CHALLENGES OF

ORGANIZATIONAL DESIGN
The basic challenges of organizational
design are:

Balancing Differentiation and Integration
Balancing Centralization and
Decentralization
Balancing Standardization and Mutual
adjustment
Balancing Differentiation and Integration
1. Differentiation:
Differentiation is the process by which an
organization allocates people and resources to
organizational tasks and establishes the tasks
and authority relationships that allow the
organization to achieve its goals.

Forms of differentiation:

Horizontal differentiation
Vertical differentiation

Horizontal differentiation
The way an organization groups organizational
tasks into roles and roles into
subunits(functions and divisions).
Differentiation by specialization, often referred
to as departmentalization. People with similar
abilities working together on specialized tasks.
Vertical differentiation
The way an organization designs its hierarchy of
authority and creates reporting relationships to
link organizational roles and subunits.

2. Integration
The process of coordinating various tasks,
functions, and divisions so that they work
together and not at cross-purposes.
There are seven integrating mechanisms or
techniques that managers can use as their
organizations level of differentiation
increases.
Hierarchy of authority
This differentiates people by the amount of
authority they possess. Because the hierarchy
dictates who reports to whom, it coordinates
various organizational roles.

Direct contact
Direct contact among managers creates a context
within which managers from different
functions or divisions can work together to
solve mutual problems. However several
problems with establishing this contact.
Because managers from different functions
may have different views about what must be
done to achieve organisational goals.
Liaison roles
Managers can increase coordination among
functions and divisions by establishing liaison
roles. When the volume of contacts between
two functions increases, one way to give one
manager in each function or division the
responsibility for coordinating with the other.
These managers meet daily, weekly, monthly,
or as needed to solve handoff issues and
transfer problems.
Task forces
A temporary committee setup to handle a
specific problem.
As an organization increases its size and
complexity, more than two subunits may need
to work together to solve common problems.
For example, may require input from
production, marketing, engineering and R&D.
Team
A team is a permanent task force or committee.
Most companies today, for example, have product
development and customer-contact teams to
monitor and respond to the ongoing challenges of
increased competition in a global market.
At Amgen, one of the most successful global
biotechnology companies, for example, the team
system has proved to be a vital contributor to the
companys success.
Integrating roles or departments
A full time position established specifically to
improve communication between divisions.
Balancing differentiation and integration
The design issue facing managers is to establish
a level of integration that matches the
organization's level of differentiation.
Balancing centralization and
decentralization
Centralization:
Organizational setup whereby the authority to
make important decisions is retained by
managers at the top of the hierarchy.
Advantages of centralization:
Standardization of procedures and systems:
Facilitates evaluation:
Economies:
Co-ordination of activities:




Disadvantages of centralization:
Destroys individual initiative:
Overburden a few:
Slows down the operations:
Distance from customers:
No scope for specialization:

Decentralization:
An organizational setup whereby the
authority to make important decisions about
organizational resources and to initiate new
projects is delegated to managers at all levels
in the hierarchy.
Advantages of decentralization:
Increase number of potential innovators:
Relieving the burden:
Preparing for emergencies:
More efficient decision making:

Disadvantages of decentralization:
Make coordination more difficult:
Causes conflict with ongoing operations: