Let us try to understand the term “Organization Design and Structure.” The structure of any building depends on its base or foundation. A strong foundation and a basic structure are critical to making a building strong. Although it is possible to redesign and restructure a building, if the base is weak, the whole structure of a building will be unstable.
We can clearly see how important a foundation is. Moreover, foundation and design are inter-related to each other. Similarly, from an organizational point of view, the foundation is the ‘Organizational Structure’ which demonstrates different roles, hierarchy levels and terms, and conditions in an organization. ‘Organisational Design’ encompasses restructuring and destructuring roles, hierarchy level, terms, and conditions as per business or organizational needs.
As stated above, the organization structure is the system which describes the organizational hierarchy in terms of different functions, roles, responsibilities, supervision, etc. It demonstrates different concerns including different roles of the employees, job descriptions, job functions, decision-making authorities, reporting structure, allocation of tasks in the department, individuals, project team, branch, etc.
The organizational structure also defines the flow of information between different levels of an organization, clarity of job of each employee, and its fitment in the overall system which motivates the employees to work efficiently by keeping their morale high; hence, increasing the overall productivity of an organization.
Organizational Structure Is Of Two Types
1. Centralized Structure
In this type of organizational structure, all decisions, as well as processes, are defined; and handled by the top management. Employees and managers are responsible for the successful implementation of decisions and have to follow them. The employees low in the chain of command play a minimal role in the process of decision-making. Few real-life examples of such organizations are Army, companies like Flipkart, Apple, McDonald’s, etc. where the power of decision- making is held at the top level and there is a wide chain or hierarchy of managers and subordinates. Thus, the centralized structure has a top-down approach for decision flow.
2. Decentralized Organization Structure
In such type of organizations, day-to-day tasks and the decision-making processes are delegated to the supervisors at the middle and lower level by the top management for fast and effective decisions and to improve efficiency. By letting the middle and lower level executives jump in the process of decision-making, the top management can focus on other major decisions. This also increases the responsibility and accountability of the employees.
For Example; Mark, the HR Manager at ABC Company, has to finalize a deal with a vendor at a job portal for hiring and, for this, he negotiates best prices with discounts to close the deal. If his organization is a centralized one, then he will first seek senior management permission to finalize the deal and wait for their approval. If there is a delay rendered by the management part, he might lose the deal. However, if his company is decentralized, then, he has authority to close the deal all by himself with the vendor without seeking any approval from the management which, in turn, results in finalizing cost-effective and quick decision-making.
In simpler terms, “Organizational Design” refers to defining, designing, and re-structuring organizational structure. The very process of organizational design is aimed at finding any type of defective or dysfunctional elements related to an organization’s system, organization structure, process, and work culture. Identification of these elements leads to their rectification so that they can better fulfil an organization’s objective.
It clarifies different aspects like authority, the responsibility of tasks and its limitations, reporting structure, a flaw of information, etc. With the help of organizational design, one can identify and eliminate any kind of duplicity in work, inefficient work, poor customer dealing, blame games, obstacles in the decision-making process, shortfalls in systems, and processes which result in the decline of efficiency of the employees, lack of trust among superiors and subordinates, etc.
So, organizational design and organizational structure are interrelated to each other, yet have a slight difference. The organizational structure represents organizations in an immovable or static form that can be presented through a diagram, popularly known as “Organogram.” These diagrams or organization charts provide an easy interpretation of different functions of organizations and their relationships. Also, they show a hierarchy of the staff i.e. managers, leaders, other team members, and supervision levels.
In contrast, the organizational design represents the dynamic view of an organization. It is more of processes and methods which help in organizational structuring and restructuring for smooth and effective functioning. It is also based on change management whereby the organizational demands change their structure and functioning to meet needs for technological advancements, market factors, meeting regulations, customer needs and expectations, etc. With the help of the organizational design, weaker systems of an organization can be identified and corrective steps can be taken to strengthen them.
Elements Of Organizational Design
A well-designed organizational structure not only defines functions, hierarchy, roles, and responsibilities but also the alignment of organizational goals of staff/teams. Poor organizational design or structure may result in serious downfalls in organizations i.e. ambiguity of roles, lack of trust in team and superiors, rigid work environment, slow and ineffective decision-making, etc. The above-mentioned factors are further responsible for low productivity and turnover.
So, it is important to look for organizational design and structure as per a company’s requirement. Also, there are certain segments of organizational design which are known as the key elements. Largely, there are 6 elements of organizational design and structure:
1. Chain Of Command/Line Of Command
In this, the authority and power are delegated from top to bottom i.e. in an organization top management gives instructions to the bottom team and all the employees at each level. Further, the accountability of an employee’s job flows upward to the management. It gives clarity of the reporting structure in an organization. Let us have a look at the chain of command with a visual diagram:
2. Span Of Control
“Span Of Control” demonstrates how wide is the area of the direct control of supervisors over their subordinates which is directly related to how many subordinates (in numbers) report to a senior or supervisor; which, in turn, depends on the number of tasks performed at different levels. In case of more tasks, the span of control will be wider. It also depends on other aspects like geographical location, the ability of the team and superior, the complexity of tasks, etc.
Centralization refers to centralizing an organizational system where planning and decision-making authority is allotted either to a single person or the top management. A decentralized organization is the one where planning and decision-making are handed over to middle or low-levels.
Large organizations divide some of its functions based on the specialized areas and, so, subtasks are defined in different tasks. These subtasks are distributed among individual job roles.
Formalization refers to the process of specifying or mentioning rules, procedures, and duties to the employees as an individual as well as to the teams, departments, units, and the whole organization by managers in written form too. Formalization indicates the goals and vision of an organization, tasks, hierarchy and relationships, authority and responsibilities, different processes, and work methods.
A formal organization emphasizes on job roles, responsibilities, and assigning work to the individuals as per the requirement of roles. These are controlled by rules and procedures.
An informal organization emphasizes on individuals, and the job responsibilities are designed based on individual employee skills and preferences irrespective of the department in which he/she is working. An individual can be assigned the role of different departments as well based on self-interest, skills, etc.
As the name states, “Departmentalization” is the process of dividing organizational functions into different departments as per specializations of jobs or responsibilities so that the common tasks can be handled by specialized teams.
In rigid departmentalization, there is almost no interaction between different teams and each team works as per their area of specialization. In contrast, in loose departmentalization, the teams are free to interact with each other and can work together for common tasks.
Type Of Organizational Design And Structure
There are two major categories of organizations- formal and informal.
The formal organizational structure includes a well-defined structure of jobs that clears authority, functions, and responsibility in organizations. Plans, processes, and policies are already defined in these types of organizations and the teams need to follow and perform their tasks based on these. Its main focus is on jobs and functions rather than the employees. Jobs in the formal organizations are divided into sub-tasks and employees are assigned these tasks as per their skills. It demands the intervention of different departments, which is based on a grouping of sub-tasks of common jobs. For example, organizations have different departments based on their functioning i.e. production, marketing, purchase, etc. Delegation of work is from top to the bottom level which means that supervisors assign work to the subordinates. Supervisors are responsible for the coordination of activities of their subordinates as well as their performance.
Informal Organizations focus more on humans or employees as compared to jobs. In this, humans or employees formally interact with each other to share their ideas, thoughts, beliefs, hobbies, etc. There is no formal structure of these types of organizations. Also, there is no existence of a superior-subordinate relationship.
Types of formal organizational design and structure:
1. Line Organizational Structure & Design
Line organizations follow line/chain of command and demonstrate relationships at different levels in vertical form. The authority comes from top to bottom. There is no specialization existing in this.
2. Functional Organizational Structure & Design
In these types of organizations, different tasks and activities are distributed to different functions and departments i.e. sales & marketing, finance, production, purchase, HR, IT, etc. These departments have their own staff to perform duties and hence, perform different roles.
In these type of organizations, there are two authorities of jobs or two roles exist i.e. line and staff/function. Line authority is similar to the direct chain of command of supervision and instructions are given by the supervisors to subordinates in a vertical chain. However, staff authority gives power to the specialists to support and increase work efficiency of staff members of line authority with their expertise areas. Line managers have direct authority over staff; staff or functional authority has indirect authority over line staff members in certain but narrow specialized tasks.
For example, the diagram of functional organization given below has two departments i.e. Quality Control and Production. Both have line authority over their respective staff and roles. The Quality Control Department staff has staff authority over the staff of the production department for providing support services related to maintaining and ensuring the quality of products at different production stages through proper quality checks.
3. Line and Staff Organizational Structure & Design
This concept works mostly in big organizations. The vertical but direct relation exists at different levels in these type of organizations where the specialist staff has the responsibility to advise the line managers and assist them whenever required. Both the departments, i.e., line and staff exist in such organizations. The specialized staff is present for assisting or advising and has direct control over the line staff.
4. Divisional Organizations
Divisional organizational structure is present in large organizations which are more than one product based, working in multiple territories or working on different projects with separate teams. In these, the different functions of organizations are grouped on the basis of geographic areas, products, projects, or in a combination.
Each division has its own functions and resources like manpower and others for products or the geographic area to which it belongs.
In product- or project-based divisional organization, all activities like marketing, purchase, production, quality, etc. come under the supervision of a single head who is head of the department. For example: in the geographic division, all activities are combined based on particular geographic areas like the east or the west or international locations like middle-east etc. This division exists in organizations that work in more than one territory or geographic area and has different market strategies; and products are offered based on customer needs in that geographic area.
5. Project-Based Organizations
Project-based organizations are temporary in nature and are developed to fulfil some defined set of results for a project. These types of organizations have team members having different skill sets from different functions or areas. Specific resources like budget, time, and manpower are assigned in a particular project until its completion. After the completion of the project, the manpower of the project goes back to the respective departments. For example; in the case of IT companies where there are lots of projects like designing and developing software for any college. To handle this, different teams of different functions of the IT department like planning, designing, developing, testing, etc. come into play are allocated respective tasks.
6. Matrix Organizations
These types of organizations work on dual relationships in terms of responsibilities ushered over the employees. Employees in such organizations report to both- functional head and project head. For example, in matrix organizations, HR team members will report to the project manager, i.e., Hiring Manager of real-estate recruitment project and the HR head for their functional tasks.
7. Hybrid Organizations
Hybrid organizations are a combination of values and elements which are based on social impacts in different sectors like private, public, etc. and revenue generation. Basically, when organizations combine to fulfil the common social and profit generating goals, such organizations are known as hybrid organizations. It is also a combination of functional and product organizations.
Various MNCs (multi-national companies) work on this structure where they have the head office in a country and also have international offices in different countries; and the seniors or heads of these countries report to the CEO of the head office.
Implementation of Organization Design:
The task of implementing organizational re-design is a bit challenging as it requires changes throughout the organization. Lots of things are re-arranged i.e. types of equipment, facilities, etc. Training is provided to the employees including the top management for new design and skills in demand. There is a change in different systems like PMS, rewards & recognition, MIS, decision-making process, etc.
Re-designing organizational structure always comes with great improvement in terms of quality, customer satisfaction and improved customer service, less turnover and absenteeism of employees, increase in productivity, etc. Organizational design is useful in all types of organizations irrespective of the size and business type. How much time is required to redesign any organization depends on its size, structure, nature of the business, and resources available. It takes much time and resources to redesign large organizations having complex structure wherein small organizations can be re-designed in far less time with fewer resources.