In business, organization structure means the relationships between positions & people who hold the positions. Organization structure is very important because it provides an efficient work system as well as a system of communication. First of all we should distinguish between the organizing function & organizing structure. The organizing function is the process of breaking down the overall task into small jobs along with delegated authority to do those jobs & then putting them back together in units, or departments, of an optimal size according to some consistent bases. Thus we can describe the organizing function as dividing task into jobs, delegating authority, determining appropriate bases for departmentalizing jobs, & deciding the optimal number of jobs in a particular department. It helps to coordinate effort & create authority relationships. Organizing structure is considered by many to be “the anatomy of the organization, providing a foundation within which the organization functions”. So the idea of a structure is a frame work – differentiation of position, prescriptions of authority. So structure helps to regulate the behavior of employees. There are can be different kinds of organization structure, & firms can change their organization structure by becoming more or less centralized. Most organization have a hierarchical or pyramidal structure, with one person or a group of people at the top, & increasing number of people below them at each successive level. There is a clear line or chain of command running down the pyramid. All the people in the organization know what decision they are able to make, who their superior (or boss) is (to whom they report), & who their immediate subordinates are (to whom they can give instructions). This structure is one of the simplest & it’s also called a line structure. Some people in the organization have colleagues who help them: for example, there are might be an Assistant to the Marketing Manager. This is known as a staff position: its holder has no line authority, & is not integrated into the chain of command, unlike, for example, the Assistant Marketing Manager, who is number two in the marketing department. This structure is known as a staff structure. Yet the activities of most companies are too complicated to be organized in a single hierarchy. Shortly before the First World War, the French industrialist Henry Fayol organized his coal-mining business according to the functions that it had to carry out. He is generally credited with inventing functional organization, including (among others) production, finance, marketing, sales, & personnel or staff departments. The functional type of organization structure reflects an arrangement based on the nature of the activities that must be performed. Related activities are grouped together in the functional areas with which they are most clearly identified. The chief executive of each area occupies a position on the second level of the organization & generally has the title Vice-President. This means, for example, that the production & marketing departments cannot take financial decisions without consulting the finance department. The functional structure allows for coordination of related activities, thereby reducing the risk of empire building by specialized areas & resulting in greater efficiency. The structure’s most distinguishing feature is that staff managers may have line (functional) authority for their particular activities. But in a functional structure the request could be an order. As I’ve already said the functional structure is efficient, but there are two standard criticisms. Firstly, people are usually more concerned with the success of their department than that of the company, so there are permanent battles between, for example, finance & marketing, or marketing & production, which have incompatible goals. Secondly, separating functions is unlikely to encourage innovation. An inherit problem of hierarchies is that people at lower level are unable to make important decision, but have to pass on responsibility to their boss. One solution to this is matrix management, in which people report to more than one superior. For example, a product manager with an idea might be able to deal directly with managers responsible for a certain market segment & for a geographical region, as well as managers responsible for the traditional functions of finance, sales & production. This is one way of keeping authority at lower levels, but it’s not necessarily a very efficient one. Thomas Peters & Robert Waterman in their book “In search of Excellence” insist on the necessity of pushing authority & autonomy down the line, but they argue that one element – probably the product – must have priority; four-dimensional matrices are far too complex. A further possibility is to have wholly autonomous, temporary groups or terms that are responsible for an entire project, & are split up as soon as it is successfully completed. Terms are often not good for decision-making, & they run the risk of relational problems, unless they are small & have a lot of self-discipline. In fact they still require a definite leader, on whom their success probably depends. In matrix & geographical structure decentralization plays the key role. & it has its advantages & disadvantages. Advantages of decentralization: 1. It encourages managers to develop their decision-making ability, training for promotion into position of greater authority & responsibility. 2. It creates competitive climate. Managers can be compared with each other that make them to be more productive. 3. Managers have more freedom so they can be involved into solving different problems, so they become more creative. Many organizations choose to follow decentralization of authority. But it also has disadvantages: 1. It needs more intensive & expensive management training. Managers must be retrained for making decisions of high-level. 2. It needs more sophisticated planning & reporting methods, especially for upper management, because the flow of information to upper managers increases. 3. Top managers should delegate a portion of their decision-making job to middle & 1st level managers, but sometimes they can be unwilling & unable to do it. • Every company is structured differently, and every structure provides its own unique benefits. Understanding what goes into the development of these structures and how they operate will help you to better navigate the structure you’re in, or select the right one for the company you are in the midst of creating. Functional • A functional or traditional structure is one of the oldest structures utilized in businesses. It is the epitome of the “top-down” view of organizational structure. In functional structure, people are grouped together because they perform the same kinds of tasks with the same kinds of skills towards the same kinds of goals. For example, all of the copywriters in a publishing company would be sectioned off from all of the visual artists. Divisional • A divisional structure melds together the groups in a functional structure into separate, self-sufficient work units. Each unit will have enough individuals with varied skills to work on one component of the overall organization’s goals. For example, one unit might focus on marketing one product, and have a copywriter, a visual artist, a public relations liason and a web programmer working together. Federations • Federation style organization structures are a spin-off of divisional structures in a macro sense. With this kind of structure, units in an organization do not work together. Instead, different companies form a federation of sorts where each individual company is accountable for one component of a goal. For example, a production, distribution and marketing company may work together under contract of an umbrella company, forming a system of independent but interlinked groupings working toward a common goal. Matrix • A matrix structure is a hybrid of the functional and divisional structures. In this structure, a management team will select participants from functional units to operate in a divisional manner. In other words, individuals working in different capacities will be brought together to work toward a common goal. Flat • One of the newer forms of organizational structure is a flat or cooperative form of organization. In this, the the common conceptualizations of “top-down” management are put aside in favor of a more team-oriented atmosphere. While individuals will still assume levels of leadership, the structure encourages a feeling of collective ownership, with each individual being accountable for the performance of all participants. Interconnected characteristics of a market, such as the number and relative strength of buyers and sellers and degree of collusion among them, level and forms of competition, extent of product differentiation, and ease of entry into and exit from the market. Four basic types of market structure are (1) Perfect competition: many buyers and sellers, none being able to influence prices. (2) Oligopoly: several large sellers who have some control over the prices. (3) Monopoly: single seller with considerable control over supply and prices. (4) Monospony: single buyer with considerable control over demand and prices. LINE AND STAFF STRUCTURE ORGANIZATION Staff authority is used to support the line authority. Line authorities are more involved in the core activities of the business. They have little time to analyze all information for many decisions. They do not have expertise in all technical areas. Staffs are specialists, who help line authority in discharging their duties. For example, a production manager (a line authority) does not have enough time and experience to handle labor relation problems. Staffs (who are specialists) help them in doing so. Line and staff organizations have both line and staff executives. Line executives are assisted by staff specialists in R & D, planning, distribution, quality, legal, audit, public relations, etc. The job of staff is mainly advisory and guidance. Line executives maintain the supervisory power and control over the execution of work. Factors Affecting Organizational Design Although many things can affect the choice of an appropriate structure for an organization, the following five factors are the most common: size, life cycle, strategy, environment, and technology. [pic] Organizational size The larger an organization becomes, the more complicated its structure. When an organization is small — such as a single retail store, a two-person consulting firm, or a restaurant — its structure can be simple. In reality, if the organization is very small, it may not even have a formal structure. Instead of following an organizational chart or specified job functions, individuals simply perform tasks based on their likes, dislikes, ability, and/or need. Rules and guidelines are not prevalent and may exist only to provide the parameters within which organizational members can make decisions. Small organizations are very often organic systems. As an organization grows, however, it becomes increasingly difficult to manage without more formal work assignments and some delegation of authority. Therefore, large organizations develop formal structures. Tasks are highly specialized, and detailed rules and guidelines dictate work procedures. Interorganizational communication flows primarily from superior to subordinate, and hierarchical relationships serve as the foundation for authority, responsibility, and control. The type of structure that develops will be one that provides the organization with the ability to operate effectively. That’s one reason larger organizations are often mechanistic—mechanistic systems are usually designed to maximize specialization and improve efficiency. Organization life cycle Organizations, like humans, tend to progress through stages known as a life cycle. Like humans, most organizations go through the following four stages: birth, youth, midlife, and maturity. Each stage has characteristics that have implications for the structure of the firm. • Birth: In the birth state, a firm is just beginning. An organization in the birth stage does not yet have a formal structure. In a young organization, there is not much delegation of authority. The founder usually “calls the shots. • Youth: In this phase, the organization is trying to grow. The emphasis in this stage is on becoming larger. The company shifts its attention from the wishes of the founder to the wishes of the customer. The organization becomes more organic in structure during this phase. It is during this phase that the formal structure is designed, and some delegation of authority occurs. • Midlife: This phase occurs when the organization has achieved a high level of success. An organization in midlife is larger, with a more complex and increasingly formal structure. More levels appear in the chain of command, and the founder may have difficulty remaining in control. As the organization becomes older, it may also become more mechanistic in structure. • Maturity: Once a firm has reached the maturity phase, it tends to become less innovative, less interested in expanding, and more interested in maintaining itself in a stable, secure environment. The emphasis is on improving efficiency and profitability. However, in an attempt to improve efficiency and profitability, the firm often tends to become less innovative. Stale products result in sales declines and reduced profitability. Organizations in this stage are slowly dying. However, maturity is not an inevitable stage. Firms experiencing the decline of maturity may institute the changes necessary to revitalize. Although an organization may proceed sequentially through all four stages, it does not have to. An organization may skip a phase, or it may cycle back to an earlier phase. An organization may even try to change its position in the life cycle by changing its structure. As the life-cycle concept implies, a relationship exists between an organization’s size and age. As organizations age, they tend to get larger; thus, the structural changes a firm experiences as it gets larger and the changes it experiences as it progresses through the life cycle are parallel. Therefore, the older the organization and the larger the organization, the greater its need for more structure, more specialization of tasks, and more rules. As a result, the older and larger the organization becomes, the greater the likelihood that it will move from an organic structure to a mechanistic structure. Strategy How an organization is going to position itself in the market in terms of its product is considered its strategy. A company may decide to be always the first on the market with the newest and best product (differentiation strategy), or it may decide that it will produce a product already on the market more efficiently and more cost effectively (cost-leadership strategy). Each of these strategies requires a structure that helps the organization reach its objectives. In other words, the structure must fit the strategy. Companies that want to be the first on the market with the newest and best product probably are organic, because organic structures permit organizations to respond quickly to changes. Companies that elect to produce the same products more efficiently and effectively will probably be mechanistic. Environment The environment is the world in which the organization operates, and includes conditions that influence the organization such as economic, social-cultural, legal-political, technological, and natural environment conditions. Environments are often described as either stable or dynamic. • In a stable environment, the customers’ desires are well understood and probably will remain consistent for a relatively long time. Examples of organizations that face relatively stable environments include manufacturers of staple items such as detergent, cleaning supplies, and paper products. • In a dynamic environment, the customers’ desires are continuously changing—the opposite of a stable environment. This condition is often thought of as turbulent. In addition, the technology that a company uses while in this environment may need to be continuously improved and updated. An example of an industry functioning in a dynamic environment is electronics. Technology changes create competitive pressures for all electronics industries, because as technology changes, so do the desires of consumers. In general, organizations that operate in stable external environments find mechanistic structures to be advantageous. This system provides a level of efficiency that enhances the long-term performances of organizations that enjoy relatively stable operating environments. In contrast, organizations that operate in volatile and frequently changing environments are more likely to find that an organic structure provides the greatest benefits. This structure allows the organization to respond to environment change more proactively. Technology Advances in technology are the most frequent cause of change in organizations since they generally result in greater efficiency and lower costs for the firm. Technology is the way tasks are accomplished using tools, equipment, techniques, and human know-how. In the early 1960s, Joan Woodward found that the right combination of structure and technology were critical to organizational success. She conducted a study of technology and structure in more than 100 English manufacturing firms, which she classified into three categories of core-manufacturing technology: • Small-batch production is used to manufacture a variety of custom, made-to-order goods. Each item is made somewhat differently to meet a customer’s specifications. A print shop is an example of a business that uses small-batch production. Mass production is used to create a large number of uniform goods in an assembly-line system. Workers are highly dependent on one another, as the product passes from stage to stage until completion. Equipment may be sophisticated, and workers often follow detailed instructions while performing simplified jobs. A company that bottles soda pop is an example of an organization that utilizes mass production. • Organizations using continuous-process production create goods by continuously feeding raw materials, such as liquid, solids, and gases, through a highly automated system. Such systems are equipment intensive, but can often be operated by a relatively small labor force. Classic examples are automated chemical plants and oil refineries. Woodward discovered that small-batch and continuous processes had more flexible structures, and the best mass-production operations were more rigid structures. Once again, organizational design depends on the type of business. The small-batch and continuous processes work well in organic structures and mass production operations work best in mechanistic structures.
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