CHAPTER 10: FOUNDATIONS OF ORGANIZATIONAL STRUCTURE

Organizations are the means by which societies achieve their goals. This is so, even if organizations
are different from each other. Certain types of organizations are just right for certain types of
environments, while some types of organizations are not fitted to thrive on certain environment.

An organization is one with a structure that is designed to accomplish certain objectives.

Understanding structure is important because it is part of organizational behavior. Structure and
behavior influence each other. This relationship underscores the importance of studying the various
concepts related to organizational structure.

WHAT IS ORGANIZATIONAL STRUCTURE

Organizational structure refers to the formal pattern of how people and jobs are grouped in an
organization. It is often illustrated by an organizational chart, specifying who reports to whom.

The organizational structure consists of mechanisms that serves to coordinate and control activities
of organizational members. Coordination is the process by which tasks and departments are
interrelated to achieve the goals of the organization. Control refers to the regulation of activities in
ways that will enable members to predict and stabilize relationships with other members of the
organization. The coordinating and control mechanisms must be both matched to the context of the
organization to make the organization effective.

Basic Elements of Organizational Structure

Organizational structure consists of the following basic elements:
1. work specialization
2. departmentation
3. pattern of authority
4. span of control
5. coordination of activities

Work Specialization.
This refers to the degree to which tasks in the organization are subdivided into separate jobs. The
essence of ark specialization is that rather than an entire job being done by
e person, it is broken down into a number of steps, with each step being completed by a separate
person. The result is that individuals specialize in doing part of an activity rather than the entire
activity.

The advantages of work specialization are:

1. total productivity tends to multiply geometrically;
2. simplified tasks can be learned in a relatively short time and be completed quickly; and
3. the availability of a variety of jobs makes it possible for people to choose, or be assigned to
positions they enjoy and for which they are well suited.

Work specialization, however, is not applicable to all jobs, and some caution must be undertaken in
adapting it. Turning works of art into masterpieces, for instance, will not be efficient if it is subdivided
into separate steps and assigning each step to different individuals. The end product may turn out to
be an undesirable one.
Departmentation.
This is a basic element of organizational stucture that refers to the grouping of jobs under the
authority of a single manager, according to some common, rational basis, for the purpose of planning,
coordination, and control.

The basis for grouping jobs includes the following:

1. Knowledge and skills - positions may be grouped according to the specialized knowledge and
skills that members bring to the job. For example, professors in universities are assigned to
specialized departments such as social science, business, and vocational. The advantage of
this grouping is that efficiencies are obtained if specialists are grouped together.
2. Work process and function - positions are grouped according to the process or activities to be
performed. Under this type of grouping, separate departments are set up to handle activities
such as marketing, production, human resource management, research and development, and
finance. The purpose of this grouping is to achieve economies of scale by placing people with
common skills and orientation into common units.
3. Time - positions may also be grouped on the basis of when the work is to be done. For
instance, when the organization performs the same work 24 hours a day, as may occur in a
textile factory, members are grouped into the 6:00 AM to 2:00 PM shift, the 2:00 PM to 10:00
PM shift, and the 10:00 PM to 6:00 AM shift.
4. Product - positions in the organization may be grouped according to the good or service that is
being produced. An appliance manufacturer may have separate departments handling
audio-visual equipment, air-conditioners, and refrigerators.
5. Customer - groups may also be formed on the basis of the need to deal with different types of
customers. A business firm, for instance, may create a department that deals with customers
who pay cash, and another department for customers who avail of credit offered by the
company.
6. Location - positions may also be grouped according to location. An organization, for instance,
may create a Luzon division, a Visayas division, and a Mindanao division.

Departmentation offers some advantages to the organization.

These are the following:
1. Supervision is made easier.
2. The sharing of resources, such as men, machines, and materials results to maximum use of
such resources.
3. Common measures of performance is established.
4. Communication is encouraged.
Pattern of Authority.
The pattern of authority as an element in designing organizational structure refers of the extent by
which organization members are allowed to make decisions without getting the approval of another
member.

Authority patterns may either be centralized or decentralized. It is centralized when decision making is
concentrated in the hands of higher-level managers. It is decentralized when decision making
authority is granted to middle and lower management positions.

No single pattern of authority is appropriate for all organizations because environments of

organizations differ. Instead, the pattern of authority must match the organization's environment.
Centralized authority is better suited for stable environments, while decentralized authority is for
complex and changing environments.

Decentralized authority offers the following advantages:

1. Efficiency - red tapes and bottlenecks are reduced.
2. Flexibility - managers can cope with situations as they come.
3. Initiative - managers are highly motivated by the challenge.
4. Development - managers are provided with opportunity for training.

Decentralized authority has also some disadvantages. These are as follows:

1. Control - coordinating overall activities is more difficult.
2. Duplication - there is a great chance of efforts duplicated between departments.
3. Centralized expertise - home office experts may be overlooked or disregarded.
4. Competency - the organization may not be able to produce competent managers at all levels.

Span of Control.
Another consideration in designing the organizational structure is span of control. This element refers
to the number of subordinates reporting to a single supervisor.

The span of control may either be narrow or wide. It is narrow when there are few subordinates
reporting to a supervisor. The narrow span of control is characterized by the following:
1. there is closer relationship between manager and subordinates;
2. there is less delegation of authority;
3. controlling activities are more tight; and
4. there is more time for rewarding behavior.

Span of control is wide when there are many subordinates reporting to a supervisor. The following
characteristics are inherent to an organization with wide span of control:
1. employees work with little supervision;
2. there is a high level of delegation of authority;
3. controlling is lighter; and
4. there is less time for rewarding behavior.

The appropriate span of control will depend on the situation. Neither the narrow or the wide of span of
control is applicable to all types of situations. Figure 44 shows the situations appropriate for narrow
span of control. There are also situations appropriate for the wide span of control and these are
shown in Figure 45.
Coordination.
Another basic element considered in designing the organizational structure is coordination. This term
refers to the linking of activities in the organization that serve to achieve a common goal or objective.

As the job is divided into several tasks and each is assigned to a corresponding unit, there is a risk that
one task may be done too well or too early to the detriment of the other tasks. For instance, a
company's aggressive sales force may not be matched by the ability of the manufacturing unit to
produce what can be sold. This kind of problem may be minimized if the activities of the various units
are properly coordinated. Such requirement must be incorporated in the design of the organizational
structure.

COMMON ORGANIZATIONAL DESIGNS

There are common organizational designs which consist of the following:
1. the simple structure
2. the bureaucracy
3. the matrix structure

The Simple Structure

The simple structure is one that is characterized by a low degree of departmentalization, wide spans
of control, authority centralized in a single person, and little formalization. It has little technical and
support staff. It achieves coordination through direct supervision, often by the chief executive in the
upper echelon.

The simple structure is most appropriate for small businesses like the retail store, service shop, and
small manufacturing firm. Under this arrangement, the manager is also the owner. This structure is
illustrated in Figure 46, an organization chart for an automotive repair shop. Wilfredo Dungo owns and
manages the shop. Although he employs six full-time mechanics and a cashier, he directs the
activities of the shop.

The advantage of the simple structure is its simplicity. With the owner directly managing the
organization, decisions can be made fast. The structure is flexible because the owner can modify it
anytime as the need arises. For instance, a mechanic indicated in Figure 46 can be temporarily
assigned as partsman whenever needed. The structure is also inexpensive to maintain, and
accountability is clear.

The weakness of the simple structure is its inability to serve a large organization. This is because of
its low formalization and high centralization which tend to create information overload at the top. As
the organization grows in size, decision making becomes slower and after an extended period, the
organization becomes dysfunctional. This is a prelude to failure.

The Bureaucracy
The bureaucracy is a rational, systematic, and precise form of organization in which rules, regulations,
and techniques of control are precisely defined. Figure 47 is an illustration of this structure.

Bureaucracy consists of two types: machine bureaucracy and professional bureaucracy.

Machine Bureaucracy. This is a moderately decentralized form of rganization that emphasizes the
technical staff and standardization of work processes. It is best suited to large organizations whose
work is largely performed by production, technical, and support workers.

The following are its characteristics:

1. The existence of rules and procedure controlling organizational activities;
2. A high degree of differentiation among organizational functions;
3. A high degree of job specialization;
4. An organization of offices determined by hierarchy, with each unit reporting to a higher unit and
no unit free-floating;
5. A heavy emphasis on rules and norms to regulate behaviour;
6. Interpersonal relations characterized by impersonality in place of favoritism;
7. Selection and promotion of employees and managers based on merit; and
8. All administrative actions are in writing.

Professional Bureaucracy. It is an organization composed of a core of highly trained professionals

that standardize skills for coordination. Among the organizations that are considered professional
bureaucracies are law firms, accounting firms, hospitals, and universities. A professional bureaucracy
has decentralized decision making and is less formal than machine bureaucracy. This is because of
the difficulty of regulating the work of professionals performing complex work. The structure of the
professional

The professional bureaucracy emphasizes the expertise of the professionals in the operating core of
the organization. The technical and support staffs serve the professionals.

The advantages of bureaucracy consist of the following:

1. The ability to perform standardized activities in a highly efficient manner. This is the result of
putting specialties together in functional departments resulting in economies of scale,
minimum duplication of personnel and equipment, and easier communication between
employees who speak a common language.
2. Bureaucracy can operate nicely with less talented middle and lower-level managers. The result
is lower costs.

The disadvantages of bureaucracy are as follows:

1. Specialization, which is a feature of bureaucracy, creates subunit conflicts. Functional unit
goals override the overall goals of the organization.
2. When cases arise that do not precisely fit the rules, there is no room for modification.

The Matrix Structure

The matrix organizational design is one that superimposes a product or project-based design on an
existing function-based design. It is really an attempt to maximize the strengths and minimize the
weaknesses of both departmentation by function and by product.

Matrix structures are found in organizations that:

1. Require response to rapid changes in two or more environments such as technology and
markets;
2. Face uncertainties that generate high information processing requirements; and
3. Must deal with financial and human resources constraints; and
4. Want to take advantage of new opportunities and solve special problems.

Figure 48 is an illustration of the matrix structure.

Strengths of the Matrix Design. The matrix designed organization has an array of strengths which are
listed as follows:
1. It allows demands from the environment to be met simultaneously
2. It provides flexibility.
3. It encourages resource efficiency.
4. It enhances skill development.
5. It increases motivation and commitment among employees. 6. It aids top management in
planning.

Weaknesses of the Matrix Design. The matrix-designed organization has its own weaknesses. They
are the following:
1. It creates dual-authority confusion.
2. It spawns power struggle.
3. It is time-consuming.
4. It requires interpersonal skills training.
5. It generates high implementation cost.

NEW ORGANIZATION DESIGN OPTIONS

Apart from the basic organizational design, some organizations are using new designs. These are:
1. Outsourcing organization
2. Team structure

Outsourcing Organization
The outsourcing organization, also known as virtual organization, is an arrangement by which the
organization have work performed for it by groups outside the organization. Instead of doing all work
necessary for producing a product or service, the organization enters into an agreement with another
organization to perform some specific activities. For instance, a company which manufactures cars
can ask other companies to provide manufactured car parts like tires, spark plugs, audio equipment,
among others.

Outsourcing is very useful because it can reduce the company's need for employees, equipment, and
materials. The result is the reduction of the costs of maintaining those three requirements.
Outsourcing can cover almost any work performed by the organization. Examples are hiring and
training employees, packaging and distribution, product research, security services, transportation and
delivery, and many others.

All is not well, however, with outsourcing practices of companies. This is because outsourcing
effectively reduce the demand for labor within the organization and labor unions are not particularly
elated.

Companies that bid for outsourcing with an organization are under great pressure to offer the lowest
possible price. This pressure oftentimes lead them to violate wage and child labor laws.

Figure 49 is an illustration of the outsourcing organization wherein the management outsources all of
the primary functions of business.

Team Structure
The organization with a team structure makes use of teams as the central device to coordinate work
activities. The team structure is horizontal rather than a vertical organization. Under this structure,
departmental barriers are broken down and decision making is decentralized to the level of the work
team. The team leaders of a small unit could be members of a higher level team, for instance, the
district team; the team leaders of the various districts could be members of a regional team; and the
like.

A requirement of the team structure is that team members must be generalists as well a specialists.

THE ORGANIZATIONAL STRUCTURE'S RELEVANCE TO HUMAN BEHAVIOR

Different types of organizational structures place unique demands on people who work within them.
Not all people are suited to a certain type of structure; some are better suited to a simple structure,
others are better suited to a bureaucracy, and still others are most productive in a matrix structure.
This is important to know because organizational structures can only be effective if the people
working within them are well-matched with the structure.