Chapter Seven: Organisational Structure and Design
Organisational structure is the sum of ways an organisation divides its labour into distinct tasks and coordinates them. Organisational design is the process of assessing the organisation's strategy and environmental demands and then determining the appropriate organisational structures. Organisational charts illustrate relationships between units and lines of authority between supervisors and subordinates. Differentiation is the extent to which tasks are divided into subtasks and performed by individuals with specialised skills. Task differentiation is differentiation by what employees do. Cognitive differentiation is the extent to which people in different units within an organisation think about different things, or think about similar things differently.
Integration is the extent to which various parts of an organisation cooperate and interact with each other. Interdependence is the degree to which one unit or person depends on another to accomplish a task. Uncertainty is the extent to which future input, throughput and output factors cannot be forecast accurately. Integration and coordination can be achieved through a variety of mechanism, including rules, goals and values. Rules are applies when is a highly level of uncertainty and low-levels of interdependence. As interdependence and uncertainty grows goals and then values are more effective mechanisms.
Formalisation is the official and defined structure and systems in decision making, communication and control in an organisation. The line of authority is the formal specification of who reports to whom in an organisation. The unity of command is the notion that an employee should have one, and only one, boss. The span of control is the number of employees reporting to a supervisor. Span of control is influenced by job complexity (high complexity, narrow span), job similarity (high similarity, wider span), proximity (closeness, wider span), coordination (high coordination needs, narrow span). This influences relative hierarchical/flat structures. A tall organisation structure has multiple layers or is high in terms of vertical differentiation. A flat organisation structure has fewer layers. The informal organisation is the unofficial but influential means of communication, decision making and control that is part of the habitual way things get done in an organisation.A centralised organisation restrict decision making to fewer individuals, usually at the top of the organisation. A decentralised organisation pushes decision making to the lowest level possible.
Common organisational structures include functional, product, division, customer, geographic and matrix. A functonal structure organises around functional areas such as accounting, marketing etc. It is well suited form SMEs with limited product range but faces problems of coordination across functional groups and restricts view of organisational goals. It often has a poor customer focus and is slow to change. A product structure treats each unit as a profit centre where related expenses are deducted from the revenue generated. Product performance is typically easier to evaluate and there is a high responsiveness to market changes. There can be duplication and lack of economies of scale and there are problems for customers who purchase across multiple groups. A customer group organises categories around categories of customers. It facilitates in-depth understanding of customers and is responsive to change. It typically leads to duplication of resources. A geographic model typically gives an in-depth understanding of a geographic market and is responsive to the same. A matrix structure imposes two organisational structures and gives dual reporting relationships. It is best suited for complex businesses environments. It increases complexity, is inflexible, can diffuse accountability, and can lead to conflicts. Mixed structures are also possible. Network structures are formal or informal relationships between units or organisations (e.g., along the firm's value chain). Outsourcing is the practise of taking a significant activity within the organisation and contracting it out to an independent party.
In general, the advantages and disadvantages of various structures correspond with gaining or losing specialisation or integration. Many organisational improves help maintain the advantages of specialisation and overcome integration and coordination problems. Boundaryless organisations are those where problems with integration are overcome by people empowered to work across barriers. Liaisons, people who act a s bridge between different areas of a company, is recommended.
When designing organisations, managers face the challenge of capturing both specialisation and integration. A key factor in determining the match between the environment and the organisational structure is environmental uncertainty, which can be derived from two related but separate structures the extent that the environment is (a) complex and (b) dynamic. Organisational strategy varies according to these dimensions (complex, simple : static, dynamic) and with the degree of international product diversity (low, high) and number of sales (low, high) for low:low an international division is best, for low:high a geographical structure, for high:low a worldwide product division and for high:high a matrix structure. Globalisation requires organisations to think globally and act locally. Globalisation is the tendency for integrate activities in coordinated, worldwide scale. Localisation is the tendency to differentiate activies by country by country.
One of the first warning signs of a poor structure-environment fit is the inability of decision makers to anticipate problems caused by governments, competitors and suppliers and so on. Another key warning sign is an increase in conflict that prevents effective implementation. This sign indicates, in particular, limits to a functional structure suggesting that cross-functional teams, liaisons and other lateral relations are needed.