DEPARTMENT OF ECONOMICS

NNAMDI AZIKIWE UNIVERSITY, AWKA

ECO 826  (INDUSTRIAL ORGANIZATION
And MANAGEMENT) 

TOPIC

STRUCTURE OF ORGANIZATION

BY

AZIKE SYLVIA ONYEKA

2020116004FB

AND

MOGULUWA SOCHIMA CHINWUBA

2020116001F
 INTRODUCTION

STRUCTURE OF ORGANIZATION

An overview

An organizational structure is a system that outlines how certain activities are directed in

order to achieve the goals of an organization and these activities can include rules, roles

and responsibilities. The structure chosen affects an organizations success in carrying out

its strategy and objectives. The organizational structure also determines how information

flows between levels within the company. For example, in a centralized structure

decisions flows from the top down, while in a decentralized structure decision-making

power is distributed among various levels of the organization. Having an organizational

structure in place allows companies to remain efficient and focused.

UNDERSTANDING ORGANIZATIONAL STRUCTURE

Business of all shapes and sizes use organizational structures heavily. A successful

organizational structure defines each employee’s job and how it fits within the overall

system. Put simply, the organizational structure lays out who does what so that the

company can meet its objectives. Take the family unit as an example it is very much an

organization of people with shared interest of each other. There is the father, the mother,

and the children and they all work together to achieve a common goal (a happy home,

good life, take your pick). A business case study is that of the Japanese automaker
Toyota’s organizational structure which has long been a case study in organizational

structures. Their customer first, quality first is the policy that drives Toyota and they

make both the customer and quality a priority all because of its organizational structure ,

Toyota’s production system and it’s organizational structure had long been lauded as the

most efficient. They use what they call a just in time(JIT) production system which

means raw materials are delivered to the production facility just as they are needed. This

level of production is possible because of Toyota’s organizational structure.

WHAT ARE THE BENEFITS OF ORGANIZATIONAL STRUCTURE

Although, not all businesses make use of organizational structures, those that do

can reap several benefits such as;

1. Faster decision making: when organizations are able to communicate efficiently,

the overall communication will be positively impacted this will then lead to

quicker decision making

2. Numerous business locations: as small businesses continues to grow and expand

they may open multiple locations in local, regional or domestic economic markets.

Organizational structure helps business owners to create a management chain to

ensure all business locations operates according to the company’s standard

operations.

3. Improve employee performance: organizational structures often outlines

employee’s task and which manager is responsible for overseeing each employee.
 Employees may under goo a training period in which they learn the company’s

organizational structure. This process informs employees which manager can take

specific decisions or where they need to send information for approval.

4. Focus on customer service: companies using a well-defined organizational

structure should be able to spend more time focusing on customer service rather

than correcting operational issues. Companies may also focus on increasing sales

revenues and profit from business operations by meeting customer’s needs and

wants

5. Streamline business operations: organizational structures can help companies

streamline business operations that is, business owners, directors and managers

usually are responsible for organizing business functions into departments that can

complete various business processes which ensures that business operations are

completed in an effective manner.

KEY ELEMENTS OF ORGANIZATION STRUCTURE

Five elements create an organization structure which are;

1. Job design: who does what, that is division of labour and specialization

2. Department: ways an organization structure its job to coordinate work

3. Centralization and decentralization: the degree which decision-making is made at

one central level or at various levels by employees

 4. Span of control: the number of individuals who report to a manager. If a manager

has too many people to oversee, he might lose his effectiveness and not

recognize problems or success

5. Coordination: achievement of harmony of individual effort towards the

accomplishment of group goals

TYPES OF STRUCTURE OF ORGANIZATIONAL STRUCTURE

1. LINE STRUCTURE: in a line organization, activities originates at the top and moves

downwards. It is the simplest and oldest form of organizational structures. It is a very

rigid structure with little information exchange, typical of bureaucratic companies in

which there is little collaboration in this way one area doesn’t interfere with the work of

another and the staff only obeys the ‘orders’ of the immediate superior.

2. MATRIX STRUCTURE: a matrix structure allows employees from different

departments to come together temporarily to work on special project teams. The purpose

of this kind of structure is to allow companies the flexibility to respond quickly to a

customer need by creating a team of people who devote all their time to a project and

once the team completes the project, the team members return to their departments or join
a new project team .Companies that undertake very large projects often use this matrix

structure for example Boeing, which is an American multinational corporation dealing

with designs, manufacture and sells airplanes, rockets etc., regularly assign employees to

project teams.

3. TEAM STRUCTURE: a team structure brings together people with different skills in

order to meet a particular objective. Using the team structure they believe this structure

will allow them to meet customer needs more efficiently, especially manufacturing

companies must work together with suppliers around the globe while keeping the cost to

a minimum while producing high quality products.

4. NETWORK STRUCTURE: in a network structure, managers at an organization will

coordinate relationships with both internal and external entities to deliver their products

or services. For example, a retail company will just focus on selling clothing items but

will outsource the design and production of these items in a partnership with other

companies thus this structure focuses more on open communication and relationships

than hierarchy.

5. FLAT STRUCTURE: is a structure with only few layers of management. In the flat

structure, most levels of middle management are removed so as to supervision of

employees become less while promoting their increased involvement in the decision

making process. An advantage of this is it gives employees more responsibility to the

organization and this type of structure is mostly used by small companies and early stage

start up because they often have fewer employees

6. DIVISIONAL STRUCTURE: in this structure various teams’ work alongside each

other toward a single, common goal and each of these divisions have its own executives

who manages how things/work should be done. Large companies employ this type of

structure one example is that of general motors they have a regional divisional

organization where they group their business activities according to areas of operations

(focus).

7.HIERARCHIAL STRUCTURE: often also referred as “tall” organization. In this kind

of structure the CEO stands at the top level followed by various management levels. It is

the most common type of structure for example, the broad top- level overview of the

general organization of the Catholic Church consists of the pope, the cardinal then the

archbishops, bishops, priests and the people.

8. FUCTIONAL STUCTURE: also known as bureaucratic organizational structure and

breaks up a company based on the specialization of its workforce. Most small-to

medium-sized businesses implement a functional structure dividing the firm into

departments consisting of marketing, sales, and operations using the act of bureaucratic

organizational structure.

Factors Affecting Organization Structure

Organization structure is designed keeping in view the following factors:

1.    Strategy:

Strategy determines a course of action to direct various organizational activities. It makes

plans to co-ordinate human and physical resources to work towards a common objective.

Strategy is pre-requisite to organization structure and also follows it. The relationship

between strategy and organization structure is depicted as follows:

Strategies to diversify product lines or markets require decentralized transition as

decision making is done at wider level and strategies for organizations working in stable

environment. Where managers do not diversify their operations, require a centralized

organization.

2.    Technology:

The technology for manufacturing goods and services also affects the organization

stricture. In case of mass production technology, mechanistic organization structure is

more appropriate, while in case of continuous production or small-scale production

technology, the appropriate from is organic structure. This is because mass production

technologies involve standardization and specialization of work activities and continuous

or unit production technologies require low levels of standardization and specialization.

3.    People:

Organization structure defines work, groups it into departments and appoints people to

run those departments. People at different jobs must possess the skill, knowledge and

efficiency to accomplish the related tasks.

4.    Tasks:

Activities performed by people who transform organizational plans into reality are known

as tasks. Various task characteristics are:  

(a)    Skill variety:

It is the extent to which creativity and variety of skills and talents are required to do a

task.

People with high degree of task varieties (for example, a dress designer ) perform tasks

that increase their intellectual ability and give them high job satisfaction.

(b)    Task identity:

Whether to produce a product in whole or in parts determines its task identity. When a

product is produced as a whole, it has greater task identity.

People performing tasks with high task identity y (for example, a computer programmer)

perform various job functions related to that task from beginning to the end, derive job

satisfaction out  of their work and feel motivated to repeat those tasks.

(c)    Task significance:

The importance of task affecting the well-being or lives of people working inside and

outside the organization determines significance of the task.

People performing tasks with high task significance, i.e., tasks which positively affect the

well-being and safety of others (for example, a traffic police inspector), feel satisfied with

their job performance and perform work of high quality and esteem.

(d)    Autonomy:

Whether or not an individual plans the task on his own determines autonomy of the task.

It determines the extent to which a person enjoys t freedom of performing various  Job

activities and determines the steps or procedures to carry them out. People who are

responsible for all the functions and schedules related to a job (for example, a project

manager) hold accountability for that job and enjoy greater autonomy with respect to that

task and derive greater job satisfaction.

(e)    Feedback:

It is the information that people receive about successful completion of their task.

5.Decisions:

Questions like who makes decisions-top managers or lower levelmanagers, how

information flows in the organization so that decision-making is facilitated, affect the

organization structure. Centralized decision-making powers give rise to mechanistic

structures and decentralized decision-making processed give rise to organic or behavioral

structures.

6. Informal organization:
Informal organizations are and outgrowth of formal organizations. Social and cultural

values, religious beliefs and personal likes and dislikes of members which form informal

groups cannot be overlooked by management.

7. Size:

A group known as Aston Group conducted research on firms of different sizes and

concluded that as firms increase in size, the need for job specialization, standardization

and decentralization also increases and organizations are structured accordingly.

8. Environment:

Organization structure cannot ignore the effects of environment. Organizations must

adapt to the environment, respond to incremental opportunities and satisfy various

external parties such as customers, suppliers, layout unions etc. In case of stable

environment where people perform routine and specialized jobs, which do not change

frequently, a closed or mechanistic organization structure is appropriate.

9. Managerial perceptions:

Organizations where top managers perceive their subordinated as active, dynamic and

talented entrepreneurs, prefer organic form of structure, If they hold negative opinion

about their subordinates, they prefer mechanistic organization structure.

Organizational Life Cycle 

Organizational life cycle, as the name suggests, is the life cycle of an organization from

the point of its creation or onset to the point it is terminated. It has five distinct stages

which are conception, expansion, stability, growth, and termination.organizational life

cycle is referred to as a model that has linked business organizations with living

organisms and proposed that it passes through predictable sequences of

various development and growth stages.

It is believed that like human beings, organizations also are born, they grow and mature

with time and there comes a stage when they start declining and like any other human

being die. Some of the organizations have a long shelf life, whereas others are unable to

cope with the demands and have a short life. Still, it is a fact that every life follows a

pattern, and this seems predictable for every organization. It is up to the management

to realize and understand all the phases of the organizational life cycle so that they can

understand the priorities of that stage and make decisions accordingly that will work best

for that period.

Stages Of the Organizational Life Cycle

Organizations are typically changing into different phases, and it is up to an organization

to understand the stage or the life cycle which their company is going through. All the

organizational life cycle stages present challenges and priorities that should be met head-

on to thrive in this world. The various stages of the organizational life cycle are as

follows-

1. The start-up or existence phase

This is the first stage of the organizational life cycle and is known by several names as

The birth stage

The existence stage
The start-up stage

The entrepreneurial stage

All the names have the same meaning and signify the same thing that it is the start of an

organization. There is a need for a practical and workable business model at this time that

will help the company to find its due course

This is the stage when the companies have to accumulate capital, develop products and

services and hire workers. Thusthis phase is all about entrepreneurial thinking and

includes writing and forming a business plan, formation of various teams, making

investment plans to kick-start the business. In case a company does not require outside

funds then gearing up for taking out the necessary funds from the personal account.

At this stage, the firms exhibit a simple structure with centralised power at the top of the

hierarchy. The primary purpose of this point in time is to establish competencies and

generate initial success in terms of products and market.

This is the stage where you will find lots of trial and errors as the companies have to

change their products and services in a manner to suit the demands of its customers and

establish distinct competencies. The pursuit of a niche strategy and frequent innovations

are part of this phase. The product development and delivery stage during the first phase

involve employees wearing several hats and leaders being engaged in strategic as well as

tactical levels. The significant attributes in this environment are flexibility and lean

management of assets and resources for the continued existence of the company. The

success in this birth stage is in finding a niche product/market that will provide enough

revenues to maintain and develop the organization and often involves growth
via vision and creativity. Understanding the business model will help in getting a close

view of the bigger picture so that it becomes possible to know how to generate earnings

and revenues and control expenses for future growth and development of the company.

It is generally seen that by the end of this stage, the organization more often experience

explosive and unprecedented growth. To meet the demands, it has to rapidly hire new

employees because the business opportunities start surpassing resources and

infrastructure.

2. The growth or survival phase

The second stage of the organizational life cycle is the growth stage that is also referred

to as the survival stage. It is aptly named because at this point; the companies are looking

to solidify their roots, establish a framework, pursue growth and develop their

capabilities. The onus is on setting targets and generating revenues for expansion and

growth plans.  There are two possible scenarios in the growth stage; first, some

companies enjoy success and growth and can enter the next step with aplomb whereas

some organizations are unable to achieve the desired success and subsequently fail to

survive.

The growth stage is crucial for an organization, and this is why it puts its onus on early

product diversification and sales growth. Product lines are broadened; efforts are on

tailoring products to suit new markets, managers try to identify subgroups of customers

and make small modifications in product and services to serve them in a better way.
The niche strategy is often sidelined for a temporary phase to address the broadened

markets. Generally, the organizations attain profitability in this stage and might require

additional funding to meet the numerous growth opportunities.

In this stage a functionally-based structure is established, procedures are formalised,

some authority is delegated to the middle managers, customers influence decisions, and

the goal encompasses fulfilling the wishes of the customer to a higher degree.

The roles now become differentiated, and there is an increase in sales and marketing to

generate and fulfil demands. In other words, diversification of the customer base

and product line results in the specialization. To maintain control, the organization

introduces formal methods and cross-functional activities. One issue that an organization

can face in this stage is autonomy. Fewer onuses on innovation activities and

limited decentralization of power can make the company less responsive to market

changes. The growth stage will start to end when the sales of an organization begin to

slow down.

3. The maturity phase

The next stage in the organizational life cycle is the maturity stage where the company

enters a hierarchal structure of management.  In this phase, the companies pay fewer

onuses on expansion and more on safeguarding their interests and maintaining the

existing growth and development strategies and plans. It is the middle and top levels

management that take up the mantle of specializing in tasks like routine work,

planning, strategizing etc. By the time an organization reaches its maturity level one can

see stabilization in the sales. This happens because of market saturation and high levels
of competitive activities. Some organizations are highly profitable, and the goal then is to

maintain smooth functioning to maximize their profits in case the company goes through

a declining sales growth phase. The companies put their onus on internal efficiency, and

for this, they start installing control mechanisms in place.

Firms remain centralized and functional, and departmental structures continue to exist as

they are apt for product-market scope. The delegation of power is less compared to the

growth stage because the operations are now more stable and straightforward and do not

require the efforts of numerous people.

There is an emphasis on budgets, formal cost controls, performance measures and

coordination so that various departments and units can work together effectively.

The maturity phase in an organizational life cycle shows a  lessproactive and less

innovative decision-making stage. This is because the aim of the company at this point is

apparent – to focus on efficiency instead of a novelty. It waits for the competition to

make the first move and lead the way and then imitates the innovation if necessary.

The maturity stage of an organization can continue for a very long period because as long

as the organization is showing good sales and revenues figure there is no need to change

the status quo or rock the boat.

4. The renewal phase

The next stage in the organizational life cycle is known as the renewal stage. This is

because, at this point, the companies will experience a renewal in their management

structure that shifts from a hierarchical organizational structure to a matrix style of

organizational structure. This change facilitates flexibility and creativity in the

organization. The renewal stage is also referred to as the revival stage because of its

functions. It is an optional stage, and several organizations do not put the onus on it

whereas other takes care of it diligently. The revival stage generally occurs between

maturity and a decline stage of the organizational life cycle. This happens because an

organization recognizes the need for drastic changes and initiates plans to implement the

set strategies that can alter their current path.

The revival stage is considered for expansion and diversification of product-market

scope. Companies try to follow a policy of rapid growth through diversification,

innovation and acquisition. This stage involves increased investment and high risks.The

firm forms project teams and task forces to analyses issues and find solution alternatives

systematically. Information processing is expanded and becomes diverse because the

requirement changes from performance reporting and financial controls to information

about customer and market opportunities. This is for identifying the new trends and

opportunities to revive the organizational structure. Significant changes start taking place

because of the implementation of various policies by the organization. The revival stage

can either be successful, and then the organization can maintain and see high growth or

not successful, and this can be identified by the lack of expected sales growth in the

company.

5. The decline phase

The last stage of the organizational life cycle is the decline stage that signifies the death

of an organization. This can be identified by minimizing sales figures and profitability in

the organization. This happens because of market stagnation, reluctance for risk-taking,

external challenges, and lack of innovation.

In this stage of the organizational life cycle, organizations start putting the onus on

conserving resources. Their sales figures go plummeting downhill because of

unappealing product lines and lack of new technologies in the products. The

communication between departments and the levels is weak and well-developed

mechanism is absent for information processing. The declining stage is the worst in the

organizational life cycle as individuals become preoccupied with personal objectives

instead of organizational goals and objectives. This slowly and steadily destroys the

feasibility and functionality of the entire company

Organizational Change

Organizational change refers to any alteration that occurs in total work environment.

Organizational change is an important characteristic of most organizations. An

organization must develop adaptability to change otherwise it will either be left behind or

be swept away by the forces of change. Organizational change is inevitable in a

progressive culture. Modern organizations are highly dynamic, versatile and adaptive to

the multiplicity of changes. Organizations survive, grow or decay depending upon the

changing behavior of the employees. Most changes disturb the equilibrium of situation

and environment in which the individuals or groups exist. If a change is detrimental to the

interests of individuals or groups, they will resist the change.

 
 THE CHANGING NATURE OF A COMPANY’S ORGANIZATIONAL

STRUCTURE

The term change refers to an alteration in a system whether physical, biological, or

social. Thus organizational change is the alteration of work environment in organization.

It implies a new equilibrium between different components of the organization-

technology, structural, arrangement, job design, and people. Thus organizational change

may have following features:

When change occurs in any part of the organization, it disturbs the old equilibrium

necessitating the development of the a new equilibrium. The type of new equilibrium

depends on the degree of change and its impact on the organization.

Any change may affect the whole organization; some parts of the organization may be

affected more, others less; some parts are affected directly, others indirectly.

Organizational change is a continuous process. However, some changes which are of

minor type, may be absorbed by the existing equilibrium; others, which are major ones

may require special change efforts.

Factors of Organizational Change

Organizational change as we have read is a strategic initiative impacting almost every

aspect of its operations and functions. The factors that induce changes almost always

require immediate attention. The major forces that drive this change in business are:

• Internal environment

• External environment
The Internal Environment

The internal environment of an organization consists of factors within the organization

over which it can exercise a fair amount of control. Some of the internal factors are:

(i) Employees: Employees are the human capital of the organization. An organization

without a motivated and dedicated workforce will not be able to perform in spite of

having the best products and capital. Employees must take the initiative to change their

workplace, or changes in work tasks for more efficient and effective performance.

(ii) The Organizational Structure: The organizational structure is what governs and

guides the effective operations of the company. It defines and scopes the authority and

hierarchy in the company. However, over time the organizational structure needs

reorganization to answer to the needs of an evolving entity and becomes an internal

source of organizational change.

(iii) Organization Processes: The processes in organization are collections of activities

that need to be undertaken in order to produce an output, and that will have a value for

consumers. There are various processes in the organization that need to be constantly

updated to keep serving the market like – manufacturing, distribution, logistics,

information technology, etc.

Apart from the above factors like the company’s mission and objectives, organizational

culture and style of leadership are factors typically associated with the internal

environment of an organization and can have a considerable impact on the organization.

The External Environment

The external environment of an organization is those set of factors which the organization

cannot exercise control on. Though these factors are external to the organization, they

have a significant influence over its operations, growth and sustainability.

Economic Factors: The macroeconomic factors like the political and legal environment,

the rate of inflation and unemployment, monetary and fiscal policies of the government,

etc. are causes that have a high influence on companies and prompt for changes in the

organization. Managers need to carefully track these indicators in order to make the right

decisions for change.

Socio-cultural Factors: The local and regional conditions greatly influence people’s

values, habits, norms, attitudes and demographic characteristics in the society. All of

these factors highly influence the business operations or will do so in the future.

Global Environment: The increasing globalization of markets has made organizations

sensitive to changes. Any change or crisis in the global market affects every business, and

corrective measures are not often easy and immediately taken.

Technology: Technology has become an intrinsic part of business operations. It regulates

processes in all aspects like manufacturing, distribution, logistics, finance, etc.

Organizations have to be up-to-date with the ever-changing technological advancements

in order to improve efficiencies and remain competitive.