Organization Structure

Key Concepts

• Why do organizations exist?

• Different types of organization

• Boundary less organization

• Centralization and decentralization

• Organizations structures
Definition of Organization

It is a social arrangement which has a collective goals &

control over its Performance and has a boundary

separating it from its environment .e.g hospitals, education

institutes, manufacturing company, army etc

Why are organization formed
• Time saving. When a lot of people work together for a common objective
they can achieve their goals faster
• Division of labour. (there is a segregation of duties)People working
together can focus on what they do best. in that manner they can
concentrate on their tasks.
• Synergy effect. People working together can produce higher output then
the output if they work separately 2+2=5
• Knowledge sharing. Organisation will combine the knowledge of all people
working in it. People can learn from each other and improve their
knowledge .
• Satisfying social needs. People come together in an organization and share
ideas, opinion and feelings. They interact which is a basic social need.
How Organizations Differ
• Ownership and Control(govt or private)
• Legal Status(private limited and public limited)
• Activity(manufacturing or services)
• Profit or Not for Profit Organizations
• Size(small scale or large scale )
• Level of Technology
Practice 1
Which of the following are usually seen as the primary objectives of
companies?
(i)To maximize the wealth of shareholders
(ii)To protect the environment
(iii)To make a profit
a) (i), (ii) and (iii)
b) (i) and (ii) only
c) (ii) and (iii) only
d) (i) and (iii) only
Types of organization

• Commercial

• Not for profit

• Public Sector

• Non-governmental organizations

• Cooperatives
1. Commercial Sector
A commercial organization is any entity that has been created for the
purpose of generating profits.
2.Not for profit

• In direct contrast to commercial organizations, not-for-profit

organizations are started and run for the purpose of providing
benefits. These benefits may be provided on an individual level or to
society as a whole
3. Public Sector

• They also do not operate for a profit. They are set up and run by
governments for the purpose of providing goods or services to the
people of the society.
4. Non-governmental organizations

• Non-governmental organizations (NGOs) are any organizations a that

work towards a social, cultural, economic and educational cause.
4. Cooperatives

• These organizations and associations are jointly owned and controlled

by consumers who use their services. Since they are jointly owned, all
members have equal votes and enjoy a democratic control on the
organization. Examples include cooperative banks.schools, hospitals
etc
Note about cooperatives
• Aim of cooperatives is may and may not be profit making
• In cooperatives investors are not call as shareholders they are call as
members or workers of organization.
• All members have equal right to vote for decision making
Practice 2
Many schools run fund-raising events, such as fêtes, where the
intention is to make profit. This makes them ‘profit-seeking’. Is this
statement:
• True
• False
Practice 3
World Action Now’ is dedicated to engaging in activities for conserving nature and the environment.
It has in the past been able to engage prominent scientists and use famous publications to spread
awareness about how commercial activities have led to climate change. What type of organization is
World Action Now?
a) Cooperative
b) Non-government organization
c) Public sector organization
d) Commercial organization
Practice 4
Andy and Jane are studying types of organizations. According to Andy:
The word “limited” is used in the case of private limited companies
because their ownership is not open to the public and is restricted to a
lower number of owners than public limited companies. Jane
disagrees, according to her: ‘limited’ is used for private limited
companies because the liability of the owners of the organization is
limited to their investment in the company. Whose statement is
incorrect?
a) Jane
b) Andy
Sectors in which organizations operate
Industry Activity Example
Manufacturing Sector Transforming raw material with the help Nestle
of machines and manpower into Volkswagen Group
finished, usable products for sale. Samsung Electronics
Extractive Sector This sector extracts its products from Barrick Gold-Precious Metals
natural resources like earth, sea and air. Shenhua Energy-Coal
It extracts and refines raw material.
Construction Sector This sector engages in construction Grupo ACS-Spain
activities like bridges, sky scrapers and Balfour Beatty-UK
roads.
Retailing/Distribution Organizations in this sector buy finished Walmart
Sector products and sell them to public. Tesco
Service Sector Includes organizations that provide Netflix
services to consumers. Services could be American Express
of any nature including healthcare or
legal etc.
Practice 5
The industrial sector can be classified into primary sector, secondary
sector, tertiary sector . Primary industries are essentially:
a) Extractive industries (primary)
b) Engaged in provision of service (tertiary)
c) Manufacturing units(secondary)
d) Engaged in providing intellectual services(tertiary)
Boundary less Organization

• It is contemporary approach in organizational design. It is

an organization that is not defined by, or, limited to the

horizontal, vertical or external boundaries imposed by

predefined structure. (no limited physical boundary)

Boundary less organization (common
types)
• Hollow: Define its activities in to two categories core(main or major activity)core activities

are perform by the company itself and non core(secondary) non core activities are

outsource example of non core is HR, legal , R&D etc

• Virtual Organization: Is a group of people relying primarily or exclusively on electronic forms

of communication to work together in accomplishing their goals.

• Modular Organization(modules means different parts): Modular Organization outsources

different stages of manufacturing process of a product to external vendors / partners.

Note about modular organization
• Only manufacturing companies are considered as modular
organisations
ORGANIZATIONAL STRUCTURE by MINTZBERG
• Strategic apex. All the senior managers are strategic apex e.g
directors, ceo, top level managers etc. they are responsible for making
main decisions and planning of the company.
• Operating core. They are implementers. Workers involved in
producing or creating the product or services e,g labour , teachers for
education sector, doctors for hospitals etc
• Middle management. All the departmental managers known as
middle management e.g finance, production manager etc . they make
a bridge or link between strategic apex and operating core
• Support staff. Administrative staff is considered as support staff e.g
office boys, guards etc. they are not participating in main activity of
the organisation but they are supporting to other employees
• Technostructure. Technical staff e.g software programmer , financial
analyst etc they are not responsible for main decisions of the
company but they can give expert suggestions to the strategic apex
Practice 6
F is a supervisor at a factory which manufactures steel girders. His role
is to train new employees in how to use the machinery, as well as
monitor staff to ensure that they are performing their work in the most
efficient manner possible. F does not undertake any manufacturing
work himself. According to Mintzberg’s organizational configurations
model, which organizational building block would F be included within?
a) Support staff
b) Operating core
c) Strategic apex
d) Techno structure
Management level of planning Anthony
hierarchy of planning

Strategic

Tactical

Operational
• Strategic planning is known as long-term planning(more than one
year) strategic apex are responsible for the strategic planning
• Tactical planning is known as short term planning(for a year) middle
managers are responsible for tactical planning
• Operational planning is known as day to day basis panning and
supervisors are responsible for the operational planning
Practice 7
H is a retail store selling electronics. It is currently deciding how many
units of its products it will need to order next month in order to meet
customer demand. Which level of planning does this relate to?
a) Startegic
b) Tactical
c) operational
Span of Control

• The number of subordinates that a manager or supervisor

can directly control. It may be

Narrow span of control.

Wide span of control.

Factors that affects Span of Control

• Geographical dispersion. Narrow

• Capability of workers.

• Capability of boss

• Similarity of task

• Volume of other task

Scalar Chain of Command/ hierarchy

• It is an unbroken line of authority from most senior to the

most junior. It may be tall and flat.

practice
Consider the following statement
i. The scaler chain relates to the number of people over whom a
manager has authority
ii. A business with highly skilled, motivated members of staff will tend
to have a wider span of control than a business with demotivated
employees.
Which of these statement is/ are correct
a) 1 only
b) 2 only
c) neither
Tall organization & Flat organisation

• Tall organisation: is one which has many levels of

hierarchy. Each manager has a narrow span of control.

• Flat organisation: is one which has few or no levels of

middle management. Each manager has a wide span of

control.
Outsourcing & Offshoring

• Outsourcing: Refers to contracting work out to an external

organization.

• Offshoring: means getting work done in a different

country.
Centeralisation & Decenteralisation

• Centralization: the concentration and decision making

power at the top of an organisation’s hierarchy.

• Decentralization: transfer of decision making power and

assignment of accountability and responsibility.

practice
Which of the following is an advantage of centralization in an
organization with a dispersed (distribute or spread over a wide area)
network of offices?
a) Decisions are easier to coordinate
b) Greater speed of decision making nearer the point of sale
c) Improved motivation of line managers
d) Reduced workload for senior management
Roles and functions of main departments
in an organisation

• Research and Development Department: includes an data

gathering, information and facts for the advancement of

knowledge. Research is based upon two factors

Product. research Product research is aimed at creating new

products or improving the existing ones

• Process research. process research is aimed at improving the ways in
which those products and services are made and delivered.
• Purchasing Department: the purchasing function involves

obtaining resources(materials) and services for the use of

organisation. Purchasing mix includes. Quantity, Quality,

Price, Delivery.
• Production Department: production function is a function

that specifies the output of a firm and control activities to

provide products and services,

• Finance Department: finance function is one of the most

important function of the organisation. It includes raising

money, recording transactions, providing information to

managers and reporting to stakeholders in an annual

reports.
• Human Resource Department: it includes conducting job

analyses(job description), planning personnel needs, recruiting

the right people for the job, orienting and training, managing

wages and salaries, evaluating performance and

communicating with all employees at all levels.

• Direct service provision: providing services to clients. It

includes activities that does not result in ownership. Some

characteristics of services includes.

Intangibility. There is no physical existence of the product.

Perishability. The end product cannot be stored

Heterogeneity. The end product varies depending on who carried

out the service, and how it was carried out

Inseparability. Services are consumed at the same time they are

produced

Ownership There is no transfer of property since there is usually no

physical existence of a service

• Administration Department: serves purely a support

function. Its main function is to ensure that the overall day

to day functions of the organisation goes smoothly.

• Marketing Department: A marketing department

promotes business and drives sales of products or services.

It provides the necessary research to identify your target

customers.
Approaches to Marketing

• Product Orientation(empahsis on features and quality of product)

• Sales Orientation(selling more and more products)

• Marketing Orientation(selling through making customized products)

• Production orientation(through producing products in bulk quantity)

Marketing Mix 7 p’s of marketing
• People . For service sector we use the name of Service provider
• Process. For service sector organization is showing its process of
giving service
• Physical evidence.
4 p’s
1 Product . features , quality
2 Price . Penetration pricing(low prices) , skimming pricing (high prices),
captive product pricing (where customer must buy two products. The
first is cheap to attract customers but the second is expensive)
3 Place . Distribution channel, availability of the product or services
4 Promotion. Advertising, sales promotion techniques e.g buy one get
one free, personal selling e.g door to door selling, public elation e.g
sponsoring sports evets etc
practice
A mobile phone company has just found out that there is demand for a
low cost basic phone as consumers like having a phone with basic
functionality. They would like to find out more about which consumer
group will be interested in these phones and what specifications they
would like.
a) Purchasing, Research and Development
b) Research and Development, Marketing
c) Purchasing, Manufacturing
d) Sales, Purchasing
Shared service approach

• The shared services organization is a medium through which defined

services can be provided across the organization by a dedicated unit.
This differs from outsourcing, in that the shared services provider is
actually a part of the organization. IT, HR , Research and development,
payroll, legal
Organisation Structures

• Entrepreneurial structure: This type of structure is built

around the owner manager(sole trader)and is typical of

small companies in the early stages of their development.

• Functional Structure: Structure in which the organization is

divided into smaller groups based on specialized

functional areas.
• Divisional Structure: A type of organizational structure that

groups each organizational function into a division. These

divisions can correspond to either products structure or

geographical/ regional structure

Matrix Structure
• Unlike the other structures we've looked at so far, a matrix organizational
structure doesn't follow the traditional, hierarchical model. Instead, all
employees (represented by the green boxes) have dual reporting
relationships. Typically, there is a functional reporting line (shown in blue)
as well as a product- based reporting line (shown in yellow).
• when looking at a matrix structure org chart, solid lines represent strong,
direct-reporting relationships, whereas dotted lines indicate that the
relationship is secondary, or not as strong. In our example below, it's clear
that functional reporting takes precedence(means the condition of being
considered more important than someone or something else; priority in
importance, order, or rank) over product-based reporting.
• The main appeal of the matrix structure is that it can provide both
flexibility and more balanced decision-making (as there are two
chains of command instead of just one). Having a single project
overseen by more than one business line also creates opportunities
for these business lines to share resources and communicate more
openly with each other -- things they might not otherwise be able to
do regularly.
• In a matrix structure, individuals work across teams and projects as
well as within their own department or function.
• Successful Businesses which use the Matrix Organizational Structure.
Some successful organizations which have used a Matrix
Organizational structure include; Phillips, Caterpillar, and Texas
Instruments have all used the Matrix Structure at some point in time.
• Disadvantages
The primary pitfall of the matrix organizational structure? Complexity.
The more layers of approval employees have to go through, the more
confused they can be about who they're supposed to answer to. This
confusion can ultimately cause frustration over who has authority over
which decisions and products -- and who's responsible for those
decisions when things go wrong.
Note about matrix structure
• Matrix structure is a combination of two structures functional and
product.
• In a matrix structure employees are linked vertically(functional) and
horizontally(product) as well
• So matrix structure have a lots of limitations but still if we want to
implement this structure we need a lot of coordination and unity of
direction between employees other then that matrix structure
creates a lot of problem for us
• In a book definition of matrix structure is a combination of functional
and divisional(divisional means product structure)
• Hybrid structure: hybrid organizational structure as one in which

more than one organizational design(structure) is used. This allows a

company more flexibility in distributing work and assigning job roles.

• Please don’t consider the definition and diagram of hybrid structure

shows in book
S
Practice
Techno Ltd is a company that manufactures and sells consumer
electronics such as television sets, washing machines and refrigerators.
Its head office is based in one country while manufacturing facilities are
scattered in three different countries that makes distribution easier.
The organization structure most suitable for this company would be a:
a) Divisional structure
b) Functional structure
c) Product structure
d) Geographical structure
Separation of Ownership and Control
• In a public limited company there is a concept apply known as
separation of ownership and control. means owners are shareholders
and controllers are directors of the company