ORGANIZATION

IPE 493: Industrial Management

What is Organization?
Organization is a pattern of relationship-many inter
woven, simultaneous relationships through which people,
under the direction of managers, pursue their common
goals.
Organizational structure is a framework that managers
devise for dividing, organizing and coordinating the
activities of members of an organization.
Organization Charts
 Clarify structure and to show employees where they fit into
a firm’s operations
 Show the chain of command, or reporting relationships,
within a company

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Determinants of Organizational
Structure
Mission

Strategy

Size

Internal Environment

External Environment
Organizational Design Decisions
 Managers decide how to divide the overall task into
successively smaller jobs
 Managers decide the bases by which to group the
jobs
 Managers decide the appropriate size of the group
reporting to each superior
 Managers distribute authority among the jobs
 Six building blocks of organizational
structure
1. Chain of command
One of the most basic elements of an organizational structure, chain of command is
exactly what it sounds like: an unbroken line of authority that extends from the top of
the organization (e.g. a CEO) all the way down to the bottom. Chain of command
clarifies who reports to whom within the organization.

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Six building blocks of organizational
structure
2. Span of Control
Span of control refers to the number of subordinates a superior can
effectively manage. The higher the ratio of subordinates to superiors, the
wider the span of control.

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Six building blocks of organizational
structure
3. Centralization
 Who makes the decisions in an organization? If decision-making power is
concentrated at a single point, the organizational structure is centralized. If
decision-making power is spread out, the structure is decentralized.
 While a decentralized structure promotes a more democratic decision-making
process, it can also slow down the decision-making process, making it harder for
organizations to operate efficiently.

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 Six building blocks of organizational
structure
4. Specialization
 Also known as division of labor, specialization is the degree to which activities
or tasks in an organization are broken down and divided into individual jobs.
 High specialization can be beneficial for an organization, as it allows
employees to become “masters” in specific areas, increasing their productivity
as a result.

 However, low
specialization allows for
more flexibility, as
employees can more
easily tackle a broader
array of tasks (as
opposed to being
specialized for a single
task).
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 Six building blocks of organizational
structure
5. Formalization
Similar to specialization, formalization deals with the how jobs are structured
within an organization. The key differentiator here is that formalization also takes
into account the degree to which an employee’s tasks and activities are governed
by rules, procedures, and other mechanisms.
A formal organizational structure seeks to separate the individual from the role or
position, as the role or position stays the same regardless of who’s holding it.
An informal organization, on the
other hand, places more value
on the individual. It allows for
the evolution of a role or
position based on an individual’s
preferences, skill set, etc., and
places less importance on what
team or department that
individual is part of.
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 Six building blocks of organizational
structure
5. Departmentalization
Departmentalization refers to the process of grouping jobs together in order to
coordinate common activities and tasks.
If an organization has rigid departmentalization, each department or team is
highly autonomous, and there is little (or no) interaction between different teams.
In contrast, loose departmentalization entails that teams have more freedom to
interact and collaborate.

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Organizational Structure
 An organizational structure details how certain
activities are delegated toward achieving an
organization's goal. It outlines an employee's role
and various responsibilities within a company. The
more authority employees have, the higher up they'll
be on the organizational structure. In addition, the
more organized a structure is, the more efficiently a
company operates.
Types of Organizational Structure
 Simple structure- An organization that is low in specialization
and formalization but high in centralization
 Functional structure-An organization in which similar and
related occupational specialties are grouped together
 Divisional structure-An organization made up of self-
contained units
 Matrix structure-An organization in which specialists from
functional departments are assigned to work on one or more
projects led by a project manager
 Team-based structure-An organization that consists entirely of
work groups or teams
 Simple Structure
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An organizational form in which the owner-manager makes most of the

decisions and controls activities, and the staff serve as an extension of the
top executive.
Few employees reporting directly to one person (owner)

Owner

Employee Employee Employee

Advantages Disadvantages
• Cost-efficient • Employees may not understand their
• Highly informal responsibilities
• Centralized decision making • May take advantage of lack of
• Little specialization regulation
• Leadership confusion
 Functional Structure
In a functional structure, organizations are divided into specialized groups with
specific roles and duties. A functional structure is also known as a bureaucratic
organizational structure and is commonly found in small to medium-sized
businesses. Most people in the workforce have experience working in this type of
organizational structure. For example, many companies divide their organization
into various departments such as finance, marketing and human resources. Each
of these departments then has a manager who oversees it. This manager is then
supervised by an administrator or executive who oversees multiple departments.
 Functional organization
Advantages of Functional organization:
 It is simple, obvious, and logical.
 It promotes efficiency.
 Promotes skill specialization.
 Reduces coordination problems within the functions.
 Enhances career development within departments.
 Superiors & subordinates share common expertise.
 Promotes high-quality technical problem solving.
 Greater sense of team work.
 It can facilitate the top manager’s control.
 Functional organization
Disadvantages of Functional organization
 Emphasizes routine tasks
 Reduces communication between departments
 Can make scheduling difficult across departments
 Focuses on departmental as opposed to organizational issues
 Develops managers who are experts in narrow fields
 It increases the workload on the executive to whom the functional
department heads report.
 Harmful competition between departments.
 If organization grows
 Difficult to get quick decision
 Harder to determine accountability and judge performance
 Divisional Organization
 An organizational form in which products, projects, or product markets are grouped
internally. Also called multidivisional structure or M-Form
 When departmentalization becomes too complex to coordinate, top management
creates semiautonomous divisions.
 In each division managers and employee design, produce and market their product.
 The division resembles a separate business and division head is accountable for
profit or loss

Division based on product

Divisional Organization

Division
based on
Geographic
area

Division
based on
Customer

Md. Shahriar Jahan Hossain, Assistant Professor,

Dept. of IPE, BUET 1-18
 Divisional Organization
Divisional Organization Advantages

 The product or service gets the single-minded attention of its

own general manager and unit,
 its customers may get better, more responsive service.
 More centralized leadership.
 It’s easier to judge performance.
 Development of general management talent is enhanced
 It reduces the burden for the company’s CEO.
 Separation of strategic and operating control
 Quick response to important changes in external environment
 Minimal problems of sharing resources across functional
departments
 Divisional Organization
Divisional Organization Disadvantages

 It creates duplication of effort.

 It may diminish top management’s control.
 It requires more managers with general management abilities.
 It can breed compartmentalization.
 Can be very expensive
 Competition between divisions
 Differences in image and quality may occur across divisions
 Can focus on short-term performance
 Matrix Organization
 An organization structure in which employees are permanently
attached to one department but also simultaneously have ongoing
assignments in which they report to project, customer, product, or
geographic unit heads.
 Also Called ‘Multiple command system’ that attempts to combine
the benefit of both types of design avoiding their drawbacks.
 Employees have to work in two chain of command. One is functional
and diagrammed vertically in span of management. Second is
horizontal that combines people from various functional departments
into projects or business team (e.g. Construction firm).
 Employees working for companies using the matrix structure have the
potential to widen their skill set since they might be assigned to
various projects requiring different levels of expertise or skills.
Matrix Structure
 Matrix Organization
Advantages of Matrix Organization:
 The matrix structure is an efficient means for bringing together
the diverse specialized skills required to solve a complex
problem.
 By working together people come to understand the demands
faced by those who have different areas of responsibilities
 It gives the organization a great deal of cost saving flexibility
 Access to expertise.
 Stability of permanent department assignments for employees.
 Allows for focus on specific projects, products, or customers.

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 Matrix Organization
Disadvantages of Matrix Organization:
 Team members must have good interpersonal skills and be
flexible and cooperative.
 If hierarchies are not firmly established and effectively
communicated, conflicting directives and ill-defined
responsibilities will tie managers’ hands.
 Confusion of command.
 Roles may not be clearly defined
 Power struggles and conflicts.
 Lost time in coordinating.
Team-Based Structure

 Eliminate dual reporting relationships and two-boss

managers
 Team-based organizational structure that eliminates the
traditional hierarchy. Associates are organized around
self-directed teams.
 Functional employees are permanently assigned to a cross-
functional team that is empowered to bring a new or
redesigned product to work
 Self-directed work teams
 Teams organized around work processes
 Very flat hierarchy, few management levels
 Very little formalization
 Usually found within divisionalized structure
Product Team Structure
Team-Based Structures

 Benefits
 Responsive, flexible
 Lower admin costs
 More informed decisions

 Limitations
 Interpersonal training costs
 Slower during team development
 Stress due to ambiguous roles
 Problems with supervisor role changes
 Duplication of resources