Module I companies

1. Organization structures and change

Business Brief

All human activities take place within a structured social system or ‘organisation’. This is true whether it be a family, a city, or a business. Many of these organisations have a formal structure, the purpose of which is to make it possible to achieve the objectives of that organisation. Within that formal structure there is a group of people who plan, organise, direct and control the day-to-day operations of the organisation – the managers. Whether a senior executive or a junior manager, everyone has the job of guiding, influencing or supervising people to some degree and in their own different ways. The organizational chart provides a great deal of information about the organization as a whole and the interaction of its parts, its hierarchy, the degree to which it is centralized or decentralized, and its chain of command.

Organization Structures:

• functional (work units are divided based on what they do and named after those functions (e.g., research and development, marketing, sales, etc.);

• divisional (based on product, customers served, or geographic location);

• matrix structure (work units are organized by both function and division).

Organizational Hierarchy and Centralization

Tall organizations have many levels of middle management and small spans of control. Each manager supervises and directs few employees, and the chain of command has many managers.

A flat organization has fewer management levels and larger spans of control. Because managers supervise more employees, employees tend to have more autonomy and discretion in their jobs.

Centralized organizations are those in which most of the decision making occurs by a few people at the top of the hierarchy. This typically creates a top-down management structure, in which top-level managers strongly control the direction of the workplace through their decisions and supervision.

An organization with a decentralized structure allows greater decision-making and authority at lower organizational levels. Highly decentralized companies may have units that operate nearly independently of one another.

Discussion:

Is it true or false:

1. the taller the organization, the more decentralized it is.

2. flatter organizations generally require more decentralization, because managers each have broader spans of control and cannot direct and closely supervise so many people.

3. Functional structures tend to be more centralized than do divisional structures.

1f 2t 3t

Pros and Cons of Different Organizational Structures

Functional Structure
Advantages Specialisation – each department focuses on its own work Accountability – someone is responsible for the section Clarity – know your and others’ roles	Disadvantages Closed communication could lead to lack of focus Departments can become resistant to change Coordination may take too long Gap between top and bottom
Organisation by Product/Activity
Advantages Clear focus on market segment helps meet customers’ needs Positive competition between divisions Better control as each division can act as separate profit centre	Disadvantages Duplication of functions (e.g. different sales force for each division) Negative effects of competition Lack of central control over each separate division
Organisation by Area
Advantages Serve local needs better Positive competition More effective communication between firm and local customers	Disadvantages Conflict between local and central management Duplication of resources and functions