Group 8-

Vishal Chawria
Rinku Khola
Mansi Aggarwal
Vishal Tyagi
 Learning Objectives

 Understanding of Concepts of Organisational Structure & Design,

elements of organisational design.

 Models of organisational design & variables affecting the structural

choice.

 Types of Organisational Designs i.e., Traditional & Contemporary

designs.

 Challenges in Organizational Design

 What is an Organization?

 An ‘Organization’ is a group of individuals working together in such

a way that they are structured and managed with Authority and
Responsibilities to achieve a common objective.
 What is Organizational Structure?

 The organizational structure defines the organization's hierarchy of

people and departments as well as how information flows within the
organization.

 The organizational structure determines how and when information

is distributed as well as who makes what decisions based on the
information available.

 It determines how tasks are formally divided, grouped and

coordinated.
Importance of Organizational Structure

 The Organizational Structure is important because it ensures that

there is an efficient operation of a business and it clearly defines the
work and the functions.

 The organizational structure also helps define the various

departments, their hierarchy and the chain of command.
 The Concept of Organization Structure

 Structure helps influence behavior and relationships of jobs and

functions.

 Structure defines recurring activities and processes.

 Structure provides a purposeful and goal oriented behavior.

 Process of Organizational Structuring

 Develop a clear mission statement for the organization. Focus the

organization structure around the mission statement.

 The mission statement should include the inter-relationship between

workers at every level as well as inspiring innovation and ensuring
efficiency.

 Decide whether the organization structure will be centralized and formal or

decentralized and informal. For centralized and formal organizations, the
organization structure takes more of a top-down approach with strictly
defined work roles.
 For decentralized and informal organizations, there is more of a cooperative
approach with workers often performing a wide range of functions.

 The organization structure can be department based or based on a particular

project or process. Department -based organization structure is often divided
into line functions (such as manufacturing) and staff functions (such as human
resources).

 Design the overall chain of command for the organization. If there is a single
overall director or leader, determine the title for that role. If there are dual or
multiple leaders, divide the overall company function between the various
roles in a way that there is a clear unity of command.
 Add subordinate roles to the chain of command. Determine the
process of reporting from subordinate to supervisor and make
allowances for special circumstances (such as an emergency).
Indicate if and how interactions across departments or projects will
take place.

 Determine the authority and responsibility to be assigned to each

position in the organization structure. Attempt to achieve a minimum
of overlapping functions. Also, attempt to minimize any possible
confusion by subordinates concerning which supervisors to consult
with on specific issues.
 The Effects of Structure on Individual
and Group
The structure of any organization will affect the following :-

 Behavior of how people act and work

 Motivation of workers
 Performance
 Teamwork and cooperation
 Intergroup and interdepartmental relationships
Elements of Organizational Structure

 WORK SPECIALIZATION  CHAIN OF COMMAND

 DEPARTMENTALIZATIO  SPAN OF CONTROL

N

 CENTRALIZATION &
 FORMALIZATION DECENTRALIZATION
 Work Specialization

 The degree to which tasks in the organization are divided into

separate jobs with each step completed by a different person.

 Overspecialization can result in human diseconomies from boredom,

fatigue, stress, poor quality, increased absenteeism, and higher
turnover.
 Work specialization or division of labor is the degree to which activities in
the organization are subdivided into separate jobs. Work specialization
creates efficiency and productivity, but can also result in boredom, fatigue,
stress, low productivity, poor quality, increased absenteeism, and high
turnover.

 The trend towards specialization has been altered by the realization that
productivity may be increased by enlarging the scope of job activities.
 Departmentalization

Departmentalization is the process of grouping activities into

departments.
The aim to take advantage of the division of labour and
specialization up to a certain limit.
Departmentalization as a means of structuring an organization can be
found in both public and private organization.
Types of Departmentalization
 Functional Departmentalization
 Each major function of the enterprise is grouped into a department.
 For example human resources, accounting, manufacturing, and
marketing.
 Functional departmentalization can be used in all types of
organizations.
 Product Departmentalization

 For each product, a separate self-contained department is created

and is put under the charge of a manager who may also be
responsible for all activities related to the product or the services.

 Hindustan Liver is an example of company that uses product

departmentalization. Its structure is based on its varied product lines
which include detergents, chemicals and agro-based products.
 Geographic Departmentalization

 Grouping activities on the basis of territory.

 When several production or marketing units of an organization are
geographically dispersed in various locations, it is logical to
departmentalise those units on a geographical basis.
 Examples- A hotel chain, The Indian Railways.
 Customer Departmentalization

 Jobs may be grouped on the basis of customers served by the

organization.

 It ensures full attention to major customer groups.

 Example- A big automobile servicing enterprise may have different

departments for servicing cars, heavy vehicles and scooters.
 Process Departmentalization

 Departments are separated on the basis of their role in production

process.
 For example, in a textile mill, we may have a spinning department,
weaving department, dyeing department, printing department etc.
 Chain of Command

 In an organizational structure, “chain of command” refers to a

company’s hierarchy of reporting relationships- from the bottom to
the top of an organization, who must answer to whom.
 It starts with the CEO or the business owner, all the way down to the
front-line workers.
 Companies create chain of command in order to flow instructions
downward and accountability upward by providing each level of
workers with a supervisor.
Key Concepts of Chain of Command-

Authority Unity of command

Responsibility  Delegation

Accountability
 Authority

 Authority is defined as the right to give orders, supervise the work

of others and make certain decisions.
 It is related to a specific position a person holds and his personal
characteristics are ignored against his authority, even if a position
becomes vacant in an organization, but still it remains attached to
that position.
Types of Authority in Management-
a) Line Authority
b) Staff Authority
c) Functional Authority
 Line Authority

 In line authority, a superior exercises direct command over a

subordinate.
 It is represented by the standard line of command that starts with
the board of directors and extends down through the various levels
in the hierarchy to the point where the basic activities of the
organization are carried out.
 Examples- The president, the production manager, the sales
manager.
 Staff Authority

 The nature of staff authority is merely advisory. The “staff” word

itself means a stick carried in hand for support.
 A staff officer has the “authority of ideas” only. The information
which a staff officer furnishes or the plans he recommends flow
upward to his line superior whether they are to be transformed into
action.
 Example- A market researcher gathers and analysis data on
marketing problems and advises the marketing manager on demand
for new products.
 Functional Authority

 Functional Authority is the right that is delegated to an individual or

a department to give direct orders to people in other departments
outside his formal chain of command instead of making
recommendations to them.

 For example- Members of an accounting department might have

authority to request documents they need to prepare financial
reports.
 Responsibility
 It is the duty of the subordinate to perform organizational tasks,
functions or activities assigned to him.
 Authority and responsibility go side by side. One can delegate
authority but not responsibility.
 Newman explained this with an example- suppose a person borrows
money from bank and then reloans it to his son. This transaction
with his son in no way reduces his responsibility or obligation to
pay money back to the bank.
 Accountability
 Accountability is the obligation of an individual to report formally
to his superior about the work he has done to discharge the
responsibility.
 When authority is delegated to a subordinate, the person is
accountable to the superior for performance in relation to assigned
duties. If the subordinate does a poor job, the superior cannot evade
the responsibility by stating that poor performance is the fault of the
subordinate. A superior is normally responsible for all actions of
groups under his supervision even if there are several layers down in
the hierarchy. Simply stated, accountability means that the
subordinate should explain the factors responsible for non-
performance or lack of performance.
Basis for difference- Responsibility Accountability
Obligation to perform the Answerability for the
1. What is it?
delegated task. consequence of the delegated
task.
2. Nature Accepted
Assigned
Responsibility
3. Arises from Authority
Done but not entirely
4. Delegation Not possible

5. Performance Measured
Not measured
 Unity of command
 The management principle that states every employee should receive
orders from only one superior. Without unity of command, conflicting
demands and priorities from multiple managers can create problems.

Delegation
 The assignment of authority to another person to carry out specific
duties, allowing the employee to make some of the decisions.
Delegation is an important part of a manager’s job, as it can ensure
that the right people are part of the decision-making process.
 Span of Control
 The number of subordinates who report directly to a manager. A
manager may be linked to many or few subordinates. The number of
people reporting to a manager is called a manager’s span of control.
 A narrow span of control results in a “tall” organization with many
levels of supervision between top management and lowest
organizational level.
 A wide span of control results in a “flat” organization with fewer
management levels between top and bottom.
Tall organization Flat organization
Width of span is affected by:

 Abilities of the Manager.  Well defined authority and responsibility.

 Ability of the Employees.  Level of management.

 Type of work.  Economic considerations.

Centralization
 The degree to which decision-making is concentrated in a few hands
at the top.
 Organizations in which top managers make all the decisions and
lower-level employees simply carry out those orders.

Advantages-
 No duplication of efforts or resources.
 Decision take into account the interest of the entire organization.
 Strong central leadership develops which may be required in crisis.
 Coordination of activities of subordinates is better achieved.
Decentralization
 Organizations in which decision-making is pushed down to the
managers who are closest to the action.
 According to Fayol, “Everything that goes to increase the
importance of the subordinate’s role is decentralization and
everything that goes to reduce it is centralization.”

Advantages-
 Reduces problem of communication and red tape.
 Ensures development of employees.
 Permits quicker and better decision making.
 Formalization

 Formalization is the extent to which rules and procedures are

followed in an organization.

 Formalization of an organizational structure is commonly initiated

in an attempt to rationalize the decision-making process.
 Organizational Design

Organizational design is the formal process of integrating people,

information and technology together in a way to achieve
organization’s objectives.
The mechanistic model The organic model
-A rigid and tightly controlled -Highly flexible and adaptable
structure structure

• High specialization • Cross-functional teams

• Rigid Departmentalization • Cross-hierarchical teams
• Clear chain of command • Free flow of information
• Narrow spans of control • Wide spans of control
• Centralization • Decentralization
• High formalization • Low formalization
 Managers having the responsibility for organizational design, study
the contingency factors that affect organizational design and then
design a structure to fit these contingency factors. There are
basically four contingency factors that affects organizational design.
These are –
a) Strategy
b) Environment
c) Size
d) Technology
 How an organization is going to position itself in the market in terms of
its products is considered its strategy. A company may decide to be
always on the top of the market with the newest and best product
(differentiation strategy), or it may decide that it will produce a product
already on the market more efficiently and more cost effectively
(cost‐leadership strategy). Each of these strategies requires a structure
that helps the organization reach its objectives. In other words, the
structure must fit the strategy.
 Companies that want to be the first on the market with the newest and
best product probably are organic, because organic structures permit
organizations to respond quickly to changes. Companies that elect to
produce the same products more efficiently and effectively will probably
be mechanistic.
 The environment is the world in which the organization operates that
potentially affect organization’s performance.
 An organization’s structure is affected by its environment because of its
uncertainity. Some organizations face relatively static environments i.e.
few forces in their environment are changing. There are, for example, no
new competitors to influence the organization. These types of
organizations should prefer a mechanistic structure.
 Other organization face very dynamic environments i.e. rapidly changing
government regulations, new competitors, changing product preferences
by customers, and so on. These types of organizations should prefer a
organic structure.
 Organization’s size affects its structure. The larger an organization,
the more complicated its structure. When an organization is small —
such as a single retail store or a two‐person consulting firm — its
structure can be simple.

 For instance, large organizations- having more than 2000 employees

tend to have more specialization, more departmentalization, more
levels, more rules and regulations etc. Such organizations are fairly
mechanistic. An additional 500 employees will not have much
impact. On the other hand, adding 500 employees to an organization
that has only 300 members is likely to result in a significant shift
towards a more mechanistic structure.
 Technology refers to how an organization transfers its inputs into
outputs. Every organization has at least one technology for
converting resources into products or services.
 Studies have revealed that organizations always make adaptation of
their structures as per the technology available. They depend upon
the technological input and output. The more your technological
routine is the more mechanistic a structure would be. Organization
for more number of non routine forms an organic structure.
 Traditional contemporary

SIMPLE FUNCTION TEAM MATRIX

STRUCTU AL STRUCTU AND BOUNDARYLESS
DIVISIONAL
RE STRUCTURE RE PROJECT ORGANIZATIONS
STRUCTURE
STRUCTURES
Traditional Organizational Structure :-
• Traditional Organizational Designs tend to be more mechanistic.

• In designing a structure to support the efficient and effective

accomplishment of organizational goals, managers may choose to
follow more traditional organizational designs.

I. SIMPLE STRUCTURE
II. FUNCTIONAL STRUCTURE
III. DIVISIONAL STRUCTURE
Simple Structure:-

 A simple structure is an organizational structure with low

departmentalization, wide spans of control, authority centralized in a
single person, and little formalization.

 Commonly used by small businesses in which the owner and

manager are one and the same.
 Functional Structure:-

 A functional structure is an organizational structure that groups

similar or related occupational specialties together.

 It is the functional approach to departmentalization applied to the

entire organization.
 Divisional Structure:-

 The divisional structure is an organizational structure that consists

of separate business units or divisions.
 In this structure, each unit or division has relatively limited
autonomy, with a division manager responsible for performance
who has strategic and operational authority over his or her unit.
 In divisional structures, however, the parent corporation typically
acts as an external overseer to coordinate and control the various
divisions, and often provides support services such as financial and
legal.
For Example a Multinational company such as Walmart which is
the parent company of smaller daughter companies like Walmart
Realty, Walmart International, Walmart Specialty Stores, Sam’s
Clubs, and Super centres.
 Strengths and Weaknesses of
Traditional Organizational Designs
Simple structure :-
Strengths: Fast, flexible, inexpensive to maintain, clear accountability.
Weaknesses: Not appropriate as organization grows, reliance on one person
is risky.
Functional Structure :-
Strengths: Cost saving advantages from specialization (minimum
duplication of people and equipment) and employees are grouped with other
who have similar tasks.
Weaknesses: pursuit of functional goals can cause managers to lose sight of
what’s best for overall organization, functional specialists become insulated
and have little understanding of what other units are doing.
Divisional Structure :-

•Strengths: Focuses on results – division managers are responsible

for what happens to their product and services.

•Weaknesses: Duplication of activities and resources increases

cost and reduces efficiency.
 Contemporary Organizational Designs

 In response to marketplace demands to be lean, flexible, and

innovative, managers are developing creative ways to structure and
organize work and to make their organizations more responsive to the
needs of customers, employees, and other organizational constituents.
 Contemporary Organizational Designs are:
1. TEAM STRUCTURE
2. MATRIX AND PROJECT STRUCTURES
3. BOUNDARYLESS ORGANIZATIONS
Team Structure:-

 In a team structure, the entire organization is made up of work

groups or teams that perform the organization’s work.
 Employee empowerment is crucial in a team structure, because there
is no line of managerial authority from top to bottom.
 Employee teams are free to design work in the way they think is
best. However, the teams are also held responsible for all work and
performance results in their respective areas.
Matrix and Project Structures:-

MATRIX STRUCTURE:
 The matrix structure is an organizational structure that assigns
specialists from different functional departments to work on one or
more projects led by project managers.
 The Unique aspect of this design is that it creates a dual chain of
command, which explicitly violates the classical organizing
principle of unity of command.
 Employees in a matrix organization have two managers: their
functional department manager and their product or project
manager.
PROJECT STRUCTURE

 Employees continuously work on projects.

 A project structure has no formal departments that employees return to at the
completion of a project.
 All work in project-structured organizations is performed by teams of
employees who become part of a project team because they have the appropriate
work skills and abilities.
 Fluid and flexible organizational designs.
 No departmentalization or rigid organizational hierarchy to slow down decision
making or taking action.
 Managers act as facilitators, mentors, and coaches. They “serve” the project
teams by eliminating or minimizing organizational obstacles and by ensuring
that the teams have the resources they need to effectively and efficiently
complete their work.
Boundaryless Organizations:-

 An organization whose design is not determined by a predefined

structure. Instead the organization seeks to eliminate the chain of
command, places no limits on spans of control, and replaces
departments with empowered teams.

 Mobility is one way a boundaryless organization functions for its

employees.
Challenges in Organizational Design :-

Keeping Employees Connected

Building a Learning Organization
Managing Global Structural Issues
 Work tasks are fairly predictable and constant, most jobs are full-time
and continued indefinitely, and work is done at an employer’s place of
business under a manager’s supervision.

 However, many organizations today are not like that, as you saw in our
preceding discussion of virtual and network organizations.

 A major structural design challenge for managers is finding a way to

keep widely dispersed and mobile employees connected to the
organization.
 A learning organization values the role that learning can play in
developing organizational effectiveness. It demonstrates this by
having an inspiring vision for learning and a learning strategy that
will support the organization in achieving its vision.
 For organizations wishing to remain relevant and thrive, learning
better and faster is critically important.
 Many organizations apply quick and easy fixes often driven by
technology.
 Most are futile attempts to create organizational change.
 However, organizational learning is neither possible nor sustainable
without understanding what drives it.
 The global nature of today’s business environment, manager’s need to
be familiar with the issues surrounding structural differences.
 Researchers have concluded that the structures and strategies of
organizations worldwide are similar, “while the behaviour within them
is maintaining its cultural uniqueness.”
 When designing or changing structure, managers may need to think
about the cultural implications of certain design elements.
 One study showed that formalization—rules and bureaucratic
mechanisms—may be more important in less economically developed
countries and less important in more economically developed countries,
where employees may have higher levels of professional education and
skills.
 Other structural design elements may be affected by cultural differences
as well, such as chain of command and span of control.
 Virgin Group

One of the most successful Business empire.

Richard Branson is the founder of the Virgin Group of companies.

Virgin group has established itself in diverse industries such as

telephony, retail, music, financial services, travel and many more.

The Virgin Group has established more than 300 companies,

employing around 50000 people in 30 countries.
 Organizational Structure of Virgin Group

 The Virgin group has a very complex structure.

Virgin Group is not a multinational company, it comprises of 300 odd

companies which operate separately which are owned and controlled by
20 holding companies.

 Virgin Group has a decentralized structure.

 Branson has ensured minimum bureaucracy by using non-traditional

structure strategies and organizational practices.
 Branson’s beliefs and philosophies are deeply rooted in the corporate
culture of the Virgin Group. This has helped the Virgin Group to flourish
in today’s competitive business world.
 They consider each company as a department providing unique products
and services. Virgin mobile offer cellular services and Virgin music is a
music label.
 Virgin mobile provide services in many different countries which shows
that they have geographical departmentalization.
 The departments also vary on the basis of the customer they serve which
is called as Customer departmentalization.
 Company as a whole has a Hybrid structure with a mixture of many
different type of departments.
 The division of labor and the hierarchy is also an important aspect of an
organization’s structure. The number of levels of authority, the control,
and the amount of communication is key factors in the proper working of
an organization.
 The companies are part of a family rather than a hierarchy. They are
empowered to run their own affairs.
 Branson himself has provided all his employees with the authority to
make unsupervised decisions based on their intuition rather than
following a chain of command.
 Interaction among all the levels of the hierarchy is promoted which
increases effective communication.
 Virgin has a flat hierarchical structure and this enables quick and
efficient decision making.
 Flat structure allows a wider span of control and decentralization.
 Branson believes that the employees are the backbone of the company
and hence it is important that they have enough involvement and
authority in decision making.
 Source of the case study

 https://www.mbaknol.com/management-case-studies/case-study-
organizational-structure-and-culture-of-virgin-group/
Thank You.