Organizational Design,

Change and
Development
UNIT – I
Organizational Design
 Contents
• Organizational Design – Determinants – Components –
Basic Challenges of design – Differentiation, Integration,
Centralization, Decentralization, Standardization, Mutual
adjustment -Mechanistic and Organic Structures-
Technological and Environmental Impacts on Design -
Importance of Design – Success and Failures in design.
 Meaning
• Organizational design is the process of aligning an
organization's structure with its goals, roles,
responsibilities, workflows, networks, and procedures.
• The goal is to improve efficiency and effectiveness, and
to help the business reach its goals.
• Organizational design can involve changes at the
corporate level, through business units, and individual
processes.
Example
 Definition
• According to Sargent and McConnell,
"Organizational design can be defined as a process for
improving the probability that an organization will be
successful by assessing and reshaping structure and
positions to better meet (Business) goals".
 Features of Organizational Design
• Getting Work Done
• Organizational Goals Fulfilment
• Way of Intergration
• Aligning Strategic Action
• Deciding Organizational Structure
• Allocation of Resources
 Concepts in Organizational Design
• Span of Control
• Authority
• Responsibility
• Delegation
• Chain of Command
• Accountability
• Line Authority
• Staff Departments
 Types of Organizational Design

Organizatio
nal Design

Traditional Contempor
Designs ary Designs

Autonomou Borderless Learning

Simple Functional Divisional Team Matrix Project
s Internal Organizatio Organisatio
Structure Srtucture Structutre Structure Structure Structure
Units n n
 Traditional Designs
• A simple structure features a flat hierarchy, centralized
decision-making, informal processes, and direct supervision,
typically suited for small organizations or startups due to its
flexibility. Example: a small local coffee shop.
• A functional structure organizes a company into specialized
departments like marketing, finance, or production, each
managed by a functional head to focus on specific tasks and
expertise. Example: a large corporation.
• A divisional structure divides a company into semi-
autonomous units based on products, services, or markets, each
with its own resources and functions. Example: a multinational
corporation.
 Contemporary Designs
• A team structure organizes a company into cross-functional teams that
work collaboratively on projects. For example, a tech company might form
teams for product development, each with members from engineering,
marketing, and design working together to create new products.
• A matrix structure combines functional and divisional approaches, with
employees reporting to both functional managers and project or product
managers. For example, in a consulting firm, consultants might report to
both a department head (e.g., finance) and a project manager overseeing
specific client engagements.
• A project structure organizes a company around specific projects, with
dedicated teams and resources focused solely on completing those
projects. For example, a construction firm might create separate project
teams for each building project, with each team handling all aspects from
planning to execution.
• Autonomous internal units are semi-independent divisions
within a company that manage their own operations. For
example, a multinational company with separate units for
consumer electronics and home appliances, each operating
independently.
• A borderless organization eliminates traditional
hierarchical and departmental boundaries, fostering a fluid
and collaborative environment where teams work across
functions and geographies without rigid structures. For
example, a tech company that encourages cross-
departmental project teams and global collaboration without
strict reporting lines.
• A learning organization constantly adapts and improves
through ongoing knowledge sharing and innovation. For
example, a tech company that invests in employee training
and embraces feedback to enhance its processes and
products.
 Determinants of Organizational
Design
• Various factors which determine the organizational
design are;
1. Environment
2. Strategy
3. Size
4. Organization Lifecycle
5. Technology
6. Organizational Culture
 Determining Factors
• The environment influences organizational design by
shaping how a company structures itself to respond to
external factors like market conditions, competition, and
regulatory changes. For example, a tech startup in a rapidly
evolving industry might adopt a flexible, agile structure to
quickly adapt to new technologies and market trends.
• The strategy determines organizational design by aligning
the structure to achieve specific goals, such as efficiency,
innovation, or market expansion. For example, a company
pursuing a differentiation strategy might use a decentralized
structure to foster creativity and innovation in product
development.
• The size of an organization affects its design by influencing
the complexity of its structure; larger organizations
typically require more formal and hierarchical structures,
while smaller organizations often operate with simpler,
flatter structures. For example, a large multinational
corporation may have multiple layers of management and
specialized departments, whereas a small startup might
have a flat structure with fewer management levels.
• The organizational lifecycle influences design by
dictating changes needed at different stages of growth,
from startup to maturity. For example, a startup might use
a flexible, informal structure, while a mature organization
may adopt a more formal, hierarchical design to manage
increased complexity.
• Technology impacts organizational design by
determining how tasks are performed and how
information flows. For example, a company using
advanced digital tools may adopt a more
decentralized, collaborative structure to leverage
technology effectively.
• Organizational culture shapes design by
influencing the values, behaviors, and norms that
guide the structure and operations. For example, a
company with a culture of innovation may use a
flexible, team-based structure to encourage
creativity and collaboration.
 Components of Organizational
Design

Components

Differentiatio Centralizatio Decentraliza Standardizati Mutual

Integration
n n tion on Adjustment
 Differentiation
• Differentiation in organizational design refers to
creating distinct roles, departments, or structures to
focus on specific tasks, products, or markets.
• This approach helps optimize performance and address
diverse needs within the organization.
 Types of Differentiation
• Horizontal Differentiation: Division of an organization into different
departments or units based on functions, products, or services at the
same hierarchical level.
o Example: A retail company with separate departments for Marketing, Sales,
and Customer Service.
• Vertical Differentiation: The hierarchy within an organization,
defining levels of authority and decision-making from top
management to lower-level employees.
o Example: A manufacturing firm with a structure including Executives,
Managers, Supervisors, and Line Workers.
• Spatial Differentiation: The geographical or physical distribution of
organizational units or operations across different locations.
o Example: A global tech company with offices in the U.S., development centers
in India, and sales offices in Europe.
 Integration
• Integration in organizational design refers to the
process of coordinating and aligning different parts of
an organization to work together effectively toward
common goals.
• This involves ensuring that various departments,
functions, or teams collaborate efficiently and share
information to achieve organizational objectives.
 Integrating Mechanisms
• Hierarchy of Authority: A system where coordination is
achieved through a formal chain of command, with higher
levels of management overseeing and directing lower levels.
o Example: In a traditional manufacturing company, department
heads report to a senior manager, who coordinates and integrates
their efforts through hierarchical oversight.
• Direct Contact: Coordination achieved through direct
communication between individuals or teams to address
issues or share information.
o Example: Engineers and marketers working together on a product
launch might have regular meetings or calls to align their efforts
directly.
• Liaison Roles: Individuals designated to facilitate
communication and coordination between different
departments or units.
o Example: A project manager acts as a liaison between
the R&D and sales teams to ensure that product
development aligns with market needs.
• Temporary Task Force: A group formed for a
specific project or time period to address particular
issues or achieve specific goals, after which it
disbands.
o Example: A cross-functional task force assembled to
address a new regulatory requirement and then
disbanded once the compliance measures are
implemented.
• Permanent Teams: Permanent teams are
established to handle continuous or recurring tasks
and responsibilities, ensuring current coordination
and collaboration.
o Example: A product development team within a tech
company that consistently works on new product features
and updates.
• Integrating Roles: Roles specifically designed to
bridge gaps between different parts of the
organization, facilitating integration and alignment
of activities.
o Example: An integration manager who oversees and
coordinates the efforts of various departments during a
company merger.
 Centralization
• Centralization refers to an organizational structure
where decision-making authority is concentrated at the
top levels of management, with lower levels having little
autonomy in decision-making.
• This approach centralizes control and coordination
within a few key individuals or a single central authority.
 Advantages of Centralization
• Common Vision: Ensures uniform strategic direction
and consistency across the organization.
• Quick Decision-Making: Allows for faster decisions as
fewer people are involved.
• Minimized Conflicts: Reduces disagreements by
centralizing authority and decision-making.
• Ease in Control of Operations: Simplifies
management and oversight with centralized control.
 Disadvantages of Centralization
• Lack of Creativity: Limits innovation as decision-making
is concentrated and less input is solicited from lower
levels.
• Communication Gap: Can lead to delays or
misunderstandings in information flow between top
management and lower levels.
• Inflexibility: Makes it difficult to adapt quickly to local
needs or changes due to rigid central control.
• Misinterpretation of Orders: Increases the risk of errors
as orders and directives may be misinterpreted or poorly
communicated.
 Decentralization
• Decentralization refers to an organizational structure
where decision-making authority is distributed among
various levels of management or departments, rather
than being concentrated at the top.
• This approach allows lower levels of the organization to
make decisions and act autonomously, fostering greater
flexibility and responsiveness.
 Advantages of Decentralization
• Reduced Workload of Top Management: Distributes
decision-making tasks, easing the burden on top executives.
• Development of Personnel: Enhances skills and
experience of lower-level managers by involving them in
decision-making.
• Quick Decision-Making: Facilitates faster responses to
local issues and opportunities due to decision-making
authority at lower levels.
• Ease in Performance Appraisal: Simplifies evaluation of
performance as managers are more directly responsible for
their decisions and outcomes.
 Disadvantages of Decentralization
• Dependence on Personnel: Relies heavily on the competence
and judgment of lower-level managers.
• Not Appropriate for Smaller Organizations: Can be inefficient
for small organizations where centralized control may be more
practical.
• May Pose Challenges: Can create inconsistencies and
coordination issues between different parts of the organization.
• Requires Information: Demands comprehensive and accurate
information flow to ensure effective decentralized decision-making.
• Tedious to Monitor and Control: Makes oversight and control
more complex as decisions are spread across various levels and
locations.
 Centralization Vs Decentralization
Basis of Centralization Decentralization
Distinction
Meaning Concentration of Decision- A systematic diffusion of decision-
Making authority in the hands making authority down the line of
of selected managers at the hierarchy through a process of
top. delegation.
Authority of Top Complete control and command Top Management decides vision,
Management in the hands of the top strategy, and policy leaving the
management who take all the implementation on managers down
decisions and exercise all the line. Only major decisions are
powers excluding the lower- taken by the top management. It
level managers. provides direction and retains
overall control.
Authority of Implement decisions taken at Within the broad guidelines
Middle and the top. No discretion or provided by the top, middle and
Lower authority to deviate or lower management have the
Management innovate. freedom to take decisions involved
 Centralization Vs Decentralization
Basis of Centralization Decentralization
Distinction
Freedom of Little or no freedom of action. Freedom to act as per discretion
Action All actions are done as per the and as required by the
guidelines from the top. The circumstances. Employees have the
employees are closely scope to innovate. Control and
monitored and controlled. supervision is non-intrusive in
nature, more in the form of
facilitation to perform.
Flexibility No flexibility to respond to new No flexibility in problem-solving,
emergent situations, challenges trouble-shooting and responding to
or emergencies. Have to look up operational challenges. Managers
to the top management to have the freedom to respond and
respond to such situations. No act as per the situation on the
innovation and creativity in ground.
trouble shooting, and problem-
solving.
Significance Better controlling and Quick decision-making, flexibility,
monitoring as the performances and development of creativity and
are measured by the top innovation are the prime
management itself. advantages.
 Standardization
• Standardization refers to the process of establishing
uniform procedures, processes, and practices across an
organization to ensure consistency, efficiency, and quality.
It involves creating standardized guidelines, policies, and
systems that all parts of the organization follow.
• In a fast-food chain, standardization is used to ensure that
every restaurant follows the same procedures for food
preparation, customer service, and hygiene. This ensures
that customers receive the same experience and product
quality regardless of which location they visit.
 Mutual Adjustments
• Mutual adjustments refer to a coordination
mechanism where individuals or teams adapt their
actions and work processes through informal
communication and negotiation to achieve alignment
and solve problems collaboratively.
• In a product development team, mutual adjustments
occur when team members from different departments
(like design, engineering, and marketing) frequently
communicate to adjust their plans and ensure that the
product meets both technical specifications and market
demands.
 Basic Challenges of Design

Basic Challenges
Balancing Balancing
Balancing
Centralizatio Standardizati
Differentiatio
n and on and
n and
Decentraliza Mutual
Integration
tion Adjustments
 Balancing Differentiation and
Integration
• They are key challenges in organizational design, where
the need to specialize tasks (differentiation) must be
balanced with the need to coordinate these specialized
units (integration).
o Example: In a tech company, the R&D, marketing, and sales
departments each focus on their own tasks (differentiation),
but must work closely together to successfully launch a new
product (integration).
 Balancing Centralization and
Decentralization
• It involves finding the right mix between centralized
control for consistency and efficiency, and decentralized
decision-making for flexibility and responsiveness.
o Example: A retail chain might centralize purchasing decisions
to leverage bulk discounts (centralization), while allowing local
stores to adjust their inventory based on regional customer
preferences (decentralization).
 Balancing Standardization and
Mutual Adjustments
• It involves creating consistent processes for efficiency
and quality while allowing flexibility for teams to adapt
and respond to specific situations.
o Example: A global consulting firm might standardize its
project management methods across all offices
(standardization) but allow teams to adjust their approach
based on client needs and local conditions (mutual
adjustments).
 Mechanistic Structure
• A Mechanistic Structure is an organizational design
characterized by a rigid hierarchy, clear lines of
authority, extensive rules and procedures, and a high
degree of specialization.
• It is typically used in stable environments where
efficiency and predictability are prioritized.
• Example: A large manufacturing company with a strict
chain of command, where employees have specific,
well-defined roles and follow standardized procedures to
ensure consistent production quality.
 Characteristics of Mechanistic
Structure
• Stable Environment: Designed for predictable, unchanging
environments where routines and consistency are key.
• Low Differentiation of Tasks: Employees have narrowly defined
roles with little variation in tasks.
• Low Integration of Departments and Functional Areas:
Departments operate independently with minimal collaboration
across functions.
• Centralized Decision-Making: Decision-making authority is
concentrated at the top levels of management.
• Standardization and Formalization: Processes and procedures
are highly standardized, with strict rules and guidelines to follow.
 Organic Structure
• An Organic Structure is a flexible, adaptable
organizational design characterized by less rigid
hierarchies, decentralized decision-making, and a high
level of collaboration and communication.
• It is suited for dynamic, fast-changing environments
where innovation and responsiveness are crucial.
• Example: A tech startup with a flat structure, where
employees work in cross-functional teams, share
responsibilities, and make decisions collaboratively to
quickly adapt to market changes.
Characteristics of Organic Structure
• Dynamic and Uncertain Environment: Designed for fast-changing
and unpredictable environments, allowing the organization to adapt
quickly.
• High Differentiation of Tasks: Employees have diverse, varied roles
that often overlap and require multi-skilled capabilities.
• High Integration of Departments and Functional Areas:
Departments and teams collaborate closely, with strong
communication and teamwork across functions.
• Decentralized Decision-Making: Decision-making is distributed
across various levels, encouraging input and autonomy from all
members.
• Little Standardization and Formalization: Flexible processes with
minimal rules, allowing for creativity and innovation.
 Mechanistic Vs Organic Structure
Mechanistic Structure Organic Structure
Have narrow span of control. Have wider span of control.
Have high degree of formalization. Characterized by little formalization.
Centralized decision-making. Decentralized decision-making.
Follow strict rules and regulations. More flexible and adaptable.
Vertical communication flow. Communication flow from all directions.
Tasks are rigidly defined. Tasks are more fluid.
Task altered only with the sanctions of Tasks can be altered according to
higher authority. situations and needs.
Operate best in stable environments. Operate best in dynamic environments.
 Technological Impact on Design
• It refers to how advancements in technology influence the structure, processes,
and operations of an organization, often driving changes toward more efficient,
flexible, and innovative designs.
• Key Impacts
o Automation of Tasks: Technology automates routine tasks, reducing the need for
manual labor and allowing for streamlined workflows.
o Increased Connectivity: Enhances communication and collaboration across
departments, locations, and time zones, supporting more integrated and flexible
structures.
o Decentralization of Decision-Making: Technology empowers employees with real-time
data and tools, enabling quicker, decentralized decision-making.
o Virtual Teams and Remote Work: Advances in technology facilitate remote work and
the creation of virtual teams, reducing the need for physical office space and rigid
hierarchies.
o Innovation and Adaptability: Technology fosters a culture of continuous innovation,
requiring organizations to adopt more organic, adaptable structures to keep pace with
rapid changes.
 John Woodward's Combination of
Structure and Technology
• Small Batch and Unit Production
o Structure: Organic, flexible, and decentralized.
o Example: A custom furniture workshop where workers adapt to unique
client orders.
• Large Batch and Mass Production
o Structure: Mechanistic, rigid, and hierarchical.
o Example: An automobile assembly line with standardized, repetitive
tasks.
• Continuous Process Production
o Structure: Hybrid, combining standardization with the need for skilled
adaptability.
o Example: A chemical plant where production is automated and
continuous, but skilled operators adjust as needed.
 Impact of IT on Organizational
Design
• Smaller Organizations: IT reduces the need for large administrative layers,
enabling organizations to operate efficiently with fewer employees.
o Example: A tech startup uses cloud services to manage operations,
allowing it to scale without needing a large support staff.
• Decentralized Organizational Structure: IT empowers employees with
real-time data, supporting decision-making at lower levels.
o Example: A global retail company uses data analytics tools, enabling local
managers to make inventory decisions based on regional demand.
• Improved Horizontal Coordination: IT facilitates communication and
collaboration across different departments and teams.
o Example: A healthcare system uses electronic health records to ensure
seamless coordination between doctors, nurses, and specialists.
 Cont...
• Improved Interorganizational Relationships: IT
enables seamless integration and collaboration between
organizations, enhancing partnerships and supply chains.
o Example: An automobile manufacturer uses an integrated supply
chain management system to coordinate with its parts suppliers in
real-time.
• Enhanced Network Structure: IT supports the creation of
flexible, networked organizations that can quickly adapt to
changes.
o Example: A consulting firm operates with a network structure,
using virtual collaboration tools to connect remote experts across
the globe for various projects.
 Environmental Impact on Design
• The environment in which an organization operates
plays a crucial role in shaping its design.
• Factors such as complexity, stability, and uncertainty
influence how organizations structure themselves,
determining levels of specialization, formalization, and
centralization to effectively respond to external
conditions.
 Impact of Environment on
Organizational Design
• Environment and Complexity: In complex environments with diverse
demands, organizations tend to have more specialized roles and
departments to handle the variety.
o Example: A multinational corporation operating in various countries creates
specialized teams to address each region's unique market conditions.
• Environment and Formalization: Stable environments encourage higher
formalization with strict rules, while dynamic environments require flexibility
and less formalization.
o Example: A government agency in a stable regulatory environment follows strict
procedures, while a tech startup in a rapidly changing market keeps processes flexible.
• Environment and Centralization: Uncertain environments push
organizations toward decentralization to enable quicker, localized decision-
making.
o Example: A retail chain decentralizes decision-making to regional managers during
economic volatility, allowing for rapid adjustments to local market conditions.
Importance of Organizational Design
• Handling Contingencies: Enables the organization to
adapt to unexpected changes or challenges in the
environment.
o Example: A flexible organizational structure helps a company
quickly shift production during a supply chain disruption.
• Competitive Advantage: A well-designed organization
aligns resources and strategies, giving it an edge over
competitors.
o Example: A tech company with a streamlined R&D
department can bring innovative products to market faster
than its rivals.
 Cont...
• Managing Diversity: Supports the integration and
effective collaboration of a diverse workforce.
o Example: A global firm designs cross-cultural teams to
leverage diverse perspectives for better decision-making.
• Efficiency and Innovation: Balances routine efficiency
with the flexibility needed for innovation.
o Example: A company uses standardized processes for
production efficiency while fostering creative teams for
product development.
 Cont...
• Provides Clarity: Clearly defines roles, responsibilities, and
reporting lines, reducing confusion and conflict.
o Example: An organization with a clear hierarchy ensures that
employees know who to report to and what is expected of them.
• Higher Growth Opportunities: A well-structured organization
is better positioned to scale and expand.
o Example: A retail chain with a strong organizational design can easily
replicate its model in new locations.
• Motivates Employees: Aligns organizational goals with
individual roles, enhancing job satisfaction and motivation.
o Example: A company that empowers employees with decision-making
authority boosts their engagement and commitment to the organization.
 Success and Failures in Design
• Success and Failures in Organizational Design reflect how
well a structure aligns with an organization's strategy and
environment.
• Success: A well-aligned design enhances efficiency,
communication, and adaptability, driving productivity and goal
achievement.
• Example: A tech company with a flat, agile structure outpaces
competitors by rapidly innovating.
• Failure: Misaligned design leads to inefficiencies, confusion,
and missed opportunities, harming performance and morale.
• Example: A rigid manufacturing firm in a dynamic market loses
ground to more agile competitors due to its inability to adapt.
 Characteristics that Indicates
Success
• Clear Communication: Information flows smoothly across all levels, ensuring
everyone is aligned.
• Efficient Operations: Resources are optimized, and processes run smoothly,
minimizing waste.
• Flexibility and Adaptability: The organization quickly responds to changes
in the environment or market.
• High Employee Engagement: Employees are motivated, satisfied, and
understand their roles and contributions.
• Achieving Strategic Goals: The organization consistently meets or exceeds
its objectives and targets.
• Strong Collaboration: Teams and departments work well together, fostering
innovation and problem-solving.
• Sustainable Growth: The organization scales effectively, maintaining
performance while expanding.
 Characteristics that Indicates
Failures
• Poor Communication: Information is fragmented, leading to
misunderstandings and misalignment.
• Inefficient Operations: Processes are cumbersome, resources are wasted,
and productivity suffers.
• Inflexibility: The organization struggles to adapt to changes, causing missed
opportunities.
• Low Employee Morale: Employees feel disengaged, confused about their
roles, or dissatisfied with their work environment.
• Unmet Strategic Goals: The organization fails to achieve its objectives and
targets consistently.
• Weak Collaboration: Departments or teams work in silos, hindering
innovation and problem-solving.
• Stagnant or Declining Growth: The organization faces difficulties in scaling
and maintaining performance during expansion.
Key to Success in Organizational
Design
• Simplicity: A straightforward structure reduces
complexity and confusion, making processes easier to
manage.
o Example: A small startup with a flat organizational structure
can quickly adapt to changes and make decisions efficiently.
• Flexibility: The ability to adapt to changing conditions
and requirements ensures the organization remains
responsive and effective.
o Example: A tech company uses agile teams that can pivot
quickly to meet new market demands.
• Reliability: Consistent and dependable systems and
processes ensure stability and predictability in operations.
• Example: A manufacturing firm implements standardized
procedures that ensure high-quality products every time.
• Economy: Efficient use of resources minimizes costs while
maximizing output and effectiveness.
• Example: A logistics company optimizes its supply chain
to reduce operational costs and improve delivery times.
• Acceptability: The design must be embraced and
supported by employees to ensure successful
implementation and performance.
• Example: A company involves employees in the redesign
process to gain their buy-in and improve acceptance of the
new structure.