Careers: Business/Management

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Question
What are the factors which influence the structure of an organization and how? Explain with specific example known to you or familiar with.  Briefly describe the situation and the factors which specifically influenced the choice of organization structure. Briefly describe the organization/s, you are referring to.

Answer
Factors Affecting Organizational Design/STRUCTURE.

Although many things can affect the choice of an appropriate structure for an organization, the following five factors are the most common: size, life cycle, strategy, environment, and technology.
Organizational structure is the framework companies use to outline their authority and communication processes. The framework usually includes policies, rules and responsibilities for each individual in the organization. Several factors affect the organizational structure of a company. These factors can be internal or external. Small business owners must be responsible for creating their companies organizational structure framework. Business owners may use a management consultant or review information from the Small Business Administration before setting up their organizational structure.
Size
Size is many times the driving factor for a company’s organizational structure. Smaller or home-based businesses do not usually have a vast structure because the business owner is usually responsible for all tasks. Larger business organizations usually require a more intense framework for their organizational structure. Companies with more employees usually require more managers for supervising these individuals. Highly specialized business operations can also require a more formal organizational structure.
Life Cycle
The company’s life cycle also plays an important part in the development of an organizational structure. Business owners attempting to grow and expand their company’s operations usually develop an organizational structure to outline their company’s business mission and goals. Businesses reaching peak performance usually become more mechanical in their organizational structure. This occurs as the chain of command increases from the business owner down to frontline employees. Mature companies usually focus on developing an organizational structure to improve efficiency and profitability. These improvements may be the result of more competitors entering the economic marketplace.
Strategy
Business strategies can also be a factor in a company’s organizational structure development. High-growth companies usually have smaller organizational structures so they can react to changes in the business environment quicker than other companies. Business owners may also be reluctant to give up managerial control in business operations. Small businesses still looking to define their business strategy often delay creating an organizational structure. Business owners are usually more interested in setting business strategies rather than developing and implementing an internal business structure.
Business Environment
The external business environment can also play an important part in a company’s organizational structure. Dynamic environments with constantly changing consumer desires or behavior is often more turbulent than stable environments. Companies attempting to meet consumer demand can struggle when creating an organizational structure in a dynamic environment. More time and capital can also be spent in dynamic environments attending to create and organizational structure. This additional capital is usually a negative expense for many small businesses.

Organizational size
The larger an organization becomes, the more complicated its structure. When an organization is small — such as a single retail store, a two-person consulting firm, or a restaurant — its structure can be simple.
In reality, if the organization is very small, it may not even have a formal structure. Instead of following an organizational chart or specified job functions, individuals simply perform tasks based on their likes, dislikes, ability, and/or need. Rules and guidelines are not prevalent and may exist only to provide the parameters within which organizational members can make decisions. Small organizations are very often organic systems.
As an organization grows, however, it becomes increasingly difficult to manage without more formal work assignments and some delegation of authority. Therefore, large organizations develop formal structures. Tasks are highly specialized, and detailed rules and guidelines dictate work procedures. Interorganizational communication flows primarily from superior to subordinate, and hierarchical relationships serve as the foundation for authority, responsibility, and control. The type of structure that develops will be one that provides the organization with the ability to operate effectively. That's one reason larger organizations are often mechanistic—mechanistic systems are usually designed to maximize specialization and improve efficiency.
Organization life cycle
Organizations, like humans, tend to progress through stages known as a life cycle. Like humans, most organizations go through the following four stages: birth, youth, midlife, and maturity. Each stage has characteristics that have implications for the structure of the firm.
•   Birth: In the birth state, a firm is just beginning. An organization in the birth stage does not yet have a formal structure. In a young organization, there is not much delegation of authority. The founder usually “calls the shots.”
•   Youth: In this phase, the organization is trying to grow. The emphasis in this stage is on becoming larger. The company shifts its attention from the wishes of the founder to the wishes of the customer. The organization becomes more organic in structure during this phase. It is during this phase that the formal structure is designed, and some delegation of authority occurs.
•   Midlife: This phase occurs when the organization has achieved a high level of success. An organization in midlife is larger, with a more complex and increasingly formal structure. More levels appear in the chain of command, and the founder may have difficulty remaining in control. As the organization becomes older, it may also become more mechanistic in structure.
•   Maturity: Once a firm has reached the maturity phase, it tends to become less innovative, less interested in expanding, and more interested in maintaining itself in a stable, secure environment. The emphasis is on improving efficiency and profitability. However, in an attempt to improve efficiency and profitability, the firm often tends to become less innovative. Stale products result in sales declines and reduced profitability. Organizations in this stage are slowly dying. However, maturity is not an inevitable stage. Firms experiencing the decline of maturity may institute the changes necessary to revitalize.
Although an organization may proceed sequentially through all four stages, it does not have to. An organization may skip a phase, or it may cycle back to an earlier phase. An organization may even try to change its position in the life cycle by changing its structure.
As the life-cycle concept implies, a relationship exists between an organization's size and age. As organizations age, they tend to get larger; thus, the structural changes a firm experiences as it gets larger and the changes it experiences as it progresses through the life cycle are parallel. Therefore, the older the organization and the larger the organization, the greater its need for more structure, more specialization of tasks, and more rules. As a result, the older and larger the organization becomes, the greater the likelihood that it will move from an organic structure to a mechanistic structure.
Strategy
How an organization is going to position itself in the market in terms of its product is considered its strategy. A company may decide to be always the first on the market with the newest and best product (differentiation strategy), or it may decide that it will produce a product already on the market more efficiently and more cost effectively (cost-leadership strategy). Each of these strategies requires a structure that helps the organization reach its objectives. In other words, the structure must fit the strategy.
Companies that want to be the first on the market with the newest and best product probably are organic, because organic structures permit organizations to respond quickly to changes. Companies that elect to produce the same products more efficiently and effectively will probably be mechanistic.
Environment
The environment is the world in which the organization operates, and includes conditions that influence the organization such as economic, social-cultural, legal-political, technological, and natural environment conditions. Environments are often described as either stable or dynamic.
•   In a stable environment, the customers' desires are well understood and probably will remain consistent for a relatively long time. Examples of organizations that face relatively stable environments include manufacturers of staple items such as detergent, cleaning supplies, and paper products.
•   In a dynamic environment, the customers' desires are continuously changing—the opposite of a stable environment. This condition is often thought of as turbulent. In addition, the technology that a company uses while in this environment may need to be continuously improved and updated. An example of an industry functioning in a dynamic environment is electronics. Technology changes create competitive pressures for all electronics industries, because as technology changes, so do the desires of consumers.
In general, organizations that operate in stable external environments find mechanistic structures to be advantageous. This system provides a level of efficiency that enhances the long-term performances of organizations that enjoy relatively stable operating environments. In contrast, organizations that operate in volatile and frequently changing environments are more likely to find that an organic structure provides the greatest benefits. This structure allows the organization to respond to environment change more proactively.
Technology
Advances in technology are the most frequent cause of change in organizations since they generally result in greater efficiency and lower costs for the firm. Technology is the way tasks are accomplished using tools, equipment, techniques, and human know-how.
In the early 1960s, Joan Woodward found that the right combination of structure and technology were critical to organizational success. She conducted a study of technology and structure in more than 100 English manufacturing firms, which she classified into three categories of core-manufacturing technology:
•   Small-batch production is used to manufacture a variety of custom, made-to-order goods. Each item is made somewhat differently to meet a customer's specifications. A print shop is an example of a business that uses small-batch production.
•   Mass production is used to create a large number of uniform goods in an assembly-line system. Workers are highly dependent on one another, as the product passes from stage to stage until completion. Equipment may be sophisticated, and workers often follow detailed instructions while performing simplified jobs. A company that bottles soda pop is an example of an organization that utilizes mass production.
•   Organizations using continuous-process production create goods by continuously feeding raw materials, such as liquid, solids, and gases, through a highly automated system. Such systems are equipment intensive, but can often be operated by a relatively small labor force. Classic examples are automated chemical plants and oil refineries.
small-batch and continuous processes had more flexible structures, and the best mass-production operations were more rigid structures.
Once again, organizational design depends on the type of business. The small-batch and continuous processes work well in organic structures and mass production operations work best in mechanistic structures.


Organization Design
Formal and informal framework of policies and rules, within which an organization arranges its lines of authority and communications, and allocates rights and duties. Organizational structure determines the manner and extent to which roles, power, and responsibilities are delegated, controlled, and coordinated, and how information flows between levels of management. This structure depends entirely on the organization's objectives and the strategy chosen to achieve them. In a centralized structure, the decision making power is concentrated in the top layer of the management and tight control is exercised over departments and divisions. In a decentralized structure, the decision making power is distributed and the departments and divisions have varying degrees of autonomy. An organization chart illustrates the organizational structure.
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PRINCIPLES  OF  ORGANIZATIONAL  DESIGN
Division of Labour
Departmentalization
Specialization
Authority and Responsibility
Line and staff authority
Authority and power
Contingency Factors
Environment and technology
Knowledge technology: task variability & problem analyzability
Spans of Control
Levels of contro
Centralization and decentralization
Contingency Factors
Knowledge technology:
task variability & problem analyzability

Basic Characteristics of Organizational Structure
•   Division of labor: dividing up the many tasks of the organization into specialized jobs
•   Hierarchy of authority: Who manages whom.
•   Span of control: Who manages whom.
•   Line vs staff positions
•   Decentralization
•   Hierarchy of Authority
•   Tall vs flat hierarchies
•   Autonomy and control
•   Communication
•   Size
•   Span of Control
•   A wide span of control: a large number of employees reporting,
•    A narrow span of control: a small number employees reporting
•   The appropriate span of control depends on the experience, knowledge and skills of the employees and the nature of the task.
•   Line vs Staff Positions
•   Line vs Staff:
–    Line positions are those in which people are involved in producing the main goods or service or make decisions relating to the production of the main business.
–   Staff positions These are positions in which people make recommendations to others but are not directly involved in the production of the good or service
•   Decentralization
•   The extent to which decision making is concentrated in a few people or dispersed through out the organization
•   Advantage: benefits associated with greater participation and moving the decision closest towards implementation
•   Disadvantage: Lack of perspective and information, lack of consensus
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EFFECTIVE   ORGANIZATIONAL    DESIGNS
Use functional structures  ,  when the organization is small, geographically centralized, and provides few goods and services.
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When the organization experiences bottlenecks in decision making and difficulties in coordination, it has outgrown its functional structure.
Use a divisional structure when the organization is relatively large, geographically dispersed, and/or produces wide range of goods/services.
Use lateral relations to offset coordination problems in functional and divisional structures.
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When the organization needs constant coordination of its functional activities, then lateral relations do not provide sufficient integration. Consider the matrix structure.
To adopt the matrix structure effectively, the organization should modify many traditional management practices.
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Organization design is central to an enterprise’s ability to be market driven, adaptive, innovative, and more – in short, to be able to compete effectively.
The design  approach is guided by the following core principles:
   Organization design is more than just structure – it is the integration of structure, processes, people, culture, systems and technology    
   Strategy is the starting point – organization design must be driven by, and supportive of, overall strategy
   Clarity and accountability underpin sound organization design –when good people know what to do and are held accountable, they achieve results
   Transitioning to a new organization end-state requires an integrated approach to change management
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Strategic Organization Design

The Need:

Senior organizational leaders are constantly facing the need to restructure their organizations.  Changes in leadership, a shift in strategy, or changing factors within an organization often create the need for reorganizing.  Organization design is one of the most potent tools available to senior managers for shaping the direction of their organizations.  It can be a key leverage point for directing attention and energy to certain critical activities in an organization.

Organizational leaders, however, often lack the tools necessary to help them in making decisions about how to structure their organizations.  Efforts at restructuring are often uneven and unsystematic.  Decisions to reorganize are often made with insufficient information and without a clear process to guide the effort.  The result is that reorganizations often fail to produce the desired effects, leading instead to further confusion or problems within the organization.

The Process:

Strategic Organization Design is a four-phase participative process intended to provide senior leaders with a systematic, step-by-step method for examining the structure of their organizations.  The four-phases are as follows:

  Preliminary Analysis
   Strategic Design
   Operational Design
   Implementation

The preliminary analysis involves the collection of information necessary for making design decisions.  Structured interviews are conducted focusing on the strategy of the organization, the key tasks being performed and current strengths and weaknesses of the organization.  Operational design involves the structuring of supervisory roles, information flows, and jobs within the context of the strategic design decisions.  Implementation involves managing the transition from the current design to a new design.

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Strategic Organization Design

The key restructuring decisions are made during the strategic design phase.  This phase involves six steps:

Step 1. Identify design criteria.
Step 2. Generate grouping alternatives.
Step 3. Evaluate grouping alternatives against the criteria.
Step 4. Generate linking mechanisms.
Step 5. Conduct an impact analysis.
Step 6. Select a new design.

The goal of the strategic design phase is to develop grouping and linking combinations that best support the strategy and basic work of the organization.  Before any design decisions are made, the management group identifies design criteria - statements about what the new design will need to be able to do.  These statements are reflections of the organization's strategy, its basic tasks, and the current strengths and weaknesses identified during the preliminary analysis.

Next, several different grouping alternatives are developed by the group and assessed against the design criteria.  Linking or coordinating mechanisms such as liaison roles, integrator departments, etc. are then generated for each of the possible grouping alternatives.  This step depends on the need for information exchange between groups in a particular design.  Finally, an impact analysis is conducted to determine the effect that the new design will have on the organization.  At this point a final design can be selected using the information and ideas generated during each step.  Often the final design is a hybrid of several alternatives considered during the process.

Who Should Be Involved?

This process is highly participative, involving each member of senior leadership staff of an organization, i.e. a Vice President and each of his or her direct reports.  The process draws heavily on the knowledge of the organization that each senior staff member has, and its success depends on the sharing of their ideas, concerns, and work-related needs.  To complete the process usually requires one to two days time for each member of the senior staff.

The process is not only for those groups who have an immediate need to restructure.  Leadership groups who only want to modify their organization slightly, or who simply want to reexamine their current structure may also benefit from using this process.  The process can help managers to solidify their strategy and ensure that their structure is consistent with it.


Strategic Organization Design Process Outline

Objective:    To provide a systematic participative process to help leaders structure their organizations in a way which helps accomplish the overall business strategy as well as the day-to-day work.
Phase I: Preliminary Analysis
         Conduct structured interviews to:
          Identify strengths and weaknesses of the existing organization
          Clarify issues related to business strategy and organizational design

Phase II: Strategic Organization Design
  Design Criteria:  Review information from the preliminary analysis and
    generate criteria for a new design
 Grouping:  Generate several design options and evaluate against criteria
- Grouping By Output – Product, Service, or Project
- Grouping By Activity – Function, Work Process, Knowledge or Skill
- Grouping By Customer – Market Segment, Customer Need, Or Geography
  Linking: Identify information flow requirements, select ways to
    facilitate the flow of information to meet the requirements, and
    evaluate against the criteria
  Impact Analysis: Analyze each option to determine feasibility given the
    existing leadership skills, power relationships, and work environment.

Phase III: Operational Design
  Carry out the operational homework necessary to put organization design
    decisions in place
  Design work charters, reporting relationships, information flows, etc.

Phase IV: Implementation
 Develop a strategy for implementing the new design
 Assess the potential resistance to the new organization
 Determine the best way to manage the transition from the old
    organization to the new one.
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EXAMPLE S   OF   ORGANIZATION DESIGN / STRUCTURE
1.MSA  SAFETY  CO.
THE  EMPHASIS  IS  ON
THE  ORGANIZATION, I   AM  REFERRING  TO

The  organization, I am  familiar  with  is  a
-a  large  manufacturer/ marketer of  safety products
-the products  are  used  as  [personal  protection safety] [ industrial  safety]
-the products  are  distributed through  the distributors as well as  sold directly
-the  products  are  sold  to various  industries like  mining/fireservices/defence/
as  well  as  to  various  manufacturing  companies.
-the  company employs  about  235  people.
-the  company  has  the following  functional   departments
*marketing
*manufacturing
*sales
*finance/ administration
*human resource
*customer  service
*distribution
*warehousing/  transportation
*TQM  
===============================================
THE  EMPHASIS  IS  ON
(1) How to divide work among the organization's subunits?
(2) How to coordinate and control the efforts of the units created?


A  REGIONAL  PRODUCT STRUCTURE
1   Implements strategies that emphasize REGIONAL  products
2   Each product division assumes responsibility to produce and sell its products or services though out the REGION.


A  REGIONAL  GEOGRAPHIC STRUCTURE
1   Implements a  regional strategy
2   Country-level divisions    
MSA ’S  REGIONAL  STRUCTURE
MATRIX STRUCTURE
1   Support strategies that include local adaptation and concern for REGION.  
2   Mix geographic units with product or function units
3   Amplified by distance, time, culture, language

THE TRANSNATIONAL NETWORK STRUCTURE
1   Implements the transnational strategy
2   Combines functional, product, and geographic subunits in networks
3   Has no symmetry or balance in its structural form
4   Resources, people, and ideas flow in
all directions  
5   Nodes or centers in the network coordinate product, functional, and geographic information

NETWORK STRUCTURES HAVE
1   Dispersed subunits
2   Specialized operations
3   Interdependent relationships

Key characteristics of transnational organizations
1   Multidimensional perspectives
2   Distributed, interdependent capabilities
3   Flexible integrative processes

Multidimensional perspectives
1   National subsidiary management senses needs of local customers and host governments
2   REGIONAL  business management tracks competitors and coordinates response
3   Functional management concentrates knowledge and facilitates transfer among organizational units

Distributed, interdependent capabilities
1   Centralize activities for which global scale or centralized knowledge is important
2   Involve relevant national units in developing technology, products, marketing strategy
3   Interdependence of  REGIONAL  units is high – the integrated network

Flexible integrative processes
1   Centralization
2   Formalization
3   Socialization

EXAMPLE PRODUCT LINKS
CONTROL AND COORDINATION SYSTEMS
1   Top managers must design organizational systems to control and coordinate the activities of their subunits.      
  BASIC FUNCTIONS OF CONTROL
2   Measure or monitor the performances
of subunits
3   Provide feedback to subunit
managers regarding the effectiveness
of their units  
COORDINATION SYSTEMS
1   Provide information flows among subsidiaries
2   Link the organization horizontally
CONTROL SYSTEMS
1   Output   
2   Decision making
3   Cultural
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EXAMPLE S   OF   ORGANIZATION DESIGN / STRUCTURE
1.APPLE  COMPUTERS
THE  EMPHASIS  IS  ON

(1) How to divide work among the organization's subunits?
(2) How to coordinate and control the efforts of the units created?


A WORLDWIDE PRODUCT STRUCTURE
3   Implements strategies that emphasize global products
4   Each product division assumes responsibility to produce and sell its products or services though out the world  


A WORLDWIDE GEOGRAPHIC STRUCTURE
3   Implements a multinational or regional strategy
4   Country-level divisions
5   Separate divisions for large market countries       


APPLE’S GEOGRAPHIC STRUCTURE
HYBRIDS AND WORLDWIDE MATRIX STRUCTURE
4   Support strategies that include local adaptation and concern for globalization.  
5   Mix geographic units with product or function units
6   Managers report to multiple supervisors
7   Conflict, confusion, loss of accountability
8   Amplified by distance, time, culture, language

THE TRANSNATIONAL NETWORK STRUCTURE
6   Implements the transnational strategy
7   Combines functional, product, and geographic subunits in networks
8   Has no symmetry or balance in its structural form
9   Resources, people, and ideas flow in
all directions  
10   Nodes or centers in the network coordinate product, functional, and geographic information

NETWORK STRUCTURES HAVE
4   Dispersed subunits
5   Specialized operations
6   Interdependent relationships

Key characteristics of transnational organizations
4   Multidimensional perspectives
5   Distributed, interdependent capabilities
6   Flexible integrative processes

Multidimensional perspectives
4   National subsidiary management senses needs of local customers and host governments
5   Global business management tracks competitors and coordinates response
6   Functional management concentrates knowledge and facilitates transfer among organizational units

Distributed, interdependent capabilities
4   Centralize activities for which global scale or centralized knowledge is important
5   Involve relevant national units in developing technology, products, marketing strategy
6   Interdependence of worldwide units is high – the integrated network

Flexible integrative processes
4   Centralization
5   Formalization
6   Socialization

EXAMPLE PRODUCT LINKS
CONTROL AND COORDINATION SYSTEMS
4   Top managers must design organizational systems to control and coordinate the activities of their subunits.      
  BASIC FUNCTIONS OF CONTROL
5   Measure or monitor the performances
of subunits
6   Provide feedback to subunit
managers regarding the effectiveness
of their units  
COORDINATION SYSTEMS
3   Provide information flows among subsidiaries
4   Link the organization horizontally
CONTROL SYSTEMS
4   Output
5   Bureaucratic    
6   Decision making
7   Cultural
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