Organizational
Design & Structure
Instructor
Prof. Jatinder Kumar Jha
Associate Professor
XLRI Jamshedpur
Overview
• Brief introduction to organizational design and its
significance
• Objectives
• Understand different organizational structures and
designs
• Explore the span of control mechanism
• Evaluate the effectiveness of various structures and
designs
• Apply these concepts to the thermal sector industry
Organizational
Structure
What is
Organizational
Structure?
• Definition:
The formal system of task and reporting relationships that controls,
coordinates, and motivates employees
This structure outlines how activities such as task
allocation, coordination, and supervision are directed
toward achieving organizational goals.
What is
Organizational
Structure?
Importance
• Defines roles and responsibilities
• Facilitates efficient management and operational
effectiveness
• Enhances communication and coordination among employees
• Example: A power plant's organizational structure ensures
safety, and regulatory compliance
Defines Roles and Responsibilities
• Clearly delineates the roles and responsibilities of each employee within the company
• Helps employees understand their specific duties and what is expected of them
• Reduces ambiguity and confusion
Facilitates Efficient Management and Operational Effectiveness
• Promotes efficient management by establishing clear lines of authority and accountability
• Ensures that there is a systematic flow of information and that decision-making processes
• Tasks are performed more smoothly and resources are allocated more effectively
Enhances Communication and Coordination Among Employees
• Ensures that information flows appropriately within the organization
• Synchronizing activities across different departments and for fostering teamwork and collaboration
Example:
• The plant manager oversees overall operations and ensures that all departments are functioning
efficiently.
• Safety officers are responsible for implementing and monitoring safety procedures to protect
employees and the environment.
• Compliance officers ensure that the plant adheres to all relevant laws and regulations, avoiding legal
issues and maintaining operational legitimacy.
• Engineers and technicians are assigned specific tasks related to the maintenance and operation of
equipment, ensuring that the plant
Types of Organizational
Structures
• Functional Structure: Organizes employees based
on specialized roles
• Divisional Structure: Groups employees based on
product lines, markets, or geographical regions
• Matrix Structure: Combines functional and
divisional structures to leverage the benefits of both
• Flat Structure: Reduces hierarchy, leading to a
more horizontal organization with few or no levels
of middle management
Functional
Structure
• Description: Departments are created based
on specialized functions
• This approach organizes the company into distinct units
or departments, each focusing on a specific area of
expertise or function
• Organization ensures that each department is staffed
with individuals who possess the necessary skills and
knowledge for their specific tasks
• Since all employees in a department focus on similar
tasks, they can develop standardized procedures and best
practices
Functional
Structure
Advantages:
• Expertise and Efficiency:
i. By grouping employees with similar skills and knowledge, the organization can
achieve high levels of expertise and efficiency within each function.
ii. Specialists can develop deep expertise and perform tasks more effectively.
• Clear Reporting Lines: Employees have clear reporting lines and a well-defined
chain of command, which can simplify management and enhance accountability.
• Focused Training and Development: Departments can offer specialized training and
development programs tailored to the needs of their functional areas, helping
employees advance their skills and careers.
• Economies of Scale: Functional departments can benefit from economies of scale by
pooling resources and standardizing processes within their areas of expertise.
Functional
Structure
Challenges:
• Silo Mentality: Departments may become isolated from one another, leading to a
lack of communication and collaboration. This "silo mentality" can hinder the
sharing of information and impede innovation.
• Coordination Difficulties: Coordinating activities across different functional areas
can be challenging, especially for complex projects that require input from multiple
departments.
• Delayed Decision-Making: Decision-making can be slower due to the hierarchical
nature of functional departments, where decisions often need to be approved by
multiple levels of management.
• Limited Perspective: Employees may develop a narrow focus on their own
functional area, limiting their understanding of the broader organizational context
and goals.
Divisional
Structure
• Description: Divisions based on product lines, markets, or
geographic areas
• Organization is segmented into semi-autonomous units or divisions
• This structure is designed to cater to the distinct needs of different product lines,
customer segments, or regions, allowing for greater responsiveness
• Example: A thermal company with separate divisions for coal,
natural gas, and renewable energy
Divisional
Structure
Advantages:
• Focused Expertise: Each division can develop specialized
knowledge and expertise in its specific area, leading to better
product development, marketing strategies, and customer service.
• Flexibility and Responsiveness: Divisions can respond more
quickly to changes in their respective markets or regions,
adapting strategies to meet local demands and conditions.
• Accountability and Performance: Divisions operate as semi-
autonomous units with their own profit and loss responsibilities,
which can enhance accountability and performance measurement.
• Innovation and Customization: Divisions can innovate and
tailor their offerings to meet the unique needs of their target
markets or regions, driving customer satisfaction and loyalty.
Divisional
Structure
Challenges:
• Resource Duplication: Divisions may duplicate resources and
efforts, such as having separate marketing teams or
administrative functions, leading to inefficiencies.
• Coordination and Integration: Ensuring consistent corporate
strategy and maintaining communication across divisions can
be challenging, especially in large organizations.
• Internal Competition: Divisions might compete for resources
and attention from top management, potentially leading to
conflicts and reduced collaboration.
• Cost Management: Managing costs across multiple divisions
can be complex, requiring effective budgeting and financial
oversight.
Matrix Structure
• Description: Employees report to both functional and project managers
• This setup blends traditional hierarchies with project-based workflows,
creating a dynamic and flexible work environment.
• Dual Reporting Lines:
1. Functional Managers: Employees report to functional managers who oversee their
specific department, such as marketing, finance, human resources
2. Project Managers: At the same time, employees also report to project managers who
are in charge of specific projects. These managers focus on the project's goals,
timelines, and deliverables
• Example: A project team for a new thermal plant includes members from
engineering, finance, and operations
Matrix
Structure
Advantages:
• Enhanced Flexibility: This structure allows
organizations to allocate resources efficiently across
multiple projects, adapting quickly to changing
priorities and market demands.
• Improved Collaboration: Employees from various
departments work together on projects, fostering
cross-functional collaboration and innovation.
• Skill Development: Employees gain a broader skill
set by working on diverse projects, enhancing their
expertise and career growth opportunities.
Matrix
Structure
Challenges:
• Conflicting Priorities: Employees might face
conflicting demands from their functional and
project managers, leading to potential stress and
confusion.
• Resource Allocation: Ensuring that employees have
the right balance of time and resources for both their
functional duties and project responsibilities can be
complex.
• Communication Overhead: Maintaining clear and
consistent communication between all involved
parties (employees, functional managers, and project
managers) requires robust processes and tools
Flat Structure
Description: Few or no levels of middle
management
This structure is characterized by a limited
hierarchy and a broad span of control
• Example: A startup company with a small team
where everyone reports directly to the CEO
Flat Structure
Advantages:
• Faster Decision-Making: With fewer layers of approval, decisions can
be made more quickly and implemented more efficiently, leading to a
more agile organization.
• Enhanced Communication: Direct communication channels between
employees and top management can improve transparency and reduce
the risk of miscommunication.
• Employee Empowerment: Employees often have more autonomy and
responsibility, which can boost motivation, job satisfaction, and
innovation.
• Cost Efficiency: Reducing the number of management layers can
lower overhead costs associated with salaries and administrative
expenses.
Flat Structure
Challenges:
• Managerial Overload: Senior managers may become overwhelmed with a
large number of direct reports, potentially leading to burnout and reduced
effectiveness.
• Limited Career Progression: Employees might have fewer opportunities
for advancement within the organization due to the lack of middle
management positions.
• Coordination Issues: As the organization grows, maintaining coordination
and consistency across various teams and projects can become challenging
without middle managers to facilitate.
• Variable Supervision Quality: The broad span of control can result in
uneven supervision and support, as senior managers might not be able to
provide adequate attention to all their direct reports.
Section 2:
Organizational
Design
What is Organizational
Design?
• Definition: The process of shaping an organization's structure and roles
to align with business goals and environment
• Importance
• Ensures the organization is fit for its strategy
• Balances efficiency with adaptability
• Example: Designing a plant's structure to maximize operational
efficiency and regulatory compliance
Design Approaches
Scientific Management: Focus on efficiency and productivity through
task specialization
Bureaucratic Management: Emphasis on a formalized hierarchical
structure with clear rules and procedures
Administrative Management: Focus on principles of management and
organizational practices
Pros and Cons of Classical
Design Approaches
• Scientific Management
• Pros: High efficiency, clear task guidelines
• Cons: Worker alienation, lack of innovation
• Example: Assembly line in a thermal equipment manufacturing plant
• Bureaucratic Management
• Pros: Clear roles, consistency, and fairness
• Cons: Rigidity, resistance to change
• Example: A large utility company's hierarchical structure
• Administrative Management
• Pros: Clear guidelines for management, focus on organizational
efficiency
• Cons: Least flexibility, Mechanical approach
• Example: SoP based practices without dynamic changes
Modern Design
Approaches
• System Theory: Views the organization as an
interrelated set of elements that function as a whole
• Contingency Theory: Proposes that the best
organizational design depends on various
situational factors
• Network Organizations: Flexible and
decentralized structures that rely on a network of
relationships
Pros and Cons of
Classical Design
Approaches
Pros and Cons of
Modern Design
Approaches
• System Theory
• Pros: Holistic view of the
organization, better understanding
of interdependencies
• Cons: Complexity in
implementation, difficulty in
maintaining focus
• Example: Viewing a thermal plant
as a system of interconnected units
Pros and Cons of
Modern Design
Approaches
• Contingency Theory
• Pros: Flexibility, adaptability to
changing environments
• Cons: Difficulty in identifying all
influencing variables, complexity in
execution
• Example: Adapting organizational
structure in a thermal plant to
regulatory changes or market
demands
Pros and Cons of Modern
Design Approaches
• Network Organizations
• Pros: High innovation, flexibility, rapid
response to changes
• Cons: Potential for misalignment,
challenges in maintaining coherence
• Example: A thermal technology consortium
with multiple independent companies
collaborating on R&D
Section 3: Span of
Control
Understanding
Span of Control
• Definition: The number of subordinates a manager can efficiently
and effectively manage
• Importance
• Influences management efficiency, communication, and
employee supervision
• Balances workload and ensures appropriate oversight
• Example: A maintenance manager in a thermal plant
overseeing a team of technicians
Span of Control in
Different Structures
• Functional Structure
• Narrow span of control
• Example: A specialized team within the engineering department
with close supervision
• Divisional Structure
• Moderate span of control
• Example: Division managers overseeing various product lines or
geographical regions
Span of Control in
Different Structures
• Matrix Structure
• Variable span of control
• Example: Project managers with a span of control dependent on
project complexity
• Flat Structure
• Wide span of control
• Example: A startup thermal company with a flat hierarchy and
broad supervisory responsibilities
Advantages and
Disadvantages of Span of
Control
• Narrow Span
• Pros: Close supervision, detailed oversight, better employee support
• Cons: High management costs, potential micromanagement, slower
decision-making
• Example: Engineering teams in a thermal plant with specialized tasks
requiring close supervision
• Wide Span
• Pros: Greater employee autonomy, reduced management costs, faster
decision-making
• Cons: Risk of manager overload, potential lack of supervision,
communication challenges
• Example: A small, innovative thermal company where employees work
independently on projects
Effectiveness of
Organizational
Structures and
Designs
Criteria for
Effectiveness
• Criteria
• Alignment with strategy: How well the structure
supports the organization's goals
• Adaptability: Ability to respond to environmental
changes
• Efficiency: Optimal use of resources and minimizing
waste
• Communication: Ensuring clear and efficient
information flow
• Example: Evaluating a thermal plant’s structure based
on its operational goals and market demands
Evaluating
Functional Structure
• Effectiveness
• High in stable environments with
specialized tasks
• Example: Efficient in thermal plants
focusing on consistent production and
maintenance routines
Evaluating
Divisional Structure
• Effectiveness
• High in diverse, dynamic markets with
product focus
• Example: Suitable for a thermal company
with different energy sources requiring
distinct strategies
Evaluating Matrix
Structure
• Effectiveness
• High in complex, project-driven
environments
• Example: Ideal for large-scale projects like
constructing new thermal plants,
integrating various departmental expertise
Evaluating Flat
Structure
• Effectiveness
• High in innovative, fast-paced
environments with empowered employees
• Example: A small, innovative thermal
technology startup where quick decision-
making and creativity are essential
Application to
the Thermal
Sector Industry
Specific Considerations
for the Thermal Sector
• Industry Characteristics
• Stability: Often stable with long-term projects
• Technological advancement: Constant need for innovation and
upgrades
• Regulatory environment: Compliance with strict environmental and
safety regulations
• Examples of Organizational Needs
• Example: A thermal power plant navigating regulatory changes and
technological upgrades
• Implications for Structure and Design
• Adapting to industry-specific requirements and challenges
Specific Considerations
for the Thermal Sector
• Functional Structure in the Thermal Sector
• Best for operational efficiency and specialization
• Example: Separate departments for engineering, operations, compliance,
and R&D in a large thermal company
• Matrix Structure in the Thermal Sector
• Suitable for large projects and innovation
• Example: Cross-functional project teams working on developing new
power plants or upgrading existing ones
Case Studies
Caselet:
In the year 2021, ITPC , a leading thermal power companyin India , undertook a major organizational
restructuring to improve efficiency and adapt to changing market dynamics. Previously, ITPC operated with a
traditional hierarchical structure, with decisions flowing from top management down to operational staff. This
structure led to slow decision-making processes and hindered innovation.
Restructuring Effort:
To address these challenges, ITPC transitioned to a more decentralized structure. The new structure divided the
company into semi-autonomous units based on specific functions such as operations, maintenance, and
engineering. Each unit was given the authority to make decisions and manage its budget, encouraging faster
responses to operational issues and fostering a culture of innovation.
Outcomes:
The reorganization resulted in several positive outcomes. Decision-making became more agile, operational
efficiency improved, and there was a significant reduction in downtime due to quicker maintenance responses.
Additionally, the company saw an increase in innovative solutions from different units, as employees were
more empowered and engaged in problem-solving.
Question 1:
How did the transition from a hierarchical to a decentralized organizational structure impact ITPC operational
efficiency and innovation?
Possible Solution:
• By empowering semi-autonomous units, decision-making became more agile and responsive.
• This agility enabled quicker responses to operational issues, leading to reduced downtime
• Decentralization fostered a culture of innovation within ITPC.
• With units having the authority to manage their budgets and make decisions, employees felt more empowered
to propose and implement innovative solutions to challenges they encountered.
• Increased autonomy and sense of ownership over projects spurred creativity and led to the development of new
and improved processes, technologies, and methodologies within the company.
Questions 2
1.What potential challenges could arise from a decentralized structure in the thermal power industry, and
how might ITPC mitigate these risks?
• Decentralized structure in the thermal power industry may present challenges such as coordination
difficulties among units, potential duplication of efforts, and inconsistency in decision-making processes.
• To mitigate these risks, ITPC can implement robust communication channels and regular coordination
meetings to ensure alignment among units.
• Establishing clear guidelines and frameworks for decision-making can help maintain consistency while still
allowing for autonomy.
• Regular performance evaluations and sharing of best practices among units can further promote efficiency
and minimize duplication of efforts.
Interactive
Session
Let us divide ourselves
Introduction to Activity into two teams
Team A: Challenges
related to Org Structure
Discussion Topics & Design
Team B: Possible
Alternative
Group
Representative of both
groups will come
Sharing Insights forward and share
Discussions 1
conclusive insights in
key points
Audience will
Open Floor for participation and
Questions questions to
representatives
Conclusion Remark
Group Discussion 2
Let us discuss the future trend of organizational structure and design in the context of thermal power industry based on
1. Digitalization (Group 1)
2. Artificial Intelligence (Group 2)
3. Remote Work (Group 3)
4. Sustainable Goals (Group 4)
Q&A
Thank You
