Table of Contents
Welcome to Guideflare.com, your ultimate destination for a comprehensive understanding of organizational design. In this article, we will provide a thorough Full explanation of organizational design.
Meaning and Definition of Organisation Design
The manner in which an organisation operates determines the design of the organisation. The overall objectives of the organisation are aligned with the managerial functions and organisational processes through an effective organisational design. Decisions related to the formation of formal and informal structures, processes, and systems are included in organisational design.
The various patterns related to the relationships which exist among various individuals and groups can be treated as structures. In relationships which are structured and interact regularly, both physical and social contracts constitute the system.
The specially designed sequence of stages, operational methods, and activities are termed as processes. During the process of organisational structure designing or modification, certain characteristics must be taken into account although there are variations among different organisations based on their industry and type.
When any organisation uses a traditional or rigid method of organisation in place of identifying the innovative methods, the poor organisational design can be clearly recognised, The design of any organisation is created to accomplish the organisational objectives that are directly aligned to the mission, vision, and strategy of the organisation.
An organisation's operations, objectives, and requirements can be the foundation of determining the most effective method to organise it. The core purpose for which the organisation exists needs to be defined initially in order to select the most appropriate design, while all other activities of the organisation should focus on accomplishing this purpose.
There will be a lot of differences of design between the organisations which are mainly involved in technical products and the organisation which is assisting and helping others. If both the organisations are asked to perform according to the same design principles, the operations of one or both of the organisations will be far below than their potential.
The purposes and abilities of the individuals should also be assessed by organisational design apart from the purpose of the organisation. According "Organisational Sargent and McConnell, design can be defined as a process for improving the probability that an organisation will be successful by assessing and re-shaping and positions structure (business) goals".
Features of Organisation Design
Main features of an organisational design are described as below:
1) Getting Work Done: This mainly deals with the manner in which various tasks are performed. The relationship between the objectives of the firm and the manner in which staff and managers are performing together to fulfil these goals is evaluated by it.
2) Organisational Goals Fulfilment: Organisational design involves activities for enhancing the chances of organisational success by evaluating and reframing the various positions and set-ups so that the organisational objectives are fulfilled effectively.
3) Way of Integration: It can be seen as a guided and formal procedure of combining the technology, information, and individuals of an organisation.
4) Aligning Strategic Actions: The attempts are made to have a close alignment between the organisational structure various objectives which accomplished by the organisation. supposed to
5) Deciding Organisational Structure: Decisions regarding the formation of formal organisational arrangement consisting various formal processes, structures, and systems which create an organisation are also associated with it.
6) Allocation of Resources: Work allocation and reporting relationships are handled by it so that some tools are obtained to achieve a complete organisational fit between people' and 'function'.
Determinants of Organisation Design
Various factors which determine the organisational design are stated below:
1) Environment: Due to its instability, environment has a direct impact on the organisational structure. In case of some organisations, the environment can be comparatively static in nature which means that only some forces of the environment tend to variate. For example, no technological advancement, no new competitors, minimised influence through limited activities of the public pressure groups. On the other hand, some organisations may encounter a turbulent environment.
These environments are characterised by consistent change in norms by the governinent, problems in procuring the raw materials, increased competition, changing tastes and preferences of customers, etc. The managers face relatively lesser challenges in case of static environment in contrast to dynamic environment. The management will try hard to control the various uncertainties as different types of threats are imposed by these environmental uncertainties. By modifying the organisational structure of the organisation, the environmental uncertainties can be controlled significantly.
There will be a requirement of higher flexibility and adaptiveness in case of uncertain and more dynamic environment. In this way, higher organisational effectiveness can be achieved with the help of organisational structure. On the other hand, the mechanistic type of organisational structure can be adopted in case of a stable and predictable environment. and of
2) Strategy: A close association can be identified between organisational structure organisational strategy. While executing the organisational strategies, the design organisational structure is selected depending upon the requirement of the organisational strategies. Thus, it is important to understand this association. It can be understood as using the structure for executing the strategy because structure is not the ultimate goal but a tool to achieve that goal. Misdirection, ambiguity, and uncoordinated efforts in the organisation are created if there is absence of coordination between structure and strategy.
The growth strategy of the organisation is followed by structure but this is not done till some structural adjustments are required due to internal and inefficiency in the operating issues. Thus, a certain procedure is followed in the organisational actions that include development of new strategy, occurrence of various issues related administration, degradation of performance and portability, transforming into a more suitable organisational structure, recovery to more enhanced implementation of strategy and higher performance and profit. If a suitable organisational structure is decided at the beginning of the execution of strategy, this procedure can be changed.
In fact, the relationship which exists between structure and strategy of the organisation should not be considered as a one-way process. In fact, it should be treated as a two-way process. For effective implementation implementation of strategy. strategy, the organisational structure should be decided as per the requirements of the strategy. In addition, the selection of strategy is influenced majorly by the organisational structure.
3) Size: The total number of employees working in any organisation determine the organisational size. The structure of the organisation becomes more and more complex if the size of the organisation continues to grow. The organisation structure can be very simple if the size of the organisation is relatively smaller such as a retail outlet, a restaurant, or a consulting firm. In fact, it is found that the structure of the organisation becomes extended when the size of the organisation becomes large. As the size of theorganisation increases and its structure expands, it results in specialisation of tasks, unit and more developed differentiation, administrative elements of the middle management and technological structure.
The age of industry foundation is reflected by the structure of the organisation. An organisation might not have a formal structure if its size is very small. In these situations, various individuals perform different types of activities depending upon their capability, preferences, dislikes, and/or their rather than following any requirement organisational chart or specific job roles.
There may not be any specific rules and policies and even if there are some guidelines, these are used to outline the constraints for decision-making. It will be very difficult to manage the entire organisation without having a formal work structure and some level of authority delegation when the size of the organisation increases. This is the main reason behind establishing formal organisational structures by larger organisations, In order to monitor the progress of various tasks, strict guidelines are formed and various activities are made highly specialised.
The flow of communication in the organisation remains top- down and the basis for responsibility, control. and authority is hierarchical relationships. The operational efficiency and productivity of the organisation can be improved depending upon the nature of the organisational structure. This is one of the main reasons behind mechanistic nature of large organisation. Mechanistic systems are normally created for obtaining enhanced efficiency and optimising specialisation.
4) Organisation Lifecycle: Similar to human being, all the organisations pass through various stages of a lifecycle. Birth, growth, decline, and death are the main four stages through which each organisation has to pass. Any organisation can pass through these four different stages in a sequential manner but it is not necessary. Any stage can be skipped by the organisation or it can return to a previous stage. By altering the structure of the organisation, the position of the organisation in the lifecycle can also be changed. A relationship is formed between the size and age of the organisation as described by the concept of lifecycle.
The organisational size tends to increase as the age of the organisation increases. Therefore, the changes in structure due to increased size are parallel to the changes occurring as a result of passing through different stages of the lifecycle. Thus, there will be a formal structure, higher requirement of specialised jobs, and of rules and policies when the size and age of the organisation tend to increase. There will be a greater possibility of shifting from an organic structure towards a more mechanistic structure when the organisation gradually becomes older and larger.
5) Technology: The various methods which are employed in production, various machinery, tools, equipment, and various productive methods are known as technology. The methods by which inputs are processed to obtain output within the organisation are dealt by technology. Every production method employs some type of technology.
One of the most significant factors behind the changes occurring in the organisation is the technological advancements because they result in cost reduction and improved efficiency. The methods by which various activities are performed through different equipment, tools, techniques, human knowledge, etc., come under technology.
The processing of input into output takes place with the help of some kind of technology in every organisation. The level of routine distinguishes the various methods or processes which convert inputs into outputs. The organisational structure can be more standardised if more routine technology is employed.
6) Organisational Culture: An organisational culture consists of fundamental values, understanding, beliefs, and norms which are mutually shared by all the employees of the organisation. Despite being implicit, it can be noticed quite evidently in the slogans, history, uniform, office layout, and functions of the organisation. The information about organisation's imperative forces and system of reward can be obtained by the individuals with the help of organisational culture.
Organisational culture is mainly determined by organisational structure as when different individuals interact with each other, they develop values and beliels and a sort of distinct harmony visible in that organisation only. There will be a mÃnimal requirement for development of various organisational rules and regulations to monitor the behaviour of employees if a strong organisational culture is established.
A centralised organisational structure with close supervision can be adopted by the organisations if there is a requirement of firmly controlling the behaviour of employees to follow the various rules and norms. Whereas, a relaxed and flexible organisational structure can be formulated if individual autonomy for taking decisions is given priority by the organisation which can facilitate self- control and self-direction by the employees.
Components of Organisational Design
Various components of organisational design are as follows:
Differentiation
Differentiation is the process of deciding how to divide the work in an organisation. It ensures that all essential organisational tasks are assigned to one or more jobs and that the tasks receive the attention they need. It refers to the orientation that employees have towards the sub-units of an organisation either for a particular departmental function or discipline.
Differentiation in organisations lead to specialisation and functional expertise. When organisations operate under the realm of differentiation, the mindset of the managers differ in goals, time horizon, and interpersonal styles across departments, leading to differences in the formality of the structure.
Three forms of differentiation are as follows:
1) Horizontal Differentiation: Horizontal differentiation is often referred to departmentalisation as it involves the way various activities are combined into groups. Departmentalisation is part of the organisation process. It means dividing and grouping the activities and employees of an enterprise into various departments, division of the total work of an enterprise into individual functions and sub- functions. Then, either on the basis of similarity of work, or efficiency in their performance, these functions and sub-functions are grouped together so as to constitute different work, units. The work-units so formed may be called departments, divisions, or units.
2) Vertical Differentiation: Vertical differentiation is the difference in authority and responsibility in organisational hierarchy, Vertical differentiation is measured in terms of the number of hierarchical levels separating the Chief Executive position from the jobs directly involved with the system's output. In general, as the size of an organisation increases, the need for greater vertical differentiation also increases.
For example, in one study size alone was found to account for 50% to 59% of the variance. A major reason for this strong relationship is the practical limitations of span of control. Any one manager is limited in the number of subordinates that he or she can direct effectively. Thus, as the number of first level employees increase, the number of first-line supervisors also must increase. This, in turn, requires more supervisors at each successively higher level and ultimately results in the creation of more hierarchical levels in the work system's structure. or
3) Spatial Differentiation: It is the geographic dispersion of an organisation's offices, plants and personnel. For example, a salesperson in New York and one in Portland experience spatial differentiation. An increase in the number of locations increases the complexity of organisational design but may be necessary for organisational goal achievement organisational protection.
For example, if an organisation wants to expand into a different country, it may be best to form a separate subsidiary that is partially owned and managed by citizens of that country. Few U.S. citizens think of Shell Oil Company as being a subsidiary of Royal Dutch/Shell Group, a company whose international headquarters is in the Netherlands. Spatial differentiation may give an organisation, political and legal advantages in a country because it is identified as a local company.
Integration
Although differentiation does bring greater specialisation, it often brings a challenge in integrating the various specialised capabilities to deliver a product or service to the customer. Integration is the extent to which various parts of the organisation interact, coordinate, and cooperate with each other. The primary benefit of integration is the coordinated actions of different people and activities to achieve a desired organisational objective.
Thus, it refers to the orientation towards the overall picture of the organisation where the focus shifts from the smaller sub-units to the entire organisation. The concept of integration also helps to balance the autonomy and control trade-offs when the quality and speed of decision-making are critical.
As a organisational structure becomes complex, top managers need to use yarious integrating mechanisms to increase communication and coordination among and divisions. These integrating mechanisms are as follows:
1) Hierarchy of Authority: The simplest integrating technique is the organisation's hierarchy of authority, which differentiates people by the amount of authority they possess. Because the hierarchy dictates who reports to whom, it coordinates various organisational roles. Managers must carefully divide and others to promote coordination.
2) Direct Contact: Direct contact among managers creates a context within which managers from different functions or divisions can work together to solve mutual problems. However, several problems are associated with establishing this contact. Managers from different functions may have different views about what must be done to achieve organisational goals. But if the managers have equal authority (as functional managers typically do), the only manager who can tell them what to do is the CEO. If functional managers cannot reach agreement. no mechanism exists to resolve the conflict apart from the authority of the boss. In fact, one sign of a poorly performing organisational structure is on the number of problems sent-up the hierarchy for top managers to solve. The need to solve everyday conflicts and handoff or transfer problems raises bureaucratic costs. To reduce such conflicts and solve transfer problems, top manager use more complex integrating mechanisms to increase coordination among functions and divisions.
3) Liaison Roles: Managers can increase coordination among functions and divisions by establishing liaison roles. When the volume of contacts between two functions increases, one way to improve coordination is to give one manager in each function or division the responsibility for coordinating with the other. These managers may meet daily, weekly, monthly, or as needed to solve handoff issues and transfer problems. The responsibility for coordination is part of liaison's full-time job and usually an informal relationship forms between the people involved, greatly easing strains between functions. Furthermore, liaison roles provide a way of transmitting information across an organisation which is important in large organisations where employees may know no one outside their immediate function or division.
4) Temporary Taskforces: When more than two functions or divisions share common problems, direct contact and liaison roles are of limited value because they do not provide enough coordination. The solution is to adopt a more complex integrating mechanism called a taskforce. One member of each function or division is assigned to a taskforce created to solve specific problem. Essentially, taskforces are ad hoc committees, and members are responsible for reporting to their departments on the issues addressed and the solutions recommended. Taskforces are temporary because once the problem has been solved, members return to their normal roles in their own departments or are assigned to other taskforces. Taskforce members also perform many of their normal duties while serving on the taskforce.
5) Permanent Teams: In many cases, the issues addressed by a taskforce recur. To deal with these issues effectively, an organisation must establish a permanent integrating mechanism, such as a permanent team. For example, a new- product development committee, which is responsible for the choice, design, and marketing of new products. Such an activity obviously requires a great deal of integration among functions if new products are to be successfully introduced, and establishing a permanent integrating mechanism accomplishes this. For example, Intel emphasises teamwork. It devised a council system based on approximately 90 cross-functional groups, which meet regularly to set functional strategy in areas such as engineering and marketing and to develop business-level strategy.
6) Integrating Roles: An integrating role is full-time managerial position established specifically to improve communication between divisions. The only function of the integrating role is to prompt integration among divisions or departments; it is a full-time job. This role is independent of the sub- units or divisions being integrated. It is staffed by an independent expert, who is normally a senior manager with a great deal of experience in the joint needs of the two departments. The job is to coordinate the decision process among departments or divisions in order to reap synergetic gains from cooperation.
For example, DuPont had created 160 integrating roles to provide coordination among the different divisions of the company and improve corporate performance. Once again, the more differentiated the company, the more common are these roles. Often people in these roles take the responsibility for chairing taskforces and teams, and this provides additional integration. Sometimes the number of integrating roles becomes so high that a permanent integrating department is established at corporate headquarters. Normally, this occurs only in large, diversified corporations that see the need for integration among divisions.
Centralisation
Centralisation can be defined as the concentration of all power and authority in the hands of few top-level managers. In effect, all the decisions are taken by these top-level managers and the employees at the lower levels are expected to merely implement those decisions. According to Henri Fayol, all the policies and procedures, which reduce the involvement of subordinates, purview of centralisation.
In modern management practice, centralisation is not considered to be a progressive approach. When an organisation is in its early stages, it adopts centralised approach for decision-making. But, as the organisation grows, the organisation structure also grows. It poses many challenges in front of the management regarding decision-making, which the existing centralised system cannot support.
Therefore, it becomes important for the top-level management to delegate the authority of taking decisions, and thus, the concept of decentralisation emerges.
Advantages of Centralisation
Advantages of centralisation are as follows:
1) Common Vision: Centralised structure allows the organisation to set a vision and objective that is shared by each employee at each level. This helps the employees in staying focused towards a single vision. The decisions passed down and communicated to the lower levels of hierarchy facilitate coordination and cooperation among employees.
2) Quick Decision-Making: With only a handful of people engaged in decision-making, it is always easier for them to take quick decisions. Therefore, centralised structure responds quickly to the frequently changing market scenarios. The top-level experts take the decisions after discussing the potential benefits and limitations regarding each available option. This makes it a more efficient approach. After making the decisions, the orders are passed down to the lower levels for execution.
3) Minimised Conflicts: Decision-making is often a potential source of conflict. Larger the number of people engaged in decision-making, the greater the chances of conflict. In centralised organisations, where such authority is in the hands of few top-level managers, chances of conflict are greatly minimised. It also improves the relation between employer and employee. On the contrary, decentralised organisations where a large number of persons are involved in decision-making, the scope for conflicts and differences of opinion is huge.
4) Ease in Control of Operations: Centralisation lends its control exercise more naturally over the lower levels. With power and authority in few hands, it is always easier for the top-level managers in command to keep a tight control over operations and organisational culture. Besides, it is always easy to fix accountability for In decentralised decision-making, them. decisions are not only delayed, but it also becomes difficult to fix accountability.
Disadvantages of Centralisation
Disadvantages of centralisation are as follows:
1) Lack of Creativity: Centralisation often causes limited scope for employees to take initiative. Since, there is a close control over the employees, the creativity and innovation of the employees gets diminished. New ideas and approaches do not emerge as the employees are reluctant to suggest their ideas to the top level management.
2) Communication Gap: Another disadvantage of centralisation is the lack of communication. In a centralised decision-making system, the employees may become reluctant communicate with the head office, as they may become comfortable with their immediate superiors only. This creates a communication gap between the top and lower levels of management.
3) Inflexibility: Seeking approval from the top management while doing crucial tasks creates a degree of rigidity in the system. This results in delays in the organisational processes as well as involves high cost.
4) Misinterpretation of Orders: In centralised structure, top-level managers depend upon the line managers so as to communicate the orders to the lower levels of hierarchy. But, line managers may interpret the orders differently and may miscommunicate the directives. This may create a hurdle in smooth flow of operations.
Decentralisation
Decentralisation may be defined as the conscious and systematic diffusion of power to the lower levels of management hierarchy for taking necessary decisions. Unlike centralisation, in decentralisation, only major decisions like formulating the vision, setting goals in line with the vision, planning a strategy to achieve those goals etc., are taken by the top-level management. The rest of the powers and authority are systematically delegated to lower levels so that the directions can be effectively implemented. Centralisation and decentralisation are opposite to each other. Both the concepts simultaneously exist in an organisation and support each other. Large organisations typically implement both concepts at the same time in order to increase the efficiency in activities.
The decision-making authority is passed on to the lower levels in a systematic and organised manner. All the possible authorities except the broad organisational decisions are delegated to the lower level managers. An important point to be noticed is that the authority is not delegated to a single line manager, but to different departments and their respective managers. However, adequate control mechanisms are put in place to prevent misuse and abuse of the delegated authority.
According to Louis A. Allen, "Decentralisation refers to the systematic effort to delegate to the lowest levels all authority except that which can only be exercised at central points".
Advantages of Decentralisation
Advantages of decentralisation are as follows:
1) Reduced Workload of Top Management: With routine operational tasks and responsibilities delegated to employees down the line, the top management can focus on more important issues like formulating policies and strategies, directing and controlling.
2) Development of Personnel: By providing authority and responsibility to the line managers, the top management is able to utilise the skills and abilities of its employees. Moreover, the freedom to run their own units or divisions not only makes them more responsible but also fosters their personal development and growth.
3) Quick Decision-Making: Since, the authority is delegated to the lower levels of management, which resides near to the workers; therefore, they can take the decisions in a better way. The reason behind this is the fact that lower-level managers are well-known about the problems and complications of the workers. Hence, the decisions are taken quickly and efficiently, as they need not to wait for the top management's approval.
4) Ease in Performance Appraisal: Since, the line managers and workers perform according to the pre-set objectives conveyed to them by the top management, hence, these objectives act as the targets to be achieved. This, in turn, makes the performance appraisal easier.
Disadvantages of Decentralisation
Disadvantages of decentralisation are as follows:
1) Dependence on Personnel: Since the ability to take correct and quick decisions is totally based on the skills of executives, hence there would be a possibility of wrong decision-making. Therefore, for successful implementation of decentralised structure, the executives should be properly trained and skilled. Moreover, the managers should be experienced so that they can take decisions more effectively and without confusion.
2) Not Appropriate for Small Organisations: Decentralisation is suitable for the larger organisations only, where it becomes muddled for the management to handle all the issues centrally. But, this structure is certainly not appropriate for small organisations, as fewer managerial personnel and small organisational structure has no scope for the implementation of this concept.
3) May Pose Challenges: Implementation of decentralised structure in small organisations that have been centrally run over the years and have expanded internally may pose challenges in the organisational process process as personnel are habituated with the old system only.
4) Requires Information:Decentralised structure requires readily available information about the concerned department and related aspects. If the decision-maker does not have the required information in hands, then it may make the system weaker.
5) Tedious to Monitor and Control: Decentralisation requires the organisaton to be divided into profit cenres or investnent centres adequately. In the abscnce of this lactor, it may become tedious lo monitor and control activitics.
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Standardisation
Standardisation refers to the extent to which jobs and the procedures for carrying out these jobs are precisely and clearly defined. The variation in the laid-down rules and procedures is not allowed. The rules apply invariably. The procedures involved in jobs that occur regularly and are repetitive can be standardised whereas jobs requiring adoption of different procedures cannot be standardised. It can be applied to tasks that are routine, problems that are analysable, decisions that can be programmed, and for which appropriate instruction manuals can be developed.
It refers to the methods of selecting standard tools and equipments for use by workers as well as of maintaining standard working conditions with respect to lighting ventilations, etc. at the workplace. Tools and equipment must conform to quality standards without which operating workmanship is bound to suffer. At the same time, working conditions need to be congenial for efficient performance of jobs.
Standardisation is the degree of uniformity in the inputs, work processes, and outputs of units and organisations. For example, inputs are standardised when all workers receive the same training or when certain types of training are required for filling a position. Processes are standardised by the use of guidelines, rules, and policies. Outputs are standardised when the dimensions of the output are specified and defined, such as a range of grades that are allowed for sanitation ratings (e.g., a facility might receive a grade of A, B, or C, and each grade is defined).
Mutual Adjustment
Mutual adjustment is the process through which people use their judgment rather than standardised rules to address problems, guide decision-making, and promote coordination. The right balance makes some actions predictable so that basic organisational tasks and goals are achieved, yet it gives employees the freedom to behave flexibly so that they can respond to new and changing situations creatively. and Formalisation is the use of written rules and procedures to standardise operations. In an organisation in which formalisation standardisation are extensive.
There is no room for mutual adjustment; rules specify how people are to perform their roles and how decisions are to be made, and employees are accountable for following the rules. Moreover, employees have no authority to break the rules. Mutual adjustment typically implies decentralisation of authority because employees mu have the authority to commit the organisation to certain actions when they make decisions. Rules are formal, written statements that specify the appropriate means for reaching desired goals.
When people follow rules, they behave in accordance with certain specified principles. Norms are standards or styles of behaviour that are considered typical for a group of people. People follow a norm because it is a generally agreed upon standard for behaviour. Many norms arise informally as people work together over time. Although many organisational norms - such as always behaving courteously to customers and leaving the work area clean promote organisational effectiveness, many do not. Groups of employees can develop norms that reduce performance.
Work groups can directly control the pace or speed at which work is performed by imposing informal sanctions on employees who break the informal norms governing behaviour in a work group. An employee who works too quickly (above group productivity norms) is called a "rate buster" and an employee who works too slowly (below group norms) is called a "chiseler". The taken-for-granted way in which norms affect behaviour has another consequence for organisational effectiveness.
An organisation often wants members to buy into a particular set of corporate norms and values. However, once these norms are established they are very difficult to change. When an organisation wants to pursue new goals and foster new norms, people find it difficult to alter their behaviour. The name given to the process by which organisational members learn the norms of an organisation and internalise these unwritten rules of conduct is socialisation. In general, organisations can encourage the development of standardised responses or innovative ones.
Basic Challenges of Design
As managers look for organisational designs will best support and facilitate employees doing their work efficiency and effectively, they must contend with certain challenges. The basic challenges in organisational design are as follows:
Basic Challenges of Design
- Balancing Differentiation and Integration
- Balancing Centralisation and Decentralisation
- Balancing Standardisation and Mutual Adjustment
Balancing Differentiation and Integration
The design issue facing managers is to establish a level of integration that matches the organisation's level of differentiation. Managers must achieve an appropriate balance between differentiation and integration. A complex organisation that is highly differentiated needs a high level of integration to effectively coordinate its activities. By contrast, when an organisation has a relatively simple, clearly defined role structure it normally needs to use only simple integrating mechanisms. Its managers may find that the hierarchy of authority provides all the control and coordination they need to achieve organisational goals.
At all costs, managers need to be sure they do not differentiate or integrate their organisation too much. Differentiation and integration are both expensive in terms of the number of managers employed and the amount of managerial time spent on coordinating organisational activities. For example, every hour that employees spend on committees that are not really needed costs the organisation thousands of dollars because these employees are not being put to their most productive use. Managers facing the challenge of deciding how and how much to differentiate and integrate must do two things:
1) Carefully guide the process of differentiation so that an organisation builds the core competences that give it a competitive advantage; and
2) Carefully integrate the organisation by choosing appropriate coordinating mechanisms that allow sub-units to cooperate and work together to strengthen its core competences.
Balancing Centralisation and Decentralisation
The design challenge for managers is to decide on the correct balance between centralisation and in an decentralisation of decision-making organisation. If authority is too decentralised, managers have so much freedom that they can pursue their own functional goals and objectives at the expense of organisational goals. On the other hand, if authority is too centralised and top management makes all important decisions, managers lower down in the hierarchy become afraid to make new moves and lack the freedom to respond to problems as they arise in their own groups and departments.
The ideal situation is 3 balance between centralisation and decentralisation of authority so that middle and lower managers who are at the scene of the action are allowed to make important decisions and top managers' primary responsibility becomes managing long-term strategic decision-making. The result is a good balance between long-term strategy making and short-term flexibility and innovation as lower-level managers respond quickly to problems and changes in the environment as they occur.
The way managers and employees behave in an organisation is a direct result of managers' decisions about how the organisation is to operate. Managers who want to discourage risk taking and to maximise control over subordinates performance centralise authority. Managers who want to encourage risk tak- ing and innovation decentralise authority.
Decisions about how to distribute decision-making authority in an organisation change as an organisation changes - i.c., as it grows and differentiates. How to balance authority is not a design decision that can be made once and forgotten; it must be made on an ongoing basis and is an essential part of the managerial task.
Balancing Standardisation and Mutual Adjustment
The design challenge facing managers is to find a way of using rules and norms to standardise behaviour while at the same time allowing for mutual adjustment to provide employees provide employees with the opportunity to discover new and better ways of achieving organisational goals. Managers facing the challenge of balancing the need for standardisationagainst the need for mutual adjustment need to keep in mind that, in general, people at higher levels in the hierarchy and in functions that perform complex, uncertain tasks rely more on mutual adjustment than on standardisation to coordinate their actions.
For example, an organisation wants its accountants to follow standard practices in performing their tasks, but in R&D the organisation wants to encourage creative behaviour that leads to innovation. Many integrating mechanisms like taskforces and teams can increase mutual adjustment by providing an opportunity for people to meet and work out improved ways of doing things. Managers can also promote norms and values that emphasise change rather than stability. For all organisational roles, however, the appropriate balance between these two variables is one that promotes creative and responsible employee behaviour as well as organisational effectiveness.
Mechanistic and Organic Structures
Each design challenge has implications for an organisation as a whole and the people in the organisation behave and perform. Two useful concepts understanding how managers manipulate all these challenges collectively to influence the way an organisational structure works are the concept of mechanistic structure and organic structure. Both these structures are described as follows:
Mechanistic Structure
Mechanistic structures are those that resemble a bureaucracy. These structures are highly formalised and centralised. Communication tends to follow formal channels and employees are given specific job descriptions delineating their roles and responsibilities. Mechanistic organisations are often rigid and resist change, making them unsuitable for innovativeness and taking quick action. These forms have the downside of inhibiting entrepreneurial action and discouraging the use of individual initiative on the part of employees. Not only do mechanistic structures have disadvantages for innovativeness but they also limit individual autonomy and self- determination, which will likely lead to lower levels of intrinsic motivation on the job.
Characteristics of Mechanistic Structure
Some characteristics of mechanistic structure are listed below:
i) Stable Environment: This organisational structure works best when the environment is relatively stable. ii) Low Differentiation of Tasks: Tasks will not be differentiated much, because each sub-task is relatively stable and easy to control.
ii) Low Differentiation of Tasks: Tasks will not be differentiated much, because each sub-task is relatively stable and easy to control
iii) Low Integration of Departments and Functional Areas: Due to the stability tasks, there will be low integration between departments and functional areas, because tasks stay relatively stable, and because the functional areas are not heavily dependent on each other.
iv) Centralised Decision-Making: When the environment is stable, there is no need for complex decision-making that involves people at lower levels. Therefore, decision-making is centralised at the top of the organisation.
v) Standardisation and Formalisation: When tasks are stable, tasks should be standardised and formalised, so that operations can run smoothly without breakdowns. The main advantage of a mechanistic structure is its efficiency. Therefore, organisations that are trying to maximise efficiency and minimise costs, mechanistic structures provide advantages The biggest drawback to the mechanisut structure is its lack of flexibility, which may cause an organisation to have trouble adjusting to change and coping with the unexpected.
Organic Structure
In contrast to mechanistic structures, organic structures are flexible and decentralised, with low levels of formalisation. In organisations with an organic structure, communication lines are more fluid and flexible Employee job descriptions are broader and employees are asked to perform duties based on the specific needs of the organisation at the time a well as their own expertise levels. Organic structures tend to be related to higher levels of job satisfaction on the part of employees. They structures are conducive to entrepreneunal behaviour and innovativeness.
Characteristics of Organic Structure
Some characteristics of organic structure are as follows:
i) Dynamic and Uncertain Environment: This organisational structure works best when the environment is relatively dynamic and uncertain.
ii) High Differentiation of Tasks: Because tasks are often changing, tasks may need to be differentiated. so specialists, each responsible for one or few tasks, are able to respond quickly.
iii) High Integration of Departments and In complex Functional Areas: environments, rapid communication and information sharing is necessary. Therefore, departments and different functional areas need to be tightly integrated.
iv) Decentralised Decision-Making: When the environment is dynamic and uncertain, there is a need for complex decision-making that involves people at lower levels. Therefore, decision-making power should be distributed to lower ranks, which should get empowered in making decisions.
v) Little Standardisation and Formalisation: When tasks change rapidly, it is unfeasible to institute standardisation and formalised procedures. Instead, tasks should be mutually adjusted, so that each sub-task is balanced with other sub-tasks.
In conclusion, it can be stated that advancements in IT, globalisation, changing workforce, and other factors have strengthened the need for more organic structures that are flexible and responsive to these changes. Moreover, the era of knowledge management characterised by information sharing rather than hierarchy and status is more consistent with the organic structure.
Mechanistic versus Organic Structure
| Machanistic Structures | Organic Structures |
| Have narrow span of control. | Have wider span of control |
| Have High degree of formalisation. | Characterised by little formulation. |
| Centralied decision-making | Decentralied decision-making |
| Follow strict rules and regulations | More flexible and adaptable. |
| Vertical Communication Flows. | Communication flowa in all directions. |
| Tasks are rigidly defined. | Tasks are more fluid. |
| Task altered only with the sanctions of higher authority. | Tasks can be altered according to situations and needs. |
| Operate best in stable environments. | Operate best in dynamic environment. |
The decision about whether to design an organic or mechanistic structure depends on the particular situation an organisation faces viz. the environment it confronts, its technology and the nature of the tasks it performs and the types of people it employees. In general, the contingencies or sources of uncertainty facing an organisation shape the design of an organisation.
The contingency approach to organisational design tailors organisational structure to the sources of organisation. The uncertainty facing organisational structure is designed to respond to various contingencies, things that might happen and therefore must be planned for. It can be seen as a development of the systems approach, it goes a stage further in relating the environment, and other variables, to specific structures of organisation.
The contingency approach takes the view that there is no one best, universal structure. There are a large number of variables, or situational factors, which influence organisational design and performance. contingency The approach emphasises the need for flexibility. The most appropriate structure structure is dependent. therefore, upon the contingencies of the situation for each individual organisation. These situational factors account for variations in the structure of different organisations.
The contingency approach can be seen as a form of if-then' matrix relationship. If certain situational factors exist, then certain variables in organisation structure and systems of management most appropriate.
Technological Impact on Design
The nature and type of technology being adopted by the organisations will have an impact on the design of an organisation including its structure. Technology influences the task structure, which in turn will determine the roles, relationships across functions, decision-making. coordination. and control mechanisms. The degree of routineness of technology will differ depending on whether the tasks to be carried-out are standardised or customised.
The routine technologies are appropriate for standardised tasks and will require 3 tall, departmentalised structure with centralised decision- making and control. Whereas, in the case of customised tasks, degree of routineness has to be low thus necessitating a decentralised structure. An effective design of organisation will strive to achieve optimum level fit between technological demands and structural imperatives.
Technology and Design In the early 1960s. Joan Woodward found that the right combination of structure and technology were critical to organisational 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:
1) Small-Batch Production: This 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.
2) Mass Production: This 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 organisation that utilises mass production.
3) Continuous-Process Production: Organisations 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 labour force. Classic examples are automated chemical plants and oil refineries.
Woodward discovered that small-batch continuous processes had more flexible structures, and the best mass-production operations were more rigid structures. It means that the small-batch and continuous processes work well in organic structures and mass production operations work best in mechanistic structures.
Technical system has also been found to affect certain design parameters significantly. For one thing, the more regulating the technical system - in other words, the more it controls the work of the operators - the more formalised is their work and the more bureaucratic is the structure of the operating core.
And the more sophisticated the technical system - i.c., the more difficult it is to understand - the more elaborate the administrative structure, specifically, the larger and more professional the support staff, the greater the selective decentralisation (of technical decisions to that staff), and the greater the use of liaison devices (to coordinate the work of that staff). Finally Woodward has shown how the automation of the work of the operating core tends to transform a bureaucratic administrative structure into an organic one.
Impact of Information Technology (IT) on Organisation Design
Advances in IT are having a tremendous impact on all organisations in every industry. Some specific implications of these advances for organisation design are:
1) Smaller Organisations: Some internet-based businesses exist almost entirely in cyberspace; there is no formal organisation in terms of a building with offices, desks, and so forth. One or a few people may maintain the site from their homes or a rented work space. Even for traditional businesses, new IT enables the organisation to do more work with fewer people.
For example, in many insurance companies. customers can buy insurance without ever speaking to an agent or sales representative. In addition, ERP and other IT systems automatically handle many administrative duties, reducing the need for clerical staff.
2) Decentralised Organisational Structures: IT enables organisations to reduce layers of management and decentralise decision-making. Information that may have previously been available only to top managers at headquarters can be quickly and easily shared throughout the organisation, even geographical distances.
Managers in varied business divisions or offices have the information they need to make important decisions quickly rather than waiting for decisions from headquarters. Technologies that enable people to meet and coordinate online can facilitate communication and decision-making distributed, across great for among autonomous groups of workers.
In addition, technology allows telecommuting, whereby individual workers can perform work that was once done in the office from their computers at home or other remote locations. People and groups no longer have to be located under one roof to collaborate and share information.
An organisation might be made up of numerous small teams or even individuals who work autonomously but coordinate electronically. Although management philosophy and corporate culture have a substantial impact on whether IT is used to decentralise information and authority or to reinforce a centralised authority structure, most organisations today use technology to further decentralisation.
3) Improved Horizontal Coordination: Perhaps one of the greatest outcomes of IT is its potential to improve coordination and communication within the firm. Intranets and other networks can connect people even when their offices, factories, or stores are scattered around the world. For example, General Motors' intranet, dubbed Socrates on the basis that the Greek philosopher's name would be recognisable worldwide, connects some 1,00,000 staff members around the globe. Managers use the intranet to communicate with one another and to stay aware of organisational activities and outcomes. They can also provide key information to employees throughout the organisation with just a few keystrokes.
4) Improved Interorganisational Relationships: IT can also improve horizontal coordination and collaboration with external parties such as suppliers, customers, and partners. Extranets are increasingly important for linking companies with contract manufacturers and outsourcers, as well as for supporting the integrated enterprise. Traditionally, organisations had an arm's-length relationship with suppliers. Suppliers are becoming closer partners, tied electronically to the organisation for orders, invoices, and payments. In addition, IT has increased the power of consumers by giving them electronic access to a wealth of information from thousands of companies just by clicking a mouse. Consumers also have direct access to manufacturers, altering their perceptions and expectations regarding convenience, speed, and service.
5) Enhanced Network Structures: The high level of inter-organisational collaboration needed in a network organisation structure, would not be possible without the use of advanced IT. In the business world, these are also sometimes called modular structures or virtual organisations. Outsourcing has become a major trend, thanks to computer technology that can tie companies together into a seamless information flow.
Environmental Impact on Design
As organisations depend on their environments for resources, output consumption and legitimacy, it is imperative that they develop designs that would enable them to proactively respond to the issues relating to resources availability, consumption patterns, and legitimacy. As competition becomes intense organisation's concern for minimising cost and improving quality must get reflected in the choice that they make in developing appropriate structure to meet those objectives.
Environmental elements and organisation design are specifically linked in a number of ways. Environment can be linked with structure on the following dimensions:
1) Environment and Complexity: Environmental uncertainty and complexity are directly related. That is, high environmental uncertainty tends to lead to greater complexity. In order to respond to a dynamic and more complex environment. organisations become more differentiated. An organisation faced with a volatile environment will need to monitor that environment more closely than one that is stable. That is typically accomplished by creating differentiated units, Similarly, a complex environment requires the organisation to buffer itself with a greater number of departments and specialists.
2) Environment and Formalisation: Stable environments lead to high formalisation because stable environments create a minimal need for rapid response, and economies exist for organisations that standardise activities. Management's preference will undoubtedly be toward insulating operating activities from uncertainty. If successful, a dynamic environment is likely to lead to low formalisation of boundary activities while maintaining relatively high formalisation within other functions.
3) Environment and Centralisation: The more complex the environment, the more decentralised the structure. Regardless of the stable-dynamic dimension, if a large number of dissimilar factors and components exist in the environment, the organisation can best meet the uncertainties that this causes through decentralisation. It is difficult for management to comprehend a highly complex environment (note that this is different from a complex structure). Management information processing capacity becomes overloaded, so decisions are carved up into subsets and are delegated to others.
The evidence on the environment-structure relationship helps to explain why so many managers today are re-structuring their organisations to be lean, fast, and flexible. Global competition, accelerated product innovation by competitors, and increased demands from customers for high quality and faster deliveries are examples of dynamic environmental forces. Mechanistic organisations are not equipped to respond to rapid environmental change and environmental uncertainty. As a result, organisations are becoming more organic.
Important of organisation Design
The various factors which can be used to explain the significance of organisational design in competitive global environment are described as below:
1) Handling Contingencies: Contingency can be any situation which might emerge and there must be a plan to handle that situation effectively. For example, environmental changes can be defined as a contingency. The ability of any organisation to effectively handle the dynamic factors related to its environment and procurement of limited resources depends greatly on the design of the organisation.
2) Competitive Advantage: Many business organisations are identifying the significance of organisational design in gaining the sustained competitive advantages. The ability of any business organisation to perform better than the competitors due to the skills of their managers in creating higher benefits from the available resources is termed as competitive advantage. Manager's abilities in creating value in R&D, organisational design, or manufacturing can be the source of competitive advantage of the firm.
3) Managing Diversity: The effectiveness of any. organisation is greatly influenced by the difference among organisational members in terms of rac nationality, gender, etc. The type of analysis and diversity of various perspectives which are taken into account expresses the quality of organisational decision-making.
4) Efficiency and Innovation: Different types of products and services which are valuable for customers are produced by the organisations. Higher levels of values can be created with the help of various goods and services produced by the organisation if organisation performs in an effective manner. As various innovative and technologically advanced methods for production and distribution of goods and services are designed by the organisation, the value creation from the organisations has increased drastically. The significance of more efficient and well- designed organisational structure is paramount. In prevailing business scenario, different organisations are facing a lot of competition for the efficient production at lower cost with improved quality due to various low labour cost countries. The ability of an organisation to quickly produce new products and be innovative in their operations greatly influences their competitive advantage. Innovation is largely influenced by organisational design.
5) Provides Clarity: Clarity can be obtained in decision-making, work processes, flow of information, and reporting relationship with the help of a strong organisational design. Individuals will have clear information about their reporting superior, their work related responsibilities, and the responsibilities of their co-workers with the help of a well-planned organisational design. An improved level of efficiency can be obtained with it particularly in large organisations. However, there are some disadvantages associated with such a high level of clarity. Employees are given the responsibility of performing variety of dissimilar operations and tasks in small organisations or start-ups with no formal organisational structure. While in large organisations employees tend to decline the work which is not in their job descriptions.
6) Higher Growth Opportunities: The various growth opportunities are well capitalised by those organisations which have a well-designed structure in comparison to those organisations which are inefficiently designed. For example, an organisation with an efficient organisational design can have A strong technological infrastructure which will facilitate the addition of new workstation equipment in the organisational network. Contrary to this, if an organisational design does not have any technological planning, it will find a lot of difficulty in the addition of even a single employee.
7) Motivates Employees: The employees of a well- designed and growing organisation with a formal progressive path can be motivated to attain higher level of efficiency. On the other hand, the employees of a weak organisational structure can be convinced that there are no growth opportunities for them to get promoted to managerial positions. In addition to that, high performing employees can be promoted to supervisory positions in more loosely organised companies without having any formal structure. These organisations can also continue to increase the salary of frontline employees without attaining the limits of pay-grades.
Success and Failures in Design
The most important steps for success in organisational design include the design of a hierarchy, visibility of key metrics, and a clear path of communication throughout the process. Some systems are effective and efficient whereas others are not. Successful systems may be attributable to the skill exercised in designing the system or to the quality of management practiced during operations, or both. Characteristics that indicate whether organisational design succeeds or fails are as follows:
1) Characteristics that indicate success are:
i) Leadership is provided by a key line executive with a clear goal for change.
ii) There is a collaborative identification of problems.
iii) There is a willingness to take risks in new organisational forms.
iv) There is a realistic long-term perspective.
v) There is a willingness to face the situation and work on changing it.
vi) The system rewards people for the effort of changing and improvement, not just for short-term results.
vii) Changes made show tangible results and quick wins at all levels in the organisation.
viii) There is time and resource available to manage the change as well as do the job.
ix) The organisation has a large number of initiatives going simultaneously.
2) Characteristics that indicate failure are:
i) There is discrepancy between what managers say and what they do.
ii) There is pressure from the environment (internal or external) for change.
iii) People at the top are demotivated, or disruptive.
iv) There is confusion between ends and means.
v) There is conflict between what line people need and want and what staff people think they need and want.
vi) There is a lack of coordination among a number of different activities aimed at increasing organisational effectiveness.
vii) There is over-dependence on experts and specialists (internal or external),
viii) A large gap exists between commitment to change at the top of the organisation and the transfer of this interest to the rest of the organisation.
ix) The organisation tries to fit a major change into an old organisational organisational structure.
x) The organisation applies an intervention or strategy inappropriately.
Keys to Success in Organisational Design
Key to success in organisational design is as follows:
1) Simplicity: An effective organisational system need not be complex. On the contrary, simplicity in design is an extremely desirable quality. Consider the task of communicating information about the operation of a system and the allocation of its inputs. The task is not difficult when components are few and the relationships among them are straightforward. However, the problems of communication multiply with each successive stage of complexity. The proper method for maintaining simplicity is to use precise definitions and to outline the specific task for each subsystem. Total systems often become complex because of the sheer size and nature of operations, but effectiveness and efficiency may still be achieved if each subsystem maintains its simplicity.
2) Flexibility: Conditions change and managers should be prepared to adjust operations accordingly. There are two ways to adjust to a changing operating environment - to design new systems or to modify operating systems. An existing system should not be modified to accommodate a change in objectives, but every system should be sufficiently flexible to integrate changes that may occur either in the environment or in the nature of the inputs.
3) Reliability: System reliability is an important factor in organisations. Reliability is the consistency with which operations w maintained, and may vary from zero output (a complete breakdown or work stoppage) to a constant or predictable output. The typical system operates somewhere between these two extremes. The characteristics of reliability can be designed into the system by carefully selecting and arranging the operating components: the system is no more reliable than its weakest segment. When the requirements for a particular component - such as an operator having unique skills are critical, it may be worthwhile to maintain a standby operator. In all situations, provisions should be made for quick repair or replacement when failure occurs.
4) Economy: An effective system is not necessarily an economical (efficient) system. For example, the postal service may keep on schedule with mail deliveries but only by hiring a large number of additional workers. In this case, the efficiency of the postal system would be reduced. In another example, inventories may be controlled by using a comprehensive system of store- keeping. However, if the cost of the store- keeping were greater than the potential savings from this degree of control, the system would not be efficient.
It is often dysfunctional and expensive to develop much greater capacity for one segment of a system than for some other part. Building in redundancy or providing for the every contingency usually neutralises operating efficiency of the system. When a system's objectives include achieving particular task at the lowest possible cost, there must be some degree of trade-off between effectiveness and efficiency. When a system's objective is to perform a certain mission regardless of cost, there can be no trade-off.
5) Acceptability: Any system, no matter how well designed, will not function properly unless it is accepted by the people who operate it. If the participants do not believe it will benefit them, are opposed to it, are pressured into using it, or think it is not a good system, it will not work properly. If a system is not accepted, two things can happen:
i) The system will be modified gradually by the people who are using it, or
ii) The system will be used ineffectively and ultimately fail.
Unplanned alterations in an elaborate system can nullify advantages associated with using the system.
Reasons for Failure of Organisational Design
Organisational design fails for atleast five reasons:
1) People are too detached and do not see their present situation in sufficient detail, for of
2) Past experience is either limited or unsystemised;
3) People are unwilling or unable to work with the resources they have at hand;
4) A preoccupation with decision rationality makes it impossible for people to accept the rationality of making decisions; and
5) Designers strive for perfection and are unable to appreciate the aesthetics of imperfection.
Fundamental Principles of Organisation Design
Each and every person should take into consideration the following basic principles of organisation design:
1) Organisation design is never constant. It should be established and decided as per the prevailing environmental conditions. As the environmental conditions change, the organisation should be ready to change the organisational design accordingly.
2) A specific organisation design should be permitted to be established in a manner that facilitates the assessment whether it is suitable or not. Though, organisation redesign is essential but if it is carried out again and again at short intervals then it can result in substantial harm to the productivity and can cause exhaustion in employees.
3) Factors like unstable objectives of the organisation, alterations in the financial position of organisation, or change in leadership, may dominate a specific organisational design when it is considered as a logical process.
4) Organisation redesign is a continuing process so it should not at all be perceived that there is one perfect organisational design.
5) The design process is a fundamental part of management actions. It must consider all types of resources, responsibilities, rewards, and authority.
Theories of Organisation Design
The body of knowledge and methods that strives to provide valuable guidance to organisations about their structures (and other aspects) which is required to achieve their objectives is known as organisational design. The theories of organisational culture are the source of organisational design. The understanding of the consequences of several structures is produced by the theories of organisational culture. The theories of organisational design are as follows:
1) Contingency Theory: During 1960s, Paul Lawrence and Jay Lorsch in the United States and Tom Burns and G.M. Stalker in Britain established the contingency theory. The concept of this theory is that the control systems and structures of an organisation, which managers select is dependent on the features of external environment in which the organisation functions. Structural contingency theory identifies such organisation structure which will prove to be the best organisational design by adjusting according to the contingencies.
At present, the main framework for the detailed study of organisational design is offered by the contingency theory of organisational structure. The theory is of the opinion that the structure which matches best with the contingencies is the most effective structural design of an organisation. Though, there are a number of major challenges to this theory; out of which few are experimental and few are theoretical. However, some challenges result in innovations in theory; on the other hand, some other challenges are complemented by innovations in processes.
2) Institutional Theory: Though this theory is difficult, it is an opponent theory of organisational structure. The fit of the institutional environment with the organisational structure which results in advantages for the organisation with regard to assistance and external legitimacy, is the idea of the institutional theory. It is a sociological theory which instead of providing recommendations strives to describe organisational structures. The structure of an organisation which it has chosen to take up and follow in agreement with the cultural codes that result in assistance and legitimacy from external organisations is described with the help of this theory.
The consequence of the knowledge of institutional theory is that the scientists are able to recognise the impacts of conforming or non- conforming with the cultural codes, and this further can help in determining the organisational design. This theory describes the procedures which assist in the adoption of the organisational structures. It also comprise of many causal mechanisms which are utilised in describing the reasons behind the adoption of a structure by an organisation. It may describe the adoption of the structure by an organisation due to following reasons:
i) The structure-adoption process was not given due importance and value by its managers and they were incapable to find any alternate.
ii) A number of other organisations and prestigious organisations in its field had adopted the structure.
iii) The causal uncertainty faced by the managers and the indications from the strong external groups which preferred a specific structure.
iv) Advisors or professionals favoured the structure as a positive role model.
v) Auditing firms needed it to approve the organisation's audit.
vi) Legally required and supported by punitive sanctions.
Therefore, to clarify the reason behind the adoption of a particular structure can be described with the help of institutional theory. In this way, institutional theory has been utilised till now to describe those social processes which resulted in the adoption of an organisational structure.
Differential Outcomes of Contingency and Institutional Fits
With the unvarying interest in the subject of organisational design, both the theories correspond to the consequences. Each theory Each theory generates recommendations; the organisational design issue is in what manner they can be brought together in a complete recommendation, or meta-recommendation. Whether institutional theory or structural contingency theory results in contradictory or complementary recommendations, and how these recommendations influence organisational design are the issues in question raised by these theories.
Both the theories are sociological functionalist theories because they describe the structure of the organisation (atleast partially) taking into account the outcomes which are advantageous in nature. In case of institutional theory, legitimacy and external support are the benefits which are responsible for giving the adopting and retaining a structure. Though, there may be some other reasons for adopting and retaining a structure such as unreflective conformity to cultural codes.
The assumption of the matching or fit amongst the structure and some other factors is common in both the theories. In case of the institutional theory, the fit is among the institutionally approved structure and actual structure of the organisation. While in case of the contingency theory, there is a fit between the exigency variable with the organisational structural variable.
Until now, the leading theory of organisational design about structural aspects of organisation is the structural contingency theory. It has also been claimed that the perception regarding organisational design is also made available by the institutional theory in recent times. Both the theories are of the opinion that the beneficial outcomes are produced by the matching structures.
But, the theories vary in the kind of results which they suggest. Contingency theory considers that those structures augment the internal effectiveness of the organisation which fits the contingencies.
Whereas, institutional theory believes that those structures magnify the external assistance of the organisation and legitimacy which fit the institutional environment.
Implications for Managers
Managers must be aware of the importance of organisational design to the long-term performance of the organisation. The increasing availability and sophistication of technology will change the way organisations are designed and coordinated. The ever-increasing demands for quality will create additional pressures for achieving maximum efficiency and effectiveness in every aspect of an organisation's operations.
As more and more industries globalise, organisations will be faced with the challenge of coordinating their efforts across different nations and among diverse people. Effective leadership demands that one possess the competence to desiga organisations so that they are prepared to cope with and capitalise on a changing business environment. ln preparing to meet such challenges, managers must:
1) Remember that organisational design provides an important mechanism for achieving the strategic and operational goals of the organisation.
2) Understand the make-up of the forms of organisational structure and under what conditions it would be appropriate to use each.
3) Understand the potential advantages and disadvantages of the functional, division, matrix, and network structures.
4) Look for ways to increase the integration potential of the organisation or to reduce the need for integration.
5) Understand the circumstances in which centralised or decentralised decision-making would work well and how to use each approach.
Final Words
In conclusion, organizational design plays a pivotal role in shaping the success and sustainability of modern businesses. It encompasses the arrangement of various components, including structure, processes, roles, and culture, to optimize efficiency, innovation, and employee engagement. By strategically aligning these elements, organizations can adapt to dynamic environments, capitalize on emerging opportunities, and overcome challenges.
Effective organizational design goes beyond mere structural changes; it involves a deep understanding of the company's goals, market dynamics, and the diverse talents within the workforce. It requires thoughtful consideration of factors such as hierarchy, communication channels, decision-making authority, and the promotion of a collaborative and inclusive culture. When done right, organizational design can foster agility, foster innovation, and facilitate seamless coordination among teams. However, it is important to recognize that organizational design is not a one-time solution.
In today's rapidly evolving business landscape, companies must embrace a mindset of continuous improvement and adaptation. Regular evaluation and adjustment of the organizational design are necessary to ensure it remains aligned with the evolving needs of the organization and its stakeholders. Ultimately, the success of organizational design lies in its ability to create an environment where individuals can thrive, collaborate, and contribute their best efforts.
By harnessing the power of effective organizational design, businesses can position themselves for long-term growth, competitiveness, and sustainable success in an ever-changing world.