Notes

Organizational structure is "division of labour and patterns of coordination, communication, workflow, and formal power that direct organizational activities".

The division of labour is the subdivision of work into separate jobs given to different workers. It coincides with job specialization that allows to increase work efficiency and can be both Horizontal (separation of tasks among peers) and Vertical (relation among supervisor and workers).

The coordination of work activities aims at avoiding misalignment of tasks, duplication of effort and mistiming of activities. It can be achieved through:

• Informal Communication, based on face to face interaction, using shared information and common mental models. Easier in small firms, but technology extends its use also in large ones. Firms tend to apply it also through: Liaison roles (among units), Integrator roles (within units) and Temporary teams (among units). It's aimed to form common mental models to synchronize work activities.
• Formal Hierarchy, it means that some employees (bosses) direct the work of others (subordinates). In organizational hierarchies, an employee receives orders only from one boss. The problems related to this approach are that bosses are extra-roles, not involved in making products, so costs for the firm. And also, that hierarchy reduces autonomy of workers and communication. Assigning legitimate power to individuals, who then use this power to direct work processes and allocate resources.
• Standardization, routine patterns of behaviour, prescribed ways of doing things. Standardized Processes (procedures, guidelines, job descriptions, flowcharts, software applications). Standardized Outputs (targets, product, specifications) and Standardized Knowledge (skills, training and experience).

The four basic elements of organizational structures are:

• Span of Control, it refers to the amount of people that directly report to a boss. Firms can have narrow or wide span of control. Wider spans of control are possible when: coordination can be achieved through informal communication or standardization, tasks are routine (supervision less required), there is low interdependence among employees (coordination less needed).

• Centralization, in centralized structures, decision making is held by a small group of people at the top of the hierarchy. In decentralized structures, decision making is dispersed throughout the organization. Centralization tends to decline when the organization grows larger. Decision power in general should be located at the level with the best information. That level may vary in different areas of the organization, depending on sources and nature of information.
• Formalization, degree to which the firm standardizes work through rules, procedure and training. Firms become more formalized when they grow older because work activities become routine. Large firms also like formalization (hierarchy is costly and informal communication is difficult in these firms).
• Departmentalization, how employees and activities are grouped together. It establishes the chain of command among units. It focuses member of units on certain skills and shared mindsets. It encourages informal communication within units.

The combination of these elements generates two main structures, which are:

• Mechanistic Structure (TALL), designed to induce people to be predictable and accountable: narrow span of control, high centralization (every decision is taken at upper levels), high formalization (everything is written down).
• Organic Structure (FLAT), designed to induce people take initiative, innovate, and adapt to changing conditions: wide span of control (If the product fail, it isn't easy to pinpoint who has the fault), low centralization, low formalization.

The main types of Organizational Structures Organizational design is about choosing a proper way of dividing labour and ensure coordination. A proper design should be in line with the Environment (dynamism, complexity, diversity, munificence), the Size of the organization, Technologies (task variability, task analysability), the Strategy of the firm (innovation vs low cost).

A fundamental design decision is which type of organizational structure to adopt, for example how to departmentalize activities.

There exist three main types:

• Functional Structure, the first-level units are arranged by task similarity. Mainly used in small organizations, mono-product or related product lines and in stable markets and products.
  • The advantages of this type are: scale economies, learning and capability building, allows standardized control systems.
  • The disadvantages are that cannot manage diverse businesses, functions develop their own goals, values, norms, making cross-functional coordination difficult.
• Divisional Structure, the first-level of units are grouped by outputs (products, clients or geographical regions). Divisions are "mini firms", accountable for their profits. Headquarters provide planning, budgeting, and services to divisions.
  • The advantages of this type are: Good for large companies with diverse product/clients/regions, decentralized decision making, building block structure -- accommodates growth.
  • The disadvantages are duplication of functions, divisions compete for HQ resources, silos of knowledge, no synergies.
• Matrix Structure, the first-level of units for both functions and outputs. Employees or units are "dots" in the matrix. They belong to a function, but they work for one/more products, clients, etc. Common variant: project-functional matrix where employees are temporarily assigned to projects (consultants, universities, software houses).
  • The advantages of this type are: No duplication of functions, potentially better communication, flexibility, innovation, focuses specialists on outputs, knowledge sharing within specialty.
  • The disadvantages are two bosses dilutes accountability, more conflict, organizational politics, and stress.

Other types of structure are:

• Simple, all employees report directly to the owner. Minimal structure for small or new-born organization.
• Team-based, employees are assigned to self-directed teams who are responsible for specific activities (developing a software, running a manufacturing plant). Usually part of broader functional or divisional structures.
• c. It's an alliance of several organizations for the purpose of creating a product or serving a client.