ORGANIZATIONAL DESIGN AND ORGANIZATIONAL STRUCTURE An organization is a pattern of relationships-many interwoven, simultaneous relationships- through which people, under the direction of managers, pursue their common goals. These goals are the products of the decision - making processes. The goals that managers develop through planning are typically ambitious, far-reaching, and open-ended. Managers want to ensure that their organizations can endure for a long time. Members of an organization need a stable, understandable framework within which they can work together toward organizational goals. The managerial process of organizing involves making decisions about creating this kind of framework so that organizations can last from the present well into the future. Managers must take into account two kinds of factors when they organize. First, they must outline their goals for the organization, their strategic plans for pursuing those goals, and the capabilities at their organizations for carrying out those strategic plans. Secondly, simultaneously, managers must consider what is going on now, and what is likely to happen in the future, in the organizational environment. At the intersection of those two sets of factors - plans and environments- managers make decisions that match goals, strategic plans, and capabilities with environmental factors. This crucial first step in organizing, which logically follows from planning, is the process of organizational design. The specific pattern of relationships that managers create in this process is called the organizational structure. ORGANIZATIONAL STRUCTURE Is a framework that managers devise for dividing and coordinating the activities of members of an organization? Because strategies and environmental circumstances differ from one organization to the next, there are a variety of possible organizational structures. TYPES OF ORGANIZATIONAL STRUCTURES Organizational structure refers to the way in which an organization’s activities are divided, grouped, and coordinated into relationships between managers and employees, managers and managers, and employees and employees. An organization’s departments can be formally structured in three major ways: By Function By Product/Market Matrix Form FUNCTIONAL ORGANIZATION STRUCTURE
Organization by function brings together in one department everyone engaged in one activity or several related activities that are called functions. For example, an organization divided by function might have separate manufacturing, marketing, and sales departments. A sales manager in such an organization would be responsible for the sale of all products manufactured by the firm. Advantages: Functional organization is perhaps the most logical and basic from of departmentalization.. It is used mainly by smaller firms that offer a limited line of products because it. Makes efficient use of specialized resources. It makes supervision easier, since each manager must be expert in only a narrow range of skills. In addition. A functional structure makes it easier to mobilize specialize skills and bring them to bear where they are most needed. Disadvantages: As an organization grows, either by expanding geographically or by broadening its product line, some of the disadvantages of the functional structure begin to surface. Because Functional managers have to report to central headquarters; it can be difficult to get quick decisions. It is often harder to determine accountability and judge performance in a functional structure. If a new product fails, who is to blame-research and development, production, or marketing? Finally, coordinating the functions of members of the entire organization may become a problem for top managers. Because members of each department may feel isolated from (or superior to) those in other departments. They may have difficulty working with others in a unified way to achieve the organization’s goals. For example, the manufacturing department may concentrate on meeting cost standards and delivery dates and neglect quality control. As a result, the service department may be flooded with complaints. In short, a functional structure can be a difficult setting in which managers must coordinate employees’ activities. PRODUCT/MARKET ORGANIZATION STRUCTURE Product or market organization, often referred to as organization by division, brings together in one work unit all those involved in the production and marketing of a product or a related group of products, all those in a certain geographic area, or all those dealing with a certain type of customer. Most large, multi product companies, such as General Motors, have a product or market organization structure. At some point in an organization’s existence, sheer size and diversity of products make functional departments too unwieldy. When a company’s depart metallization becomes too complex for coordinating the functional structure, top management will generally create semiautonomous division. In each division, management and employees design, produce, and market their own products. Unlike a functional department a division resembles a separate business. The division head focuses primarily on the operations of his or her division, is accountable for profit or loss, and may even compete with other units of the same firm. But a division is unlike a separate business in one crucial aspect: the division manager must still report to central headquarters. A product/market organization can follow one of three patterns Most obvious is division by product Division by geography is generally used by service, financial, and other non-manufacturing firms as well as by mining and oil-producing companies. Geographic organization is logical when a plant must be located as close as possible to sources of raw materials, to major markets, or to specialized personnel. In division by customer, the organization is divided according to the different ways customers use products. Advantages: Organization by division (Product/Market) has several advantages. Because all the activities, skills, and expertise requisites to produce and market particular products are grouped in one place under a single head, a whole job can more easily be coordinated. High work performance maintained. In addition, both the quality and the speed of decision making are enhanced because decisions made at the divisional level are closer to the scene of the scene of action. At the same time. The burden on central management is eased because divisional managers have greater latitude to act. Perhaps most important, accountability is clear. The performance of divisional management can be measured in terms of the division’s profit or loss. Disadvantages: The divisional structure does have some disadvantages, however. The interests of the division may be placed ahead of the goals for the total organization. For example, because they are vulnerable to profit and loss performance reviews, division heads may take short-term gains at the expense of long-range profitability. In addition, administrative expenses increase because each division has its own staff members and specialists, leading to costly duplication of skills. MATRIX ORGANIZATION STRUCTURE/MULTIPLE COMMAND SYSTEM The matrix structure, sometime referred to as a “multiple command system,” is a hybrid that attempts to combine the benefits of both types of designs while avoiding their drawbacks. An organization with a matrix structure has two types of structure existing simultaneously. Employees have in effect two bosses-that is, they work in two chains of command. One chain of command is functional or divisional. The second is a horizontal overlay that combines people from various divisions or functional department into a roject or business team led by a project or group manager who is an expert in the team’s assigned area of specialization. Advantages/Disadvantages THE FORMAL AND INFORMAL ORGANIZATIONAL STRUCTURE Formal organizational Structure Informal organizational Structure Formal organizational Structure Organization charts are useful for showing the formal organizational structure and who is responsible for certain tasks. In reality, though, the organization chart cannot begin to capture the interpersonal that make up the informal organizational structure. Informal organizational Structure Herbert A. Simon has described this as “the in interpersonal relationships in the organization that affect decisions within it but either are omitted from the formal scheme or are not consistent with it. For example, during a busy period, one employee may turn to another for help rather than going through a manager. Or an employee in sales may establish a working relationship with an employee in production, who can provide information about product availability faster than the formal reporting system.