the business strategy to
achieve them  The organization environment
 Functional Organization Structure The functional structure is the most common model
found in most organizations.
Organizations with such a structure
are divided into smaller groups based
on specialized functional areas, such
as operations, finance, marketing,
Human Resources, IT, etc.
 The organization’s top management
team consists of several functional
heads (such as the VP Operations,
VP Sales/Marketing). Communication generally occurs within each functional
department and is communicated across departments through the department heads.
This structure provides greater operational efficiency as employees are functionally
grouped based on expertise and shared functions performed. It allows increased
specialization as each group of specialists can operate independently.
 In spite of the above benefits there are some issues that arise with this structure. When
different functional areas turn into silos they focus only on their area of responsibility
and do not support other functional departments. Also expertise is limited to a single
functional area allowing limited scope for learning and growth.
 Product Organizational Structure This is
another commonly used structure, where
organizations are organized by a specific
product type. Each product category is
considered a separate unit and falls within
the reporting structure of an executive who
oversees everything related to that
particular product line. For example, in a
retail business the structure would be
grouped according to product lines.
 Organization structured by product category facilitates autonomy by creating
completely separate processes from other product lines within the organization. It
promotes depth of understanding within a particular product area and also promotes
innovation. It enables clear focus with accountability for program results. As with every
model, this model also has a few downsides like requirement of strong skills
specializing in the particular product. It could lead to functional duplication and potential
loss of control; each product group becomes a heterogeneous unit in itself.

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 Geographic Organizational Structure

Organizations that cover a span of
geographic regions structure the company
according to the geographic regions they
operate in. This is typically found in
organizations that go beyond a city or state
limit and may have customers all across
the country or across the world.
 It brings together employees from different
functional specialties and allows
geographical division. The organization responds more quickly and efficiently to market
needs, and focuses efforts solely on the objectives of each business unit, increasing
results. Though this structure increases efficiency within each business unit, it reduces
the overall efficiency of the organization, since geographical divisions duplicate both
activities and infrastructure. Another main challenge with this model is that it tends to
be resource intensive as it is spread across and also leads to duplication of processes
and efforts.
 Matrix Organizational Structure A matrix
structure is organized to manage multiple
dimensions. It provides for reporting levels
both horizontally as well as vertically and
uses cross-functional teams to contribute
to functional expertise. As such employees
may belong to a particular functional group
but may contribute to a team that supports
another program.
 This type of structure brings together
employees and managers across
departments to work toward
accomplishing common organizational objectives. It leads to efficient information
exchange and flow as departments work closely together and communicate with each
other frequently to solve issues. This structure promotes motivation among employees
and encourages a democratic management style where inputs from team members are
sought before managers make decisions. However, the matrix structure often increases
the internal complexity in organizations. As reporting is not limited to a single
supervisor, employees tend to get confused as to who their direct supervisor is and
whose direction to follow. Such dual authority and communication leads to
communication gaps, and division among employees and managers.

VI. References
 DuBrin, Andrew J. (2009). Essentials of Management (8th ed.). Mason, OH: Thomson
Business & Economics. ISBN 978-0-324-35389-1. OCLC 227205643.

 Waring, S.P., 2016. Taylorism transformed: Scientific management theory since 1945. UNC
Press Books.

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VII. Link for Video

Defining Organizational Design https://youtu.be/ppXbtMAafik
Principles and Types of Organization https://youtu.be/Vbcpr1TS9NM
Common Organizational Structure https://youtu.be/wO_-MtWejRM

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