Factors Affecting

UNIT 5 FACTORS AFFECTING Organizational

Structures
ORGANISATIONAL STRUCTURES

At the end of this UNIT, you should be able to understand:

• the meaning of organisation design/structure

• various objectives of organisation design/structure
• different principles of organisation design/structure
• theories of organisation design/structure
• important factors affecting organisation design/structure
• meaning of organisation effectiveness
• criteria to measure effectiveness

Structure

5.1 Introduction
5.2 Meaning of Organisational Design/Structure
5.3 Purposes of The Organisation Design/Structure
5.4 Principles of Good Organisational Design/Structure
5.5 Theories of Organisation Design/Structure
5.6 Key Factors Affecting Organisation Design/Structure
5.7 Other Factors
5.8 Organisational Effectiveness
5.9 Summary
5.10 Self Assessment Questions
5.11 Further Readings/ References

5.1 INTRODUCTION
Technological advancement has brought about far-reaching changes in the
methods of work and also in the organisation design. Globalisation of market,
changing methods of production, economic instability etc. over the factors
which affect the organisation designing. It is in this context, the present
unit seeks to analyse this concept and to outline the principles and theories
associated with it.

5.2 MEANING OF ORGANISATIONAL DESIGN

The term ‘Organisational Design’ refers to how various parts of the
organisation and the distinct elements are brought together to make it. It
considers both, how these elements match together and ways in which
they may be analyzed and improved.
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Basics of The design aspects broadly include how the organisation is structured, the
Organisational
Structure types and numbers of jobs, and the processes and procedures used to:

• handle and pass information;

• make decisions;
• produce results;
• manage quality;
• communicate information;
• plan, develop and manage resources;
• innovate and handle crises (Cushway and Lodge, 2002).

5.3 PURPOSES OF THE ORGANISATION

DESIGN
Broadly an organisation is designed to realize a number of objectives. These
could be:

• to support the organisation’s strategy. The structure should be designed

in such a way as to assure the realization of the organisation’s goals and
objectives;
• to arrange resources in the most efficient and effective way;
• to provide for the effective division of tasks and accountabilities among
individuals and groups;
• to ensure effective co-ordination of the organisation’s activities and
clarify the decision-making processes;
• to enhance and elucidate the lines of communication up, down and
across the organisation;
• to permit for the effective monitoring and review of the organisation’s
activities;
• to endow with mechanisms for coping with change in markets, products
and the internal and external environments;
• to aid the handling of crises and problems;
• to help to motivate, manage and give job satisfaction to individual
members of the organisation; and
• to provide for management succession (Cushway and Lodge, 2002).

5.4 PRINCIPLES OF GOOD

ORGANISATIONAL DESIGN
A good organisation design should go along with the following principles:

• The various parts of the structure should be divided into specialist areas.
These specialist areas need to be interlinked.
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• The number of levels in the structure, sometimes referred to as the Factors Affecting
Organizational
scalar chain, should be as few as possible. Structures

• The span of control, i.e, the number of subordinates directly managed,

will vary according to the nature of the jobs and the organisation, but it
should not be so narrow that it results in a structure with too many
levels, or too broad to allow effective management.

• There should be what has been described as unity of command. For

this the reporting positions and authority need to be clearly defined.

• Every post in the structure should have a clear role and add value to
the way the organisation functions.

• The extent to which the organisation should be centralized or

decentralized will need to be determined by reference to a number of
factors. These include, the nature and type of industry, geographical
dispersion, history, environment, resources available etc.

• The structure must be designed to take account of changes in the

environment, which can include the economy, legislation, markets,
technological developments, geography, cultural environment, and social
environment.

5.5 THEORIES OF ORGANISATION DESIGN

Basically, there are two theories of organisation design: universalistic &
contingency theories. The universalistic theory assumes that there is “one
best way” to organize. It means the maximum organisational
performance comes from the maximum level of a structural variable, for
instance, specialization (Taylor, 1947). Classical management is an earlier
organisational theory that argue that maximum organisational performance
results from maximum formalization and specialization and it is therefore a
universalistic type of theory. Similarly, neo-human relations is also an earlier
universalistic type of organisational theory, which claims that organisational
performance is maximized by maximizing participation (Likert, 1961).

Contingency theory differs from all such universalistic theories in that it sees
maximum performance as resulting from adopting, not the maximum, but
rather the appropriate level of the structural variable that fits the
contingency.

Therefore, the optimal structural level is seldom the maximum, and which
level is optimal is dependent upon the level of the contingency variable.

A contingency is a variable that moderates the effect of an organisational

characteristics on organisational performance. At the most abstract level, the
contingency approach says that the effect of the variable on another
depends upon some third variable. The third variable moderates the
relationship between two variables and can therefore be called a
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Basics of moderator of the relationship or a conditioning variable of the relationship
Organisational
Structure (Galtung 1967). In the contingency theory of organisations, the relationship
is between some characteristic of the organisation and effectiveness. Thus
the contingency factor determines which characteristic produces high levels
of effectiveness of the organisation (or some part of it, such as a
department of individual member).

As much of the contingency theory research has studied organisational

structure this tradition is referred to as structural contingency theory.
Structural contingency theory contains three core elements that together form
its core archetype.

First, there is an association between contingency and the organisational

structure.

Second, contingency determines the organisational structure, because an

organisation that changes its contingency then, in consequence, changes its
structure.

Third, there is a fit of some level of the organisational structural variable

to each level of the contingency, which leads to higher performance,
whereas misfit leads to lower performance. This fit-performance relationship
is the heart of the contingency theory paradigm. It provides the
theoretical explanation of the first two points.

5.6 KEY FACTORS AFFECTING

ORGANISATION DESIGN
The selection of an appropriate design is reliant upon several factors.
However the primary factors that often affect organisation design are: size,
environment, strategy, and technology. Table 1 identifies some indicators for
each of the four primary factors.

Table 1: Factors in Organisation Design Decisions

Factors Indicators
Size Large/Small
Environment Degree of complexity Degree of
dynamism
Strategy and Goals Low cost Differentiation Focused

Technology Task interdependence

I. Size and Organisation Design

Size is a main contingency factor that affects several aspects of structure.

The size contingency refers to the total number of employees who are to
be organized.
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Size as a key structural variable is subject to two schools of thought. The Factors Affecting
Organizational
first approach, often called the “bigger is better” model, presupposes that Structures
the per- unit cost of production decreases as the organisation grows. In
effect, bigger is said to be more efficient. The second approach i.e.
“small is beautiful” revolves on the law of diminishing returns. This
approach asserts that oversized organisations and subunits tend to be
beleaguered by costly behavioral problems. Large and impersonal
organisations are said to trigger apathy and alienation, with resulting
problems such as turnover and absenteeism. Two strong promoters of this
second approach are Peters and Waterman, the authors of the best-selling
In Search of Excellence.

Recent research hints that when designing their organisations, managers

should stick to a middle ground between “bigger is better” and “small is
beautiful” because both models have been oversold. In reality, a newer
viewpoint says complexity, not size, is the central issue. A meta-analysis
of 31 studies (Gooding and Wagner III, 1985) conducted between 1931 and
1985 that related organisational size to performance found:

• Larger organisations (in terms of assets) tended to be more productive (in

terms of sales and profits).

• There was “no positive relationship between organisational size and

efficiency, suggesting the absence of net economy of scale effects.”

• There was zero to slightly negative relationship between subunit size and
productivity and efficiency.

• A more recent study examined the relationship between

organisational size and employee turnover over a period of 65 months.
Turnover was unrelated to organisational size.

Striving for Small Units in Big Organisations : In summary, bigger is

not essentially better and small is not essentially beautiful. Hard-and-fast
numbers regarding precisely how big is too big or how small is too small
are hard to obtain. The best that managers can do is check the productivity,
quality, and efficiency of divisions, departments, and profit centers.

Activity A

In your opinion, whether a small or big organisation is more effective? Give

reason for your stand.

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Basics of II. Environment and Organisational Design
Organisational
Structure
Organisations, as open systems, need to receive various inputs from the
environment and to sell various outputs to their environment. Therefore, it is
important to comprehend what the environment is and what elements are
likely to be important.

The environment of an organisation may be defined as general or specific.

The general environment is the set of cultural, economic, legal-political, and
societal conditions within the areas in which the organisation operates. The
specific environment constitutes its owners, suppliers, distributors,
government agencies, and competitors with which an organisation must
interact to grow and survive. A firm, typically, much more concerned over
the composition of its specific environment than of its general environment.

Environmental Complexity

Environmental complexity is an estimate of the magnitude of the problem

and opportunities in the organisation’s environment. This is identified by
three main factors: the degree of richness, the degree of interdependence,
and the degree of uncertainty stemming from both the general and the
specific environment.

a) Environmental Richness

For business, a richer environment means the economic conditions are

improving, customers are spending more money, and suppliers (such as
banks) are willing to invest in the future of the organisation. A richer
environment is also filled with more opportunities and dynamism, i.e., the
capability for change. The organisational design must enable the company to
be proverbial with these opportunities and capitalize on them. The opposite
of richness is decline.

b) Environmental Interdependence

The link between external interdependence and organisational design is often

restrained and indirect. The organisation may choose powerful outsiders by
including them. For instance, many large corporations have financial
representatives from banks and insurance companies on their boards of
directors. The organisation may also adjust its overall design strategy to
absorb or safeguard the demands of a more powerful external element.

c) Uncertainty and Volatility

Environmental uncertainty and unpredictable volatility can be particularly

damaging to large bureaucracies. The obvious organisational design
response to uncertainty and volatility is to go for a more organic form.
However at the extremes, that ensures flexibility and is more adaptive to
environment movement toward an adhocracy may be important.

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 Factors Affecting
Using Alliances Where Environmental Factors Dominate Organizational
Structures
In high-tech areas, such as robotics, semiconductors, and advanced materials
(ceramics and carbon fibers), a single company often lacks all the knowledge
essential to bring new products to the market. In this case, the
organisational design must go beyond the boundaries of the organisation and
enter into an inter-firm alliances, which means announcing cooperative
agreements or joint ventures between two independent firms. In Japan,
alliance amount well established firms in many industries are quit common.
The network of relationship is called a Keiretsu.

Keiretsu is a Japanese word which, translated literally, means headless

combine. It is the name given to a form of corporate structure in which
a number of organisations link together, usually by taking small stakes in
each other and usually as a result of having a close business relationship,
often as suppliers to each other. The structure, frequently likened to a
spider’s web was very much admired in the 1990s.

Activity B

In recent years strategic emphasis is laid upon joint ventures or corporate

alliances. Write the rationale behind it.

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Differentiation and Integration: The Lawrence and Lorsch Study

In their classic text, Organisation and Environment, Harvard researchers

Paul Lawrence and Jay Lorsch explained how two structural forces
simultaneously disintegrate the organisation and combine it together. They
cautioned that an imbalance between these two forces could hold back
organisational effectiveness.

Differentiation occurs through division of labor and technical specialization.

Integration occurs when specialists cooperate to achieve a common goal.
In the Lawrence and Lorsch model, integration can be achieved through
various combinations of the following six mechanisms:

1) a formal hierarchy;
2) standardized policies, rules, and procedures;
3) departmentalization;
4) committees and cross-functional teams;
5) human relations training, and 97
Basics of 6) individuals and groups acting as liaisons between specialists.
Organisational
Structure
When Lawrence and Lorsch studied successful and unsuccessful companies
in three industries, they concluded that: As environment complexity
increased, successful organisations exhibited higher degree of both
differentiation and integration.

Activity C

Do you find any evidence of integration in your current (or last) place of
employment?

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Dynamism

Dynamism relates to the stability or instability of the environment. Several

authors have identified dynamism as one of the major environmental
contingencies of organisations (Child 1975; Duncan 1972; Thompson
1967). Dess and Beard (1984) emphasize that dynamism is not simply
the rate of change, which itself could be constant, thereby rendering the
environment predictable, but rather the degree of unpredictability. As they
state, “Dynamism should be restricted to change that is hard to predict
and that heightens uncertainty for key organisational members”. This
corroborates the significance of uncertainty as a strategic element of
dynamism.

It is presumed that when the task and environmental uncertainty

contingency is low, the mechanical structure and when the task and
environmental uncertainty contingency is high, an organic structure
produces high effectiveness.

Mechanistic versus Organic Organisations A landmark organisation

design study was reported by a pair of British behavioral scientists, Tom
Burns and G M Stalker. In the course of their research, they drew a very
instructive distinction between what they called mechanistic and organic
organisations.

Mechanistic organisations are rigid bureaucracies with strict rules, narrowly

defined tasks, and top-down communication. Organic organisations are
flexible networks of multitalented individuals who perform a variety of
tasks.

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Importantly as illustrated in Table 2, each of the mechanistic-organic Factors Affecting
Organizational
characteristics is a matter of degree. Organisations tend to be relatively Structures
mechanistic or relatively organic.

Table 2: Characteristics of Mechanistic and Organic Organisation

Characteristic Mechanistic Organic

Organisation Organisation
Task definition and knowledge required Narrow; technical Broad; general
Linkage between individual’s Vague or indirect Clear or direct
contribution and organisation’s purpose
Task flexibility Rigid; routine Flexible; varied
Specification of techniques, obligations, Specific General
and rights
Degree of hierarchical control High Low (self-
control
emphasized)
Primary communication pattern Top-down Lateral
(between peers)
Primary decision-making style Authoritarian Democratic;
participative
Emphasis on obedience and loyalty High Low
Source: Burns and Stalker (1961)

Types of Environment
Figure 1 illustrates the basic classification of task environments. The four
“pure” types of task environments are : uniform-stable, varied-stable,
uniform- unstable, and varied-unstable.
The simplest organisation design can be effective in a uniform-stable
environment (box 1). Although the environment is relatively stable, these
firms do face some uncertainties because of competitors’ actions,
customers’ changing preferences, and potential substitutes for their
products and services.

Figure 1: Basic Types of Task Environments 99

Basics of The varied-stable environment (box 2) poses some risks for managers and
Organisational
Structure employees, but the environment and the alternatives are fairly well
understood. The environment is relatively stable, but employees may need
considerable training and experience to understand it and make it work.

The uniform-unstable environment (box 3) requires managers, employees,

and organisation designs to be flexible. Rapid response to sudden changes in
market demand or technologies means that companies need organisation
designs that allow for considerable flexibility and speed in allocating
resources to new product.

The varied-unstable environment (box 4) represents the most challenging

situation for an organisation because the environment presents numerous
uncertainties. This environment requires the most managerial and employee
sophistication, insight, and problem-solving abilities.

Figure 2: Porter’s Strategic Model

III. Strategy and Organisation Design

Organisational strategy refers to the way the organisation positions itself in

its setting in relation to its stakeholders, given the organisation’s resources,
capabilities, and mission. Basically two types of strategies are popular at
present: Generic and Competence- based strategies.

Generic Strategies

These are in terms of cost focus and product focus. According to

Michael Porter, companies need to differentiate and place themselves
differently from their competitors in order to build and sustain a
competitive advantage.

Organisations have attempted to build competitive advantages in various

ways, but three underlying strategies appear to be essential in doing so:
low cost, differentiation, and focused. These strategies are shown in
Figure 2.

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A low-cost strategy is based on an organisation’s ability to provide a product Factors Affecting
Organizational
or service at a lower cost than its rivals. The organisation’s design is Structures
functional, with accountability and responsibility clearly assigned to various
departments.

Differentiation

A differentiation strategy is based on providing customers with something

that is unique and makes the organisation’s product or service distinctive
from its competition. An organisation that chooses a differentiation
strategy typically uses a product organisation design whereby each product
has its own manufacturing, marketing, and research and development (R&D)
departments

Focused

A focused strategy is designed to help an organisation target a specific

niche within an industry, unlike both the low-cost and the differentiation
strategies, which are designed to target industry-wide markets. An
organisation that chooses a focused strategy may utilize any of a variety of
organisation designs, ranging from functional to product to matrix to
network, to satisfy their customers’ preference

Competency-Based Strategies

Although the list of generic strategies provides a quick general guide for
many senior managers, it is apparent that a firm needs the skills and
abilities to get the most out of the intended generic strategy. Eventually, the
firm may develop specific administrative and technical competencies to
achieve the purpose. As middle and lower-level managers bring about minor
modifications and adjustments to solve specific problems and capitalize on
specific opportunities, they and their firms may learn new skills. These
skills may be recognized by senior management and give them the
opportunity to adjust, modify, and build upon a generic strategy to develop
a so-called competency strategy. In the process of building upon its
capabilities, the firm may actually move generic strategies and/or combine
elements of two generic strategies.

Strategic choice refers to the idea that an organisation interacts with its
environment instead of being totally determined by it. In other words,
organisational leaders should take steps to define and manipulate their
environments, rather than let the organisation’s fate be entirely determined by
external influences.

The notion of strategic choice can be traced back to the work of Alfred
Chandler in the early 1960s. Chandler’s proposal was that structure follows
strategy. He observed that organisational structures should follow the
growth strategy developed by the organisation’s decision makers. But the
Model gained popularity only in 1972, when British sociologist John Child
rejected the environmental imperative approach to organisational structure
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Basics of and proposed strategic choice model based on behavioral rather than rational
Organisational
Structure economic principles. According to the strategic choice model , an
organisation’s structure is determined largely by a dominant coalition of top-
management strategists.

Source: Kreitner, Robert and Kinicki, Angelo (1998), Organisational Behavior, Irwin
McGraw-Hill, USA
Figure 3: The Relationship Between Strategic Choice And Organisational Structure

As Figure 3 illustrates, specific strategic choices or decisions reflect how the

dominant coalition perceives environment constraints and the organisation’s
objectives. These strategic choices are tempered by the decision minor
modifications and adjustments to solve specific problems and capitalize on
specific opportunities, they and their firms may learn new skills. These skills
may be recognized by senior management and give them the opportunity to
adjust, modify, and build upon a generic strategy to develop a so-called
competency strategy. In the process of building upon its capabilities, the firm
may actually move generic strategies and/or combine elements of two generic
strategies.
In summary, strategy influences structure and structure influences strategy.
Strategic choice theory and research teaches managers at least two practical
lessons. First, the environment is just one of many co determinants of
structure. Second, like any other administrative process, organisation design
is subject to the byplays of interpersonal power and politics.

IV. Technology and Organisation Design

Two important technological contingencies that influence the type of

organisational structure are the variety and analyzability of work activities.
Variety refers to the number of exceptions to standard procedure but can
occur in the team or work unit. Analyzability refers to the extent that the
transformation of input resources to outputs can be reduced to a series of
standardized steps.
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Some jobs are routine, meaning that employees perform the same tasks Factors Affecting
Organizational
all of the time and rely on set rules (standard operating procedures) when Structures
exceptions do occur. Almost everything is predictable. These situations,
such as automobile assembly lines, have high formalization and
centralization as well as standardization of work processes. When employees
perform tasks with high variety and low analyzability, they apply their skills
to unique situations with little opportunity for repetition. Research project
teams operate under these conditions. These situations call for an organic
structure, one with low formalization, highly decentralized decision-making
authority, and coordination mainly through informal communication among
team members.

High-variety and high-analyzability tasks have many exceptions to routines,

but these exceptions can usually be resolved through standard procedures.

Maintenance groups and engineering design teams experience these

conditions. Work units that fall into this category should use an organic
structure, but it is possible to have somewhat greater formalization and
centralization due to the analyzability of problems.

Thompson’s view on the Impact of Technology

Thompson (1967) argues that task and technology are major contingency
factors of organisational structure. He offers a typology of types of technology
and their respective organisational structures. Three different types of technologies
are distinguished: mediating, long-linked, and intensive. These correspond to
three types of task interdependence between organisational subunits: pooled,
sequential, and reciprocal.

Mediating technology refers to the linking of customers, such as a bank

linking lenders and borrowers, and involves pooled interdependence. Pooled
independence means that two organisational subunits (e.g., branches of a
bank) have not direct connection, so that their interdependence is indirect,
residing in their both drawing resources from some central pool.

Long-linked technology refers to sequential interdependence where task A

is the input to task B. Sequential interdependence means that the subunits
have a direct connection, so that the output of one subunit is an input to the
other subunit.

Intensive technologies use varying techniques according to feedback from

the object worked upon .For example, a hospital using various diagnostic and
treatment techniques according to the condition of the patient, and involve
reciprocal interdependence. Reciprocal independence means that the
subunits have a two-way connection, in which the output of each subunit
is an input to the other subunit, so that they transact back and forth in an
unpredictable manner.

The three types of interdependence (pooled, sequential, and reciprocal)

are each fitted by varying degrees of mechanistic or organic structures.
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Basics of Thus task interdependence can be considered to be a contingency of
Organisational
Structure organic structures.

Woodward’s view on the Impact of Technology

Joan Woodward proposed a technological imperative in 1965 after

studying 100 small manufacturing firms in southern England. She found
distinctly different structural patterns for effective and ineffective companies
based on technologies of low, medium, or high complexity.

Effective organisations with either low or high-complexity technology tended

to have an organic structure. Effective organisations based on a technology
of medium complexity tended to have a mechanistic structure. Woodward
concluded that technology was the overriding determinant of organisational
structure.

Since Woodward’s landmark work, many studies of the relationship between

technology and structure have been conducted. Unfortunately,
disagreement and confusion have prevailed. A statistical analysis of those
studies bring about the following conclusions.

The more the technology requires interdependence between individuals

and/or groups, the greater the need for integration (coordination).

As technology moves from routine to non-routine, subunits adopt less

formalized and [less] centralized structures.

5.7 OTHER FACTORS

History

The organisation’s present structure may have developed over a number of

years, as functions have been added, changed or deleted. Obviously, the
older the organisation, the more significant history is likely to be. It is also
more likely to have determined the current structure if there have been
relatively little pressures on the organisation to adapt to changing
circumstance, either because it has monopolistic power or because the
industry in which it operates is relatively slow-moving.

Customers and Markets

The organisation structure is also affected by the type of market and
customers it serves, and in a customer-responsive environment this should be
one of the main determinants of structure. If the organisation is providing
services to a broad range of customers in a large number of locations, it
may need to have many branch officers, as do Banks, the Post Office
and so on.
The advantages of a customer-based structure are as follows.
• meeting customers’ requirements is more likely to lead to long-term
success for the organisation;
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• it gives a clear focus to the organisation; and Factors Affecting
Organizational
Structures
• it enables an emphasis to be put on the requirements of different
customers groups, thereby improving overall service quality.

• The main disadvantages are as follows:

• there is a need to keep a close eye on market requirements which

could require a lot of research;

• to be responsive to customer requirements the organisation needs to be

very adaptable so that it can respond quickly to change;

• in many cases the provision of different services for different customer

types may not allow for the most effective use of resources or for
economies of scale;

• it may not always be economical or profitable for the organisation to

provide some of the services required by customers, yet failure to do
so will result in loss of goodwill; and

• in some environment, the need to provide services outside normal

working hours or around the clock will mean that shift working, stand-by
and call-out arrangements will need to be introduced which will affect
the way the organisation is structured

Processes
The processes used within the organisation also affect the structure. A
production line process consists of a number of distinct tasks carried out
by people specializing in those tasks at different stages of the process.
The underlying principle behind this approach is that specialization means
people can develop high skills and speed, resulting in high output at low
cost. There are of course disadvantages to this approach, primarily in terms
of maintaining the motivation and morale of production line operatives. The
advantages of organisation of the basis of process or technology are that:
• it allows for task specialization which means that people can develop a
high degree of skill:
• the emphasis on the outputs from a particular process can result in
high productivity;
• the structure is easy to understand and manage and there is likely to
be little ambiguity in the outputs to be achieved;
• a structure that is driven by the organisation’s processes is likely to
require less supervisory input; and
• processes that are particularly dirty, noisy or hazardous can be grouped
together.
• The main disadvantages are that:
• there is a risk that by concentrating on processes the organisation
could lose sight of the inputs required;
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Basics of • there is a greater need for the company’s various processes to be
Organisational
Structure integrated to ensure that they work towards the company’s overall
objectives; and
• there is less focus on the customer.

People

People in the organisation affect the structure in a number of ways.

Structures do not just appear, they are the result of people’s views and
beliefs and their approach to managing the organisation. The structure is
also be affected by the types of jobs and people within the organisation.
Structures with a large number of professionals are more likely to involve
team working, and therefore to be relatively flat compared with an
organisation that has to accommodate a range of jobs from the production
line operative to the chairman.

Geography

The geographical spreading of an organisation affects its structure mainly

because of its need to be near raw materials or customers,. Where there
is a significant degree of geographical distribution, there is likely to be more
need for careful co-ordination and control than with a single site location.

When there is a strong need to provide products or services within a

particular geographical area, the organisation may be divided into regions or
areas, with each being a fully self-contained, miniature version of the parent
organisation.

In many cases, understanding the particular needs and requirements of the

local area is of sufficiently fundamental importance for location to be the
most significant factor in organisation design.

The advantages of a geographically based structure are:

• Responsiveness to local needs;
• It makes firm able to provide a complete service at one location;
• A degree of autonomy can provide for more efficient decision-making
and increase job satisfaction; and
• The organisation can recruit locally based staff; it can facilitate the
training and development of managers who can quickly gain varied
experience in smaller branch offices before moving to larger jobs.

Products and Services

The structure may be determined by the particular products and services

provided. Large and diverse organisations have separate divisions because
they are dealing with very different products and services. Similarly, the Post
Office has separate organisations for the various services it provides such as
mail delivery (Royal Mail), parcel delivery (Parcel force) and counter
services (Post Office Counters Limited).
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The advantages of product specialization are that: Factors Affecting
Organizational
Structures
• it provides a focus on a specific area and encourages the development
of expertise in the provision of that product or service; and
• it is likely to provide a service that is more responsive to customer
requirements.
• The disadvantages are that:
• too much focus on the product may overlook customers’ real needs;
and
• it may not make the best use of the organisation’s resources.

5.8 ORGANISATIONAL EFFECTIVENESS

Organisations are constructed to be the most effective and efficient social
units. The actual effectiveness of a specific organisation is determined by the
degree to which it realizes its goals. The efficiency of an organisation is
measured by the amount of resources used to produce a unit of output. Output
is usually closely related to, but not identical with, the organisational goals.
For instance, Ford produces automobiles (its output), but its goal seems to be
profit-making. The unit of output is a measurable quantity of whatever the
organisation may be producing.

Organisational effectiveness can have a broad meaning that includes

efficiency, profitability (Child 1975), employee satisfaction (Dewar and
Werbel 1979), innovation rate (Hage and Dewar 1973), or patient well-being
(Alexander and Randolph 1985). Organisation effectiveness can be defined
as the ability of the organisation to attain the goals set by itself (Parsons
1961), or by its ability to function well as a system (Yuchtman and Seashore
1967), or by its ability to satisfy its stakeholders (Pfeffer and Salancik 1978;
Pickle and Frieddlander 1967).

In its annual Most Admired Corporations survey, Fortune Magazine applies

the following eight effectiveness criteria:

• quality of management.
• quality of products/services.
• innovativeness.
• long-term investment value.
• financial soundness.
• ability to attract, develop, and keep talented people.
• responsibility to the community and the environment.
• wise use of corporate assets.

For a better understanding of this complex subject, four generic

approaches to assessing an organisation’s effectiveness may be
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Basics of considered. These effectiveness criteria employ equally well to large or small
Organisational
Structure and profit or not-for- profit organisations. Moreover, the four
effectiveness criteria can be used in various combinations (Refer Figure 3).

Goal Accomplishment: Goal accomplishment is the most widely used

effectiveness criterion for organisations. Key organisational results or
outputs are compared with previously stated goals or objectives.
Productivity improvement, involving the relationship between inputs and
outputs, is a common organisation-level goal.

Resource Acquisition: This second criterion related to inputs rather than

outputs. An organisation is deemed effective in this regard if it acquires
necessary factors of production such as raw materials, labor, capital, and
managerial and technical expertise.

Internal Processes: Some refer to this third effectiveness criterion as

the “healthy systems” approach. An organisation is said to be a healthy
system if information flows smoothly and if employee loyalty, commitment,
job satisfaction, and trust prevails. Goals may be set for any of these
internal processes. Healthy systems, form a behavioral standpoint, tend to
have a minimum of dysfunctional conflict and destructive political
maneuvering.

Strategic Constituencies Satisfaction: Organisations both depend on

people and affect the lives of people. Consequently, many consider the
satisfaction of key interested parties to be an important criterion of
organisational effectiveness. A strategic constituency is “any group of
individuals who have some stake in the organisation-for example, resource
providers, users of the organisation’s products or services, producers of the
organisation’s output, groups whose cooperation is essential for the
organisation’s survival, or those whose lives are significantly affected by
the organisation” (Cameron. 1980).

Strategic constituents or stakeholders can be identified systematically through

a stake holder’s audit. A stakeholder audit enables management to identify
all parties significantly impacted by the organisation’s performance.

Managers need to identify and seek input from strategic constituencies. This
information, when merged with the organisation’s stated mission and
philosophy, enables management to derive an appropriate combination of
effectiveness criteria. The following guidelines are helpful in this regard:

• the goal accomplishment approach is appropriate when “goals are clear,

consensual, time-bounded, measurable (Cameron, 1986).

• the resource acquisition approach is appropriate when inputs have a

traceable impact on results or output The internal processes approach is
appropriate when organisational performance is strongly influenced by
specific process (e.g., cross-functional teamwork).

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• the strategic constituencies approach is appropriate when powerful Factors Affecting
Organizational
stakeholders can significantly benefit or harm the organisation. Structures

The key thing to remember is “no single approach to the evaluation of

effectiveness is appropriate in all circumstances or for all organisation
types.

5.9 SUMMARY
Organisation design broadly includes how the organisation is structured, the
types and numbers of jobs , formal system of communication, division of
labor, coordination, control, authority, and responsibility essential to attain an
organisation’s goals. An organisation is designed to realize a number of
objectives. Mainly, there are two theories of organisation design :
universalistic & contingency theories. The universalistic theory assumes that
there is “one best way” to organize. The contingency theory assumes that
maximum performance results from the appropriate level of the structural
variable that fits the contingency. The primary factors that often affect
organisation design are : size, environment, business strategy, and
technology. However several other factors such as history of the organisation,
its products and services, processes, coverage of customers, people,
geographical spreading etc. also affect the organisation design.

Organisation effectiveness denotes the degree to which it realizes its

actual goals. There are four generic organisational effectiveness criteria : goal
accomplishment, resource acquisition, internal processes and strategic
constituencies satisfaction. As no two organisations are alike, managers need
to mix and match effectiveness criteria in a manner apposite to the
situation.

5.10 SELF ASSESSMENT QUESTIONS

1) Discuss the meaning and the theories of organisational design.
2) What are the key factors that affect organisation design.
3) Describe the concept of organisational effectiveness.

5.11 FURTHER READINGS/ REFERENCES

• Alexander, Judith W., and W. Alan Randolph ( 1985), “The Fit Between
Technology and Structure as a Predictor of Performance in Nursing
Subunits,” Academy of Management of Journal, 28:844-859.

• Burns,Tom, and G.M.Stalker (1962),The Management of Innovation, London:

Tavistock.

• Cameron, K. (1980), “Critical Question in Assessing Organisational

Effectiveness”, Organisational Dynamics, Autumn, P.67.

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Basics of • Cameron, K. L. (1986), “Effectiveness as Paradox: Consensus and
Organisational
Structure Conflict in Conceptions of Organisational Effectiveness”, Management
Science, May, P. 542.

• Child, John (1975), “Managerial and Organisational Factors Associated

with Company Performance, Part 2: A Contingency Analysis”,
Journal of Management Studies,12:12-17.

• Cushway, Barry and Lodge, Derek (2001), Organisational Behaviour

and Design, Crest Publishing House, New Delhi.

• Dess, Gregory G., and Donald W. Beard (1984), “Dimensions of

Organisational Task Environments”, Administrative Science Quarterly,
29:52-73.

• Dewar, Robert, and James Werbel (1979), “Universalistic and

Contingency Predictions of Employee Satisfaction and Conflict,” ,
Administrative Science Quarterly, 24:426-448.

• Donaldson, Lex ( 2001), The Contingency Theory of Organisations,

Foundation for Organisational Science, Sage Publications, New Delhi

• Duncan, Robert B. (1972), “Characteristics of Organisational

Environment and Perceived Environmental Uncertainty”,
Administrative Science Quarterly, 17:313-327.

• Galtung, Johan(1967),Theory and Methods of Social Research,

Oslo,Norway:Universitetslaget.

• Hage, Jerald, and Robert Dewar (1973), “Elite Values Versus

Organisational Structure in Predicting Innovation”, Administrative
Science Quarterly,18:279-290.

• Hellriegel , Don, Jr., John W. Slocum, and Woodman, Richard W.

(2001),

• Organisation Behaviour, Thomson Asia ptv. Ltd., Singapore.

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