CHAPTER 07

BASIC ORGANISATIONAL DESIGN

AT THE END OF THE CHAPTER, STUDENTS SHOULD BE ABLE TO
UNDERSTAND;

 Defining organization structure and design

 Key characteristics of organizational
structure
 The contingency approach to organization
design
 Defining organization structure and design
 Organizational Structure is the formal arrangement of jobs within an
organization.
CHARACTERISTICS OF ORGANIZATIONAL STRUCTURE
 Organizational Design involves decisions about six key elements:
1) Work specialization,

2) Departmentalization,

3) Chain of command,

4) Span of control,

5) Centralization and decentralization, and

6) Formalization
 CONT..
 ORGANIZING Is an Arranging and structuring work to accomplish
the organization’s goals.
Purposes of Organizing
1. Divides work to be done into specific jobs and departments.
2. Assigns tasks and responsibilities associated with individual
jobs
3. Coordinates diverse organizational tasks
4. Clusters jobs into units
5. Establishes relationships among individuals, groups, and
departments
6. Establishes formal lines of authority
7. Allocates and deploys organizational resources
 ORGANIZATIONAL CHART Is the visual representation of an
organization’s structure.
 1) WORK SPECIALIZATION

 WORK SPECIALIZATION Is dividing work activities into

separate job tasks.
 WORK SPECIALIZATION is also known as division of labor
 Work specialization makes efficient use of the diversity of
skills that workers have.
 In most organizations, some tasks require highly developed
skills; others can be performed by employees with lower skill
levels.
 CONT…
 SKILLED WORKERS are paid more than unskilled workers,
and, because wages tend to reflect the highest level of skill,
all workers would be paid at highly skilled rates to do easy
tasks—an inefficient use of resources.
 Work Specialization leads to great increases in
productivity.

2. DEPARTMENTALIZATION
 DEPARTMENTALIZATION Is the basis by which jobs are
grouped together. OR, it is How jobs are grouped together.
 CONT…
 Five common forms of departmentalization are used,
although an organization may develop its own unique
classification and they are:

I. Functional Departmentization: Jobs are grouped according

to functions.

II. Geographical Departmentization: Jobs are grouped

according to geographic regions

III. Product Departmentization: Jobs are grouped according to

product line
 CONT..

IV. Process Departmentization: Jobs are grouped on the basis

of product or customer flow.

V. Customer Departmentization: Jobs are grouped on the

basis of specific or unique customers who have common
needs.

 One specific type of team that more organizations are using

is a cross-functional team.
 Cross-functional Team: Is A work team composed of
individuals from various functional specialties.
 3) Chain of Command

 CHAIN OF COMMAND: Is the line of authority extending from

upper organizational levels to lower levels, which clarifies who
reports to whom.
 Managers need to consider it when organizing work because it
helps employees with questions such as;
 Who do I report to? or
 Who do I go to if I have a problem?
 CONT…

 To understand the chain of command, we have to understand three

other important concepts, which are;

I. Authority,

II. Responsibility, and

III. Unity of command.

AUTHORITY

 Authority: Refers to the rights inherent in a managerial position to

tell people what to do and to expect them to do it.
 Managers in the chain of command had authority to do their job of
coordinating and overseeing the work of others.
 CONT…
 Authority could be delegated downward to lower-level managers, giving
them certain rights while also prescribing certain limits within which to
operate.
 It is assumed that the rights and power inherent in one’s formal organizational
position are the sole source of influence and that if an order is given, it would be
obeyed.
 Another early management writer, Chester Barnard, proposed another
perspective on authority.
 His view is called the acceptance theory of authority, and it says that
authority comes from the willingness of subordinates to accept it. If an
employee didn’t accept a manager’s order, there was no authority.
 CONT…
 Acceptance Theory Of Authority: Is The view that authority
comes from the willingness of subordinates to accept it.
 Barnard contended that subordinates will accept orders only if
the following conditions are satisfied:

a) They understand the order.

b) They feel the order is consistent with the organization’s

purpose.

c) The order does not conflict with their personal beliefs.

d) They are able to perform the task as directed.

 CONT…
 The early management writers also distinguished between two
forms of authority; Line Authority & Staff Authority.

 Line Authority: Is the Authority that entitles a manager to

direct the work of an employee.
 It is the employee–employee authority relationship that
extends from the top of the organization to the lowest level.
 Staff Authority: Is staff authority Positions with some authority
that have been created to support, assist, and advise those
holding line authority.
 CONT…

 LINE refers to managers whose organizational function contributes

directly to the achievement of organizational objectives.
 As organizations get larger and more complex, line managers find that
they do not have the time, expertise, or resources to get their jobs
done effectively.
 In response, they create staff authority functions to support, assist,
advise, and generally reduce some of their informational burdens.
 For instance, a hospital administrator who cannot effectively handle the
purchasing of all the supplies the hospital needs creates a purchasing
department, which is a staff function
 CONT…

RESPONSIBILITY
 RESPONSIBILITY: Is the obligation or expectation to perform
any assigned duties.
 When managers use their authority to assign work to
employees, those employees take on an obligation to perform
those assigned duties.
 No one should be held responsible or accountable for work
tasks over which he or she has no authority to complete those
tasks.
 CONT…
UNITY OF COMMAND
 UNITY OF COMMAND: Is the management principle that
each person should report to only one manage.
 Without unity of command, conflicting demands from
multiple bosses may create problems.

4) SPAN OF CONTROL
 SPAN OF CONTROL: Is the number of employees a
manager can efficiently and effectively manage.
 CONT…
 The traditional view was that managers could not—and
should not— directly supervise more than five or six
subordinates.
 All other things being equal, the wider or larger the span,
the more efficient an organization is.
 However, at some point, wider spans may reduce
effectiveness if employee performance worsens because
managers no longer have the time to lead effectively.
 5) Centralization and Decentralization
 CENTRALIZATION: Is the degree to which decision making is
concentrated at upper levels of the organization.
 If top managers make key decisions with little input from below,
then the organization is more centralized.
 DECENTRALIZATION: Is the degree to which lower-level employees
provide input or actually make decisions.
 The more that lower-level employees provide input or actually make
decisions, the more decentralization there is.
 EMPLOYEE EMPOWERMENT: Is giving employees more authority
 6) FORMALIZATION
 FORMALIZATION refers to how standardized an organization’s jobs
are and the extent to which employee behavior is guided by rules
and procedures.
 In highly formalized organizations, there are explicit job
descriptions, numerous organizational rules, and clearly defined
procedures covering work processes.
 Employees have little discretion over what’s done, when it’s done,
and how it’s done.
 However, where formalization is low, employees have more
discretion in how they do their work.
THE CONTINGENCY APPROACH TO ORGANIZATION
DESIGN
An appropriate structure of an Organization depends on four
contingency variables; which are;
1) The organization’s strategy,

2) The organization’s size,

3) The organization’s technology, and

4) The organization’s degree of environmental

uncertainty.
 1) The Organization’s Strategy and

Structure
An organization’s structure should facilitate goal achievement.
Because goals are an important part of the organization’s
strategies, it’s only logical that strategy and structure are closely
linked.
 Alfred Chandler initially researched this relationship, and
“concluded that changes in corporate strategy led to changes in
an organization’s structure that support the strategy”.
 Certain structural designs work best with different organizational
strategies.
 CONT…
 For instance, the flexibility and free-flowing information of
the organic structure works well when an organization is
pursuing meaningful and unique innovations.
 The mechanistic organization with its efficiency, stability, and tight
controls works best for companies wanting to tightly control costs.
 ORGANIC ORGANIZATION: Is an organizational design that’s
highly adaptive and flexible.
 MECHANISTIC ORGANIZATION: Is an organizational design
that’s rigid and tightly controlled.
 2) ORGANIZATIONAL SIZE AND
 There’s
STRUCTURE
considerable evidence that an organization’s size
affects its structure.
 Large organizations typically considered to be those with
more than 2,000 employees tend to have more
specialization, departmentalization, centralization,
and rules and regulations than do small organizations.
 However, once an organization grows past a certain size,
size has less influence on structure.
 3) ORGANIZATIONAL TECHNOLOGY AND
STRUCTURE
 Every organization uses some form of technology to convert its
inputs into outputs.
 Typically organizations with a routine technology adapt a
mechanistic structure and those with a non-routine
technology adapt an organic structure.
 Joan Woodward divided the firms into three distinct technologies
that had increasing levels of complexity and sophistication;

I. Unit production: Is the production of items in units or small

batches.
 CONT…
II. MASS PRODUCTION: Is the production of items in
large batches.

III. PROCESS PRODUCTION: Is the production of items in

continuous processes.
 In general, the more routine the technology, the more
mechanistic the structure can be, and organizations
with more non-routine technology are more likely to
have organic structures
 THE ORGANIZATION’S DEGREE OF ENVIRONMENTAL
4)
UNCERTAINTY
 Some organizations face stable and simple environments

with little uncertainty; others face dynamic and complex

environments with a lot of uncertainty.
 Managers try to minimize environmental uncertainty by
adjusting the organization’s structure.
 In stable and simple environments, mechanistic
designs can be more effective.
 On the other hand, the greater the uncertainty, the more
an organization needs the flexibility of an organic design.
 APPLICATION OF ORGANIZATION DESIGN
 Organization design: is a process for structuring and running
organizations.
 organization design is applied is to improve how the organization works.
 That can mean everything from pinpointing inefficiencies to making
better, faster decisions.
 Organization design can improve the quality of the goods or services that
an organization produces, increase profits and strengthen relationships
with its customer base.
 Internally, it can make for safer working conditions, a happier, more
motivated workforce and better prepare the business for future
challenges.
THE END