How is an organization structured? - Chapter 16

With increasing competition, it is important for every organization to find new ways to function effectively. The process of designing the structure of an organization plays an important role in this. The structure of the organization is the formal system of role distributions where employees are coordinated and motivated so that they can work together to achieve the goal of the organization. The design of an organization is the process managers determine using various dimensions and structural components so that an organization can achieve its goals.

How do you design the structure of an organization?

According to contingency theory, the structure of an organization must be tailored to the circumstances that most influence it and cause the most uncertainty. There are three important factors (contingencies) that influence the organization: the nature of the environment, technological developments, and the characteristics of human resources.

As far as the environment of the organization is concerned, social, cultural and global factors play a role. In general, in an environment that is changing rapidly, as is often the case in the current globalizing society, the decentralization of authority is the most effective. In a stable environment, the uncertainty is low and a hierarchical structure with a central authority is the most effective.

Technology includes the combination of skills, knowledge, and materials that an organization has at its disposal for the production and distribution of goods and services. The more complex an organization's technology is, the more difficult it is to regulate it. According to the contingency theory, a flexible structure is therefore desirable when using complex technology. According to Perrow, the complexity of the technology depends on the task variety and task analyzability. Task variety refers to the number of new problems that arise during work. Task analyzability is the extent to which programmed decisions are available to the people who work with them.

In addition, according to Woodward, the complexity depends on the use of machines. Small batch technology is a method that is used to produce small quantities of unique products by small groups of people. Mass production technology is a method whereby programmed machines perform the same processes time and time again. Continuous processes technology is a method whereby machines execute processes that are controlled by a computer system; people play a controlling role here in case of problems occurring in the production process.

Human resources also determine to a large extent the extent to which centralization or decentralization is desired. The more skills and cooperation among employees, the more decentralization and flexibility can be used. A harmonious working relationship between employees also increases flexibility.

On the basis of the three factors that determine the structure of an organization according to contingency theory, a distinction can be made between two types of structure. The first type is an organic structure, which promotes flexibility so that employees can initiate changes and react quickly. On the other hand, there is a mechanical structure, in which employees are sent to perform predictable and responsible tasks.

What are the pros and cons of grouping in positions and divisions?

In organizational design, a division into functions or divisions can be chosen.

A function is a group of people who perform the same type of tasks or have corresponding positions in an organization. A functional structure is an organizational structure in which people with the same functions, positions or skills are grouped.

The advantages of a functional structure are that people with the same function can easily communicate with each other, so that they can make decisions quickly. Moreover, they can learn from each other. In the area of motivation, supervisors can monitor and reinforce the individual performance. Employees can also monitor each other, and strong norms and values and group cohesion can also arise. Finally, a career ladder is created, which creates promotion opportunities and therefore motivation.

However, there are also disadvantages to a functional structure. First, the function groups of an organization may encounter difficulties when the number of different products or services increases. Secondly, coordination problems can arise when there is more diversity in consumer groups with different needs. Finally, it can be difficult to keep coordinating the function groups when an organization expands to different regions or countries.

A divisional structure then offers the solution. A division is a group of employees with different functions who work together to deliver a specific type of product or service. Organizations can choose from three types of divisional structures:

• A product structure, where each division specializes in a certain type of product or service

• A market structure, where each division focuses on a specific consumer group

• A geographical structure, where each division is focused on a specific region.

The advantages of a divisional structure are that the quality of the products and services increases as a result of the specialization per division, communication between functions on the professional field of the division is facilitated, and the skills and knowledge of people with different functions are combined. In the area of motivation, a divisional structure allows for corporate management, which means that a manager at a higher level has control over the various divisions. In addition, division managers have a high degree of autonomy. Finally, a division is closer to the consumer than a market structure or geographical structure.

There are also disadvantages to a divisional structure. First, the operating costs increase because the number of managers increases. Secondly, communication between managers at different hierarchical levels and different divisions can suffer. Finally, there can be competition and division between divisions.

When choosing one of the types of organizational structure, a balance must be made between the costs and benefits for the organization.

A third possibility in organizational design is the matrix structure, whereby employees are classified according to function as well as to the production team. This is the most flexible and complex possibility. With a matrix structure, each employee is led by two people: a job manager and a production team boss. Employees with two supervisors are called two-boss employees. An employee with a certain job can be deployed for various production teams; this is why the structure is so flexible.

The three main advantages of a matrix structure are that new products can be developed quickly, communication, and cooperation between employees is maximized, and innovation and creativity are strongly encouraged. On the other hand, a matrix structure also has disadvantages: role conflicts and ambiguity can arise and it can lead to a high degree of stress, resulting in job dissatisfaction among employees. Moreover, it can be difficult for employees to show their personal contribution.

How do you coordinate and integrate functions and/or divisions?

The second task in organizational design is the coordination and integration of functions and/or divisions. For coordination, it is important that a clear hierarchy of authority is developed. This is the division of authority between employees with different functions. The more hierarchical levels an organization has, the longer the span of control. The span of control is the number of employees who are subordinate to a specific manager. A larger number of levels in the hierarchy makes it easier to coordinate activities and functions and the span of control is narrower. A hierarchy with a large number of levels is a tall hierarchy; a small number of levels is called a flat hierarchy. As mentioned above, an increase in the number of levels can lead to better coordination, but the disadvantage of too many levels is that decision making takes too long because information has to be passed on too often. Information disruption can also occur. According to the principle of minimum chain of demand, an organization must strive for as few hierarchical levels as possible in order to function effectively.

To keep the hierarchy flat, decentralization can be used. This means that more managers are deployed at a lower level who each coordinate their own team. This makes it more flexible and an increase in motivation is possible. Disadvantages, however, are that there may be a divide in the pursuit of goals, at the expense of the goals of the organization. Communication between teams can also be a disadvantage caused by too much decentralization.

Managers who are on an equal level with each other have no authority over each other. They must, therefore, be coordinated in a different way. An important form of coordination at one hierarchical level is a mutual adjustment and the use of integration mechanisms. Mutual adaptation means that there is continuous informal communication between different functions with the aim of the organization in mind. To facilitate mutual adaptation, various integration mechanisms can be used:

• Direct contact, where managers solve common problems in an informal way, without the information having to go through the formal communication channels in the hierarchy. This is not always easy, because the goals of different groups do not always match each other. Facilitating direct contact can lead to a good working relationship in which the parties involved are willing to give and take.

• Liaison roles are tasks of functional managers with the formal responsibility to communicate with other managers. This means that they regularly have meetings to exchange information.

• Teams and task forces are groups of employees of different functions. Teams are permanent groups, while task forces are temporary and focused on solving a specific problem.

• Cross-functional teams consist of people with various functions who work full-time in the team to bring a new product or new service to the market. The difference with a 'normal' team is that people from an ordinary team also work full-time within a functional group or division, while people from cross-functional teams do not belong to another job group or division.

A final method for coordination and integration is standardization, where a standard procedure for common problems or occasions is developed. Standardization can take place in three stages:

1. Input: this includes the skills of employees, the quality of raw materials and the machines and computers used for the production process. Standardization takes place by drawing up quality conditions for raw materials and selecting them for job requirements for employees.

2. Conversion process: specifying the behavior expected of employees during the production process so that the goals of the organization can be achieved. Formalization is the use of rules and standard operating procedures (SOPs) to regulate the activities within an organization. Although rules are necessary to allow processes within the organization to run smoothly, problems can also arise, such as restraining creativity, reducing the quality of the products/services, and the emergence of a lot of resistance to change.

3. Output: this includes specifying the end product that is expected from employees.

What is the influence of developments in IT?

Developments in information technology (IT) have influence within and between organizations. Within organizations, communication and coordination are facilitated, so that mutual adjustment is stimulated. In addition, IT enables more decentralization, allowing flatter hierarchical structures. When making full use of IT for decentralization, a virtual organization is created, whereby employees are linked to a central database with which they work but have little or no direct contact with each other.

More outsourcing can take place between organizations with IT. When using outsourcing to its maximum, a network structure is created, in which the organization specializes in one activity in which they excel and outsource the other required activities to other specialized organizations.