Organizational Structure
By the end of the lesson, you are expected to:
– understand the importance of organizational skills
– discover the various aspects of an organization
– be able to characterize a company
The design of an organization’s structure is important as it affects the success and survival of a company.
Here are the characteristics we’ll discover in this lesson:
#1 Organization Chart
#2 Management Span
#3 Decision Making
#4 Organization System
#5 Power
#1 Organization Chart (1/2)
An organization chart is a visual display of an organization’s managerial pyramid. Such charts show how departments are tied together along the principal lines of authority. They show reporting relationships, not lines of communication. Organization charts are tools of management to deploy human resources.
Organization Chart (2/2)
Every organization chart has two dimensions – horizontal and vertical hierarchy and two types – formal and informal.
Horizontal hierarchy establishes the division of work and specialization, such as marketing, production, and finance.
Vertical hierarchy establishes the chain of command, or who reports to whom. It does not show responsibilities.
The formal chart is a documented, official map of the company’s departments with appointed leaders who get things done through power granted by their superiors. Formal charts have job titles.
The informal chart is not documented and is composed of natural leaders who get things done through power granted by peers. Informal charts have no job titles.
The span of management refers to the number of subordinates reporting to a superior and indicates how closely a supervisor can monitor subordinates. It has 2 dimensions:
Narrow and wide: The number of people who report directly to a manager represents that manager’s span of control or span of management. The optimal size of a span of control in a work area is dependent on the department’s function, organizational levels, changes in the nature of the work, and the clarity of instructions given to employees.
Tall and flat: A tall organization has many levels of hierarchy and a narrow span of control. A flat organization structure is one with relatively few levels of hierarchy and is characterized by a wide span of management control.
Wide span of control means many people to oversee, which in turn creates few hierarchical levels (flat organization), which in turn requires few managers.
A tall structure has a narrow span, while a flat structure has a wide span, is horizontally focused and has fewer hierarchical levels. The trend is toward wider span of control (flat structure) to facilitate delegation.
Line and staff organization structure is designed to maximize the unity-of-command principle by giving only the managers the authority to make decisions affecting those in the chain of command. There is no crossover between line and staff organization structure since each structure has its own chain of command.
Line managers have the authority to make decisions and give orders to all subordinates in the chain of command.
Staff authority is generally limited to subordinates within its department.
There is a natural conflict between these two parties due to power differences and various backgrounds. One such source of conflict is that line employees have formal authority while staff employees have informal power.
For organization systems—closed system and open system.
For management structures—mechanistic and organic.
A closed system is independent of its external environment; it is autonomous, enclosed, and sealed off from the external environment. It focuses on internal systems only. Its external environment is simple, stable, and predictable. The major issue for management is to run the business efficiently with centralized decision making and authority. It represents a bureaucratic organization. The primary goal is economic efficiency. All goal-directed variables are known and controllable.
An open system is dependent on its environment to survive; it both consumes resources and exports resources to the external environment. It transforms inputs into outputs. It must continuously change and adapt to the external environment. Open systems are complex, unstable, and unpredictable and internal efficiency is a minor issue for management. It represents a modern organisation.
A mechanistic structure is characterized by rules, procedures, and a clear hierarchy of authority. Organizations are formalized and centralized, and the external environment is stable.
An organic structure is characterized by a fluid and free-flowing nature, which adapts to changes in the external environment. There are a few or no written rules/regulations and it operates without a clear hierarchy of authority. Organizations are informal and decentralized, and responsibility flows down to lower levels. It encourages teamwork and problem solving by letting employees work directly with each other.
The extent of an organization’s centralization or decentralization is determined by the span of control, the number of levels in the hierarchy, and the degree of coordination and specialization. Centralization is typically used in those organizations that emphasize coordination of decisions that must be applied uniformly to a set of known or common problems. Companies that allow managers a great deal of autonomy are described as utilizing decentralized management.
In a matrix organization, people with vertical and horizontal lines of authority are combined to accomplish a specific objective. This design is suitable to a project environment where the project manager is responsible for completing a project without a formal line authority.