Elements that make an

organisational
structure
Factors affecting
Organisation structure
 Environment
 Strategy
 Technology
 Size
 People
Environment

 An organisation is a system which

works within a broader framework
of an environment.
 The organisation interacts with the
environment continuously.
 It is affected by the environment.
 It also affects the environment.
 Environment determines the various
organisational processes including
structure.
 The adjustment between an
organisation and its environment is
affected by the type of
organisation structure.
 Thus, an appropriate organisation
structure is one which is in
accordance with the needs of the
environment.
 Two characteristics of the environment
are important for the organisation.
Complexity and variability.
 So, the organisation structure should
be able to,
 1.monitor and process information
about the environment.
 2.increase organisation`s ability to pre-
plan.
 3. increase its flexibility to adapt.
 4.decrease the level of performance
required for continued variability.
 Burns and Stalker studied 20
electronic firms in Britain.
 Mechanistic system-suitable for
stable environment.
 Organic system suitable for dynamic
environment.
Strategy

 In implementing the
strategy,organisation structure is
designed according to the needs of
the strategy.
 Structure should be utilised for strategy
implementation, because structure is
a means to an end.
 The most appropriate end is the very
objectives for which the organisation
exists, which is revealed by the
strategy.
 Without coordination between strategy
and structre, the results are
confusion, misdirection etc.
 According to Chandler, changes in
strategy bring about new
administrative problems which in
turn require a new refashioned
structure if the new strategy is to
be successfully implemented.
Strategy-Structure
Relationship
 Itcan be analysed by considering
various stages of organisational
growth.
 Because at each stage,the type of
product, market,size of the
organisation and managerial
problems differ.
Evolution of
organisations
 Initial expansion and accumulation
of resources.
 Rationalisation of the use of
resources.
 Expansion into new products and
business lines.
 Development of a new organisation
structure to enable effective
utilisation of resources.
Three types of
Organisation Structure
according to Chandler
 Type I
 Type II
 Type III.
Type I

 Type I structure is characterised by

centralised decision making, a
single product line with emphasis
on one function-Production.
Type II

 Emphasis on efficiency and functional

coordination with one or a few
rellated products.
 Chief Executive entrusted with various
complex decisions.
 Departmental heads entrusted with the
responsibility of various departments
 So, departmental heads have no
experience or interest in
understanding the needs and
problems of other departments and
total organisation.
Type III

 Highly decentralised and

divisionalised.
 Successful firms with type II
structure results in diversification.
 It results in lot of problems.
 Administative problems-
Interdepartmental co-ordination.
 So, they may shift from functional
structure to a divisional structure.
 Two or more product divisions with
responsibility is assigned to
Conclusion of Chandler`s
study
 The development occurs in three
stages.
 A small single product company to a
specialised functional company
and finally to a multi product
diversified company.
Corporate level strategy

 Single product strategy-Functional

departmentalization
 Related Diversification-High level of
coordination among various units.
 Unrelated diversification-Strong
hierarchical reporting system.
Business Level
Strategies
 Generic strategies also affect
organisational design.
 Cost leadership strategy-Strong
commitment to efficiency and
control, more centralised.
 Focus strategy-Location
Departmentalisation if its focus is
geographic region,customer
departmentalisation if its focus is
customer groups.
Technology

 With the increase in technological

complexity- a number of
managerial and supervisory
personnel increases.
 The span of management for first
level managers increases as an
organisation moves from unit to
mass production but it decrease
when the organisation moves from
mass to process production.
 As an organisation`s technological
complexity increases, its clerical
administrative staffs becomes
larger because managers need
help with paperwork and non-
production work so that they can
concentrate on their specialised
tasks.
 Technology may be used to facilitate
task performance.
 Manpower requirement may reduce,
necessitating the merger of various
units.
 Flatter organisations.
Size.

 Size affects some structural

characteristics.
A small organisation can work
effectively with a simple structure.
 As the organisation grows,
complexity increases.
 The Size of an organisation affects
the degree of formalisation of
various processes like,
communication,authority and
responsibility, delegation,control
People

 Organisation structure is the result

of conscious actions on the part of
people who are engaged in the
organisation.
 The form of organisation structure is
expected to reflect the thinking
and way of working of its framers
and participants.
 The form of organisation structure is
a major source of satisfaction or
Characteristics of
Framers
 Top management philosophy about
degree of freedom and autonomy
required for people in the
organization affects structure.
 Top management approach to
interact with organization's
environment
 Reactive-Mere adjustment to
environmental changes.
 Pro active-Agents of Change.
Characteristics of
Participants
 People want to satisfy their needs
while working in an organisation.
 Skilled/unskilled/non-professional.
Departmentalisation
Departmentalisation

 The first real task in designing the

organization structure is the
identification of activities and to
group them properly.
 The process of grouping the
activities is known as
departmentalisation.
The terms used to denote
Departments.
 In business organizations-Division,
Department, Section.
 Government-Branch, Department,
Bureau and Section.
 In military-Batalion, Group,Company
etc.
Need and Importance of
Departmentalisation
 Grouping of activities and
consequently of personnel into
departments makes it possible to
expand an organization to any
extent.
 1. Advantages of Specialisation-
Specialisation results in efficiency
with which the work is performed
because a person focuses his
attention on a narrow aspect of
Fixation of responsibility

 Results in accountability for the

results.
 Responsibility can be discharged
properly when it is clear, Precise
and definite.
Development of
Managers
 Managers focus their attention on
some specific problems which
provides them effective on the job
training.
 Need for training and its methods
can be easily identified.
Feeling of autonomy

 Departments are created with

certain degree of autonomy and
freedom. It motivates the
managers.
Bases of
Departmentalisation
 Function
 Product
 Territory
 Process
 Customer
 Time
Function

 Functional departmentation is the

most widely used basis for
organisaing activities.
 Basic Functions-Davis has called
these functions as organic
functions because their
performance is vital and essential
to the basic survival of the
organization.
 Secondary Functions. When the
manager feels that his span of
 Ex. Marketing Dept-Marketing
Research, Sales, advertising.
 Further advertising may be divided
into Print media advertising, TV
advertising etc.
Functional Structure

 Activitiesare grouped together by

common function from the bottom
to the top of the organisation.
 All engineers are located in the
engineering department and the
VP of engineering is responsible for
all engineering activities.
 The same is true with marketing, R
&D and manufacturing.
 With a functional structure, all
human knowledge and skills with
respect to specific activities are
consolidated, providing a valuable
depth of knowledge for the
organization.
 This structure is more effective when
in-depth expertise is critical to
meeting organizational goals and
when efficiency is important.
Strengths Weaknesses
Allows economies of scale Slow response time to
within functional
Enables departmentsand
in-depth knowledge environmental
May changes
cause decisions to pile on
skill development
Enables organisation to top,hierarchy
Leads to poor overload.
horizontal
accomplish
Is best with functional
only one orgoals
a few coordination
Results in lessamong departments
innovation
products Involves restricted view of
organisational goals.
Product

 Grouping together of all activities

necessary to manufacture a
product or product line.
 As the organisation grows in size, it
will be difficult for managers to
coordinate the activities of the
expanding product lines.
 So, it is good to establish
departments based on products.
 Many large organisations are
diversifying in different fields and
Territory

 Territorialdepartmentation is useful
to large organisations having
activities which are physically or
geographically spread such as
banking, insurance, transportation
etc.
Advantages of territorial
Departmentation
 Provides efficiency in
operation.
 Local factors such as customers,
culture, styles, preferences etc
always affect organisational
functioning.
 Knowledge of local conditions is an
important element in effective
management.
 Some costs of operations can be
saved.
Problems

 Communication
 Distance between policy framers and
policy executers.
 Co-ordination problems.
Process

 Processes involved in production or

various types of equipments used
are taken as basis for
departmentation.
 Advantage-Economic
advantages,specialisation
Customer

 Market oriented in which

departments are created around
the markets served or around
marketing channels.
 Advantages-Focuses on customers
 Different types of customers can be
satisfied easily through specialised
staff.
Time

 Insome where work is performed

throughout day and night, work is
divided into shifts.
 There will be one department for
each shift though thy all may be
alike in terms of objectives and
activities.
Span of Management

 It represents the number of

subordinates that can be
effectively managed by a superior.
Wide or narrow span

 Classical writers-Wide Span

 Modern approach-Narrow span.
Tall Structure

 Tall
structure is one which fosters
narrow span of management.
 More centralised decision making.
 Advantages-Close supervision, close
control of subordinates activities,
fast communication between
superior and subordinates.
Flat Structure

 Reduces the levels of management.

 Widens span of control of managers
at various levels of the
organisation.
 Often more decentralised with
regard to decision making
authority.
Divisional Structure

 Itis also called a product structure

or Strategic Busineess Units.
 Divisions can be organised according
to individual products,services,
product groups,major projects or
programs, divisions, businesses or
profit centers.
 Here grouping is based on
organisational outputs.
Functional Structure vs
Divisional Structure
A functional structure can be
redesigned into separate product
groups and each group contains
the functional departments of R &
D, manufacturing,accounting and
marketing.


 The divisional structure promotes
flexibility and change because
 Divisional structure decentralises
decision making, functional
structure is centralised, because it
forces decisions all the way to the
top.
Strengths and
weaknesses
Strengths Weaknesses
Suited to fast change in unstable Eliminates economies of scale in
environment
Leads to customer satisfaction functional
Leads departments
to poor coordination
because product
Allows units responsibility
to adapt to is among product
Integration and lines.
standardisation
clear.
differences
Best in largeinorganisations
products, regions,
with Across product lines become
customers.
several products.
Decentralises decision making difficult.
 Customers are able to contact the
correct division and achieve
satisfaction.
 Coordination across functions is
excellent.
 Each product can adapt to
requirements of individual
customers or regions.
 Divisional structure works well in
organisations that have multiple
 Ex.Johnson& Johnson, PepsiCo,
Microsoft
Problems

 Johnson & Johnson Executive said-

“We have to keep reminding
ourselves that we work for the
same corporation.
 One concern at J & J is that the newly
started divisions may start offering
products and services which
conflict with one another.
 Unless effective horizontal
mechanisms are in place, a
divisional structure can cause real
problems.
 Lack of technical specialization.
Employees identify themselves
with product line rather than with a
functional speciality.
 Professionals may not be satisfied
with this.
Hybrid Structure

 Many structures in the real world do

not exist in the pure forms which
we have discussed.


 Organizations' often use a hybrid
structure that combines
characteristics of various
approaches tailored to specific
strategic needs.
 Many organisations combine
characteristics of functional,
divisional, horizontal or other
structures to take advantage of the
strengths of various structures and
to avoid some of the weaknesses.

 Hybridstructures tend to be used in
the rapidly changing environment
because they offer the organisation
 Ex. Combine the characteristics of
functional and divisional structures.
 When a corporation grows large and
has several products or markets , it
is typically organized into various
divisions.
 But, some functions that are
relatively stable and require
economies of scale and in-depth
specialisation are centralised at
headquarters.
Matrix Structure

 Sometimes an organisation`s
structure needs to be
multifocussed in that both product
and function or product and
geography are emphasised at the
same time.
 One way to achieve this is through
matrix structure.
 Matrix structure is a violation of
unity of command principle.
 In matrix structure, a project
manager is appointed to manage a
project and personnel are drawn
from their respective departments.
 On completion of the project, these
people may return to their original
departments.
 Thus, each functional staff has two
bosses, his administrative head
Strengths and
weeknesses
Strengths Weaknesses
Flexible sharing of human Causes participants to experience
resources
Suited across products
to complex decisions and dual authority,which
Participants need good can be
frequent
Provides changes in unstable
opportunity for both frustrating andskills
interpersonal
Is time consuming.confusing.
and extensive
Involves
environment
functional and product
Best in medium sized skill training
frequent meetings
Will not work andparticipants
unless conflict
development
organisations with multiple resolution
understand
Requires sessions.
it. effort to maintain
great
products. power balance.
Unity of Command

 Unity of command means that each

subordinate reports to one and only
one superior.
 Individual has reporting relationship to
a single superior.
 Otherwise there will be conflict in
instructions.
 Fayol has considered unity of command
as an important aspect of managing
an organization.