ORGANISATION

DESIGN, STRUCTURE
&DECISION-MAKING
UNIT - 2
Introduction

• Structure provides the framework of an organisation and its pattern

of management.
• It is by means of structure that the purpose and work of the
organisation is carried out.
• The design of jobs and work structures should not only consider the
nature of the work and the characteristics of the personnel; but also,
to be consistent with the philosophy of management that is being
followed.
Meaning & Nature of organisation
structure
• The purpose of structure is the division of work among members of
the organisation and the coordination of their activities so that they
are directed towards the goals and objectives of the organisation.
• Structure is the pattern of relationships among positions in the
organisation and among the members of the organisation.
• Structure makes possible the application of the process of
management and creates a framework of order and command
through which the activities of the organisation can be planned,
organised, directed and controlled.
Contd…
• The structure defines tasks and responsibilities , work roles and
relationships and channels of communication.
Importance of good structure
• The importance of good structure as emphasised by Child is, “the
allocation of responsibilities, the grouping of functions, decision-
making, coordination, control and reward- all these are fundamental
requirements for the continued operation of an organisation. The
quality of an organisation’s structure will affect how well these
requirements are met”.
• The structure of an organisation affects not only productivity and
economic efficiency but also the morale and job satisfaction of the
workforce.
Contd…
• Structure should be designed to encourage the willing participation of
members of the organisation and effective organisational
performance.
• Structure must be designed to maintain the balance of the socio-
technical system and the effectiveness of the organisation.
• Attention must be given to the interactions between both the
structural and technological requirements of the organisation; and
social factors and the needs and demands of the human part of the
organisation.
Classification of organisation structure
• The classification of organisation structure is based on the way
various activities are grouped together to create departments and
units and prescribing their relationships in the organisation.
• Approaches of organisation structure:
1. Functional structure
2. Divisional structure
3. Matrix structure
4. Team structure
5. Network structure
1. Functional structure
• The functional structure groups, positions into work units based on
similar activities, skills, expertise and resources.
• Production, marketing, finance and human resources are common
groupings within a functional structure.
• As the simplest approach, a functional structure features well-defined
channels of communication and authority/responsibility relationships.
• Not only this structure improve productivity by minimising duplication
of personnel and equipment, but it also makes employees
comfortable and simplifies training as well.
Disadvantages
• Managers may have a hard time relating to marketing, for example,
which is often in an entirely different grouping and in addition
reduced cooperation and communication may occur.
• Decisions and communication are slow to take place because of the
many layers of hierarchy. Authority is more centralized.
• Managers do not have the opportunity to see the function of other
departments, which results in managers with narrow backgrounds
and little training handling top management duties.
2. Divisional structure
• Managers in large companies may have difficulty keeping track of all
their company’s products and activities, specialised departments may
be developed.
• These departments are divided according to their organisational
outputs.
• Examples include departments created to distinguish among
production, customer service and geographical categories.
• The grouping of departments is called divisional structure.
• Divisional structure also makes performance easier to monitor. As a
result, this structure is flexible and responsive to change.
Disadvantages
• As managers are so specialized, they may waste time duplicating each
other’s activities and resources.
• In addition, competition among divisions may develop due to limited
resources.
3. Matrix structure
• The matrix structure combines functional specialisation with the focus
of divisional structure.
• This structure uses permanent cross-functional teams to integrate
functional expertise with a divisional focus.
• Employees in a matrix structure belong to at least two formal groups
at the same time – a functional group and a product, program or
project team.
• They also report to two bosses – one within the functional group and
the other within the team.
Advantages
• Better cooperation and problem-solving.
• Increased flexibility.
• Better customer service.
• Better performance accountability.
• Improved strategic management.
Disadvantages
• The two-boss system is susceptible to power struggles, as team
leaders vie/compete with one other to exercise authority.
• Members of the matrix may suffer task confusion when taking orders
from more than one boss.
• Adding the team leaders to a matrix structure can result in increased
costs.
4. Team structure
• Team structure organises separate functions into a group based on
one overall objective.
• These cross-functional teams are composed of members from
different departments who work together as needed to solve
problems and explore opportunities.
Advantages
• Intradepartmental barriers break down.
• Decision-making and response times speed up.
• Employees are motivated.
• Levels of managers are eliminated.
• Administrative costs are lowered.
Disadvantages
• Conflicting loyalties among team members.
• Time management issues.
• Increased time-spent in meetings.
5. Network structure
• The network structure relies on other organisations to perform critical
functions on a contractual basis.
• In other words, managers can contract out specific work to specialists.
• This approach provides flexibility and reduces overhead because the
size of staff and operations can be reduced.
• On the other hand, the network structure may result in
unpredictability of supply and lack of control because managers are
relying on contractual workers to perform.
Organisational Design
• Organisational design is the creation or change of an organisation’s
structure.
• The organisational design of a company reflects its efforts to respond
to changes, integrate new elements, ensure collaboration and allow
flexibility.
• It involves setting up structures and systems, as well as helping people
to adopt to new ways of working.
• Organisational design is the process of aligning the structure of an
organisation with its objectives, with the aim of improving efficiency
and effectiveness.
Basic and advanced models of
organisational designs/Organisational
design types
1. Functional design
2. Place design
3. Product design
4. Multidivisional design
1. Functional design
• This is the oldest and most used design.
• In functional design, the organisation is departmentalized based on
functions that it needs to perform to reach its objectives.
• Marketing, materials management, production, finance and
accounting, personnel and maintenance departments in the
functional design of a company are engaged in manufacturing.
• This design reduces errors and lowers cost. Managers can
concentrate on exceptions to eliminate any gaps or overlaps.
Disadvantages
• Functional design focuses on narrow set of tasks and employees may
lose sight of the organisation.
• Horizontal integration across functional departments becomes
difficult as the organisation increases the number of geographic areas
served and the range of goods and services provided.
• There is no accountability of each function for total results.
2. Place design
• This design involves establishing an organisation’s primary units
geographically while retaining significant elements of functional design.
• Popularly called the geographic area design, place design permits
locating many tasks required to serve a geographic territory under one
manager, rather than grouping functions under different managers or all
tasks in one office.
• Place design is used by multinational corporations which need to be
responsive to local needs.
• Example: in England, people prefer bland soups, but Indians enjoy spicy
soups.
Disadvantages
• Functions are duplicated in all locations.
• There is the problem of lack of communication among divisions.
• Diffusion of technology is slow as innovations generated in one
division/area may not be adopted by others.
• Employees may begin to emphasise their own geographically based
division’s goals rather than those of the organisation.
3. Product design
• Product design assigns worldwide responsibility for specific products
or product groups to separate operating divisions within an
organisation.
• The manager who supervises product division, has authority for the
product line on a global basis.
• Managers of product division run the operations with considerable
autonomy, they have the authority to make important decisions.
Disadvantages
• Organisations with a product design begin with a functional design
and then add some place design features as they begin to serve new
geographic markets.
• Serving multiple customers creates management problems that
cannot be effectively be dealt with by a functional or a place design
alone.
• When changing to a product design, companies do not completely
discard functional or place designs. Instead, the product design may
incorporate features of functional and place designs into the
organisation of each product division.
4. Multi-divisional design
• A variation of the product design is the multidivisional design, often
referred to as the M-form.
• In this design, tasks are organised by divisions based on the product
or geographic markets in which the goods or services are sold.
• Divisional heads are primarily responsible for day-to-day operating
decisions within their units.
Contd…
• Top level executives concentrate in strategy issues such as:
1. Allocating resources to the various divisions
2. Assessing new businesses to acquire and divisions to hire off and
3. Communicating with shareholders and others.
• The top-level executives may also delegate to produce divisions the
authority to develop their own strategic plans.
Advantages
• Adoption of a multidivisional design often reduces the environment
complexity facing anyone team, department or division.
• Employees in a product-based unit can focus on one product line, rather
than be overextended across multiple product lines.
• An organisation with a multidivisional design can deal with complex
environments by adding horizontal mechanisms such as,
1. Linking roles
2. Tasks forces
3. Integrating roles and
4. Cross-functional teams
Rationality in decision making
• In the rational approach, the decision maker is intelligent and rational.
• The decision maker makes the choice, in full awareness of all available
feasible alternatives, to maximise advantages.
Assumptions of rational approach
• The rational approach is based on the concept of ‘economic man’.
• This concept views that people behave rationally, based on the
following assumptions:
1. People have clear, defined criteria
2. People have knowledge of all relevant alternatives
3. People have ability to evaluate each alternative
4. People have the self-discipline to choose the alternative which rates
the highest
Bounded rationality
• Herbert Simon developed the principle of bounded rationality.
• The principle states that: “the capacity of the human mind for
formulating and solving complex problems is very small compared
with the size of the problems whose solution is required for rational
behaviour”.
• Based on the principle of bounded rationality, Herbert Simon
proposed a decision theory of the “administrative man”.
Assumptions of bounded rationality theory
• A person’s knowledge of alternatives and criteria is limited.
• People act on the basis of simplified, ill-structured, mental abstraction
of the real world.
• People will take the first alternative which satisfies their current level
of aspiration. This is called satisficing.
• An individual’s level of aspiration concerning a decision fluctuates
upward and downward depending on the values of most recently
found alternatives.
Decision making under Certainty,
Uncertainty and Risk
• Depending on the amount and degree of knowledge one must make
smart choices and the conditions are:
1. Making decisions under certainty (I can acquire more reliable
information)
2. Making decisions under uncertainty (I don’t know. Let’s work it out
together)
3. Making decisions under risk (I know the probability estimates)
Making decisions under Certainty
• When you know with reasonable certainty what the alternatives are,
what conditions are associated with each alternative and the
outcome of each alternative.
• Under conditions of certainty, accurate, measurable and reliable
information and knowledge on which you base your decisions are
available to you.
• Such conditions exist in case of routine and repetitive decisions
concerning the day-to-day operations of the business.
Making decisions under Uncertainty
• Even the simplest decisions carry some level of uncertainty.
• Conditions of uncertainty exist when the future and outcome are
unpredictable and uncontrollable.
• In making decisions under pure uncertainty, you do not have
information and knowledge about the future and outcomes.
Making decisions under Risk
• Risk implies a degree of uncertainty and an inability to fully control
the outcomes or consequences of such an action.
• When making decisions under risk, you have some knowledge
regarding the likelihood of occurrence of each outcome.
• When making decisions under risk, probability can be a substitute for
certainty or complete knowledge.
• In making decisions under risk, you can predict the likelihood of a
future outcome.
Decision making models-Open and Closed
• There are two types of systems based on the manager’s knowledge
about the environment:
1. Closed decision making system and
2. Open decision making system
Closed decision making system
• If the manager operates in a known environment, then it is a closed
decision-making system.
• The conditions of closed decision-making system are:
1. The manager has a known set of decision alternatives and knows
their outcomes fully.
2. The manager has a method or rule whereby the decision
alternatives can be generated, tested and ranked for selection.
3. The manager can choose one of the alternatives, based on goal or
objective criterion. Example: a product mix-up problem or an
examination system to declare pass or fail.
Open decision-making system
• If the manager operates in an environment not known to him, then the
decision-making system is termed as an open decision-making system.
• The conditions of the open decision-making system are:
1. The manager does not know all the decision alternatives. The outcome
of the decision is also not known fully.
2. No method or rule is available to study and finalise one decision among
the set of decision alternatives.
3. It is difficult to decide an objective or a goal and therefore, the manager
resorts to that decision, where his aspirations or desires are met best.
Closed system Model
• Closed systems have firm boundaries between the organisation and
the outside environment.
• In a closed system, control is possible because the number of
variables remains static.
Open system Model
• The basis of open system model is that an organisation’s environment
consists of social, economic and political factors which affect its
operations and success.
• Goals, inputs, outputs and processes that facilitate the functioning of
a system constitute the open system model.
Quality of Work Life (QWL)
• The term “quality of work life” means different things to different
persons.
• For example:
1. To a worker in an industry, it may just mean a 4days pay, safe
working conditions and a supervisor who treats him with dignity.
2. To a young fresher, it may mean opportunities for advancement,
creative tasks and a successful career.
Factors which contribute to QWL
• Adequate and fair compensation
• A safe and healthy environment
• Jobs aimed at developing and using employees’ skills and abilities
• Growth and security – aimed at expanding employee capabilities
• An environment in which employees develop self-esteem and a sense
of identity
• Protection and respect for employee’s right to privacy and equality
• A sensible integration of job career and family life and leisure
Quality Circle
• Quality circle is a group of employees that meets regularly to solve
problems affecting its work areas.
• This group carries on control activities, self-development, mutual
development and improvement, within the workplace, utilising
quality control techniques with all the members participating.
• Generally, 6 to 12 volunteers from the same work area make up the
circle. The members receive training in problem solving, statistical
quality control and group process.
• QC generally recommends solutions for quality and productivity
problems which may be implemented by management.
Objective of QC
• Contributions to the improvement and development of the organisation;
• Respect humanity and build a happy workplace worthwhile to work; and
• Display human capabilities fully and eventually draw out infinite
possibilities.
• Thus, QC ensures harmony in the organisation, effective teamwork,
problem-solving capacity, self-discipline, better interpersonal and group
relations, better communication, participation, job satisfaction, and
finally productivity and consequently organisational effectiveness.
Developing a QC
1. Start-up phase: Publicise the concept of QC in the organisation,
because it is necessary that participation in QC is voluntary.
2. Constitution of QC: QC may be constituted at different workplaces in
the organisation. Members of a QC are from the same work area or
doing similar type of work.
3. Initial problem-solving: This involves 3 stages:- i. Data collection ii.
Data analysis iii. Problem-solving.
4. Presentation and approval of suggestions: When the QC members get
ready to show their solution of a problem, they present it before the
management in the form of oral presentation/project report/group
assignments.
Cont’d…
5. Implementation: The final phase is the implementation of
suggestions. For this purpose, relevant groups may be assigned
activities depending on the nature of suggestions.
Conflict
• In simple words, conflict may be understood as collision or
disagreement.
• K. W. Thomas defines the term conflict as, “ a process that begins
when one party perceives that another party has negatively affected,
or is about to negatively affect, something that the first party cares
about”.
• Conflict may be a difference between what is expected and what
really happens or is going to happen.
• It may be disagreement or misunderstanding with others or events.
Current views of conflict
• Conflict is inevitable.
• Conflict arises from many causes, including organisational structure,
unavoidable differences in goals, differences in perceptions and
values of specialised personnel etc.
• Conflict contributes and detracts from organisational performance in
varying degrees.
• The task of the management is to manage the level of conflict and its
resolution for optimal organisational performance.
• Optimal organisational performance require a moderate level of
conflict.
Types of conflict
• Conflicts are of different types. They are:
1. Intra-personal/intra-individual conflicts: take place within one
individual and is normally there within every person.
2. Inter-personal/intra-group conflicts: arises when two or more
individuals interact with one another.
3. Inter-group/intra-organisational conflicts: conflict between two
groups or departments in an organisation refers to intergroup
conflict. Conflict between employees and management are also due
to inter-group conflicts. Conflict between production department
and marketing department is an example of this conflict.
Potential benefits of conflict
• Conflict increases awareness of what problems exist, who is involved
and how to solve the problem.
• Conflict motivates organisational members who become energised
and are psychologically focused on the problems and are motivated to
put plans into action.
• High quality decisions result when persons express their opposing
views and perspectives. They share their information and check each
other’s reasoning to develop new decisions.
Cont’d…
• Conflict stimulates interest and creativity. Being in conflict often
sparks curiosity and stimulates viewing problems from several
perspectives and combining the best of these positions to form a
creative solution.
• Conflict adds to the forum of working with others when not taken
seriously. Many people find conflict enjoyable to competitive sports,
games plays etc.
• Conflict provides a forum for all members of the organisation to be
self-critical and to be critical of the organisation.
Emerging Organisational Architecture
• There are 6 types:
1. Matrix design
2. Network design
3. Virtual organisation
4. Learning organisation
5. Lean Production Systems (LPS)
6. High Performance Systems (HPS)
1. Matrix design
• The most complex form of organisation design is the matrix design.
• The matrix design emerges when one design is superimposed on top
of an existing but different form.
• There are three distinct features of matrix design:
1. There are managers who report to two different matrix bosses.
2. There are the matrix managers who share the subordinates.
3. There is the top manager who is expected to head the dual
structure and balance and resolve disputes.
Advantages
• The use of cross-functional teams is designed to reduce functional
barriers and overcome the problem of subunit orientation. With
differences between functions kept to a minimum, integration
becomes easier to achieve.
• Matrix design opens communication and provides an opportunity for
team members from different functions to learn from each other and
develop their skills.
• The matrix enables an organisation to maximise its use of skilled
professionals who move from product to product as needed.
Cont’d…
• The dual focus promotes concern for both cost and quality, producing
the highest quality and most innovative product possible.
• Matrix design motivates employees because they are made to focus
their attention on completion of a project.
2. Network design
• A network design is a cluster of different organisations whose actions
are coordinated by contracts and agreements rather than through a
formal hierarchy of authority.
• The network design typically consists of several satellite organisations
bee-hived around a core form.
• The core firm coordinates the network process and provides one or
two other core competencies, such as marketing or product
development.
• Network design offers flexibility, innovation, quick responses to
threats and opportunities and reduced costs and risks.
3. Virtual organisation
• The term virtual organisation represents the new Information Age.
• The design represents any productive system that enables individuals
separated by distance and/or time to work together towards a
common goal.
• In virtual organisations, people use a computer network to work
cooperatively and share knowledge quickly and easily regardless of
time, distance and organisational boundaries.
• A virtual design permits manager to change an organisation’s
structure quickly to meet changing conditions and situations.
4. Learning organisation
• A learning organisation is understood as the one that has developed
the capacity to adopt and change.
• A learning organisation continuously adapts and changes.
• Learning organisations, like individuals, constantly learn.
• One of the leaders in the field of the learning organisation is Senge.
• Senge put forward 5 ‘Compact Technologies’ as prerequisites if an
organisation wishes to become learning focused.
Senge ‘Compact Technologies’
1. System thinking: Managers need to be aware of the open linkages
between their own actions and the actions of those around them,
within and outside the organisation.
2. Personal mastery: Organisations need to encourage their
employees to continually learn and improve their own skills and
abilities.
3. Mental models: are deeply embedded assumptions and
generalisations we all carry regarding how the world works and our
own actions.
Cont’d…
4. Building shared vision: To develop a shared vision involves
communicating descriptions of what the future might hold for the
organisational success.
5. Team learning: Working and sharing information among team
members is a vital element of the learning organisation.
5. Lean Production systems (LPS)
• Five principles which are the hallmarks of LPS:
1. Teamwork
2. Quality control
3. Customer focus
4. Continuous improvement and
5. Minimal inventory
Cont’d…
• The output per person has risen considerably.
• Outdated work practices and management have been discarded.
• Detecting faults and taking remedial action.
• There has been a commitment to exacting quality standards and
continuous improvement.
• Cooperative working relationships between workers, managers,
suppliers etc have been developed.
6. High Performance Systems (HPS)
• HPS are governed by the following principles:
1. Customer-focused operating units: Organisations obtain reactions
from customers using techniques such as market survey and target
groups and feed this information directly to managers of operating
units which helps in decision making, employee selection and
performance management.
2. Devolved decision making: In many organisations, authority is
pushed down by replacing functional groups like finance, marketing
with Strategic Business Units (SBUs), which are customer oriented,
with authority for formulating strategies and responsible for results.
Cont’d…
3. Streamlined management control/Tighter Financial Control: At
headquarters, there are less layers of management, leading to more
spaces of control. The operating units receive fewer policy
directives from HQ but tougher financial directives.
4. Re-engineering of Business Processes (BPR): involves fundamental
rethinking and radical redesigning of business processes in order to
achieve dramatic improvements in performance. BPR has resulted
inrapid increases in productivity wherever it has been applied.