PART B ORGANIZATIONAL STRUCTURE& CULTURE 3. Organizational Structure

DAW MYAT THU ZARASSOCIATE PROFESSOR

DEPARTMENT OF COMMERCEUNIVERSITY OF ECONOMICS1

ORGANIZATIONAL STRUCTURE

Formal StructureInformal StructureWhat influences the structure?Types of Organizations

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The formal organization is deliberately constructed to fulfil specific goals. The table from next slide will help to refresh & rethink about your study in Organization in terms of its structure.

Formal StructureObjectives Reason Your OrganisationTo link individuals in an established network of relationships.

So that authority, responsibility &communications can be controlled.

There will be individuals in certain roles in your organisation who you have to deal with regularly in order to do your job. Can you identify them?

To group together the tasks required to fulfil the objectives of the organisation as a whole, & to allocate them to suitable individuals or groups

This must be appropriate –on the basis of functions (sales, production, accounting, etc), Geographical areas, Product or Product type.

What departments exist in your organisation? Why?

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Formal Structure (con’td)Objectives of O.S Reason Your OrganisationTo allocate to individuals or groups the authority they require to perform their functions, as well as their responsibility to account for their performance to their superiors.

This creates hierarchy or chain of command, whereby authority flows downwards from senior management (Chief executives, M.D, B.O.D,) to each level of the organisation &your accountability flows back up.

Can you identify the levels of authority in your own department?Who is your immediate superior, to whom you are responsible for your work?To whom is that person accountable?

To coordinate the objectives &activities of separate units

So that overall aims are achieved without gaps or overlaps in the flow of work.

What other departments or areas of organisation do you have to liaise with regularly?

To enable the flow of work, information & other resources through the organisation, via clear lines of cooperation& communication

So that all the different parts of the organisation are able to meet their objectives

Where do you get the information &resources you require to do your job?To whom do you supply information & resources in return?

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Informal Structure• Organisations are made up of people, • there is also an informal organisation/network of relationships, communication & ideas

• -loosely structure , flexible & spontaneous form of organisation

• Alters according to its membership at any time.• Informal Organisation is made up of---• People who forms social groups or cliques or temporary networks, communication or alliances, colleagues who get together for coffee or email each other at work

• Informal customs and of ways of getting things done which become unwritten rules or the way we do things round here.

• Informal channels of communication (grapevine) 5

Impacts of Informal Organisation

• Informal Org always exist alongside the formal structure.

• May supplement and improve aspects of formal Organisation,

• By-passing communication blockages or speeding up procedures

• As well as giving employees the satisfaction of interpersonal relationships

• If employees dissatisfied with aspects of formal org, for example, not enough information, dislike their boss)

• Informal groups gain power.• Need to try and harness the informal org’s power by encouraging the flow of information, initiative and constructive work relationships in shared performance goals.

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What influences the structure? See page 58

structure

size

Task

staff

environment

age

Culture & Management style

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What influences the structure?a) SIZE- As an organization gets larger,

structure gets more complex: specialization & subdivisions are required. The process of controlling & coordinating performance & communication between individuals also grows more difficult because the top of the organization gets more layers from the bottom.

b) TASK- ie; the nature of its work. Structure is shaped by the division of work into functions & individual tasks & how these tasks relate to each other. Depending on the nature of the work, this can be done in a number of ways. The complexity & importance of tasks will affect the amount of supervision required and ratio of supervisors to workers.

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c) STAFF- the skills & abilities of staff will determine how the work is structured and the degree of autonomy or supervision required.

d) Legal, commercial, technical & social ENVIRONMENT-the way new technology is reducing overall staff requirements by increasing specialization.

e) Its AGE-the time it has had to develop and grow: whether it is very set in its way & traditional or experimenting with new ways of doing things & making decisions.

f) CULTURE & MANAGEMENT STYLE -how willing management is to delegate authority at all levels, whether teamwork is favored, or large, impersonal structures are accepted by the staff.

What influences the structure?

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Types of Organisation

Sole Trader

• A person carrying on business

Partnership

• A group of individuals carrying on business by agreement

Public organisation

• Owned by the state

• Financed by public funds

• Exist to provide cost efficient services

A limited Company

• Separate legal entity or person

• Own name and right to acquire assets,

• incur debts• Enter into contract

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Types of Business Activity see in page 59ManufacturersContractorsDistributors, Wholesalers and retailors

Service Not for profit Organizations (non profit)

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Authority and PowerOrganisation structure

Authority &Power

• span of control

• Tall & Flat• Centralized & Decentralized

The new organisation

Organisation& departmentation

Organizational networks & linkages

Organisation chart

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Span of control page 61

• Refers to the number of subordinates immediately reporting to a superior official.

Right span of control? - Depends on a) A manager’s capabilities- physical& mental

limitations to any single manager’s ability to control people &activities.

b) The nature of the manager’s workload Manager’s work

Solitary Entrepreneurial Interaction supervision(some planning &scheduling) (external dealings) with superiors & colleague

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•The more non-supervisory work in a manager’s workload:•The narrow the span of control, •the greater the delegation of authority to subordinates,

• eg, one manager has 2 subordinates vs 20 subordinates.

c)Subordinate’s work. If all subordinates do similar tasks, or

the task is substantially automated or computerized, a wide span is possible. Difficult of complex work, posing time consuming problems suggests a narrow span of control.

d)The degree of interaction between subordinates. If subordinates can help each other, a wide span is possible. However, if close group cohesion is desirable, a narrow span of control might be needed.

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Span of control page 62

Tall Vs FlatMD

Divisional

directors

Department Manager

Section Manager

Assistant managers

Supervisors

Charge Hands/Team Leaders

Workers

MDDepartment Managers

Supervisors

workersWide span of controlNarrow span of

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A Tall organization is one which in relation to its size has a large number of levels of management hierarchy. This implies a narrow span of control.

A Flat organization is one which in relation to its size has a small number of hierarchical levels. This implies a wide span of control.

Delayering is the reduction of the number of management levels from bottom.

Tall Organisation

For• Narrow control plans

• Small groups enable team members to participate in decisions

• A large number of steps on promotional ladders- assists management training

Against• Inhibits delegation• Rigid supervision can be imposed, blocking initiative

• The same work passes through too many hands

• Increases administration &overhead costs

• Communication problems as decisions take time to ‘filter down’.

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Flat Organisation

For• More opportunity for delegation

• Relatively cheap• In theory, speeds up communication between strategic apex & operating core

AgainstImplies that jobs can be delegated.

Managers only get a superficial idea of what goes on. If they are overworked, more likely to be involved with crisis management.

Sacrifices controlMiddle management are often necessary to convert the grand vision of strategic apex into operating terms

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Centralization Vs Decentralization

Centralization-•Concentration of authority for making most decisions at the top levels of the organization.

Decentralization-•The dispersion of authority to make decisions throughout all levels of the organization.

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We can look at centralization in two ways.(a)Geography (filed in head office ,

centralized or branches, decentralized)(b)Authority (decisions upwards to superiors

or decentralized /delegation to subordinates)

Arguments in favor of centralization vs decentralization

Pro centralization1.Decisions are made at one point & easier to co-ordinate.

2.Senior managers can take a wider view of problems & consequences.

3.Senior Mgt can keep a proper balance between different departments or functions, eg, by deciding on the resources to allocate to each.

4.Quality of Decisions is higher due to senior mgrs’ skills &experience

5.Possibly cheaper, by reducing number of mgrs needed, so lower costs of O/H.

6.Crisis decisions are taken more quickly at the centre, without need to refer back, get authority.

7.Policies, procedures &documentation can be standardized organization-wide.

Pro decentralization/delegation1.Avoids overburdening top mgrs, in

terms of workload & stress. 2.Improves motivation of more

junior mgrs who are given responsibility-important since job challenge & entrepreneurial skills are highly valued in today’s work environment.

3.Greater awareness of local problems by decision makers. Geographically dispersed org should be decentralized on a regional basis.

4.Greater speed of decision making, & response to changing events, since no need to refer decisions upwards, particularly in rapid changing markets.

5.Helps junior mgrs to develop & the process of transition from functional to general mgt.

6.Separate spheres of responsibility can be identified: controls, performance measurement, & accountability are better.

7.Communication technology allows decisions to be made locally, with information & input from head office if required.

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Organization & Departmentation

By Geography By Function

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i. By Geography/ Region/ territory

Some authority is retained at head office But day to day operations are handled on a territory basis.A.Advantagesi.Local decision making at the point of contact between the organization and its customers, suppliers & other stakeholders.

ii.Cheaper to establish local factories/offices than to service markets from one location ( reduce transportation costs)

B.Disadvantagesi.Duplication & possible loss of economies of scale might arise. eg; an organization divided into 10 regional offices might have each liaison department . If organization did all customers liaison work from head office, it might need fewer managerial staff

ii.Inconsistency in standards –from one area to another. 21

By Function• Functional organization involves-grouping together people who perform similar tasks or use similar technology or material.

• In a manufacturing company, primary functions are production, sales, finance and general administration. Sub-department of Marketing might be selling, distribution and warehousing.

ADVANTAGES DISADVANTAGESExpertise is pooled & related technology/equipment/ materials accessed more efficiently

Organization by inputs & internal processes rather than outputs & customer demands

Avoid duplication Communication Problems arise different specialisms with their own language & culture

Easier to recruitment, training & motivation of professional specialists

Poor coordination results especially in a tall organization structure.

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By Product/Brand

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By Product/Brand

Advantages DisadvantagesAccountability-individual Mgrs hold accountable for profitability of individual products

It increases the overhead costs and managerial complexity of the organization

Specialization-some salespersons will be trained to sell specific product in which they may develop technical expertise and offer a better sale service to customers.

Different product division may fail to share resources & customers.

Coordination- the different functional activities & efforts required to make & sell each product can be coordinated & integrated by divisional/product Mgr.

•Group activities on the basis of products or product lines.•Functional departmentation remains but divisional manager is given responsibility for the products/brands with authority over personnel of different functions

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Matrix Organization What if you could have the accountability & flexibility advantages of product/brand management without the duplication & complexity of dividing up your functional departments?

What if you could somehow share or cross the two? That is where the Matrix comes in!

Authority is shared between the product managers /area/project managers and heads of the functional departments.

The functional department heads are responsible for the management of their own activities & staff,

But the product managers are coordinators of all the different functions toward their particular objectives.

Matrix management challenges classical ides about organization into two ways:

a) It rejects the idea of “one man, one boss”.b) It replaces the idea of authority based on

hierarchy/status with the idea of influence based on expertise.

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Matrix Organization

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Multifunctional teams &Multidivisional structures see in page 70

Multifunctional Team- is a group of individuals brought together from more than one functional area of a business to work on a problem or process that requires the knowledge, training & capabilities across the areas to successfully complete the work.

This type of structure emphasizes multi-skilling & multiple competencies & teaches people how to work in partnership with others.

Advantages DisadvantagesEliminates barriers between operating departments

Conflicting loyalties among members

Improved morale due to cross-functional interaction

Excessive time spent in meetings

Improved quality & speed of decision making

Effective use of time depends on quality of interpersonal relations, group dynamics & team management

Increased enthusiasm for work

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Multidivisional Structure Is an organizational structure in which each distinct product line, market or business unit is placed in its own sub-contained unit/division

Each division has within it several functional sub-divisions for production, marketing and so on.

The corporate headquarters’ staff monitors divisional activities & exercises financial control over each of them. Advantages Disadvantages

i.Better financial & strategic control-decision making responsibility is retained by H.Q

i. Bureaucratic costs

ii.Growth is easier-New units do not have to be integrated across the organization

ii. Difficulty establishing authority relationship

iii.Stronger pursuit of internal efficiency- performance of individual units is readily measurable.

iii.Communication problems

iv. Competition for resources

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Multifunctional teams & Multidivisional structures

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Networks & Linkages• Network structures•Today’s organizations are faced with a dynamic & turbulent environment •Requires flexible & fast responses to changing business needs.•Newest trend in structure is network.•This theory emphasizes that ‘the enterprise is at heart little more than a network of people with specialized skills.•As opportunities arises, the organization reshapes itself into whatever form is necessary for it to prosper.A network is a contemporary organizational

structure that is founded on a set of alliances with other organizations that serve a wide variety of functions. 31

Network StructureAll organizations have structures at three basic levels to connect their members in work related groups.a) The primary unit is a cluster of individuals in a

team or department unit. e.g; management team, problem solving team

b) The next level is the connection of the teams within the company. The matrix is the only well defined structure.

c) The third level is the connection of the company with other companies.

• Advances in communication technologies have enabled organizations to acquire & retained such distribution structures by supporting coordination among people working from different locations. 32

The main features of network organizations are;a) Separation of major functions into separate

companies linked by a small core organizationb) Support functions subcontracted to create more

flexible structuresc) Focus on core competenced) Creates new managerial role as broker –acting as a

facilitator & catalyst. Brokers help companies to form strategic partnerships, organise network activities & identify new business opportunities. Their task is to spread the network concepts, promote cooperation, organize groups of firms, & connect them to the product designers, marketing specialists, training providers & industry services programmes they need to compete successfully.

Network Structure

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Internal Networks

Broker/ server

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Internal networks are traditional organizations in which divisions or units of the same firm are seen as separate profit centres &

Are given freedom to buy & sell from each other & also from others outside the firm.

They attempt to own & control all the assets within the organization & yet give each part freedom.

This structure aims to inspire entrepreneurship internally without using outsourcing.

These networks are usually single firms that employ price-transferring mechanisms within their subsidiaries which are owned by mother company.

One reason for doing this is the belief that if unit have to operate with prices set by the market, they have the incentive to improve performance & reduce prices

Internal Networks

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Vertical or stable network Consist of central organizations that outsource much of their operations to other companies.

Include long-term relationships that often appear in mature industries with largely predictable market cycles

In high tech industries (eg, the automobile, telecommunication & manufacturing industries) where the product development cycle is relatively long & investments are high

A stable network is promoted in order to guarantee reliable product supply, close cooperation & quality requirement.

For example, at BMW, they outsource about 65% of the total production cost of a car.

Serve to spread the risk across the number of separate players &

Encourages the network to support product diversity & innovation.

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Vertical or stable network

Core Firm

Distributor

Franchisee 1

Supplier 3

Supplier 2

Supplier 1

Distributor

Franchisee 2

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Dynamic Networks Sometimes called ‘virtual organizations’ The most flexible of the three. Are more temporary alliances of firms with key skills usually organized around a lead or brokering firm.

Each of the units tends to be independent & collaborates on a specific project or opportunity and then disbands, later to connect again, perhaps with others, for another projects.

Such networks are more agile than stable networks, especially in creating new products.

For example, NIKE is the centre of dynamic network, began to U.S distributor of athletic shoes made in Japan by Onitsuka Tiger & its only functions now are R&D & Marketing. 38

Dynamic network

Broker

Designer

Producer

Marketer

Supplier

Distributor

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Advantages Vs Disadvantages Maximize the effectiveness of the core unit

Flexibility Firms can operate with fewer full time employees & less complex internal systems

Reduce overhead costs & increased operating efficiency

Permits operations across great distances

Control & coordination problems may arise from network complexity

Potential loss of control over outsourced activities

Success is dependent on ability to locate sources

Potential lack of loyalty among infrequently used contractors

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Linkages It is a structure as the linkage or network between the organization’s environment & the internal sub-system.

The technology used in the transformation process, the relationships among people performing various tasks % the managerial system of planning & control.

Network members collaborate, coordinate their activities & share data using ICT as their main point of contact.

Supported by on-going developments in ICT that allow data sharing & synchronization, interactive communication & virtual meetings across barriers of time and geographical distance.

Nowadays, the internet has enabled companies to form a virtual organization where partners or workers located over a wide area are linked seamlessly. For example trade environment as ecommerce.

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Flexible Organization One of the major advantage of network organization is the ability to adapt to turbulent market situations

The flexibility is determined by the relationships between the individual parts and the distance to the decision making authority.

Network structures allow organizations a high degree of flexibility.

Functional Flexibilitythe physical dispersal of members offers cost savings for the parent organization in areas such as employment ( no redundancy obligations, benefits), overheads & logistics.

Dynamic networks have fluid/flexible, organic structures, with indistinct boundaries & few barriers of geographical location or functional specialization. They are particularly well suited to exploiting International markets, as they enable the parent firm to take advantage of local knowledge, indigenous language speakers, indigenous trading partnership, so on.

Virtual organizations focus on accessing core competencies rather than recruiting people, members are selected for high-level expertise, across industry & geographical boundaries.

Workers are required to undertake multiple duties. 42

Temporal & financial flexibility•Network structures are particularly well suited to an increasingly ‘portfolio’ or ‘skill vendor’ labour market, in which long term contractual employment relationships have been eroded.) •They allow a simplification of (bureaucratic) pay grades and the practice of zero hour contracts•Pay flexibility includes flexitime, local pay bargaining, profit & performance related pay and flexible benefits-----eliminating or reducing paid breaks.

Numerical flexibility They allow growth in agency, job-share, part-timers etc.,. Potential to vary numbers day to day

The result is the creation or two main groupings , core & peripheral/(not core) employees vary numbers day to day. The result is creation or two main groupings, core & peripheral employees.

Flexible Organization

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The New OrganizationSome recent trends and ideas on organization structure include the following.

a) Flat structures more responsive, more direct relationship between strategic and operation units in the organization.

The flattening of hierarchies does away with levels of organization which lengthened lines of communication and decision making & encouraged ever-increasing specialization.

b) Horizontal structures What Tom Peters (1992) (in liberation Management) calls going horizontal is a recognition that functional versatility (through multi-functional project teams & multi-skilling) is the key to flexibility.

According to “Peters”(Motorola executive), “the traditional job descriptions were barriers. So we need an organization soft enough between the organizational disciplines so that people would run freely across functional barriers with the common goal of getting the job done rather than just making certain that their specific part of the job was completed”

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The New Organization

c) Chunked and unglued structure• Meant team working & decentralization, or empowerment, creating small and flexible units within the overall structure.

• Charles-Handy’s (1993) ‘shamrock organization (with three-leafed structured of core, subcontractor, & flexible part time labour) is gaining ground as a workable model for a leaner & more flexible workforce, within a controlled framework.

d) Output-focus structure• the key to all the above trends is focus on result & on the customer instead of internal processes & functions for their own sake.

• A project management orientation & structure is being applied to the supply of services within the organization(to internal customers) as well as to the external market in order to facilitate responding to customer demands. 45

The New Organizatione)Jobless structure

• Meanwhile, employee becomes not a job-holder but

• The vendor of a portfolio of demonstrated outputs & competencies.

• However, “employability” which means “a person need to have a portfolio of skills which are valuable on the open labour market: employees need to be mobile, moving between organizations rather than settling in to a particular job

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Organization Chart• -traditional way of setting out in diagrammatic form:a) The units ( departments etc) into which the

organization is divided & how they relate to each other

b) The formal communication & reporting channels c) The structure of authority, responsibility &

delegation, in the organization including the extent of decentralization& matrix authority relationships

d) Any problems in the above; insufficient delegation, long lines of communications or unclear authority relationships.

• We have seen the most common Vertical Organization chart.

• There are alternatives47

Less hierarchical, more horizontal organization style of cultureSuperior- subordinate nature of relationship

Sales Director

Financial Accountant

MD Finance Director Management Accountant

Treasurer

Production Director

Figure.3-11(Horizontal Chart)

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Organization Chart (concentric Chart)

Sales Director

MDProduction Director

Finance Director

Financial

Accountant

Management Account

Treasurer

The concentric chart ,in which levels of the hierarchy are shown in circles spreading outwards from the centre.

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Organization chartc) Matrix Chart, as shown in figure 3.11, which use both

vertical &horizontal elements to show dual authority.d) ‘Metaphors’, such as Charles Handy’s (1933) ‘cloverleaf’ or

‘shamrock’ organization structure, pyramids, network spider –webs-or any illustration the organization finds helpful.

• Organization charts only give an impression of the structure & self-image of the organization.

• hey can aid managerial thinking & communication, but have limitations.

a) They are static model, while organizations are dynamic, constantly changing. It must be realized that charts are like snapshots of the organization frozen in time. They go swiftly out of date.

b) They show only the formal structure of authority & communication. As we saw earlier, there is a lot of informal influence & communication going on in an organization that the average chart does not show.

c) They describe the structure of the organization-not the organization itself, its mission & values, its people & activities.

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