Organizational Structure

Presented By :
Aakash Kushwaha
Akshit Goel
Kartik Goel
Madhur Maheshwari
Nikita Rathi
Shubhank Goswami
 DEFINITION
 Organizational Structure refers to the differentiation (differences in the
orientations among the managers of different departments and differences
in formal structure among these departments) and integration (quality of
the state of collaboration for achieving unity) of activities and authority,
role and relationships.

 Organization Structure also refers to the well–defined jobs, each bearing a

definite authority, responsibility and accountability and to the pattern of
relationships among individuals and department in an organization.

 An organizational Structure can be very simple or very complex.

Simple Structure Complex Structure
 Why have a Structure ?
 All businesses have to organise what they do.
 A clear structure makes it easier to see which part of the business does
what.
 It defines the power and responsibility held by an individual in any
organization.
 The importance of Organizational structure is discussed later.
Classical and the Modern theory
Before, looking at the key features of org. structure, let us have a
look at the classical and modern theory of looking at an org :
 Classical Theory :
 View organisations as machines
 Attempt to develop a systematic and rational approach
 Development of universal principles to guide management practice
 E.g. Fayol’s basic principles of administration
▪ Functional division of work
▪ Hierarchical relationships
▪ Bureaucratic forms of control
▪ Narrow supervisory span
▪ Closely prescribed roles
 Limitation:
▪ Excessive emphasis on vertical reporting hinders communication across
functions
Classic and Modern Theory ( Contd.)

 Modern Theory :
 Abandons search for universal principles
 Best designs and structure are those that have a good ‘fit’ with the
environment
 E.g. contingency theory
▪ Accounts for changing environmental demands and opportunities

Both approaches emphasise the formal ( on the record, based on

authority, fixed and rigid ) aspects of organizations and largely
exclude the informal ( Officially illegitimate, Dynamic and flexible,
Based on trust or reciprocity, Off the record, Reliant upon personal
affinity or political allegiance )
Key elements of Organizational
structure:
An organizational structure is designed keeping in
mind the following features :
1. Work specialization
2. Departmentalization
3. Chain of command
4. Span of control
5. Centralization and Decentralization
6. Formalization
 Work Specialization

The degree to which tasks in the organization are divided into separate
jobs, with each step being completed by a different person specialized in
completing that part.
But overspecialization can result in human diseconomies from boredom,
fatigue, stress, poor quality, increased absenteeism, and higher turnover.
It includes:
• The entire job been broken down into steps, each step completed by a
separate individual.
• Individual workers specialize in doing part of an activity.
• Involves repetitive performance of a few skills.
• Can be viewed as a means to make the most efficient use of employee's
skills.
• Some task requires high skills.
• Others can be performed by the untrained.
Departmentalization
 Departmentalization refers to the process of grouping
activities into departments.
 Division of labour creates specialists who need
coordination. This coordination is facilitated by grouping
specialists together in departments.
 Departmentalization is done on the basis of:

• Function
• Product
• Geographical regions
• Process
• Customer
Chain of command
The continuous line of authority that extends from upper levels of
an organization to the lowest levels of the organization and
clarifies who reports to who.

Authority
 The rights inherent in a managerial position to tell people what
to do and to expect them to do it.

Responsibility
 The obligation or expectation to perform.

Unity of command
 The concept that a person should have
one boss and should report only to that person.
Span of control
 The number of employees who can be effectively and
efficiently supervised by a manager.

Width of span is affected by:

 Skills and abilities of the manager
 Employee characteristics
 Characteristics of the work being done
 Similarity of tasks
 Complexity of tasks
 Physical proximity of subordinates
 Standardization of tasks
Contrasting spans of control
Relationship of span of management and
structure 

 A flat organisational structure with lots of staff are likely to create a

wide span of management. It occurs when top managers sack
middle management, leaving behind a more flat structure.
 The smaller the number of staff in each unit, the less span of
management required by the manager to manage the staff in that
unit. This one is based on a hierarchical structure in order to reduce
the span of management. But it is more expensive to implement.
 A flat structure tends to create overworked managers. It is cheaper
to create and managers can be more autonomous. But decisions can
be poor and the organisation can become chaotic.
 To help solve this high stress and poor decision-making problem
with the managers, it is usually better to develop self-managed
teams and individuals. In other words, let the employees be their
own managers.
Centralization & Decentralization

Centralization:
 The degree to which decision-making is concentrated at a single
point in organizations.
 Organizations in which top managers make all the decisions and
lower-level employees simply carry out those orders.
Decentralization:
 Organizations in which decision-making is pushed down to the
managers who are closest to the action.
Formalization

 The degree to which jobs within the

organization are standardized and the extent
to which employee behavior is guided by
rules and procedures.
 Highly formalized jobs offer little discretion
over what is to be done.
 Low formalization means fewer constraints
on how employees do their work.
Mechanistic organizations versus Organic
organization
 Organizational Structural decisions are
influenced by:
Overall strategy of the organization
 Achievement of strategic goals is facilitated by changes in
organizational structure that accommodate and support change.
Size of the organization
 As an organization grows larger, its structure tends to change from
organic to mechanistic with increased specialization,
departmentalization, centralization, and rules and regulations.
Technology used by the organization
 Firms adapt their structure to the technology they use.
Routine technology = mechanistic organizations
Non-routine technology = organic organizations
Degree of environmental uncertainty
 Mechanistic organizational structures tend to be most effective in
stable and simple environments.
 The flexibility of organic organizational structures is better suited for
dynamic and complex environments.
Types of Organizational Structure

 Functional Structure
 Flat Structure
 Vertical Structure
 Matrix Structure
 Hybrid Structure
 Team Structure
 Network Structure
 Virtual Structure
 Functional Structure
 Functional structure is created by grouping the activities on the
basis of functions required for the achievement of
organizational objectives.
 Functions are classified into
 “Basic”(essential: e.g. production, marketing, in manufacturing
organization)
 “Secondary”(subparts :e.g. marketing is further divided into market
research, advertising, sales…etc)
 “Supportive” (e.g. finance, accounting, personnel, industrial
relations)functions according to their nature and importance.
 Authority relationships in functional structure may be in the
form of line, staff & functional.
 Limited span of management and tall structure.
 There is an emphasis on sub goals.
 Head Quarter

Marketing manufacturing Finance personnel

Divisional Structures
 A division is a collection of functions working together to produce a
product.
 Divisions create smaller, manageable parts of a firm.
 Divisions develop a business-level strategy to compete.
 A division has marketing, finance, and other functions.
 Functional managers report to divisional managers who then report to
corporate management.
 Product structure: divisions created according to the type of
product or service.
 Geographic structure: divisions based on the area of a country or
world served.
 Market structure: divisions based on the types of customers
served.
 Product Structure
CEO
C o r p o r a tio n

C o rp o ra te
M a n a g e rs

W a s h in g M a c h in e L ig h tin g T e le v is io n
D iv is io n D iv is io n D iv is io n
Geographic Structure
CEO
C o r p o r a tio n

C o rp o r a te
M a n a g e rs

N o rth e rn W e s te rn S o u th e rn E a s te rn
R e g io n R e g io n R e g io n R e g io n
Market Structure

CEO
C o r p o r a tio n

C o rp o ra te
M a n a g e rs

L a r g e B u s in e s s S m a ll B u s in e s s E d u c a tio n a l In d iv id u a l
C u s to m e rs C u s to m e rs In s titu tio n s C u s to m e rs
 Flat Structure
 Flat structure reduces the levels of management.
 Widens span of control of management at various levels of
organization.
 More decentralized with regard to decision-making
Advantages :
 More delegation of authority
 More clear policy
 Development of managers for higher positions because of their
initiative & authority to make decisions.
Disadvantages :
 Tendency of overloaded superior to become bottlenecks in
decision making
 Requirement of highly trained managerial personnel.
Tall & Flat Organizations
 Tall structures have many levels of authority
relative to the organization’s size.
▪ As levels in the hierarchy increase, communication gets
difficult.
▪ The extra levels result in more time being taken to
implement decisions.
▪ Communications can also become garbled as it is repeated
through the firm.
 Flat structures have few levels but wide spans of
control.
▪ Results in quick communications but can lead to
overworked managers.
 Vertical Structure
 Narrow span of control
 Large number of management levels
 More centralized decision making
Advantages :
 Close Supervision
 Close control of subordinate activities
 Fast communication between superior & his subordinate
Disadvantages :
 Creation of many levels of management
 High cost to the organization
 Excessive distance between lowest level & highest level in the
organization.
 Matrix Organization
In a matrix organization a vertical as well as lateral communication and

information flow is allowed.

The matrix organization integrates functional responsibility with product

responsibility.
It is a combination of the functional and the product org. structure.
A product manager is responsible for the total performance of the product and
Will have the production manager, the marketing manager, the accounts

manager as his counterparts in the manufacturing, marketing, and accounting

functions respectively.
These functional managers report to the functional head vertically and

product manager laterally.

MOS is used in big companies having diverse business activities.
The structure enjoys the advantages of a functional as well as of a product

organization
Matrix Organization
 Hybrid and Team Structures
Hybrid Structures

 Many large organizations have divisional structures where each manager can select the best
structure for that particular division.
 One division may use a functional structure, one geographic, and so on.
 This ability to break a large organization into many smaller ones makes it much easier to
manage.

Team Structures

One of the newest organizational structures developed in the 20 th century

is team. In small businesses, the team structure can define the entire
organization. Teams can be both horizontal and vertical. While an
organization is constituted as a set of people who synergize individual
competencies to achieve newer dimensions, the quality of organizational
structure revolves around the competencies of teams in Totality.
Network and virtual Structures
Network Structure
Another modern structure is network. While business giants risk becoming too clumsy to
proact (such as), act and react efficiently, the new network organizations contract out any
business function, that can be done better or more cheaply. In essence, managers in
Network structures spend most of their time coordinating and controlling external
relations, usually by electronic means. H&M is outsourcing its clothing to a network of 700
suppliers, more than two-thirds of which are based in low-cost Asian countries. Not owning
any factories, H&M can be more flexible than many other retailers in lowering its costs,
which aligns with its low-cost.
Virtual Structure
A special form of boundary less organization is virtual. It works in a network of external
alliances, using the Internet. This means while the core of the organization can be small but
still the company can operate globally be a market leader in its niche. According to
Anderson, because of the unlimited shelf space of the Web, the cost of reaching niche
goods is falling dramatically. Although none sell in huge numbers, there are so many niche
products that collectively they make a significant profit, and that is what made highly
Innovative Amazon.com so successful.
 Summary of Major types of structures
Functional Divisional Matrix Network
Division of labor By inputs By outputs By inputs and By knowledge
outputs
Coordination Hierarchical Division GM and Dual reporting Cross-functional
mechanisms supervision, plans corporate staff relationships teams
and procedures

Decision rights Highly centralized Separation of Shared Highly

strategy & decentralized
execution
Boundaries Core/ periphery Internal/ external Multiple interfaces Porous and
markets changing

Importance of Low Modest Considerable High

informal structure

Politics/ Conflict Inter-functional Corporate, Along matrix Shifting coalitions

divisional, and dimensions
inter-divisional
Basis of authority Positional and General Negotiating skills Knowledge and
functional management and resources resources
expertise responsibility &
resources
 Importance of Organizational Structure

Organizational structure is like the framework of an organization. It plays a significant

role in effective and efficient functioning of an organization :

 Clear cut authority relationships : It signifies the duties and responsibilities concerned
with particular post to concerned persons
 Pattern of communication : It helps in grouping activities and people and so it facilitates
communication between people centered as their job activities
 Location of Decision Centers
 Proper Balancing : It helps in creating proper balance and lays emphasizes on coordination
of group activities in the organization. 
 Stimulating creativity : An efficient and sound organization structure provides well
defined patterns of authority that stimulates creative thinking and initiative among
members of the organization.
 Encouraging growth : If the structure of organization is flexible then it will help in meeting
challenges and creating opportunity for growth. 12-33
 Importance of Organizational Structure
(Contd. )
An organizational structure can be properly aligned so as to
motivate its employees for a better performance through
empowerment:
 To understand the potential and the challenges of empowerment, consider how
the Internet is organized. Instead of centralizing its complexity, it drives it out. By
doing so, the Internet gains enormous agility and capability. The massive
workload of electronic transactions taking place each second is divided up and
widely distributed.
 Like the Internet, empowerment pushes complexity out to individuals and groups
capable of engaging it. The management at the center of the company no longer
assumes responsibility for the bulk of the workload. Instead, that workload is
broken down into more manageable segments and shouldered by those who
understand their piece best. Empowerment signals that everyone in the
organization is accountable for his or her actions. This engages employees and
increases their motivation.
 Case Study of Wipro IT

Problem
 Like most IT organizations of large enterprises, Cisco IT used a traditional
siloed organizational structure, with staff doing both implementational as
well as operational work, often having to drop operational projects to
complete deployments.
 With the traditional organizational arrangement, there was much duplication
of effort and lack of focus across the organization

Original Structure :
 Included regional network teams and regional voice teams that were
responsible for all aspects of implementing and operating their environments
and services.
 Case Study of Wipro IT ( Contd. )
Prepare : Carefully anticipating future needs and
Solution : developing both a technology strategy and a high-level
architecture to meet those needs.
Plan : To evaluate and improve, the organization
ascertains whether it has adequate resources to manage
a technology deployment project to completion.
Design : Plan to stage, configure, test, and validate
network operations.
Implement : Organization works to integrate devices
and new capabilities in accordance with the design,
without compromising network availability or
performance.
Operate : IT department proactively monitors the
health and vital signs of the network to improve service
quality, reduce disruptions, mitigate outages, and
maintain high availability, reliability, and security.
Optimize : Continuous process of planning, designing,
and implementing incremental improvements to
existing processes.
 Case Study of Wipro IT ( Results )

 Incidents have decreased from 150 clients per quarter to approximately 70 per quarter.
 The total impacting outage duration has been reduced to 300 impact hours per
quarter from 1000 plus hours per quarter.
 The defective root cause percentage is now consistently below 10 percent which used
to be above 40 % earlier.
 Customer Satisfaction has increased to (4.856 / 5) from (4.67 / 5)
 Case Study of Pepsi Co.

Problem:
 PepsiCo had a tough time battling against Coca-Cola in its recent years.
 Coke with its innovative marketing and new product expertise increased its
sales tremendously.

Restructuring:
 PepsiCo decided to restructure itself. It spun off its restaurant business (it
used to own KFC and Taco Bell) in order to focus on soft drinks business.
 The company was reengineered from top to bottom to improve relationships
with its customers and to improve its marketing.
 New pattern of horizontal differentiation was developed and earlier approach
departmentalization according to regions was eliminated.
 Case Study of Pepsi Co. ( Contd. )

Restructuring ( Contd. )
 PepsiCo announced that it was creating a new market research and development
function, and that function would be responsible for coordinating all the
company's marketing activities throughout all regions.
 At the heart of change in structure, it moved to a centralize decision making and
to a new kind of functional structure. The new structure was also flatter and more
stream-lined from before.

Result:
 Product development speed increased and production costs went down,
since regional bureaucracy was eliminated.
 New structure worked efficiently and sales and profits of PepsiCo increased.
 Pepsi improved its relations with its stakeholders.
 THANK YOU
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