Organizational Structures

1. Objective of the module:

a. To increase students understanding about the concept of

organizations.
b. To increase students ability to understand the various types of
organization structures, their advantages and disadvantages
c. To make aware to students how organization structures influence
people working in organizations.

2. Session plan:

Ses S. Content Pedagogy References

No
1 Definition of Interactive Robbins,S.P, Judge,T.A
organization , sessions , &Vohra,N (2012)
organization discussion based Organizational
structures, on OST Behaviour : Pearson
advantages , experiences and
disadvantages videos
and
contemporary
structures

3. Assessment: Mentors can mark the students on the basis of their OST
presentations and reports as part of their Industrial Domain Knowledge
Marks.

4. Handout :

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 Organization Structures

Meaning of Organisation:
Organisation is the foundation upon which the whole structure of management is built.
Organisation is related with developing a frame work where the total work is divided into
manageable components in order to facilitate the achievement of objectives or goals. Thus,
organisation is the structure or mechanism (machinery) that enables living things to work
together. In a static sense, an organisation is a structure or machinery manned by group of
individuals who are working together towards a common goal. The term 'organisation' has
also been used in a number of ways. Broadly speaking, the term 'organisation' is used in four
different senses: as a process, as a structure of relationship, as a group of persons and as a
system, as given below:
Organisation as a Process: In this first sense, organisation is treated as a dynamic process
and a managerial activity which is essential for planning the utilization of company's
resources, plant and equipment materials, money and people to accomplish the various
objectives.
Organisation as a Framework of Relationship: In the second sense organisation refers to
the structure of relationships and among position jobs which is created to release certain
objectives.
Organisation as a Group of persons: In the third sense, organisation is very often viewed
as a group of persons contributing their efforts towards certain goals. Organisation begins
when people combine their efforts for some common purpose..
Organisation as a System: In the fourth sense, the organisation is viewed as system. System
concepts recognize that organizations are made up of components each of which has unique
properties, capabilities and mutual relationship. The constituent element of a system are
linked together in such complex ways that actions taken by one producer have far reaching
effect on others.

Definitions of Organisation

Different authors have defined organisation in different ways. The main definitions of
organisation are as follows:
According to Keith Davis, "Organisation may be defined as a group of individuals, large of
small, that is cooperating under the direction of executive leadership in accomplishment of
certain common object."
According to Chester I. Barnard, "Organisation is a system of co-operative activities of two
or more persons."

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Steps in the Process of Organisation

Organisation means identifying, arranging and integrating different elements of organisation

into efficient working order. It requires the management to follow the following process of
organisation.
Division of work
The main function is divided into sub-functions and entrusted to the different departmental
heads. The result is the establishment of departments like Purchase, Sales, Production,
Accounts, Publicity and Public relations. The departments can be further classified just as
production department into (1) Planning (2) Designing, (3) Operations, (4) Production
Control and (5) Repairs and Maintenance. The division of the work is based upon the fact
that specialization is keynote of efficient organisation.
Grouping of Job and Departmentation
The second step is to group similar or related jobs into larger units, called departments,
divisions or sections. Grouping process is called departmentation.
The department may be based upon functions such as manufacturing, marketing and
financing etc. Department may also be based on products, such as textiles, cosmetic,
stationery etc. These departments may have different sections as per requirement.
Grouping jobs or Departmentation aims at achieving coordination and facilitates unity of
efforts. The departments are linked together on the basis of interdependence. The divided task
is assigned to specific individual or group of individuals who are supposed to be the most
qualified and specialized persons for the task.
Assigning duties
The work to be performed by every individual is clearly defined and made known to him.
Every one must know, what he is required to do in order to avoid any misunderstanding,
duplication or overlapping in the work.
Granting authorities and fixing responsibilities
Assigning of duties to individuals must coincide with the appropriate and relevant authorities.
Every employee must know, what the authorities granted to him and for what and to whom
he will be responsible, liable and accountable.
Delegation of authority
Those who are made responsible for specific tasks are given due authority. Both
responsibility and authority go hand in hand together. Reasonable powers are delegated to
heads and supervisory staff to enable them to do their work with ease and efficiency.
Effective communication
Effective communication is the keynote of efficient organisation. There should be proper
arrangement of communication messages from executives to subordinates and vice-versa.

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Proper communication system establishes harmonious relationship between employees and
enables execution of work in the right manner at the appropriate time and in an atmosphere of
perfect mutual adjustment.
Co-ordination of activities for common objectives
Business activity is a team work or the group activity, so the efforts of every employee must
be co-ordinate effectively to achieve the common objectives of the enterprise.

Types of Organisation Structures: Advantages and Disadvantages

In order to achieve the desired goals, sound and effective organizational structure is
necessary. Organizational structure, as we know is the system of job positions, roles assigned
to these positions and specifying authority, responsibility and task of every positions. The
structure undoubtedly provides basic framework for executive and employees to perform
their task smoothly. There are two organisations they must deal with-one formal and the
other informal.
The formal organisation in usually delineated by an organisational chart and job descriptions.
The official reporting relationships are clearly known to every manager.
Alongside the formal organisation exists are informal organisation which is a set of evolving
relationships and patterns of human interaction within an organisation that are not officially
prescribed.
Formal organisational structures are categorised as:
1. Simple structure
2. Functional Structure
3. Divisional organizational Structure.
4. Matrix organisational structure and
5. Project organisational structure.
These organisational structures are briefly described in the following paragraphs:

Simple Organisational Structure:

A simple organisation has only direct, vertical relationships between different levels in the
firm. There are only -departments directly involved in accomplishing the primary goal of the
organisation. The exhibit below illustrates a simple organisational structure.

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 Some of the advantages of simple organisation structure are:
(i) A simple structure tends to simplify and clarify responsibility, authority and accountability
relationships. The levels of responsibility and authority are likely to be precise and
understandable.
(ii) A simple structure promotes fast decision making and flexibility.
(iii) Because simple organisations are usually small, managements and employees have
greater closeness.
However, there are some disadvantages also. They are:
(i) As the firm grows larger, simple organisation becomes more ineffective.
(ii) Improved speed and flexibility may not offset the lack of specialized knowledge.
(iii) Managers may have to become experts in too many fields.
(iv) There is a tendency to become overly dependent on the few key people who an perform
numerous jobs.

Functional Structure

A functional structure is one of the most common organizational structures. Under this
structure, the organization groups employees according to a specialized or similar set of roles
or tasks. While functional structures operate well in stable environments where business
strategies are less inclined to changes or dynamism, the level of bureaucracy makes it
difficult for organizations to respond to changes in the market quickly.

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The advantages of functional structure is

Economies : One main benefit of the functional organizational structure derives from
grouping like jobs together. Equipment and personnel aren't repeated across different
departments, which saves a business money. The scope of activities within a department is
larger than it would be if it were spread across a company, allowing for greater expertise and
specialization. This, in turn, leads to "economies of scale," which refers to efficiency and
productivity increases as operational scope increases.

Management : Functional organization makes for clear lines -- lines of communication, lines
between departments and jobs, and the line that is the chain of command. The advantage of
these clear-cut delineations lies smoother management. People understand boundaries, who
answers to whom and who takes the blame or credit for results. Decision-making is
centralized, both for departments and for the organization as a whole. This unity of command
structure fosters a sense of direction and coordination, especially within functional areas.

Exhibit: Functional Structure

The disadvantages of functional Structure are

Isolation : Though the functional organizational structure gives employees a sense of

belonging within each departmental area, the structure creates space between departments.
Communication between them suffers, and with it goes easy coordination and cooperation.
Functional division also makes it difficult for departments to understand larger company
concerns. If managers become myopic, they may put department before company and resent
other departments.

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Cumbersomeness : Functional organizational structures are not nimble, flexible or easily
adaptable. Indeed, this type of structure is the most rigid of all possible structures. The
hierarchy creates bureaucracy, an impediment to change. When shifts in the market
environment occur, decisions on how to react come slowly as proposed changes are forced to
travel through various chains of command. This same situation also stifles innovation. The
rigidity of the functional organizational structure makes it a poor fit for dynamic
environments.(See Exhibit )

Divisional Structure :

Grouping of activities or Departmentation on the basis of product lines and areas is known as
divisional structure of organisation. Divisional structure has been finding favor with the
multiple large scale enterprise. Under this structure the top level delegates extensive
authorities to the divisional heads. The divisional head is the in charge of the manufacturing,
purchase, sales, engineering and other departments of the division under his command. He is
also made responsible for the profit or loss of his division.
Product and product line is an important basis for Departmentation. It facilitates the use of
specialized and specialist services of the divisional managers in their product line. He can use
his personal skill and his specialized knowledge for the development of his department.

Organizations having their business all over the country may adopt divisional structure on the
basis of area, such as north division, south division, east, west and central division. The
organisation structure of LIC and Railways is also upon divisional structure.

The manufacturing enterprise producing variety of goods may have different division for
different products such as textile division, plastic division, stationary division etc.

In this type of structure, the organisation can have different basis on which departments are
formed. They ,(i) Product,(ii) Geographic territory,(iii) Project and(iv) Combination (See
Exhibit)

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2 Divisional Organisational Structure:

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Matrix Organisational Structure:
It is a permanent organisation designed to achieve specific results by using teams of
specialists from different functional areas in the organisation. This type of organisation is
often used when the firm has to be highly responsive to a rapidly changing external
environment.
In matrix structures, there are functional managers and product (or project or business group)
managers. Functional manager are in charge of specialized resources such as production,
quality control, inventories, scheduling and marketing. Product or business group managers
are incharge of one or more products and are authorized to prepare product strategies or
business group strategies and call on the various functional managers for the necessary
resources.
The problem with this structure is the negative effects of dual authority similar to that of
project organisation. The functional managers may lose some of their authority because
product managers are given the budgets to purchase internal resources. In a matrix
organisation, the product or business group managers and functional managers have
somewhat equal power. There is possibility of conflict and frustration but the opportunity for
prompt and efficient accomplishment is quite high.

Feature:
Superimposes a horizontal set of divisions and reporting relationships onto a hierarchical
functional structure
Advantages:
1. Decentralised decision making.
2. Strong product/project co-ordination.
3. Improved environmental monitoring.
4. Fast response to change.
5. Flexible use of resources.
6. Efficient use of support systems.

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Disadvantages:
i. High administration cost.
ii. Potential confusion over authority and responsibility.
iii. High prospects of conflict.
iv. Overemphasis on group decision making.
v. Excessive focus on internal relations.

Project Organisational Structure:
Temporary organisation designed to achieve specific results by using teams of specialists
from different functional areas in the organisation.
Characteristics of project organisation:
1. Personnel are assigned to a project from the existing permanent organisation and are under
the direction and control of the project manager.
2. The project manager specifies what effort is needed and when work will be performed
whereas the concerned department manager executes the work using his resources.
3. The project manager gets the needed support from production, quality control, engineering
etc. for completion of the project.
4. The authority over the project team members is shared by project manager and the
respective functional managers in the permanent organisation.
5. The services of the specialists (project team members) are temporarily loaned to the project
manager till the completion of the project.
6. There may be conflict between the project manager and the departmental manager on the
issue of exercising authority over team members.

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7. Since authority relationships are overlapping with possibilities of conflicts, informal
relationships between project manager and departmental managers (functional managers)
become more important than formal prescription of authority.
8. Full and free communication is essential among those working on the project.

.
Importance of Project Organisational Structure:
Project organisational structure is most valuable when:
(i) Work is defined by a specific goal and target date for completion.
(ii) Work is unique and unfamiliar to the organisation.
(iii) Work is complex having independent activities and specialized skills are necessary for
accomplishment.
(iv) Work is critical in terms of possible gains or losses.
(v) Work is not repetitive in nature.

Virtual organization:

The term virtual organization is used to describe a network of independent firms that join
together, often temporarily, to produce a service or product. Virtual organization is often
associated with such terms as virtual office, virtual teams, and virtual leadership. The
ultimate goal of the virtual organization is to provide innovative, high-quality products or
services instantaneously in response to customer demands

Ray Grenier and George Metes discuss the shift to this new organizational structure as a
response to unprecedented customer expectations and alternatives, global competition, time

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compression, complexity, rapid change, and increased use of technology. They describe the
virtual model as a lead organization that creates alliances with groups and individuals from
different organizations who possess the highest competencies to build a specific product or
service in a short period of time (see Figure ).

Figure 2
The Virtual Corporation - A network of organizations working independently
to bring a product to market

Partners in virtual organizations share risks, costs, and rewards in pursuit of a global market.
The common characteristics of these organizations include a purpose that is motivated by
specific market opportunities, world-class core competence, information networks,
interdependent relationships, and permeable boundaries.

The Informal Organisation:

An informal organisation is the set of evolving relationships and patterns of human
interaction within an organisation which are not officially presented. Alongside the formal
organisation, an informal organisation structure exists which consists of informal
relationships created not by officially designated managers but by organisational members at
every level. Since managers cannot avoid these informal relationships, they must be trained
to cope with it
The informal organisation has the following characteristics
(i) Its members are joined together to satisfy their personal needs (needs for affiliation,
friendship etc.)
(ii) It is continuously changing:
The informal organisation is dynamic.
(iii) It involves members from various organisational levels.

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(iv) It is affected by relationship outside the firm.
(v) It has a pecking order: certain people are assigned greater importance than others by the
informal group.
Even though an informal organisational structure does not have its own formal organisational
chart, it has its own chain of command:
Advantages of Informal Organisation:
(i) Assists in accomplishing the work faster.
(ii) Helps to remove weakness in the formal structure.
(iii) Lengthens the effective span of control.
(iv) Compensation for violations of formal organisational principles.
(v) Provides an additional channel of communication.
(vi) Provides emotional support for employees.
(vii) Encourages better management.
Disadvantages of informal organisation:
(i) May work against the purpose of formal organisation.
(ii) Reduces the degree of predictability and control.
(iii) Reduces the number of practical alternatives.
(iv) Increases the time required to complete activities.

Conclusion:

The study of organization structure is important because it aids in decision making.. Flat
structures enable small companies to make quicker decisions as they are growing rapidly and
need flexibility. Organizational structure indicates distribution of authority which results in
better communication and achievement of goals Organizational structure enables companies
to better manage change in the marketplace, including consumer needs, government
regulation and new technology.

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5 Website Links.

https://www.youtube.com/watch?v=NxJvS92uCus
https://www.youtube.com/watch?v=Chb3Mk7wVVQ

Learning outcomes:
a. Understanding of a concept of organization and organization
structure
b. Ability to distinguish between various organization structures, its
advantages and disadvantages
c. Understand the impact of organization structure on employee
behaviour

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