Indira Gandhi

National Open University MS-10

School of Management Studies Organisational Design,
Development and Change

Block

2
ORGANISATIONAL DESIGN
UNIT 3
Typology of Organisation Structures 5
UNIT 4
Some Basic Organisation Design and Restructuring Strategies 20

1
Organisational Design
Course Design and Preparation Team (2004)
Dr. Sasmita Palo Prof. G.S. Das
Berhampur University IMI, New Delhi
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Berhampur University Ex-IIM
Berhampur Ahmedabad

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Fore School of Management Director
New Delhi School of Management Studies
IGNOU, New Delhi
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School of Management Studies
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SOMS, IGNOU, New Delhi

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June, 2004 (Revision)

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2
BLOCK 2 ORGANISATIONAL DESIGN
This block consists of two units. The first unit briefly describes different types
of organisation structures that have emerged over a period of time. It covers:
(1) line organisation (2) line and staff organisation (3) functional organisation
structure (4) product organisation structure (5) hybrid structure (6) formal and
informal organisation (7) centralisation and decentralisation (8) vertical structure
(9) horizontal organisation (10) project organisation (11) matrix organisation
(12) virtual organisation (network structure) (13) boundaryless organisation
(14) inverted pyramid (15) task forces and (16) mechanistic and organic
structures. The second unit deals with the basic organisational structure and
restructuring strategies. It covers the evolutionary process of organisation
design, the universal perspectives of organisation design—the bureaucratic
model, the behavioural model, and the contingency perspective, Henry
Mintzberg’s typology for integration of organisation structure to contingency
factors, the new perspective on organisation design (which focuses on
management process for strategic decisions of the organisations to work), and
the precise nature of relationship between specific organisation developmental
strategies and particular organisation structures.

3
Organisational Design

4
 Introduction to
UNIT 3 TYPOLOGY OF ORGANISATION Microbes

STRUCTURES
Objectives

After reading this unit, you should be able to :

understand the characteristics of different organisation structures,
explain the basis for evolving different types of organisation structures,
examine the advantages and disadvantages of different types of organisation
structures.

Structure
3.1 Introduction
3.2 Line Organisation
3.3 Line and Staff Organisation
3.4 Functional Organisation Structure
3.5 Product Organisation Structure/Divisional Structure
3.6 Hybrid Structure
3.7 Formal and Informal Organisation
3.8 Centralisation and Decentralisation
3.9 Vertical Structure
3.10 Horizontal Organisation
3.11 Project Organisation
3.12 Matrix Organisation
3.13 Virtual Organisation (Network Structure)
3.14 Boundaryless Organisation
3.15 Inverted Pyramid
3.16 Task Forces
3.17 Mechanistic and Organic Structures
3.18 Summary
3.19 Self-Assessment Questions
3.20 Further Readings

3.1 INTRODUCTION
An organisation structure specifies the various job tasks and shows how the
same are formally divided, grouped, and coordinated. It provides an appropriate
framework for authority relationship. It indicates the hierarchy of authority and
the reporting relationships. It is a means to help the management to achieve the
organisational objectives.

As the objectives of the organisation are derived from the overall strategy of
the organisation, it is logical that an organisation structure is closely linked to its
strategy. As such, if the management makes a significant change in the
organisation’s strategy, the organisation’s structure needs to be modified to
accommodate and support the change. There is considerable evidence to
indicate that choice of an organisation’s strategy (stability strategy/growth
strategy) is determined by three basic factors (contingency factors): (i) the
organisation’s size, (ii) technology used by the organisation (for converting the
5
Organisational Design financial, human and physical resources into products and services), and (iii)
environmental uncertainty (external environment).

Information technology and globalisation have had a tremendous impact on

organisation structures. Many of today’s managers realise that the traditional
organisation structures based on bureaucratic principles no longer provide
solutions to the challenges posed by the new paradigm environment. The needs
of flexibility, adaptability to change, creativity, innovation, knowledge and the
ability to overcome environmental uncertainties are among the biggest
challenges facing many of the organisations. The result has been that the
vertical (tall) structures are being replaced by horizontal (flat) structures, the
organisations with mechanistic structures are being transformed into ones with
organic structure . These shifts reflect a clear departure from the practice of
centralised decision-making to decentralised decision-making, from command to
consensus based self-control. The new forms of organisation structure that
have emerged are: taskforce, network, virtual, boundaryless structures. The
salient features of these and other organisation structures are briefly described
here to present an overview of different types of organisation structure and
their suitability under different situations.

3.2 LINE ORGANISATION

Line organisation is the simplest form of organisation structure. The line
structure is based on the scalar principle, which states that authority and
responsibility should flow in a direct line vertically from the highest level of the
organisation to the lowest level. The primary emphasis in the line organisation is
upon the superior-subordinate relationship. Every person in the organisation is in
the direct chain of command. (Figure 1).

Figure 1 : Line Organisation

‫‫‬
General
r* & & & " & !
Manager

Manager
r * && Manager
r + &% Manager
r * &&
( "&& &
Production e' ! &
Finance g +&" %
Marketing

( && ) && ) &&

Deputy Manager Deputy Manager Deputy Manager
r * && r + &% r * &&
Production
( "&& & Finance
e' ! &
Marketing
g +&" %

Foreman
n ' &" Accountants
s ' %& %
& Officers
) " !!

s - %#
Workers (%%!%
Assistants (& &
Salesman

One of the advantages of the line organisation is that it facilitates decision

making and execution because there is a definite authority at each level of the
hierarchy. However, the disadvantage is that if a wrong decision is made at
the top level, the same is carried out simply without anybody down the line
venturing to point out its deficiencies.

6
 Typology of Organisation
3.3 LINE AND STAFF ORGANISATION Structures

Most business organisations, except the very small, have this type of structure.
As the organisations have grown complex, the problems of line executives have
become sufficiently complicated. The line executives being generalists, need the
advice of personnel with specialised knowledge and functions to tackle these
problems. For this purpose, the staff positions are created in the organisation. In
line and staff organisation, the line authority remains the same as it does in the
line organisation i.e. the authority flows from top to bottom; and the line
executives perform the major functions; the staff functionaries support and
advise the line executives. For example, for sound management of human
resources, the line managers are provided specialised assistance through
personnel/Human Resource managers. As staff functionaries are employed to
perform supportive role, they do not have any power of command in the
organisation (Figure 2).

Figure 2 : Line and Staff Organisation

‫ ﱞ‬of (Directors
Board &&" &!&"!

‫‫‬
Financial  &' ! &&&%and
Advisor &! +&&&
Managing Manager
 *%&&&
‫ ﱠ‬Accounts
Chief ) &&" !(%%&&
Officer ( !" &
Director HR

 l )&&&&&
Manager Legal


Assistant ‫ ﱡ‬Managing
to ( %%%" &&!!! &"* &
Director

r +&&
Manager r * &&
Manager r ) &&
Manager
) %! %
Division-I I) ! %%
Division-II ' !% !%
Division-II


denotes ### # #" #Authority
Line #
 ‫ﱠ‬ y### # #" $#
denotes Staff Authority

The main advantage of line and staff organisation is that the staff specialists
relieve the line executives of the botheration of concentrating on specialised
functions like selection, training, development, wage and salary administration,
accounting, public relations etc. However, the disadvantage of this structure is
that since functionaries are not accountable for the results, they may not be
performing their duties effectively.

3.4 FUNCTIONAL ORGANISATION STRUCTURE

This is the most widely used form of organisation structure because of its
simple logic and commonsense appeal. Here the tasks are grouped together on
the basis of common functions. So, all production activities or all financial
activities are grouped into a single function which undertakes all the tasks
required of that function. A typical chart of a functional organisation is
presented in Figure 3.

The functional structure suits best to the small to medium organisations

producing one or a few products, where the goals of the organisation
emphasise functional specialisation, efficiency and quality.
7
Organisational Design Figure 3 : Functional Organisation Structure

Managing
r%#$## $#
Director

General
‫ ‫‬%
#$#! #
Manager

Chief Chief Chief Chief Chief

‫ ﱠ‬r %# #! ‫ ﱠ‬r %# #! ‫ ﱠ‬r $$ # ‫ ﱠ‬r %$ "!
Manager ‫ ﱠ‬r %# #!
Manager
$!#$$ Manager
g&#! # Manager
e$ # ‫ ‮‬Hum s%#'
a n## %
Manager
‫ﯼ‬D%
Production Marketing Finance Resources R&D

r#""
Manager Manager r$""
Manager r#""
Manager r#""
Manager
Manager
r$! " Manager
r#"" r#"" r&#$  &#Wage
##$#!
y$"!
Quality s"! g#"!"
Ads. Manager Manager
# "! "
Production #" !
Purchase Engineering
g""" " g$! "
Marketing Sales r%#$
Manager r&#$
Manager
l#"!
Control $#$#
Industrial $#
& Salary
%&$ #
Employment D$
HRD
s%
##
Relations %$&$ #
Administration

The main advantages of this type of structure are that by grouping people
together on the basis of their specialist expertise, the organisation can facilitate
both their utilisation and their coordination in the service of the whole
organisation. The functional grouping also provides opportunities for promotion
and career development. One of the major disadvantages of this form of
organisation is the growth of sectional interest which may conflict with the
needs of the organisation as a whole. For example, the members of the
production department will see their activities from the narrow perspective of
their own department rather than viewing the same from the broader
perspective of the entire organisation.

3.5 PRODUCT ORGANISATION STRUCTURE /

DIVISIONAL STRUCTURE
This form of organisation structure is adopted by large companies producing a
wide range of products. Here, the activities are grouped on the basis of the

Figure 4 : Product-based Organisation Structure

Managing
r&#$## $#
Director

Director
$ "# Director
Director
%! ##!#
Director
%! #
e$$!$
%! #
e$ # Corporate Human
‫‮‬ s%#' ## %
R&D Finance g&#! #
Marketing Resources

General General General General

‫ ‫‬r&###! # ‫ ‫‬r%#$#! # ‫ ‫‬r%"$""# ‫ ‫‬r&###! #
Manager
Manager
$### Manager
s%#! # Manager
s%##' ‫ ﱟ‬es$r i#!l e#
St
Vaccines Antibiotics Cosmetics Suppliers

Manager Manager Manager

r&#$  &&#$"$#! Manager
r&## r&##
$!$#$
Production Salesg&#!and
# $##$ Human
‫‮‬ s%#' ## %
Accounts
Marketing Resource
8
individual products manufactured by the company. Thus, one finds autonomous Typology of Organisation
Structures
“little companies within the company” adopting this type of organisation
structure. As such, within each of these little independent units, we find all
important functions viz. production, marketing, finance and human resources.
The organisation structure of a large multi-product pharmaceutical company is
illustrated in Figure 4.

One of the advantages of the product organisation is that it enables

diversification of the products to take place with minimal effort. Another
advantage is that it can cope better with technological change by grouping
people with expertise and their specialised equipment in one major unit. The
main disadvantage of the product organisation is that each product division
may promote its own product group in a way that creates problems to other
product divisions of the company.

3.6 HYBRID STRUCTURE

The hybrid form combines features of both functional and divisional forms.
When an organisation starts to get very large, it establishes some self-contained
units. Functions that are considered important to each product are decentralised
to the units; however, some functions like finance and accounting are
centralised at headquarters for practical reasons (Figure 5).
Figure 5 : A Hybrid Organisation Structure

t( #&&
President

( &&' '
Accounting e' " &
Finance t ' &&%" &

(!
Vice ( ! &%! ( #
Vice President
t( #&&
President g( &&" &
Engineering  s '#&&%
%" !
Auto (Parts
' #&" s*&"&
Materials

Human
n)'
Sales
s( % g+&#&
Marketing &&&%" &&
s) &&'
Resources

The functional part of the organisation is reflected in the departments

centralised at the corporate level. However, each of the product divisions has
specialists in functional areas for necessary assistance.
The important advantages of hybrid structure are:
1. The overall organisation enjoys the benefits of both functional and product
(decentralised) structures.
2. It provides the opportunity to improve coordination both within and among
divisions.
3. It enables the organisation to pursue an adaptive strategy within the product
divisions while at the same time achieving efficiency in the functional
departments.
4. It helps in proper alignment of corporate and divisional goals.

A major disadvantage of the hybrid structure is that it often leads to excessive

duplication of activities between functions and divisions. Another disadvantage is
its tendency to create conflict between headquarters and divisional functions.
9
Organisational Design
3.7 FORMAL AND INFORMAL ORGANISATION
The formal organisation structure refers to a structure of clearly defined jobs,
each bearing a definite amount of responsibility and authority. The formal
organisation lays down formal procedures, rules and regulations, which guide
the behaviour of individuals performing these jobs.

The informal organisation is the outcome of social interaction that takes place
between the individuals of the formal organisation. When people work together
they tend to form informal work groups, often spontaneously, because of
physical proximity, commonality of interest etc. These informal groups are
collectively known as informal organisation. Unlike the formal organisation, the
informal organisation is unstructured and not given. Generally, it is an unofficial
organisation born out of a formal organisation. An informal organisation has its
own structure, roles, procedures, norms and values which are unwritten and are
evolved through consensus among the members of the informal groups. An
informal organisation does not have a fixed chain of command. It is based on
the sentiments of the members. The communication patterns are not fixed and
as such communication may flow in any direction.

In contrast to formal organisation analysis, the dysfunctional aspects of informal

organisation such as conflicting objectives, restriction of output, resistance to
change have received more attention than the functional ones. In other words,
the informal organisation is often projected to be counter-productive to the
formal organisation. In reality, however, the informal organisation can benefit
the formal organisation in the following ways:
1. It serves as a useful channel of communication
2. It lightens the workload of the management, if the latter gives due
importance to the informal workgroups
3. It reduces the undesirable effects of the rigidities of the formal organisation
4. It provides a safety valve for employee emotions.
Activity A
Briefly describe the informal workgroup that are prevailing in your organisation
in terms of their leadership, their role and their contribution to the formal
organisation. Substantiate your statements with illustrations.
..........................................................................................................................
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3.8 CENTRALISATION AND DECENTRALISATION

The term Centralisation refers to concentration of decision making at a single
point in the organisation. In contrast, when the top management gives
maximum, though not complete, discretion to the lower level personnel in the
organisation to make decisions, then it can be said that there is decentralisation
in the organisation.

In a decentralised organisation, action can be taken more quickly to solve

problems, and more people provide inputs into decisions. For firms having a
number of plants, which are located at different places, decentralisation is more
10 beneficial. With most of the large companies now preferring to make
organisations more flexible and responsive, there has been a marked change Typology of Organisation
Structures
towards decentralised decision making.

The main advantages of decentralisation are:

1. It reduces the burden of the top management by freeing them from many
operational decisions, and enables them to concentrate on their strategic
responsibilities; and
2. It can contribute to staff motivation by enabling middle and lower level
managements to get a taste of responsibility, and by encouraging the use of
knowledge, innovation, and initiative by all employees.

The main disadvantages of decentralisation are:

1. It requires greater coordination by senior management to ensure that
individual units in the organisation are not working against the interests of
the whole organisation;
2. It can lead to inconsistency of treatment of customers, clients or public,
especially in service industries; and
3. Decentralisation does require a plentiful supply of capable and well-motivated
managers, who are able to cope with increased responsibility which
decentralisation brings about.

3.9 VERTICAL STRUCTURE

A vertical organisation is that in which the size of the hierarchical chain of
command is long i.e. the number of hierarchical levels are high. As such, more
people have to communicate to the top management through the intervening
layers of executives (Figure 6).

Figure 6 : Vertical Organisation Structure

Hierarchical
s ) !&# &# Levels
&'"

The main advantages of the vertical organisation are:

1. They provide better communication of the organisation’s mission, values, and
goals to all employees; and
2. These organisations have the ability to sustain a very high degree of
specialisation of functions and roles.

The principal disadvantages are:

1. Too many hierarchical levels consume more time for communication and the
same may lead to delays in decision making; and
11
Organisational Design 2. As the vertical structures go hand in hand with formality and
standardisation, the scope for initiative and risk taking at operational levels
becomes limited.
Activity B
Find out whether your organisation belongs to a centralised or decentralised
form of organisation. Specify the recommendations you would make in order
improve the present structure of your organisation.
..........................................................................................................................
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..........................................................................................................................
..........................................................................................................................
..........................................................................................................................

3.10 HORIZONTAL ORGANISATION

As the traditional vertical, hierarchical structures of the organisations are being
considered inappropriate to the requirements of the changing environment, an
increasing number of modern organisations are preferring the use of horizontal
structures. For example in the US, corporate giants like AT& T, General
Electric, Motorola and Xerox, among other firms, have moved to the principles
of the horizontal structure of organisations.

The horizontal structure facilitates cooperation, teamwork, and customer

orientation rather than a functional orientation.

Frank Ostroff, a McKinsey & Company consultant and his colleague Douglas
Smith are given credit for developing guiding principles that describe the
characteristics of the horizontal structure.

1. Horizontal structures are created around three to five core processes for the
time rather than traditional departmental functions.
2. The vertical hierarchy is flattened to reduce the levels of supervision. This is
done by combining the fragmented tasks, eliminating work that fails to add
value, and by cutting to the minimum activities within each process.
3. Multi-disciplinary/ cross functional self-managed teams (composed of
personnel from different functional areas like finance, marketing, human
resource, quality control and operations) are created to handle the core
processes, and each team is entrusted with a core process.
4. Customer satisfaction, net profits, is the primary driver and measure of
performance. As such, for horizontal structure to work, employees are
brought into direct contact with customers as well as suppliers. Where
relevant, customers and suppliers may be brought in as full working
members of the teams in charge of the core processes.
5. All employees should be provided with all data, and they should be trained
for analysing and use the data to make effective decisions as team
members.
6. All employees are encouraged to develop multiple skills; and those who
develop are rewarded.
7. The horizontal organisations need to build a corporate culture of openness,
cooperation and collaboration.

12
 Figure 7 : Horizontal Organisation Structure Typology of Organisation
Structures

s( "&# &#&'!
Hierarchical Levels

Figure 7 gives an idea about the horizontal structure of an organisation.

The main advantages of horizontal organisation are:

1. Decisions can be taken more quickly to solve problems; and
2. A horizontal structure has fewer problems of coordination.

One of the disadvantages of the horizontal structure is the absence of proper

reporting to superiors by the subordinates because of decentralisation.

3.11 PROJECT ORGANISATION

When an organisation undertakes a big project or a number of small projects, it
creates project organisation(s) for the completion of the same. This is done
because the existing functional structure of the organisation may not be suitable
to complete the projects which are time bound and are subject to high
standards of performance as in the case of aero space and aircraft companies.
A project organisation (See Figure 8) is separate from and independent of
functional departments of the company. Headed by a Project Manager, every
project organisation consists of a team of specialists drawn from different
functional areas of the company or from outside. The size of the project team
varies from one project to another. Again, within a project, the size of the
group may change with the different phases of the work. A project organisation
has a temporary set up, and as soon as the project is completed it will be
disbanded. However, when the duration of the project is very long, the project
organisation takes a permanent form and it may become a regular autonomous
project division of the company.

The role of the Project Manager is quite challenging. He is responsible for the
completion of the project exacting to the time schedule and quality standards
Figure 8 : Project Organisation

General
‫‫‬ r* &&&$%"
Manager

 I ' $'! I
Project  ( #'!&
Project II

Project
t( #'
r+&'
Manager
Team
Members
t ' $'
Product y*'%
Quality
%$ %) ) g( ''! '
Engineering M(
HRM s' &
Sales ) &&&
Research
*&' &'
Management l(' '
Control 13
Organisational Design that are prescribed. The successful completion of the project depends on how
well he coordinates the activities of the project team and how he utilises the
advice and assistance of the internal experts (available within the company) and
those belonging to external agencies / organisations.

The project organisation is suitable when the company gets a one-time

assignment or a huge contract or when the company faces a unique challenge.

The main advantages of the project organisation are:

1. The participating specialists of the project team get opportunity for prompt,
expeditious and effective accomplishment of the goals of the project. This
motivates them to make maximum contribution to the execution of the
project;
2. It facilitates speedy communication between the project manager and the
team members; and
3. It provides flexibility in handling various tasks.

The major disadvantages of the project organisation are:

1. The entire project becomes meaningless, if the project manager fails to
coordinate the activities of the project properly;
2. The members of the project organisation have to sever the contacts with the
mainstream organisational life. As such, they may be bypassed when
opportunities arise in their respective fields for promotion; and
3. The job of the project manager becomes very difficult because he has to
deal with specialists from a number of diverse fields.

3.12 MATRIX ORGANISATION

The matrix organisation combines two forms of departmentalisation— functional
and product. It is built around a project which is headed by a Project Manager.
The Project Manager is also known as Product Manager as he is responsible
for the output (product) of the project.

The project teams comprise of employees (specialists) drawn from different

functional departments such as the Human Resources, Finance, Production,
Marketing, and Research & Development Departments of the Company. Thus,
the employees of the matrix have two bosses: their Functional Departmental
Managers (for example, the HR specialists of the project team have to report
to the Manager, Human Resources Department) and their Project Manager. In
other words, the matrix structure breaks the principle of unity-of-command which
states that no person in the organisation should report to more than one boss.

Figure 9 illustrates the Matrix Structure of an Engineering firm, which is

composed of two projects, each having its specific objective and specific time
for completion.

The matrix organisation is different from the functional organisation. In the

functional organisation, the project manager is given complete responsibility for
the project as well as the resources needed for its completion. But in the
matrix organisation, the Project Manager has to share the resources with the
rest of the enterprise.

The matrix structure is used in advertising agencies, aerospace firms, R & D

laboratories, construction companies, hospitals, government agencies, universities,
14 management consulting firms, and entertainment companies.
 Figure 9: Matrix Structure of an Engineering Firm Typology of Organisation
Structures

Managing
r* &&&' "&'
Director

General
l )&'
r * &'
Manager

r +%'
Manager
r +&'
Manager r * &'
Manager r+&'
Manager r * &'
Manager
n )&
Human
( #'' &
Production e' "'
Finance g*&#&
Marketing R‫&ﯼ‬
D)!D
s)&&&
Resource

 I ( #'!I
Project ( #'' &
Production HR( e' "'
Finance g*&#&
Marketing R‫& ﯼ‬
D)! D
r * &'
Manager s''&&!
Specialists s('&&!
Specialists s(&&&"
Specialists s''&&!
Specialists s('&&!
Specialists

 ( #'!&
Project II ( #'' &
Production HR( e' "'
Finance g*&#&
Marketing R‫& ﯼ‬
D)! D
r * &'
Manager s''&&!
Specialists s('&&!
Specialists s(&&&"
Specialists s''&&!
Specialists s('&&!
Specialists

Some of the advantages of the matrix structure are:

1. It facilitates coordination when the organisation has multiple complex and
interdependent activities;
2. It ensures the effective utilisation of the services of the people with highly
specialised skills; and
3. The direct and frequent contact between the different functional specialists
in the matrix ensures better communication and more flexibility.
The major disadvantages of the matrix structure are:
1. This structure breaks the unity-of-command concept. Reporting to one boss
introduces role conflict and role ambiguity;
2. It fosters power struggle between product (project) managers and functional
managers who share the same set of resources; and
3. A matrix organisation incurs higher costs than an organisation with a
conventional hierarchy.

3.13 VIRTUAL ORGANISATION (NETWORK

STRUCTURE)
A virtual organisation is a small, core organisation that outsources major
business functions. It is highly centralised, with little or no departmentalisation.

The virtual organisation creates network relationships with other organisations /

agencies located anywhere in the world for the purpose of contracting out
functions like manufacturing, distribution, marketing, R & D, etc. (Figure 10).
The networking is done through the electronic technology. As such, the
partnerships between the virtual organisation and other organisations (far-flung
companies) are based on electronic contracts. The partners are less permanent,
less formal, and more opportunistic. Each partner contributes to the virtual
organisation its core capabilities. The managers of the virtual organisations
spend most of their time in coordinating the various activities through the
networking. Examples of virtual organisations include Ford, Harley Davidson,
Nike, Rebok, Mobil Corp., IBM etc.
15
Organisational Design Figure 10: Virtual Organisation Structure

R&D g+&' &#&

Manufacturing
‫چ ﯼ‬ ) ! ) !)!) '
Consulting Firm  ( ' +'
Company #&%&
&" ‫& ! "" ﱞ‬% &
(located in New , &" 'in&
(Located
 ( &)! ( &"
York, USA) Bangkok,)'Thailand)
&&

‫‫‬ )&&##&!
Central (Core)
* #'&' !
Organization
n" &&%&
(Located
, ' %&in
Sydney,
' &%
""
Australia)

g*&' '" &

Manufacturing Distributing
y( ' + ( " &"# "
Company Company
‫‮‬ ,#&&%%" &&  ( ' +' #&%&
(Located "&%
in Pune, (Located in
!&! ' &%%&
India) Tokyo, Japan)

The major advantages of a virtual organisation are:

1. Through virtual organisation it is possible to create “best-of-everything”
organisation because each partner brings its “core competence.”
2. A virtual organisation allows someone with an innovative idea and little
money to successfully compete against large companies. This is possible
because of flexible nature.

The major disadvantages of the virtual structure are:

1. It reduces management’s control over the key parts of its business; and
2. The reliability of the partners may be doubtful.

3.14 BOUNDARYLESS ORGANISATION

General Electric Chairman, Jack Welch, coined the term boundaryless
organisation. The boundaryless organisation seeks to remove the vertical and
horizontal boundaries within the organisation and to break down external
barriers between the company and its customers and suppliers. Once the
management removes the vertical boundaries, the structure of the organisation
looks more like a silo than a pyramid.

To break down the vertical boundaries, the management adopts the following
strategies:
i. Creating cross-hierarchical teams (which includes top executives, middle
managers, supervisors, and operative employees);
ii. Encouraging participative decision making; and
iii. Making use of 360 degree performance appraisal (peers and others above
and below the employee evaluate his / her performance).

To reduce the barriers to the horizontal boundaries, the management adopts

the following strategies:
i. Replacing the functional departments with cross-functional teams and
organising activities around processes;
ii. Using lateral transfers; and
16 iii. Rotating people into and out of different functional areas.
The external boundaries can be reduced through practices like strategic Typology of Organisation
Structures
alliances, customer- organisation linkages and telecommuting (mainly with the
networked computers).

The major advantages of the boundryless organisation are:

1. It fosters teamwork among the employees;
2. It ensures speedy communication within the organisation (intra-organisational
communication) and between the organisation and the customers and
suppliers (inter-organisational communication); and
3. It can help competitiveness in the global economy.

A principal drawback of this form of organisation is that it is difficult to clearly

establish the relationship between superiors and subordinates in the organisation.

3.15 INVERTED PYRAMID

Organisations with this type of structure put the customers at the top and give
them the most important role in driving the business. The front-line employees
like sales representatives, people in charge of help-desk, etc. who come in
direct contact with the customers, are also given a similar position. The Chief
Executive Officer of the organisation is at the bottom of the structure
(Figure 11). Thus, in this form of organisation, the role of the management
changes from a commanding one to a supporting one.
Figure 11 : Inverted Pyramid Organisation Structure

Customers
s ) &&#

' #' ' "" " ! ' &

Front-line employees

' ' ' 'Staff

Supporting ' #""

O(
CEO

Some of the advantages of the inverted pyramid are:

1. This structure gives first preference to the customers. Therefore, it becomes
easy for the organisation to know the customers’ choices, and to work out
appropriate strategies to ensure customers’ satisfaction; and
2. In this form of organisation, the employees are given more responsibility and
authority than the top management.

A major disadvantage of the inverted pyramid relates to formulation of

strategies. The frontline foremen are not quite equipped to formulate strategies
regarding the organisation. This leaves sufficient ground within the organisation
to doubt about their capabilities to make appropriate strategies.

17
Organisational Design
3.16 TASK FORCES
A task force is a temporary structure comprising of specialists from different
functional departments, formed primarily to accomplish a specific and complex
task. It co-exists with the traditional structure. As such, it can be viewed as a
scaled-down version of the temporary matrix. The members of a task force are
transferred to another task force, once the goal of their task force is achieved.

Ford Motor successfully experimented with the task force structure in the U.S.
in the early 1980s.

One of the advantages of the task force is that an organisation can enjoy the
benefits of both the traditional structure and the task force simultaneously. The
benefits are: stability, flexibility, and efficiency.

The major disadvantage is that, if the management fails in its job of

coordinating the activities of the task force and maintaining harmonious
interpersonal relationship within the task force, the very purpose of creating the
task force gets defeated.

3.17 MECHANISTIC AND ORGANIC STRUCTURES

In a landmark study conducted in 20 British firms during the 1960s, Tom Burns
and G.M.Stalker identified two types of organisations— mechanistic and
organic. They observed that the mechanistic organisation was characterised
by: rules, procedures, a clear hierarchy of authority, centralised decision making,
and the control of incoming and outgoing communications from the top and a
tendency for information to be provided on a need to know basis. By contrast,
the organic organisation was characterised by: low formalisation, rules and
regulations were not written or if written down were ignored, and open and
widely used communication patterns which incorporate horizontal, diagonal as
well as vertical channels.

Burns and Stalker’s research work stressed the belief that the organisation
could change its structure in relation to its environment. Thus, in a rapidly
changing environment, an organisation tends to change to organic form from the
mechanistic form in order to remain competitive. The mechanistic form of
organisation structure is adopted when there is relative stability in the
environment.

According to Stephen P. Robbins, these forms of organisation structures

represent two extremes of a continuum. While the mechanistic model is
generally synonymous with the bureaucracy, the organic model looks more like
the boundaryless organisation. The relation of one form to the other is elastic.
As such, an organisation may oscillate from one end (mechanistic) to the other
(organic) depending upon the nature of the environment and other factors like
the overall strategy of the organisation, organisation size, and technology.
Activity C
Briefly describe the structure of your organisation. Find out which type of
organisation structure it comes closer to.
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................
18 ..........................................................................................................................
 Typology of Organisation
3.18 SUMMARY Structures

We have briefly described the various types of organisation structures that have
evolved over a period of time in response to the paradigm environment. The
continuum of structures ranges from the traditional bureaucratic structure to the
modern virtual organisation. Each type of structure has its advantages and
disadvantages. As the traditional structures no longer proved to be adequate in
the new paradigm environment, the modern horizontal, bounaryless, virtual
organisations have emerged. Organisations’ needs for flexibility, adaptability to
change, creativity, innovation, knowledge, and ability to overcome environmental
uncertainties are among the biggest challenges facing the modern organisations.
Some bureaucratic characteristics are in decline. But, bureaucracy is alive, and
perhaps will be in vogue in the distant future.

3.19 SELF-ASSESSMENT QUESTIONS

1. Distinguish between the functional organisation and the product organisation.
2. What is a matrix structure? When is it used?
3. Briefly describe the horizontal, boundaryless and virtual organisation designs.
Explain how they meet the challenges of the new environment.
4. Contrast the mechanistic organisation with the organic organisation.

3.20 FURTHER READINGS

Tom Burns and G.M. Stalker, 1961. The Management of Innovation, London:
Tavistock.

K Harigopal, 2001, Management of Organisational Change: Leveraging

Transformation, New Delhi: Response Books.

Fremont E Kast. and James E. Rosenzweig , 1974. Organisation and

Management, Tokyo: McGraw Hill Kogakusha Ltd.

Fred Luthans, 2002. Organisational Behavior, Boston: McGraw Hill Irwin.

V. Nilakant and S. Ramnarayan, 1988. Managing Organisational Change,

New Delhi: Response Books.

Robert A. Paton and James McCalman, 2000. Change Management, New

Delhi: Response Books.

V.S.P. Rao and P. S. Narayana, 1986. Organisational Theory and Behaviour,

New Delhi: Vani Educational Books.

Stephen P. Robbins, 2001. Organisational Behavior, New Delhi, Prentice Hall

of India Private Limited, (9th Edition).

B.P. Singh and T. N. Chhabra, 2002. Organisational Theory and Behaviour,

Delhi: Dhanpat Rai & Co. (P) Ltd.

19
Organisational Design
UNIT 4 SOME BASIC ORGANISATION
DESIGN AND RESTRUCTURING
STRATEGIES
Objectives
After reading this unit, you should be able to understand:
the meanings of organisation design and restructuring,
the evolutionary process of organisation design,
the universal perspectives of and the new perspective on organisation design,
organisational restructuring strategies.

Structure
4.1 Introduction
4.2 The Design Process
4.3 Evolutionary Process of Organisation Design
4.4 Universal Perspectives of Organisation Design
4.5 From “Strategy- Structure” to “Process”: The New Perspective on
Organisation Design
4.6 Restructuring Strategies
4.7 Summary
4.8 Self-Assessment Questions
4.9 Further Readings

4.1 INTRODUCTION
Every organisation has certain basic parts that are made up of people who
perform, supervise, and plan besides those who render support services and
technical advice. As such, studying the structure or design of an organisation
means analysing how these parts are put together, who reports to whom, the
degree of centralisation or decision making power concentrated at the top, the
extent of rules, policies, regulations, and procedures in the organisation. The
building of the initial structure of an organisation may be based on the
conditions prevailing in the society and the industry characteristics prevailing
at the time and the personality of the founder (entrepreneur). As the
organisations grow in their size from small to large over a period of time, their
priorities do change and it becomes necessary for the organisations to make
changes in the organisation design in order to ensure that the organisations
function efficiently.

Modern organisations are open systems. They are in constant interaction with
the external environment. As such, any change that takes place in the
environment — social, political, technical, economic, legal — have implications
for the organisations. In order to remain competitive, organisations respond to
the pressures exerted by the environmental factors. The nature of their
response depends upon the degree of the pressure. Normally, organisations
respond by formulating new business strategies when the degree of pressure is
high. Changes in strategies often necessitate changes in organisation design.
Thus, restructuring of organisation design becomes inevitable when the
environment for the organisation becomes turbulent and unstable.
20
Burton and Thakur (1995) define organisation design as the total pattern of Some Basic Organisation
Design and Restructuring
structural elements and patterns used to manage the overall organisation. Strategies
Organisation design should be seen as a tool for implementation of
organisational strategies and the attainment of organisational goals.

According to Banner and Gagné (1995), studying the structure of an

organisation means analysing the following:
how an organisation is put together;
who reports to whom;
the degree of centralisation or decision making power concentrated at the
top; and
the extent of the rules, policies, regulations, and procedures in an
organisation.

4.2 THE DESIGN PROCESS

Any organisation’s design process involves both science and art. The design
does not evolve purely by principles alone. The circumstances of the
organisation and the whims and fancies of the entrepreneur (chief executive)
also influence the design of an organisation. Within the organisation, often there
is a trade-off between conflicting considerations and goals. Herbert Simon
suggests that as an alternative to the principles of design we must attempt to
understand the decision making and communication processes which produce
the effect.

Allen suggests a seven-step sequence that could be followed to set the design
process into action. Those are:
1. Identify the major objectives of the firm and derive primary line functions
needed to accomplish the objectives.
2. Organise from the top down by establishing a scalar change of authority and
responsibility.
3. Organise from the bottom up by integrating the activities of each function.
4. Decide what management positions are needed for each activity.
5. Identify positions in group related work.
6. Seek groupings to ensure balance in the distribution of resources.
7. Check whether the spans of control are appropriate.

4.3 EVOLUTIONARY PROCESS OF ORGANISATION

DESIGN
Organisations develop from small to large units by moving through four stages
of a life cycle: birth stage, youth stage, middle stage, and maturity stage. This
process of development is accompanied by corresponding changes in the
organisation design (Burton and Thakur, 1995).

Birth Stage: This is the stage when the organisation is created. At this initial
stage, the organisation’s decision making is highly centralised. The organisation
is informal. There are usually few rules and regulations, no professional staff
and no internal system for planning.

Youth Stage: During this stage, additional employees are employed as the sales
for the company’s products and services increase.
21
Organisational Design Although authority is fairly centralised, a few trusted employees are involved in
decision making process. Some informal rules and procedures are involved.
There are now a few professionals and administrative personnel in the
organisation. The division of labour begins to occur as the newly formed
departments are assigned tasks.

Middle stage: By the time the organisation reaches this stage, it has become
somewhat successful and grown in size. Its structure is similar to that of a
formal bureaucracy with formalised departments, supporting staff departments
and many professional and clerical staffs. A large set of rules and procedures
have been introduced. Authority has been effectively decentralised. The division
of labour has become extensive.

Maturity Stage: During this stage the organisation becomes very large and
mechanistic. A set of bureaucratic rules, regulations and policies prevail.
Decision making is centralised. The division of labour is highly refined. As a
result of the rigid virtual hierarchy, the organisation is on the brink of
stagnation. At this stage, the organisation attempts to become innovative and
flexible. As such, it decentralises authority within the lateral structures such as
liaison personnel, task forces, and project teams.

Thus, it is clear that an organisation’s structural characteristics undergo

different stages of organisation’s life cycle.

4.4 UNIVERSAL PERSPECTIVES OF

ORGANISATION DESIGN
The mechanism of organisation design is still not mature to offer theoretical
principles and proven practices which would encompass a variety of
organisations (Lomash and Mishra, 2003). However, there are universal
perspectives of an organisation design: 1) the bureaucratic model; 2) the
behavioural model; and 3) the contingency perspective.

4.4.1 The Bureaucratic Model

Max Weber, a German sociologist, conceptualised the idea of bureaucracy.
Central to his work is the development of the concept of the bureaucratic
organisation design. According to Weber a bureaucracy is defined as
organisation founded on a legitimate and formal system of authority.

The Weberian approach held that an ideal organisation should have the
following characteristics:
1. A division of labour based on functional specialisation.
2. A well-defined hierarchy of authority so that the scalar chain of command
runs from the top of the organisation to the bottom.
3. A system of rules covering the rights and duties of employees.
4. A system of procedures for dealing with work situations.
5. Promotion and selection based on technical competence.
6. Impersonality of interpersonal relations. All managers should conduct
business in an impersonal manner, maintaining an appropriate social distance
form their subordinates.

One of the basic strengths of this model is that this was the first model of
organisation design developed, and it still serves as the basic foundation for the
understanding and application of newer organisation design approaches.
However, this model has many drawbacks. The major drawbacks are :
22
(1) This model tends to get bogged down with the rules and regulations, and in Some Basic Organisation
Design and Restructuring
this process loses sight of the actual objectives of the organisation; and (2) it Strategies
is not well-suited for a changing and uncertain external environment.
Bureaucratic structures can become so rigid and formalised that organisations
simply cannot change fast enough to cope with external change.

4.4.2 The Behavioural Model

This model has evolved from the Human Relations School of management
thought. In the classical bureaucratic model, an individual is not identified and
the effect of an entire group is considered in the total process of management.
On the contrary, in the behavioural model the performance of an organisation
is believed to depend on human beings, their behaviour, characteristics and their
mutual relationships emerging from work patterns and organisational settings.
The important factors which play significant roles are needs, motivations,
attitudes, values, leadership, group behaviour, perceptions, communications,
responsibility and authority relationship, etc. (Lomash and Mishra, 2003). In
other words, the behavioural models of organisation design reflect the social and
psychological implications of organisational life. The most popular behavioural
models of organisation design— the socio-technical systems theory and Likert’s
System 4 Organisation — are briefly explained here.

Socio-technical Systems Theory

The socio-technical systems theory was developed by Eric Trist and K.W.
Bamforth through their study of alternative methods of coalmining ; and A.
K.Rice and his colleagues through their research at England’s Tavistock
Institute. The socio-technical approach is based on the need to balance an
organisation’s human side with its technical and mechanical side. As such, this
theory focuses on two systems: (1) a social system that provides the
framework for all the human interactions that sustain both formal and informal
organisations; and (2) a technical system that provides the framework of the
tasks that produce the organisation’s goods and services. For example, the
technical systems involved in the production of aluminium include the equipment
/ machinery and operations such as crushing and grinding the ore (Bauxite),
desanding and desilication , settling, washing and filtration, precipitation and
classification, and conversion of alumina into aluminium metal. On the other
hand, the social system that operates the equipment and performs the
operations includes individuals and groups whose interests, ideas, creativity ,
motivation, and needs must be maintained. Thus, the socio-technical model
contends that management must give equal importance to the technical system
and the social system of the organisation in order to ensure the efficient and
effective functioning of the organisation.

Likert’s System 4 Organisation

Rensis Likert was a social scientist at Michigan’s Institute for Social Research.
Likert discovered critical relationship between organisational design and
organisational effectiveness. His research focused on eight characteristics of
organisations: the leadership process, the motivation process, the communication
process, the interaction process, the decision process, the goal-setting process,
the control process, and performance goals.

He observed that organisations tend to incorporate these characteristics through

four different approaches, which he called Systems 1, 2, 3, and 4. Of these
four, Systems 1 and 4 have made significant contributions to organisational
design theory.

Likert’s System 1 represents bureaucratic form of organisation design

(information flows only downwards and distorted centralised decision process, 23
Organisational Design goal-setting process located at the top of the organisation, centralised control
process, group-participation discouraged) and his System 4 represents a
behavioural form of organisation (information flows freely throughout the
organisation and undistorted, decentralised decision process, goal-setting process
encourages group participation in setting high realistic objectives, control
process dispensed throughout the organisation and emphasises self control and
problem-solving).

On the basis of his studies, Likert concluded that organisations should adopt
System 4 approach to organisation design.

The most significant strength of Likert’s System 4 is that unlike the

bureaucratic model which treated workers as if they were impersonal, System
4 behavioural model recognises the unique value of each and every member of
the organisation. A major weakness of System 4 approach is that it was based
on the premise that there is only “one best way” to design organisations. It is
well established that what works for one organisation may not work for another
(Burton and Thakur, 1995). There is a strong evidence that the best way to
design a given organisation depends on a number of contingency factors.

4.4.3 The Contingency Perspective

The contingency perspective on organisation design is founded on the premise
that the best design for any organisation is dependent on a number of
situational factors. The most critical situational / contingency factors are :
1. External environment
2. Technology; and
3. Organisation size

Organisations can be open systems or closed systems. A system is a set of

interdependent parts forming an organic whole. The open systems have
permeable boundaries and they constantly interact with their external
environment. As such, they can act on the environment and are affected by
the activities in that environment. The closed systems have no such
transactions with the external environment. They are self-contained and operate
independently of their external environment. For the purpose of our discussion,
we assume that modern organisations are open systems that interact with their
environments.

As the objectives of an organisation are derived from the overall strategy of

the organisation, it is natural that an organisation’s design is closely linked to its
strategy. As such, if a management makes a significant change in its strategy,
the organisation’s design needs to be modified to accommodate and support that
change. There is considerable empirical evidence to indicate that choice of an
organisation’s strategy is determined by the contingency factors as illustrated in
Figure 1.

Figure 1: Contingent Determinants of Organisation Design

(&" &
External
t ' ' &" #
Environment

) $'%' "&
Organisation’s * #' &&"
Organisation
' %
&' '
Technology
‫‫‬
Overall )Strategy
&&#&" ! " )%&
Design

e)$ ' %
Organisation ' "&&
Size
24
Strategy Some Basic Organisation
Design and Restructuring
Strategies
An organisation’s strategy describes the organisation’s goals and the ways the
organisation expects to reach those goals. An organisation’s strategy may need
to change as changes occur in its external environment.

There is strong support from empirical research for the fact that “structure
follows strategy”. The strategic planning process of an organisation plays a
mediating role between the external environment, the organisation’s design, and
the technical process i.e. the system the organisation uses to produce its
products or services. For example, the strategic planning process can react to
the uncertainties in a product’s market (external environment) by increasing
innovation relating to its product. For carrying out this product innovation
successfully, the organisation’s design and / or technical process will have to be
changed.

External Environment
Any organisation is surrounded by the ‘general environment’ and the ‘task
environment’. The general environment consists of economic, technical, socio-
cultural, political, legal, and international dimensions which have an impact on
the organisation and its task environment. The task environment comprises of
customers, competitors, suppliers, and government agencies.

Burns and Stalker (1961) discovered, through their research in England, the
linkages between organisation design and the environment. They identified two
contrasting forms of environment: (1) a stable environment that remains fairly
constant over the time; and (2) an unstable environment which is subject to
change and uncertainty. Through their study of different organisations operating
in these two environments, they found that the organisations in stable
environments tended to have a different kind of structure than those operating
in unstable environments. Burns and Stalker called these organisations (having
two different forms of structures) mechanistic and organic organisations.

A mechanistic organisation is in many respects similar to Max Weber’s

bureaucratic organisation or Likert’s System 1 organisation. Generally found in
stable environments, the mechanistic organisation is characterised by rules,
regulations, standardised procedures and centralised decision making.

An organic organisation resembles the behavioural model and Likert’s System

4 organisation. It is generally found in unstable environments. Due to the
frequent changes in the environment, organic organisations adopt flexibility,
non-routine methods, few rules and regulations (which are not often written
down), decentralised authority and create autonomous work teams.

Figure 2 illustrates the different characteristics of organic and mechanistic

organisations.

The work of Burns and Stalker was expanded by two Harvard Business School
researchers, Paul Laurence and J. Lorsch . Their research indicated that as
environments become more uncertain, organisations need special coordination
mechanisms such as liaison managers, task forces, and teams.

Technology
Technology refers to the process by which an organisation converts the inputs
(people, materials, equipment, money, plant, and facility etc.). The process may
be mechanical as in manufacturing organisations, or it can be a service to
clients as in banks, hospitals or insurance companies. The process can also be
largely mental as in organisations that solve the problems or create new ideas,
25
Organisational Design Figure 2: A Continuum Of Organisational Designs Strategies: Mechanistic and
Organic Organisations
c *&&'&
Mechanistic c) $&
Organic
* #' &' !
Organisation ' #' &' !
organisation
 $ #"# !or
Hierarchy
d)&&##
Centralised y%$ $
Authority
d( &&&' "
Decentralised

 &%$ &
Rules
+&
Many $! $##
Procedures w&
Few

f% # #of
Division
e(#&
Precise $ ##
Labour
s) +' !
Ambiguous

 $##$
Spans of
)&#
Narrow l %$#
Control ,"
Wide

' '&
Formal #+ " ' "'#
Informal &
%#$!#
Coordination
! , &&$
Impersonal ( &#&
Personal

Source: John Sechremerhorm, 1989. Management for Productivity, New York: John Wiley
& Sons, p. 204

products and services. R & D organisations, advertising agencies and software

development firms are examples of the latter.

The research examining relationship between technology and organisation design

has aroused considerable controversy. While some studies such as those by
Joan Woodward, James Thompson, Charles Perrow and Howard Aldrich
support technology as a contingency factor of organisation design, other studies
do not. For example, the Aston Groups’ study conducted in Birmingham,
England concluded that organisation size was more important than technology
as a determinant of structure.

On the basis of the findings of the studies that supported technology - design
linkage, the following conclusions have been drawn:
1. Unit and process technologies work better with smaller spans of control and
organic structure, whereas mass production technology flourishes with wider
spans of control and bureaucratic structure.1
2. Routine technologies feature bureaucratic structure — centralised decision
making that uses formal written rules and procedures to guide decisions.
However, organisations that use routine technologies and have many
professionals use fewer formal procedures than organisations with fewer
professionals.
3. Organisations that use complex non-routine technologies have more
departments, fewer levels of authority, and more participation in decision
making than that use more routine technologies. For such organisations, an
organic structure is appropriate.
4. New Information Technology allows for reciprocal interdependency among
the parts of an organisation, which in turn, flourishes in an organic structure
rather than a bureaucratic one.
1
Unit or small batch production technology produces goods in small batches of one or a
few products that are designed to customer specification. Examples include locomotives,
submarines, space satellites, and custom clothing.

Mass or large-batch production technology produces large volumes of products through
standardized production runs. Examples include automobile assembly lines and the large
batch processes that produce appliances.

Process production technology provides a completely mechanized workflow, and is the
most sophisticated and complex from of production technology. The machinery does all the
work, while employees read gauges, monitor cathode ray tubes (CRTs), maintain and repair
machines, and manage the production process: Examples include petroleum refineries,
26 chemical plants and nuclear power plants.
Size Some Basic Organisation
Design and Restructuring
Strategies
Research tells us that large organisations have different structural features than
small organisations. Typically, small organisations have little specialisation, few
formal written rules and procedures, and narrow spans of control, informal
decision process and a simple design. By contrast, large organisations tend to
have elaborate specialisation, many formal written rules and procedures, more
formalised relationships, and use a decentralised form.

Mintzberg’s Typology
Henry Mintzberg’s typology for integration of organisation structure to
contingency factors provides a clear understanding of the linkage between an
organisation’s business strategy and organisation design.

Mintzberg believed that every organisation has five basic parts as shown in
Figure 3. The top management is created at the very top of each
organisation. This part is also known as ‘strategic apex’. The middle
management is found at the intermediate level. In the bottom is the technical
core, which is otherwise called as ‘operating core’. These three parts are
shown in a sequence indicating a single line of hierarchical authority. In other
words, the line function is the chain of command that runs from top
management to the technical core.

Figure 3: The Five Basic Parts of Organisation

p$
Top
&# ###
Management
$ !#
(Strategic
%#Apex)

‫ ‫‬/$#"## /
Technical Administrative
Middle
&# %
#%# #
$!# " #
Professional Supportive
Management
&# ### $###Staff
#!
f$
Staff

l ####
Technical%#Core
(Operating %##!
Core)
)%#

Source: Henry Mintzberg, 1979. The Structuring of Organisations, Englewood Cliffs,

New Jesey: Prentice Hall.

The technical and professional staff personnel are shown to the left of the
middle line. These personnel are the engineers, researchers and systems
analysts, who assist in the creation of the many plans and controls that are
applied to the technical core. The administrative staff shown to the right of
the middle line performs such indirect services as maintenance, accounting, and
clerical. According to Mintzberg, the relative size of each of these parts in
determined by the organisation’s contingency factors.

Mintzberg further proposed that each of these five organisational parts combine
together in five basic forms : (1) simple structure, (2) machine bureaucracy ,
(3) professional bureaucracy (4) divisionalised form, and (5) adhocracy . Table
1 gives details of the main features of these five forms.

Simple Structure
This form of structure typifies the firm when it is small and entrepreneurial.
The structure consists of a top manager and only a few workers (assistants)
performing overlapping activities. While they may be a very small administrative 27
Organisational Design staff, the technical / professional staff are virtually absent. Its other features
are centralised decision making, informal coordination, and minimal division of
labour. Organisations employing service technology or small batch processing
technology adapt this form of structure. This structure adapts well to the
environment. Its goals are stress survival and innovation.

Table 1 Characteristics of Mintzberg’s Five Organisational Types

Simple Machine Professional Divisionalised Adhocracy

structure structure bureaucracy form

Structure
Approach Functional Functional Functional, Division, Matrix
sometimes hybrid
hybrid
Formalisation Low High Low to High within Low
moderate divisions
Centralisation High High Low to Decentralised Low
moderate to divisions
Lateral Few Few Many Some across Many, built
relationships divisions, many into structure
within divisions

Configuration
Technical / None Many Few Many Many-part of
Professional headquarters matrix
support staff departments
Administrative Few Many Many Many within Many
support staff divisions

Contingency
Environment Simple, Stable, certain Stable, Complex, Unstable,
changing complex changing uncertain
Technology Routine Routine Service Divisible, Non-routine,
product or product or varies across sophisticated
service service divisions
Size, life Very small, Large, mature Any size, age Large, mature Moderate,
cycle midlife
Strategic Innovation, Efficiency Innovation, Adaptability, Innovation,
objectives survival quality efficiency adaptation

(Source: Mintzberg, 1979)

Machine Bureaucracy
The machine bureaucracy is usually found in a large company organised
along functional lines with little lateral coordination. Its other features are:
bureaucratic principles with heavy specialisation, many rules and regulations ,
centralised authority, large technical/professional and administrative staff and
formalised processes. Organisations adopting routine services or mass
production technology use this form of structure. The environment of the
organisations using this form of structure is generally stable. The goal of the
organisation is to improve internal efficiency.

Professional Bureaucracy
This form of structure is usually found in big functionally designed organisations
employing professional people. These organisations adopt non-routine service
technology (in which new problems arise everyday and task variety is very high
and in which employees rely on experience, education, training and trial and
error search for alternative procedures as there are no readymade procedures
for the problems that are encountered). Hospitals and universities are the best
examples. Although highly formalised, these organisations decentralise the
decision making authority to those professionals who are actually engaged in
the non-routine services. Organisations having this structure operate in complex
and relatively stable environments. Their goals are innovation and quality. As
28
the core tasks are performed by the professional staff, the technical staff is Some Basic Organisation
Design and Restructuring
small. But there is generally a large administrative staff. Strategies

Divisionalised Form
Typically, a divisionalised form of organisation is a large organisation having
different subunits (divisions ) within it, such as product or market subunits.
These units have few lateral coordinating devices. They are also provided
liaison service by the corporate level personnel. Decision making is
decentralised. Each division is fairly autonomous. The units/divisions may have
varying non-routine manufacturing technologies. The organisation’s external
environment tends to be stable. The technical staff is concentrated at corporate
headquarters and it provides services for all subunits/divisions. The
administrative support is available within each division.

Adhocracy
This form of organisation is much like a matrix organisation . It evolves in
complex environments. The technology used by the organisation is sophisticated.
The structure of the organisation tends to be informal. There is dual chain of
command for the purpose of coordination of different activities. Another feature
is that the administrative staff is large, but the technical support staff is small
as most of the technical work is performed by the experts located in the
technical core.
Activity A
Fill the basic parts in Figure 3 with the typical job titles of an organisation with
which you are familiar. State the functions/ activities performed by the people
in various positions in each part.

Activity B

(i) Identify the strategy being adopted by an organisation with which you are
familiar; and examine whether corresponding structural changes are being
made in the organisation design.
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
(ii) Make a brief analysis of the contingent factors that have influenced the
strategy of the said organisation.
......................................................................................................................
......................................................................................................................
......................................................................................................................
...................................................................................................................... 29
Organisational Design
4.5 FROM “STRATEGY-STRUCTURE” TO
“PROCESS”: THE NEW PERSPECTIVE ON
ORGANISATION DESIGN
Bartlett and Ghoshal (1992) consider the studies on strategy-structure
relationship by Chandler (1962), Stopford and Wells (1972), Daniels, Pitts and
Tretter (1984) and Egelhoff (1988) as the first generation approaches to
organisation design because the complexity and dynamic nature of
environmental demands has made the structural fit (strategy-structure linkage)
less relevant and harder to achieve. Coupled with this, there has been a
growing realisation that just focusing on organisational structure may not be
enough to implement complex strategic concerns successfully. Therefore, a
second generation of models of organisation design have been developed which
focus on the management process that will make strategic decision work.

The second generation models are based on the premise that all structured
forms are not equally effective in implementing a given strategy, and therefore,
the role of the management is to create an internally consistent and balanced
design.

Design Parameters for Second Generation Organisation Design

Models
In order to create an organisation design that is internally consistent and
balanced, the following design parameters can be used (Jaap Paauwe and
Philip Dewe, 1995):
Structural and formal coordinative mechanisms;
Systems and tools (administrative mechanism);
Cultural transformation (socialisation , normative integration).

Structural and Formal Coordination Mechanisms

These include: centralisation, formalisation, and specialisation

Centralisation (or decentralisation) refers to whether the power of decision

making lies at the upper or lower levels of the chain of command.

Formalisation: (also called standardisation ) indicates the extent to which the

policies, rules, job descriptions etc. are written down, and the procedures are
established through standard routines.

The degree of specialisation refers to the number of specific tasks that are
carried out through separate and distinct functions.

Systems and Tools (Administrative Mechanisms)

The coordination mechanisms mentioned above will need to be supported and
supplemented by various systems and tools (also called as administrative
mechanisms). Some of the administrative mechanisms are: data management
mechanisms, manager’s management mechanisms, and conflict resolution
mechanisms (Y. Doz and C. K. Prahalad, 1981)

Data Management mechanisms include information systems, measurement

systems, resource allocation procedures, strategic planning, budgeting processes.
Manager’s management systems refer to the choice of key managers, career
paths, rewards and punishment systems, compensation schemes, management
development and pattern of socialisation.

Conflict resolution mechanism include coordination committees , task forces,

30 issue resolution processes.
Cultural Transformation (Socialisation/Normative Integration) Some Basic Organisation
Design and Restructuring
Strategies
In order to deal with all the diversity and complexity involved in managing an
organisation effectively, the socialisation of managers in key positions is crucial.
In other words, the managers have to internalise certain values so as to be in a
position to make strategic choices and operational decisions that are in line with
the mission and goals of the company and with the relevant values of the
company.
The socialisation can be facilitated through:
job rotation, regular transfer of people, management development;
building up an informal network through management development
programmes;
international conferences and forums to facilitate international and inter-unit
transfer of knowledge and learning;
task forces;
encouraging informal communication channels.

4.6 RESTRUCTURING STRATEGIES

An analysis of the empirical studies on the relationship between organisation
development strategies and structures indicates that there is a certain pattern in
the relationship between the two.

Table 2 gives a summary of relationship between strategies of organisational

development and structure.

Table 2: Summary of Relationships between Strategies of

Organisation Development and Structure

Strategies of organisational development Structural changes that are often

assumed to be outcomes
Organisational growth Increased vertical differentiation—
Growth in size per se lengthening hierarchies—Growing number
of jobs and departments—horizontal
differentiationRising formalization
Increased delegationPossible economies in
administration, offset by rising problems
of administering complexity

Growth via diversification Increased specialisation of skills and

functionsDivisionalisation of major
subunits Rising formalisation, especially of
planning and resource allocation-
procedures Increased delegation

Technological Development Growth of specialised professional staff

Increased specialisation of skills and
functions Other structural concomitants
dependend on the type of technology
employed

Acquiring a secure domain through Establishment of new roles, especially to

non-competitive means— especially manage relationships with other
joint programmes organisations Increased delegation More
active internal communications via lateral
relationships

31
Organisational Design
Improving managerial techniques with Depends on methods adopted, but usually
a view to enhancing flexibility associated with: Establishment of new
specialised roles to service vertical
information systems— for example,
computer-based systems— are to promote
lateral coordination More active internal
communication via lateral relationships
Increased delegation

Source: John Child and Alfred Keiser, 1981. “Development of organisations, over time”
in Paul C. Nystrom and William H. Starbuck (Eds.), Handbook of
Organisational Design (Vol. 1), London: Oxford University Press, p.39

The four strategies of organisational development outlined in Table 2 are by no

means mutually exclusive. Their choice and combination depend largely upon
circumstance. Growth, for example, is possible through increase in volume of
operations or through acquisitions. Both need different approaches. The degree
of diversification varies depending on the company’s share in the market,
technological synergy, government regulations, management capacity etc.

As organisations seek to become flexible, or to retain flexibility in the face of

growing complexity and as they employ larger number of professional and
trained personnel, the forms of effective and acceptable control and integration
within the organisations change. This means that the familiar model of
bureaucracy needs to be modified. The problem of elongation of organisational
hierarchies and the serious problems thereof need to be tackled through policies
aimed at increasing spans of control, and , thereby, delegation of responsibility.
Organisational control systems have to shift from an emphasis on the
specification and supervision of means— how people are to behave and carry
out their work — towards an emphasis on results.

4.7 SUMMARY
In this unit we have outlined the seven-step sequence suggested by Allen that
could be followed to set the organisation design process into action. We have
described the evolutionary process of organisation design and noted that
organisation’s structural characteristics undergo different stages of organisation’s
life cycle. We have discussed the universal perspectives of organisation
design— the bureaucratic model, the behavioural model, and the contingency
perspective — in order to understand the theoretical principles and different
variable of organisation design. We have examined why the “structure follows
strategy” approach to organisation design has been considered less relevant and
harder to achieve.

We have briefly discussed the new perspective on organisation design which

focuses on the management process that will make strategic decisions work.
We have noted that the restructuring strategies have to be appropriate to the
development strategies.

4.8 SELF-ASSESSMENT QUESTIONS

1. Briefly describe the evolutionary process of organisation design.
2. Outline the universal perspectives of organisation design.
3. Briefly explain the design parameters of second generation of models of
organisation design.

32
 Some Basic Organisation
4.9 FURTHER READINGS Design and Restructuring
Strategies
Louis Allen, 1958. Management and Organisations, New York: McGraw-Hill
Inc., pp. 72-77

David K. Banner and T. Elaine Gagné, 1995. Designing Effective

Organisations: Traditional and Transformational Views, Thousand Oaks,
California: Sage Publications.

C. A. Bartlett and S. Ghoshal, 1992. Transnational Management: Text, Cases

and Readings in Cross-Border Management, Irwin: Homewood , IL.

Tom Burns and G. M. Stalker, 1961. The Management of Innovation, London,

Tavistock.

Gene Burton and Manab Thakur, 1995. Management Today: Principles and
Practice, New Delhi: Tata McGraw-Hill Publishing Company Limited.

A. D. Chandler, 1962. Strategy and Structure: Chapters in the History of

Industrial Enterprise, Cambridge, MIT Press.

J. D. Daniels, R. A. Pitts and M. J. Tretter, 1984. “Strategy and Structure of

US Multinationals”, Academy of Management Journal, 27 (2), pp. 292-307.

Y. Doz and C. K. Prahalad, 1981. “Headquarter’s Influence and Strategic

Control in MNCs”, Sloan Management Review, 23, Fall, pp.15-29.

W. G. Egelhoff, 1988. “Strategy and Structure in Multinational Corporations: A

Revision of the Stopford and Wells Model”, Strategic Management Journal, 9,
pp.1-14.

K. Harigopal, 2001. Management of Organisational Change: Leveraging

Transformation, New Delhi: Response Books.

Pradip N. Khandwalla, 1991. Organisational Designs for Excellence, New

Delhi: Tata McGraw-Hill Publishing Company Limited.

Sukul Lomash and P. K. Mishra, 2003. Business Policy and Strategic

Management, New Delhi: Vikas Publishing House Pvt. Ltd.

Fred Luthans, 2002. Organizational Behavior, Boston: Tata McGraw-Hill Irwin.

Henry Mintzberg, 1979. The Structuring of Organisations, Englewood Cliffs,

New Jersey: Prentice Hall.

Paul C. Nystrom and William H. Starbuck (Eds.), 1981. Handbook of

Organisational Design (2 Volumes), London: Oxford University Press.

Jaap Paauwe and Philip Dewe, 1995. “Organisational Structure of Multinational

Corporations: Theories and Models” in Anne-Wil Harzing & Joris Van
Ruysseveldt (Eds.), London: Sage Publications Ltd., pp. 51-74.

Stephen P. Robbins, 2001. Organizational Behavior, New Delhi: Prentice Hall

of India Private Limited (9th Edition).

Anup K. Singh, Rajan K. Gupta and Abad Ahmad (Eds.), 2001. Designing
and Developing of Organisations for Tomorrow, New Delhi: Response
Books.

B. P. Singh and T. N. Chhabra, 2002. Organisation Theory and Behaviour,

Delhi: Dhanpat Rai & Co. (P) Ltd.

J. M. Stopford and L. T. Wells, 1972. Managing the Multinational

Enterprise, New York: Basic Books. 33