UNIT-II DESIGNING ORGANISATIONAL STRUCTURES

Organization:

Organization is form of organizing which is a part of management process

Organization defied as collectivity of people for achieving common
―Organization means the determination and assignment of duties to people,
and also the establishment and the maintenance of authority relationships
among these grouped activities it is the structural frame work with in which
the various efforts are coordinated and related to each other‖.

Definitions: ―Organization are collectivities of people that have been established

for the pursuit of relatively specific objectives on a more or less continuous
basis‖.
William Scott
―Organization is the form of every human association for the attainment
of a common purpose‖.
Mooney and Reilly ―Organization involves the grouping of activities
necessary to accomplish goals and plans assignment and these activities to
appropriate departments and

positions to appropriate departments and positions for authority delegation and

coordination‖.

Koontz and O‘Donnell Organization is used in the following ways

with or without prefix or suffix
g) as entity
h) as group of people
i) as structure
j) as process
Process of Organization:

Determination of objectives, strategies, plans and policies: Objectives should be

clear and precise, because the entire organization is to be built around the
objectives of the enterprises.

Determination of activities: Determine activities needed to execute these plans

and policies and accomplish the objectives. The work load is broken into
component activities that are to be performed by all the employees. The activities
are so split to determine the job which can be performed by an individual.

Separation and grouping of activities: To attain the benefits of specialization and

division of labour, every company, will separate its activities on the basis of
primary functions like finance, engineering, purchasing, production, sales and
industrial relations. All the similar or directly related activities are grouped
together in the form of departments.
Delegation of authority: Authority is necessary for the performance of the job and
therefore authority is delegated to the subordinates for enabling them to carry out
their work smoothly and efficiently.
Delegation of responsibility: Responsibility may be described as the obligation
and accountability for the performance of delegated duties. A superior is always
accountable for the acts of his subordinate. Therefore, responsibility always flows
from subordinates to superiors.
Establish inter-relationships: The grouped activities are placed in the overall
organization structure at appropriate level. It is necessary to integrate or the
these groups of activities through.
a) Authority relationship horizontally, vertically and diagonally
b) Organized information or communication system i.e., with the help
of effective coordination and communication.
Providing physical facilities and proper environment: Physical facilities means
provide machinery, tools equipments, infrastructure etc, environment means
provide proper lighting, ventilation, heating, cooling arrangement at the work
place, reasonable hours of work, safety devices, job security etc
Principles of Organization:
Principle of unity of objectives: An organization structure is effective if is enables
individuals to contribute to entire objectives.
Principle of co-ordination: The aim of the objective can be achieved it proper co-
ordination exists for efferent activities
Principles of organizational efficiency: An organization is efficient it is structured
to aid the accomplishment of enterprise objective with a minimum of unsought
consequences or costs.
Span of management principle: In each managerial position, there is a limit to the
number of persons an individual can effectively manage but the exact number
will depend on the impact of underlying variables.
Scalar principle: The clearer the line of authority from the ultimate management
position in an enterprise to every subordinate position, the clearer will be the
responsibility for decision making the more effective will be organization
communication.
Principle of delegation by results expected: Authority delegated to all individual
managers should be adequate enough to ensure their ability to accomplish the
results expected.
Principle of responsibility: The responsibility of subordinates to their superiors for
performance is absolute, and superiors cannot escape responsibility for the
organization activity of their subordinates.
Principle of parity of authority and responsibility: The responsibility for actions
cannot be greater than that implied by the authority delegated, not should it be
less.
Principle of unity command: The more complete an individual‘s reporting
relationships to a single superior, the smaller the problem of conflicting
instructions and the greater the feeling of personal responsibility for results.
Authority level principle: Maintenance of intended delegation requires that
decisions with in the authority of individual managers should be made by them
and not be referred upward in the organization structure.

Principle of balance: The application of principles or technique must be balanced

to ensure the overall effectiveness of the structure in meeting enterprise
objectives.
Principle of flexibility: the more that provisions are made for building flexibility in
to an organization structure can fulfill its purpose.
Principle of leadership facilitation: The more an organization structure and its
delegations of authority enable managers to design and maintain an environment
for performance, the more they will help the leadership abilities of those
managers.
Design of Organization structure: The main objective of an organization structure
is to ensure that efforts of all the people working in various sections are co-
ordinate and integrated for achieving the task in the most efficient effective
way with minimum consumption of resources i.e. economical ways
1) Formal organization structure 2) Informal organization structure
Formal organization structure: According to classical theorists the formal
organization is built an four pillars

1) Division of labor
2) Scalar functional processes
3) Structure
4) Span of control
Definition: An organization is formal when the activities of two or more persons
are consciously coordinated towards common objectives.
 Informal organization: Informal organization arises spontaneously based on
friendship or some common interest and not based on rules, regulation and
procedures. It is developed by the employees themselves and not by the formal
authority.
Definition: Informal organization brings cohesiveness to a formal organization, it
brings to the members of formal organization a feeling of belonging of status, of
self-respect and of gregarious satisfaction.
Comparison between formal and informal organization:

Basis of comparison Formal Informal

Formation Planned & deliberated Spontaneous
Purpose Well-set goals Social interaction
Structure Well structured Un structured
Focus Positions Persons
Nature Official Unofficial
Leadership Superior Any one
Source of power Delegated Given by group
Guidelines for behaviour Rules procedures Group norms
Source of control Rewards/Punishment Sanctions
Type of organization: On the basis of authority relationships organization
classified as follows

1. Line organization or Military organization or Scalar organization

2. Functional organization
3. Line and Staff organization
4. Project organization
5. Committee organization
6. Matrix organization
Line organization:

Where efforts of large number of people have to be controlled and

discipline is of prime importance line type organization structure will serve the
purpose. This is also one of the oldest structures. However, in present conditions
this type of structure has lost the applicability. In line structure ten lines of
instruction, directing is vertical. This means in this type boss is always right and
his orders are to be obeyed at any cost.
Merits:

Simplicity: Line organization is very simple to establish and can be easily

understand by the employees
Discipline: Since each position is subject to control by its immediate superior
position, often the maintenance of discipline is easy unity of command and unity
of direction foster discipline among the people in the organization.
Co-ordination: The hierarchy in management helps in achieving effective
coordination
Effective communication: There will be a direct link between superior and his
subordinate; both can communicate properly among himself or herself.
Economical: Line organization is easy to operate and less expensive
Unity of command: In line organization every person is under the command of
one boss only.
Prompt decision: Only one person is in charge of one division or department.
This enables manager to take quick decisions.
Over all development of the managers: The departmental head has to look after
all the activities of his department; therefore, it encourages the development of all
round managers at the higher level of authority.
Demerits:

Undue reliance: The success of the enterprise depends upon the caliber and
ability of few departmental heads, loss of one or two capable men may put the
organization in difficulties.
Personnel limitations: In this type of organization an individual executive is
suppose to discharge different types of duties. He cannot do justice to all
different activities because he cannot be specialized in all the trades.

Overload of work: Departmental heads are overloaded with various routine jobs
hence they can not spare time for important managerial functions like planning,
development budgeting etc.
Dictatorial way: In line organization, too much authorities centre on line
executive. Hence it encourages dictatorial way of working.
Duplication of work: Conflicting policies of different departments result in
duplication of work.
Unsuitable for large concerns: It is limited to small concerns
General interest of enterprise may be over looked: Departments may work for
their self-interest and may sacrifice the general interest of the enterprise.
Scope of favourism: As the departmental heads has the supreme authority, there
is chance of favourism.

Functional organization: This structure most widely used, in the medium and
large organizations having limited number of products.
This was introduced by F.W.Taylor and is logical extension of the division
of labour cover departments as well as men. In this authority is delegated to an
individual or department to control specified processes, policies or other matter
relating to activities under taken by persons in other departments.
 Head Quarters

Production Marketing Finance Personal

Production Marketing Finance Personal

Production
Marketing Finance Personal

Marketing Finance Personal

Production

In this system planning is separated from performance since the direction of work
is divided by various function in the factory. It has been found that this type of
structure becomes ineffective when the work of departments and individuals
increases in variety and complexity.
Merits:

Separation of work: In functional organization, work has been separated from

routine work. The specialist has been given the authority and responsibility for
supervision and administration pertaining to their field of specialization
unnecessary over loading of responsibilities is thus avoided.

Specialization: Specialization and skilled supervisory attention is given to workers

the result is increase in rate of production and improved quality of work. Narrow
range with high depth: The narrow range of activities enable the functional expert
to developing in depth understanding in his particular area of activity.
Ease in selection and training: Functional organization is based upon expert
knowledge. The availability of guidance through experts makes it possible to train
the workers properly in comparatively short span of time.
Reduction in prime cost: Since for every operation expert guidance is there,
wastage of material is reduced and thus helps to reduce prime cost.
Scope of growth and development of business: This type of organization
presents ample scope for the growth and development of business.
Demerits:

Indispline: Since the workers receive instructions from number of specialist it

leads to confusion to whom they should follow. Therefore, it is difficult to maintain
discipline
Shifting of responsibility: It is difficult for the top management to locate
responsibility for the unsatisfactory work every body tries to shift responsibility on
others for the faults and failure.
Kills the initiative of workers: As the specialized guidance is available to the
workers the workers will not be using their talents and skills therefore their
initiative cannot be utilized.
Overlapping of authority: The sphere of authority tends to overlap and gives rise
to friction between the persons of equal rank.
Lack of co-ordination between functions: except the function in which he is
specialized he is absolutely indifferent to other functions. Therefore, there is a
lack of coordination of function and efforts.

Line and Staff Organization: Line and Staff organization is the in which the line
heads are assisted by specialist staff.

If the firm is of large size, manager cannot give careful attention to every
aspect of management. They are busy with ordinary task of production and
selling. Hence staff is deputed to do the work of investigation, research,
recording, and advising to managers. Thus the staff brings advising to managers.
Thus the staff brings specialization by assisting the line officers.
―Line‖ means - Operating
―Staff‖ means - Service
Merits

Planned specialization: The line and staff structure is based upon the principle of
specialization. The line managers are responsible for operations contributing
directly to the achievement of organizational objectives where as staff people are
there to provide expert advice on the matters of their concerns.

Quality decisions: Decisions come after careful consideration and thought each
expert gives his advise in the area of his specialization which is reflected in the
decisions.
Prospect for personal growth: Prospect for efficient personal to grow in the
organization not only that, it also offers opportunity for concentrating in a
particular area, there by increasing personal efficiency
Less wastage: There will be less wastage of material.
Training ground for personnel: It provides training ground to the personnel in two
ways. First, since everybody is expected to concentrate on one field, one‘s
training needs can easily be identified. Second, the staff with expert knowledge
provides opportunities to the line managers for adopting rational multi-
dimensional approach towards a problem.
 Demerits:

Chances of Misinterpretation: Although the expert advice is available, yet it

reaches the workers through line supervisors. The line officers may fail to
understand the meaning of advice and there is always a risk of misunderstanding
and misinterpretation.
Chances of friction: There are bound to be occasions when the line and staff may
differ in opinion may resent in conflict of interests and prevents harmonious
relations between the two.
Ineffective Staff in the absence of authority: The staff has no authority to execute
their own advice. Their advice is not a binding on the line officers. Therefore the
advice given by specialist may be ignored by line heads.
Expensive: The overhead cost of the product increases because of high salaried
specialized staff.
Loss of initiative by line executives: If is they start depending too much on staff
may loose their initiative drive and ingenuity.
Project Organization: A project organization is a special case where common
service like finance, purchase etc. are organized at the functional level. But
project resources are allocated to the project manager. Since the business
responsibility rests with the project manager, necessary authority is given to him
with the requisite resources. This type of organization structure helps in making
decisions for project control in terms of cost, resource and time. In a project
organization some of the functions are corporate responsibility and some of them
are project manager‘s responsibility.

Managing Director

Project Division-A Project Division-B Manufacturing Finance

Design Erection Commissioning

Design Erection Commissioning

Merits:
c) This calls for quick divisions
d) Organizing all functional
 e) Proper coordination of work of different departments
Demerits:
1. It tends to increase the problems of control for top management
2. It is special case of product organization
3. The organization may get disintegrated with increasing focus on
departments
Committee Organization: A committee is formed when two or more persons are
appointed to work as a team to arrive at a decision on the matters referred to it. It
is intended to utilize the knowledge, skills, and experiences of all the concerned
parties. Particularly, in large organizations, problems are too big to be handled by
one single expert.

merits
1. organizational resources in terms of knowledge skills and experiences.
2. It represents all interested groups and thus, facilitates group decision.
3. It yields good results if the committee are headed by taskmaster like
chairman and time bound in terms of decision-making.
4. It minimizes the fear of too much authority vested in one person
5. It motivates all the concerned or effected groups to participate.
Demerits:
1. Responsibility of decisions cannot be fixed on a particular person.
2. It calls for high degree of coordination.
3. It involved high cost in terms of time and money.
Matrix Organization: This is also called as project orgnisation it is a combination
of all relationships in the organization in vertical, horizontal and diagonal. It is
mostly used in complex projects. It provides a high degree of operational
freedom, flexibility and adoptability for both the line and staff managers in
performing their respective roles. The main objective of matrix organization is to
secure a higher degree of coordination than what is possible from the
conventional organizational structure as the line and staff

Merits:
1. It offers operational freedom and flexibility
2. It seeks to optimize the utilization of resources
3. It focuses on results
4. It maintains professional identity
5. It holds employees responsible for management of resources
Demerits:
c) It calls for greater degree of coordination
d) It violates unity of command principle
e) It may be difficult to define authority and responsibility precisely
f) Employees may find it frustrating to work with two bosses
MODERN TRENDSIN ORGANISATIONAL STRUCTURE DESIGNS:

Organizations in the recent times have been gearing themselves to suit to

the growing demands from their stakeholders in terms of responsiveness,
flexibility, agility, adaptability etc. In this process, they are following organic
structure, which are more agile, flexible and adaptable to the changing
circumstances. Virtual organizations, cellular organizations, team structure,
boundaryless organization and inverted pyramid and different forms of organic
structure that are widely seen among most of the sun-rise sectors such as
financial services, Information Technology (IT) and IT enabled services. These
structures have been contributing to the organic growth of the organization.
The focus of organic structures is to do away with those activities which do
not directly contribute to the growth of the organization and focus only on those
activities which directly lead the organization for the achievement of the given
goals.
These are discussed below:
Virtual Organisation:

Virtual organizations facilitate competitiveness particularly when these

organizations are part of the global economy. Here, there can be alliances and
partnerships with other organizations almost all over world. It is a flexible
organization structure that removes the traditional boundaries. It allows easy
reassignment and reallocation of resources to take quick advantage of shifting
opportunities in global markets. To avoid disintegration and to attain the effective
needed focus, the lead virtual organizations must have a shared vision,, strong
brand and high trust culture.
The virtual organization is a temporary network of companies that come
together quickly to exploit fast changing opportunities. Virtual organizations
appear to be bigger than traditional organizations. As virtual organizing required
a strong information technology
(IT) platform, The boundaries that traditionally separate a firm form its
suppliers, customers and even competitors are largely eliminated, temporarily
and in respect to a given transaction or business purpose. Virtual organizations
come into being ‗as needed‘ when alliances are called into action to meet
specific operating needs and objectives. When the task is complete, the alliances
rests until next called into action. Each partner in the alliance contributes to the
virtual organization what it is best as-its core competence.
Cellular Organization:

Organizations structured around the units/cells that complete the entire

assembly process are called cellular organizations. In the modern organizations,
cellular organizations have been replacing the continuous line or linear
production process system. In cellular organizations, workers manufacture total
product or sub-assemblies in teams (cells). Every team (cell) of workers has the
responsibility to improve or maintain the quality and quantity of its products. Each
team is free to recognize itself to improve performance and product quality.
These cells comprise self-managed teams. They monitor themselves and also
correct where necessary on their own. Cellular organizations are characterized
by much smaller staff all over the organization with middle management positions
reduced and lean management members at the top. It is both a lean and flat
structure.
Team Structure:
A structure in which the entire organization is made up of work groups or teams
is known as team structure. Team structures are both permanent and temporary
in nature as situation demands. Traditional organizations are characterized by
vertical structures and modern organizations are identified by the horizontal i.e.,
team structures. ‗We report to each other‘ is the main feature of team structure.
It leads to boundary less organsiation in a borderless world. In team structures,
we find cross-functional teams meant for improving lateral relations, solving
problem, completing special projects and accomplishing routine tasks. A cross-
functional team comprises members from different functional departments such
as marketing, finance, HR, production etc. Project teams are convened for a
particular task or project and these get dissolved once task is completed. The
intention here is to quickly bring together the people with the needed talents and
focus their efforts intensely to solve a problem or take advantage of a special
opportunity. Here employees are more involved and empowered because of
reduced barriers among functional areas. Sometimes, when there is pressure on
teams to perform and there is no clear chain of command, team structure fails to
deliver results.
Boundaryless Organization:
At the name indicates, a boundary less organization eliminates internal
boundaries among subsystems and external boundaries with external
environment. It is a combination of team and network structures with the addition
of temporariness. Such type of organization structure is characterized by
spontaneous teamwork and communication. This replaces formal chain of
command. It is a dynamic organization structure wherein organizational needs
are met through a judicious mix of outsourcing contracts and alliances as and
when needed. The key features of boundary less organization include
knowledge-sharing, absence of hierarchy and bureaucracy, empowerment
voluntary participation of expert members, technology utilization and
temporariness. The focus is on mustering necessary talent and competencies
required for the achievement of a task without any bureaucratic restrictions.
Creativity, quality, timeliness, increase in speed and flexibility are the benefits the
boundary less organization yields. It also reduces inefficiencies. The boundary
less organization is highly flexible and responsive. These draw on talent
wherever it is found. Sometimes, they are ineffective due to problems in
communication.
Inverted Pyramid:

This is an alternative to the traditional chain of command. This is a structure,

which is narrow at the top and wide at the base. It includes a few levels of
management. For instance, sales people and sales support staff sit on the top as
the key decision makers for all the issues related to sales and dealing with the
customers. Since the sales staffs are in touch with the customer and aware of the
requirements of the customers, they are given all the freedom to follow their own
best judgment at all levels.
 Lean and flat organizational structures

• lean organizational structure refers to a structure that creates maximum value for the
customer while using fewer resources. An organization with such a structure encourages its
employees to focus on value streams and find ways to eliminate waste than an
organization with a traditional structure. An organization with a lean organizational structure
also allows its employees flexibility, while a traditional structure makes its members focus
more on their respective jobs. Hence a traditional structure has more job classifications
compared to a lean structure. Accordingly, employees in a traditional structure do not
interact more with people from other departments, as in the case of a lean organization.

• A lean organization is a firm that has adopted a minimalist and simplified business
approach. Such an organization seeks to reduce waste and focus its resources on
producing items that have the best value for its customers. The first step in creating a lean
organization is to analyze all processes to determine those that can be eliminated without
affecting the final product. The second step is to cut employees or assign them other
duties. These steps leave only those activities and employees that have a direct impact on
the final product. A lean organization has various defining characteristics. It is focused on
offering the customer more value and is well organized to reduce time wastage. In addition,
it has a collaborative environment and is proactive in preventing problems.

• Lean organizations differ from traditional organizations in different ways. The comparison
between the two is as follows:

• A lean organization is more efficient and flexible than a traditional one.

• A lean organization is more responsive to changes in customer demands than a traditional

one.

• A lean organization's employees are more empowered to improve processes and eliminate
waste than traditional ones.

• Employees in a lean organization are also more skilled and empowered and allowed
flexibility. This flexibility empowers them to identify challenges and solve them as they arise
in day-to-day business operations
• Flat organisational structure is an organisational model with relatively few or no levels of middle
management between the executives and the frontline employees. Its goal is to have as little
hierarchy as possible.

• How does a flat organisational structure work?

• For a small business with a handful of employees, having a flat or horizontal structure is often the
logical approach. The staff-level employees usually report directly to the business owner. There is
typically no formal management structure.

• If a management level does exist, the chain of command from top to bottom in a flat structure tends
to be very short. The span of control is wide with each management level controlling a broad area or
group. Employees all report to one or few overall managers and are empowered to contribute to
decision-making. Managers have the authority to make business decisions with little to no
involvement from the top.

• What are the advantages of a flat organisational structure?

• While it will not suit all types of organisations, the benefits of a flat structure are:

• better communication and relationships between different roles

• better team spirit as there is less hierarchy

• simple, faster decision making as the chain of command is shorter

• better ability for the business to change and adapt

• greater job satisfaction when employees are given more autonomy

• more self-direction can lead to more innovation and efficiencies

• ability to lower operational costs

• Flat structure is suitable for small to medium-size organisations or companies that start flat and scale
this approach gradually as they grow. The lack of hierarchy is rarely practical or scalable for larger
 organisations with hundreds or thousands of employees. Those types of companies tend to have
a hierarchical organisational structure.

• What are the disadvantages of a flat organisational structure?

• Like any other organisational model, flat hierarchies have their downsides. The common
disadvantages of a flat organisational structure are:

• risk of generalisation and confusion if it's not clear who to report to

• lower sense of accountability as employees may have more than one boss

• risk of power struggles arising in absence of a formal system

• lack of employee specialism and specific job functions

• lack of long-term growth or opportunity for promotion

• difficulties in scaling up and growing the company

• If they want to flatten their organisational structure, hierarchical organisations will need to invest
significant time, resources and investment to achieve this.

Departmentation: On the basis activity or departmentation.

Industrialization has created problems, which are complex in nature. It created a

necessity of large-scale industries to meet the increased demand. In large scale,
industries there are large number of employees. For the sake of efficient
supervision and control, the factory/enterpriseis divided into different
departments. Each department is entrusted with a particular function for carrying
out particular activity each departmental head is expected to control and
supervise the work in his department.
Definition: The process of dividing the work and then grouping them into units
and submits or departments for the purpose of administration.
Method of Departmentation:

By function: It is divided into primary function to be performed such as, finance,

marketing, production, personnel etc. each function separate departments
By product: All activities related to a particular product line may be grouped
together. This basis of departmentation has become increasingly important,
especially for complex organizations producing different types of products.
By process: In this method, the manufacturing activity are sub divided on the
basis of their process of production, similar machines such as all laths, milling
machines, grinding machines, milling machine etc. are grouped into separate
section, such as lathe department, milling department, drilling department.
By geographical region: This method may be adopted when the enterprise
produces and sells in the wide market, often in international markets.
Centralization is said to be a process where the concentration of decision making is in a
few hands. All the important decision and actions at the lower level, all subjects and
actions at the lower level are subject to the approval of top management. According to
Allen, “Centralization” is the systematic and consistent reservation of authority at central
points in the organization. Under centralization, the important and key decisions are
taken by the top management and the other levels are into implementations as per the
directions of top level. For example, in a business concern, the father & son being the
owners decide about the important matters and all the rest of functions like product,
finance, marketing, personnel, are carried out by the department heads and they have to
act as per instruction and orders of the two people. Therefore in this case, decision
making power remain in the hands of father & son.
On the other hand, Decentralization is a systematic delegation of authority at all levels of
management and in all of the organization. In a decentralization concern, authority in
retained by the top management for taking major decisions and framing policies
concerning the whole concern. Rest of the authority may be delegated to the middle
level and lower level of management. The degree of centralization and
decentralization will depend upon the amount of authority delegated to the lowest level.
According to Allen, “Decentralization refers to the systematic effort to delegate to the
lowest level of authority except that which can be controlled and exercised at central
points.