Organizational Structure Part 1 / Mustafa Fatih Yücel

ORGANIZATIONAL STRUCTURE

   

    Organizational structure can be defined as the viewing through which individuals see their organization and its environment. Allocation, coordination and supervision activities focus on the achievement of organizational aims due to success in organizational structure.

    An organization can be structured in very different ways, due to their objectives. The structure of an organization will determine the modes in which it operates and performs.

    Organizational structure allows the distribution of responsibilities for different functions and processes to different entities.

    Organizational structure has impact on organizational action by two ways:

·         First, it provides the foundation on which standard operating procedures and routines rest.

·         Second, it determines which individuals ensure participation in which decision-making processes, and in which perspective, their views shape the organization’s actions.

History

    Organizational structures developed from the ancient times of hunters and collectors in tribal organizations through highly royal and clerical power structures to industrial structures and today's post-industrial structures.

   Organizations exist to achieve goals. These goals are broken down into tasks as the basis for jobs. Jobs are grouped into departments. Departments in organizations may be characterized by marketing, sales, advertising, manufacturing, and so on. Within each department, even more distinctions can be found between the jobs people perform. Departments are linked to form the organizational structure. The organization’s structure gives it the form to fulfill its function in the environment Organizations exist to achieve goals. These goals are broken down into tasks as the basis for jobs. Jobs are grouped into departments. Departments in organizations may be characterized by marketing, sales, advertising, manufacturing, and so on. Within each department, even more distinctions can be found between the jobs people perform. Departments are linked to form the organizational structure. The organization’s structure gives it the form to fulfill its function in the environment (Nelson & Quick, 2011). The term organizational structure refers to the formal configuration between individuals and groups regarding the allocation of tasks, responsibilities, and authority within the organization (Galbraith, 1987; Greenberg, 2011).

    Very early organizational structures were often based either on product or function (Oliveira & Takahashi, 2012). The matrix organization structure crossed these two ways of organizing (Galbraith, 2009; Kuprenas, 2003). Others moved beyond these early approaches and examined the relationship between organizational strategy and structure (Brickley, Smith, Zimmerman, & Willett, 2002). This approach began with the landmark work of Alfred Chandler (1962, 2003), who traced the historical development of such large American corporations as DuPont, Sears, and General Motors. He concluded from his study that an organization’s strategy tends to influence its structure. He suggests that strategy indirectly determines such variables as the organization’s tasks, technology, and environments, and each of these influences the structure of the organization. The term organizational structure refers to the formal configuration between individuals and groups regarding the allocation of tasks, responsibilities, and authority within the organization (Galbraith, 1987; Greenberg, 2011)     

    In the 21st century, organizational theorists such as Lim, Griffiths, and Sambrook (2010) are once again proposing that organizational structure development is very much dependent on the expression of the strategies and behavior of the management and the workers as constrained by the power distribution between them, and influenced by their environment and the outcome.

Pre-bureaucratic structures

   Pre-bureaucratic constructions decrease systemization of assignments. This construction is nearly all commonplace in tinier corporations and is finest applied to answer clear assignments.  The strategic leader makes all key decisions and most communication is done by face to face conversations. It is especially useful for new (entrepreneurial) business as it enables the founder to control growth and development. The construction is completely concentrated. The planned guider produces altogether key resolutions and nearly all information exchange is completed by one on one discussions. It is especially practical for spic-and-span (entrepreneurial) trade like it allows the originator to command development and creation.

 

Bureaucratic structures

  According to Weber (1948, p. 214), “The fully developed bureaucratic mechanism compares with other organizations exactly as does the machine compare with the non-mechanical modes of production. Precision, speed, conflict, strict subordination, reduction of unsuitability and reduction of material and personal costs. These are raised to the optimum point in the strictly bureaucratic administration.” Bureaucratic structures have a certain degree of standardization. They are better suited for more complex or larger scale organizations, generally adopting a big structure.

The Weberian characteristics of bureaucracy are:

·         Clear defined workforce distribution and responsibilities

·         A hierarchical structure

·         Respect for competence

  

  

 Bureaucratic Structures have many levels of management ranging from senior executives to regional managers all the way to department store managers (CEO, President, Vice Presidents, Middle Management, Team Leaders, and Hard Working Employees). Because there are many levels, decision-making authority has to pass through more steps than flatter organizations. Bureaucratic organization has strict and tight procedures, policies and constraints. This kind of structure is unwillingness to change what they have been doing since the company was constituted. Each department has organizational charts, and everyone understands who is responsible for what. A company management makes decisions in organized process, and a strict command and control structure is present at all times. The authority is at the top and information is passed through from top to bottom in bureaucratic structures,. This causes for more procedures and standards for the company that operational process is watched with supervision. Top-level managers have an enormous control over organizational structure decisions. Advantages of bureaucracy work best for managers having command and control s of managing. Also, strategic-decision making is quicker because there are fewer people it has to get approval. Some disadvantages of these types of structures are discouraging creativity and innovation in the organization. This can cause adaptation problems for companies to catch the trend of developing global world.

  Post-Bureaucratic

   Post bureaucracy is used in two meaning: one generic and one much more specific. In general meaning, the term post-bureaucratic is used to describe a series of ideas developed which particularly contrast to Weber's bureaucracy. This may consists of quality management, culture management and matrix management.

·     Total quality management is a management approach centered on quality, based on the participation of an organization’s people and aiming at long term success.

·           Matrix management is a technique of managing an organization (or, more commonly, part of an organization) through a series of dual-reporting relationships instead of a more traditional linear management structure.

·     Culture management can be defined the total of the inherited ideas, beliefs, values, and knowledge, which constitute the shared bases of social action.

     Hierarchies still exist, authority is still Weber's rational, legal type, and the organization is still rule bound. Heckscher, arguing along this text, defines to them as cleaned up bureaucracies, rather than a main shift away from bureaucracy. Gideon Kunda, in his  study about culture management at 'Tech' argued that 'the importance of bureaucratic control - the formalization, codification of rules, sanctions and regulations - does not change in principle.....It moves focus from organizational structure to the organization's culture'.

    Other group of specialists developed the “Post-Bureaucratic Theory Organization”; provide a deeply discussion which attempts to describe an organization that is mainly not bureaucratic. One of specialist has developed an ideal type, the post-bureaucratic organization, in which decisions are based on dialogue and consensus rather than authority and command, the organization is a network rather than a hierarchy; there is an emphasis on meta-decision making rules rather than decision making rules. This type of horizontal decision making by unanimity model is often used in small cooperatives, and non-profit based organizations. It is used in order to encourage participation and help to authorize people.

  Functional structure

   A functional organizational structure which includes activities like coordination, supervision and task allocation. The organizational structure appoints how the organization performs or operates. The term organizational structure explains how the members in an organization are grouped. One classic way of organizing people is by functional structure. Some common functions inside an organization consist of manufacturing, marketing, human resources, and financing.

  This organizing of specialization leads to operational efficiency where employees become experts in their sector within their own environment of expertise. Rigidity in the company is the usual problem with a functional organizational structure, however that communication within, making the organization slow and inflexible. Therefore, horizontal communication between functions are very significant in order to information is diffused, not only vertically, but also horizontally into the organization. Due to the standardized ways of operation and the high degree of formalization, communication in organizations with functional organizational structures may be strict. Generally, a functional organization is the best suited as a manufacturer of standardized products and services at large amount and lower cost. Specialization and coordination of goals are concentrated in a functional structure that makes manufacturing a limited volume of goods or services efficient and countable. Besides, functional organizations integrate their activities vertically in order to goods are sold and delivered quickly and at low cost.  For instance, a small business could make components used in manufacturing of its products instead of purchasing them.

  Even though functional units often perform with a high level of efficiency, their level of cooperation with each other becomes sometimes non-confidential. These types of groups may work difficultly with each other as they may be territorial and unwilling to cooperate. The occurrence of debate among units may cause delays, decreased commitment due to competing interests, and wasted time, making the completion time of project later. This can bring down production levels overall, and the company-wide employee commitment toward meeting organizational goals.

Divisional Structure

   The divisional organizational structure organizes the activities of a business around geographical, market, or product and service groups. Thus, a company organized on divisional lines could have operating groups for the United States or Europe, or for commercial customers, or for the green widget product line. Each such division contains a complete set of functions. Thus, the green widget division would handle its own accounting activities, sales and marketing, engineering, production, and so forth.

  This approach is useful when decision-making should be clustered at the division level to react more quickly to local conditions. The divisional structure is especially useful when a company has many regions, markets, and/or products. However, it can cause higher total costs, and can result in a number of small, quarreling fiefdoms within a company that do not necessarily work together for the good of the entire entity.

   Example of the Divisional Organization Structure

  ABC International has just passed $250 million in sales, and its president decides to adopt a divisional organizational structure in order to better service its customers. Accordingly, he adopts the following structure:

·         Commercial division: Focuses on all commercial customers, and has its own product development, production, accounting, and sales employees.

·         Retail division: Focuses on all retail customers in the United States, and has its own product development, production, accounting, and sales employees.

·         International division: Focuses on all retail customers outside of the United States. It shares product development and production facilities with the retail division, and has its own accounting and sales employees.

 Advantages of the Divisional Organization Structure

 The key points in favor of the divisional structure involve placing decision making as close to the customer as possible. The advantages are:

·         Accountability: This approach makes it much easier to assign responsibility for actions and results. In particular, a division is run by its own management group, which looks out for the best interests of the division.

·         Competition: The divisional structure works well in markets where there is a great deal of competition, where local managers can quickly shift the direction of their businesses to respond to changes in local conditions.

·         Culture: You can use this structure to create a culture at the divisional level that most closely meets the needs of the local market. For example, a retail division could have a culture specifically designed to increase the level of service to customers.

·         Local decisions: The divisional structure allows decision-making to be shifted downward in the organization, which may improve the company's ability to respond to local market conditions.

·         Multiple offerings: When a company has a large number of product offerings, or different markets that it services, and they are not similar, it makes more sense to adopt the divisional structure.

·         Speed: This approach tends to yield faster responses to local market conditions.

   Disadvantages of the Divisional Organization Structure

  The key points against the divisional structure involve the cost of duplicating functions and a reduced focus on the overall direction of the company. The disadvantages are:

·         Cost: When you set up a complete set of functions within each division, there are likely to be more employees in total than would be the case if the business had instead been organized under a purely functional structure. Also, there must still be a corporate organization, which adds more overhead cost to the business.

·         Economies of scale: The company as a whole may not be able to take advantage of economies of scale, unless purchases are integrated across the entire organization.

·         Inefficiencies: When there are a number of functional areas spread among many divisions, no one functional area will be as efficient as would have been the case if there had instead been one central organization for each function.

·         Rivalries: The various divisions may have no incentive to work together, and may even work at cross-purposes, as some managers undercut the actions of other divisions in order to gain localized advantages.

·         Silos: All skills are compartmentalized by division, so it can be difficult to transfer skills or best practices across the organization. It is also more difficult to cross-sell products and services between the divisions.

·         Strategic focus: Each division will tend to have its own strategic direction, which may differ from the strategic direction of the company as a whole.