ms-10 block-2

1

MS-10Organisational Design,

Development and Change

Indira GandhiNational Open UniversitySchool of Management Studies

Block

2ORGANISATIONAL DESIGNUNIT 3

Typology of Organisation Structures 5

UNIT 4

Some Basic Organisation Design and Restructuring Strategies 20

Organisational Design

2

Print ProductionMr. A S. Chhatwal Mr. Tilak Raj Ms. Sumathy NairAsstt. Registrar (Publication), Sr. Scale Section Officer (Publication) Proof ReaderSOMS, IGNOU SOMS, IGNOU SOMS, IGNOU

Course Design and Preparation Team (2004)

Dr. Sasmita Palo Prof. G.S. DasBerhampur University IMI, New DelhiBerhampur

Prof. PestonjeeProf. D.V. Giri (Course Editor)Berhampur University Ex-IIMBerhampur Ahmedabad

Prof. B.K. Dhup Prof. B.B. KhannaFore School of Management DirectorNew Delhi School of Management Studies

IGNOU, New DelhiMr. Parth SarathiAGM Course Co-ordinatorsBHEL, NOIDA Dr. Srilatha

School of Management StudiesProf. Ravi Chandra IGNOU, New DelhiOsmania UniversityHyderabad Dr. Nayantara Padhi

SOMS, IGNOU, New Delhi

June, 2004 (Revision)

© Indira Gandhi National Open University, 2004

ISBN-81-266-1291-6

All rights reserved. No part of this work may be reproduced in any form, by mimeograph orany other means, without permission in writing from the Indira Gandhi National OpenUniversity.

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BLOCK 2 ORGANISATIONAL DESIGN

This block consists of two units. The first unit briefly describes different typesof organisation structures that have emerged over a period of time. It covers:(1) line organisation (2) line and staff organisation (3) functional organisationstructure (4) product organisation structure (5) hybrid structure (6) formal andinformal organisation (7) centralisation and decentralisation (8) vertical structure(9) horizontal organisation (10) project organisation (11) matrix organisation(12) virtual organisation (network structure) (13) boundaryless organisation(14) inverted pyramid (15) task forces and (16) mechanistic and organicstructures. The second unit deals with the basic organisational structure andrestructuring strategies. It covers the evolutionary process of organisationdesign, the universal perspectives of organisation design—the bureaucraticmodel, the behavioural model, and the contingency perspective, HenryMintzberg’s typology for integration of organisation structure to contingencyfactors, the new perspective on organisation design (which focuses onmanagement process for strategic decisions of the organisations to work), andthe precise nature of relationship between specific organisation developmentalstrategies and particular organisation structures.


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Introduction toMicrobesUNIT 3 TYPOLOGY OF ORGANISATION

STRUCTURES

Objectives

After reading this unit, you should be able to :

understand the characteristics of different organisation structures,

explain the basis for evolving different types of organisation structures,

examine the advantages and disadvantages of different types of organisationstructures.

Structure

3.1 Introduction

3.2 Line Organisation

3.3 Line and Staff Organisation

3.4 Functional Organisation Structure

3.5 Product Organisation Structure/Divisional Structure

3.6 Hybrid Structure

3.7 Formal and Informal Organisation

3.8 Centralisation and Decentralisation

3.9 Vertical Structure

3.10 Horizontal Organisation

3.11 Project Organisation

3.12 Matrix Organisation

3.13 Virtual Organisation (Network Structure)

3.14 Boundaryless Organisation

3.15 Inverted Pyramid

3.16 Task Forces

3.17 Mechanistic and Organic Structures

3.18 Summary

3.19 Self-Assessment Questions

3.20 Further Readings

3.1 INTRODUCTION

An organisation structure specifies the various job tasks and shows how thesame are formally divided, grouped, and coordinated. It provides an appropriateframework for authority relationship. It indicates the hierarchy of authority andthe reporting relationships. It is a means to help the management to achieve theorganisational objectives.

As the objectives of the organisation are derived from the overall strategy ofthe organisation, it is logical that an organisation structure is closely linked to itsstrategy. As such, if the management makes a significant change in theorganisation’s strategy, the organisation’s structure needs to be modified toaccommodate and support the change. There is considerable evidence toindicate that choice of an organisation’s strategy (stability strategy/growthstrategy) is determined by three basic factors (contingency factors): (i) theorganisation’s size, (ii) technology used by the organisation (for converting the


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financial, human and physical resources into products and services), and (iii)environmental uncertainty (external environment).

Information technology and globalisation have had a tremendous impact onorganisation structures. Many of today’s managers realise that the traditionalorganisation structures based on bureaucratic principles no longer providesolutions to the challenges posed by the new paradigm environment. The needsof flexibility, adaptability to change, creativity, innovation, knowledge and theability to overcome environmental uncertainties are among the biggestchallenges facing many of the organisations. The result has been that thevertical (tall) structures are being replaced by horizontal (flat) structures, theorganisations with mechanistic structures are being transformed into ones withorganic structure . These shifts reflect a clear departure from the practice ofcentralised decision-making to decentralised decision-making, from command toconsensus based self-control. The new forms of organisation structure thathave emerged are: taskforce, network, virtual, boundaryless structures. Thesalient features of these and other organisation structures are briefly describedhere to present an overview of different types of organisation structure andtheir suitability under different situations.

3.2 LINE ORGANISATION

Line organisation is the simplest form of organisation structure. The linestructure is based on the scalar principle, which states that authority andresponsibility should flow in a direct line vertically from the highest level of theorganisation to the lowest level. The primary emphasis in the line organisation isupon the superior-subordinate relationship. Every person in the organisation is inthe direct chain of command. (Figure 1).

One of the advantages of the line organisation is that it facilitates decisionmaking and execution because there is a definite authority at each level of thehierarchy. However, the disadvantage is that if a wrong decision is made atthe top level, the same is carried out simply without anybody down the lineventuring to point out its deficiencies.

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3.3 LINE AND STAFF ORGANISATION

Most business organisations, except the very small, have this type of structure.As the organisations have grown complex, the problems of line executives havebecome sufficiently complicated. The line executives being generalists, need theadvice of personnel with specialised knowledge and functions to tackle theseproblems. For this purpose, the staff positions are created in the organisation. Inline and staff organisation, the line authority remains the same as it does in theline organisation i.e. the authority flows from top to bottom; and the lineexecutives perform the major functions; the staff functionaries support andadvise the line executives. For example, for sound management of humanresources, the line managers are provided specialised assistance throughpersonnel/Human Resource managers. As staff functionaries are employed toperform supportive role, they do not have any power of command in theorganisation (Figure 2).

The main advantage of line and staff organisation is that the staff specialistsrelieve the line executives of the botheration of concentrating on specialisedfunctions like selection, training, development, wage and salary administration,accounting, public relations etc. However, the disadvantage of this structure isthat since functionaries are not accountable for the results, they may not beperforming their duties effectively.

3.4 FUNCTIONAL ORGANISATION STRUCTURE

This is the most widely used form of organisation structure because of itssimple logic and commonsense appeal. Here the tasks are grouped together onthe basis of common functions. So, all production activities or all financialactivities are grouped into a single function which undertakes all the tasksrequired of that function. A typical chart of a functional organisation ispresented in Figure 3.

The functional structure suits best to the small to medium organisationsproducing one or a few products, where the goals of the organisationemphasise functional specialisation, efficiency and quality.

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Typology of OrganisationStructures

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The main advantages of this type of structure are that by grouping peopletogether on the basis of their specialist expertise, the organisation can facilitateboth their utilisation and their coordination in the service of the wholeorganisation. The functional grouping also provides opportunities for promotionand career development. One of the major disadvantages of this form oforganisation is the growth of sectional interest which may conflict with theneeds of the organisation as a whole. For example, the members of theproduction department will see their activities from the narrow perspective oftheir own department rather than viewing the same from the broaderperspective of the entire organisation.

3.5 PRODUCT ORGANISATION STRUCTURE /DIVISIONAL STRUCTURE

This form of organisation structure is adopted by large companies producing awide range of products. Here, the activities are grouped on the basis of the

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individual products manufactured by the company. Thus, one finds autonomous“little companies within the company” adopting this type of organisationstructure. As such, within each of these little independent units, we find allimportant functions viz. production, marketing, finance and human resources.The organisation structure of a large multi-product pharmaceutical company isillustrated in Figure 4.

One of the advantages of the product organisation is that it enablesdiversification of the products to take place with minimal effort. Anotheradvantage is that it can cope better with technological change by groupingpeople with expertise and their specialised equipment in one major unit. Themain disadvantage of the product organisation is that each product divisionmay promote its own product group in a way that creates problems to otherproduct divisions of the company.

3.6 HYBRID STRUCTURE

The hybrid form combines features of both functional and divisional forms.When an organisation starts to get very large, it establishes some self-containedunits. Functions that are considered important to each product are decentralisedto the units; however, some functions like finance and accounting arecentralised at headquarters for practical reasons (Figure 5).

The functional part of the organisation is reflected in the departmentscentralised at the corporate level. However, each of the product divisions hasspecialists in functional areas for necessary assistance.

The important advantages of hybrid structure are:

1. The overall organisation enjoys the benefits of both functional and product(decentralised) structures.

2. It provides the opportunity to improve coordination both within and amongdivisions.

3. It enables the organisation to pursue an adaptive strategy within the productdivisions while at the same time achieving efficiency in the functionaldepartments.

4. It helps in proper alignment of corporate and divisional goals.

A major disadvantage of the hybrid structure is that it often leads to excessiveduplication of activities between functions and divisions. Another disadvantage isits tendency to create conflict between headquarters and divisional functions.

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3.7 FORMAL AND INFORMAL ORGANISATION

The formal organisation structure refers to a structure of clearly defined jobs,each bearing a definite amount of responsibility and authority. The formalorganisation lays down formal procedures, rules and regulations, which guidethe behaviour of individuals performing these jobs.

The informal organisation is the outcome of social interaction that takes placebetween the individuals of the formal organisation. When people work togetherthey tend to form informal work groups, often spontaneously, because ofphysical proximity, commonality of interest etc. These informal groups arecollectively known as informal organisation. Unlike the formal organisation, theinformal organisation is unstructured and not given. Generally, it is an unofficialorganisation born out of a formal organisation. An informal organisation has itsown structure, roles, procedures, norms and values which are unwritten and areevolved through consensus among the members of the informal groups. Aninformal organisation does not have a fixed chain of command. It is based onthe sentiments of the members. The communication patterns are not fixed andas such communication may flow in any direction.

In contrast to formal organisation analysis, the dysfunctional aspects of informalorganisation such as conflicting objectives, restriction of output, resistance tochange have received more attention than the functional ones. In other words,the informal organisation is often projected to be counter-productive to theformal organisation. In reality, however, the informal organisation can benefitthe formal organisation in the following ways:

1. It serves as a useful channel of communication

2. It lightens the workload of the management, if the latter gives dueimportance to the informal workgroups

3. It reduces the undesirable effects of the rigidities of the formal organisation

4. It provides a safety valve for employee emotions.

Activity A

Briefly describe the informal workgroup that are prevailing in your organisationin terms of their leadership, their role and their contribution to the formalorganisation. Substantiate your statements with illustrations.

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3.8 CENTRALISATION AND DECENTRALISATION

The term Centralisation refers to concentration of decision making at a singlepoint in the organisation. In contrast, when the top management givesmaximum, though not complete, discretion to the lower level personnel in theorganisation to make decisions, then it can be said that there is decentralisationin the organisation.

In a decentralised organisation, action can be taken more quickly to solveproblems, and more people provide inputs into decisions. For firms having anumber of plants, which are located at different places, decentralisation is morebeneficial. With most of the large companies now preferring to make

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organisations more flexible and responsive, there has been a marked changetowards decentralised decision making.

The main advantages of decentralisation are:

1. It reduces the burden of the top management by freeing them from manyoperational decisions, and enables them to concentrate on their strategicresponsibilities; and

2. It can contribute to staff motivation by enabling middle and lower levelmanagements to get a taste of responsibility, and by encouraging the use ofknowledge, innovation, and initiative by all employees.

The main disadvantages of decentralisation are:

1. It requires greater coordination by senior management to ensure thatindividual units in the organisation are not working against the interests ofthe whole organisation;

2. It can lead to inconsistency of treatment of customers, clients or public,especially in service industries; and

3. Decentralisation does require a plentiful supply of capable and well-motivatedmanagers, who are able to cope with increased responsibility whichdecentralisation brings about.

3.9 VERTICAL STRUCTURE

A vertical organisation is that in which the size of the hierarchical chain ofcommand is long i.e. the number of hierarchical levels are high. As such, morepeople have to communicate to the top management through the interveninglayers of executives (Figure 6).

The main advantages of the vertical organisation are:

1. They provide better communication of the organisation’s mission, values, andgoals to all employees; and

2. These organisations have the ability to sustain a very high degree ofspecialisation of functions and roles.

The principal disadvantages are:

1. Too many hierarchical levels consume more time for communication and thesame may lead to delays in decision making; and

Figure 6 : Vertical Organisation Structure


Hierarchical Levels


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2. As the vertical structures go hand in hand with formality andstandardisation, the scope for initiative and risk taking at operational levelsbecomes limited.

Activity B

Find out whether your organisation belongs to a centralised or decentralisedform of organisation. Specify the recommendations you would make in orderimprove the present structure of your organisation.

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3.10 HORIZONTAL ORGANISATION

As the traditional vertical, hierarchical structures of the organisations are beingconsidered inappropriate to the requirements of the changing environment, anincreasing number of modern organisations are preferring the use of horizontalstructures. For example in the US, corporate giants like AT& T, GeneralElectric, Motorola and Xerox, among other firms, have moved to the principlesof the horizontal structure of organisations.

The horizontal structure facilitates cooperation, teamwork, and customerorientation rather than a functional orientation.

Frank Ostroff, a McKinsey & Company consultant and his colleague DouglasSmith are given credit for developing guiding principles that describe thecharacteristics of the horizontal structure.

1. Horizontal structures are created around three to five core processes for thetime rather than traditional departmental functions.

2. The vertical hierarchy is flattened to reduce the levels of supervision. This isdone by combining the fragmented tasks, eliminating work that fails to addvalue, and by cutting to the minimum activities within each process.

3. Multi-disciplinary/ cross functional self-managed teams (composed ofpersonnel from different functional areas like finance, marketing, humanresource, quality control and operations) are created to handle the coreprocesses, and each team is entrusted with a core process.

4. Customer satisfaction, net profits, is the primary driver and measure ofperformance. As such, for horizontal structure to work, employees arebrought into direct contact with customers as well as suppliers. Whererelevant, customers and suppliers may be brought in as full workingmembers of the teams in charge of the core processes.

5. All employees should be provided with all data, and they should be trainedfor analysing and use the data to make effective decisions as teammembers.

6. All employees are encouraged to develop multiple skills; and those whodevelop are rewarded.

7. The horizontal organisations need to build a corporate culture of openness,cooperation and collaboration.

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Figure 7 gives an idea about the horizontal structure of an organisation.

The main advantages of horizontal organisation are:

1. Decisions can be taken more quickly to solve problems; and

2. A horizontal structure has fewer problems of coordination.

One of the disadvantages of the horizontal structure is the absence of properreporting to superiors by the subordinates because of decentralisation.

3.11 PROJECT ORGANISATION

When an organisation undertakes a big project or a number of small projects, itcreates project organisation(s) for the completion of the same. This is donebecause the existing functional structure of the organisation may not be suitableto complete the projects which are time bound and are subject to highstandards of performance as in the case of aero space and aircraft companies.A project organisation (See Figure 8) is separate from and independent offunctional departments of the company. Headed by a Project Manager, everyproject organisation consists of a team of specialists drawn from differentfunctional areas of the company or from outside. The size of the project teamvaries from one project to another. Again, within a project, the size of thegroup may change with the different phases of the work. A project organisationhas a temporary set up, and as soon as the project is completed it will bedisbanded. However, when the duration of the project is very long, the projectorganisation takes a permanent form and it may become a regular autonomousproject division of the company.

The role of the Project Manager is quite challenging. He is responsible for thecompletion of the project exacting to the time schedule and quality standards

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that are prescribed. The successful completion of the project depends on howwell he coordinates the activities of the project team and how he utilises theadvice and assistance of the internal experts (available within the company) andthose belonging to external agencies / organisations.

The project organisation is suitable when the company gets a one-timeassignment or a huge contract or when the company faces a unique challenge.

The main advantages of the project organisation are:

1. The participating specialists of the project team get opportunity for prompt,expeditious and effective accomplishment of the goals of the project. Thismotivates them to make maximum contribution to the execution of theproject;

2. It facilitates speedy communication between the project manager and theteam members; and

3. It provides flexibility in handling various tasks.

The major disadvantages of the project organisation are:

1. The entire project becomes meaningless, if the project manager fails tocoordinate the activities of the project properly;

2. The members of the project organisation have to sever the contacts with themainstream organisational life. As such, they may be bypassed whenopportunities arise in their respective fields for promotion; and

3. The job of the project manager becomes very difficult because he has todeal with specialists from a number of diverse fields.

3.12 MATRIX ORGANISATION

The matrix organisation combines two forms of departmentalisation— functionaland product. It is built around a project which is headed by a Project Manager.The Project Manager is also known as Product Manager as he is responsiblefor the output (product) of the project.

The project teams comprise of employees (specialists) drawn from differentfunctional departments such as the Human Resources, Finance, Production,Marketing, and Research & Development Departments of the Company. Thus,the employees of the matrix have two bosses: their Functional DepartmentalManagers (for example, the HR specialists of the project team have to reportto the Manager, Human Resources Department) and their Project Manager. Inother words, the matrix structure breaks the principle of unity-of-command whichstates that no person in the organisation should report to more than one boss.

Figure 9 illustrates the Matrix Structure of an Engineering firm, which iscomposed of two projects, each having its specific objective and specific timefor completion.

The matrix organisation is different from the functional organisation. In thefunctional organisation, the project manager is given complete responsibility forthe project as well as the resources needed for its completion. But in thematrix organisation, the Project Manager has to share the resources with therest of the enterprise.

The matrix structure is used in advertising agencies, aerospace firms, R & Dlaboratories, construction companies, hospitals, government agencies, universities,management consulting firms, and entertainment companies.

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Some of the advantages of the matrix structure are:

1. It facilitates coordination when the organisation has multiple complex andinterdependent activities;

2. It ensures the effective utilisation of the services of the people with highlyspecialised skills; and

3. The direct and frequent contact between the different functional specialistsin the matrix ensures better communication and more flexibility.

The major disadvantages of the matrix structure are:

1. This structure breaks the unity-of-command concept. Reporting to one bossintroduces role conflict and role ambiguity;

2. It fosters power struggle between product (project) managers and functionalmanagers who share the same set of resources; and

3. A matrix organisation incurs higher costs than an organisation with aconventional hierarchy.

3.13 VIRTUAL ORGANISATION (NETWORKSTRUCTURE)

A virtual organisation is a small, core organisation that outsources majorbusiness functions. It is highly centralised, with little or no departmentalisation.

The virtual organisation creates network relationships with other organisations /agencies located anywhere in the world for the purpose of contracting outfunctions like manufacturing, distribution, marketing, R & D, etc. (Figure 10).The networking is done through the electronic technology. As such, thepartnerships between the virtual organisation and other organisations (far-flungcompanies) are based on electronic contracts. The partners are less permanent,less formal, and more opportunistic. Each partner contributes to the virtualorganisation its core capabilities. The managers of the virtual organisationsspend most of their time in coordinating the various activities through thenetworking. Examples of virtual organisations include Ford, Harley Davidson,Nike, Rebok, Mobil Corp., IBM etc.

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The major advantages of a virtual organisation are:

1. Through virtual organisation it is possible to create “best-of-everything”organisation because each partner brings its “core competence.”

2. A virtual organisation allows someone with an innovative idea and littlemoney to successfully compete against large companies. This is possiblebecause of flexible nature.

The major disadvantages of the virtual structure are:

1. It reduces management’s control over the key parts of its business; and

2. The reliability of the partners may be doubtful.

3.14 BOUNDARYLESS ORGANISATION

General Electric Chairman, Jack Welch, coined the term boundarylessorganisation. The boundaryless organisation seeks to remove the vertical andhorizontal boundaries within the organisation and to break down externalbarriers between the company and its customers and suppliers. Once themanagement removes the vertical boundaries, the structure of the organisationlooks more like a silo than a pyramid.

To break down the vertical boundaries, the management adopts the followingstrategies:

i. Creating cross-hierarchical teams (which includes top executives, middlemanagers, supervisors, and operative employees);

ii. Encouraging participative decision making; and

iii. Making use of 360 degree performance appraisal (peers and others aboveand below the employee evaluate his / her performance).

To reduce the barriers to the horizontal boundaries, the management adoptsthe following strategies:

i. Replacing the functional departments with cross-functional teams andorganising activities around processes;

ii. Using lateral transfers; and

iii. Rotating people into and out of different functional areas.

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The external boundaries can be reduced through practices like strategicalliances, customer- organisation linkages and telecommuting (mainly with thenetworked computers).

The major advantages of the boundryless organisation are:

1. It fosters teamwork among the employees;

2. It ensures speedy communication within the organisation (intra-organisationalcommunication) and between the organisation and the customers andsuppliers (inter-organisational communication); and

3. It can help competitiveness in the global economy.

A principal drawback of this form of organisation is that it is difficult to clearlyestablish the relationship between superiors and subordinates in the organisation.

3.15 INVERTED PYRAMID

Organisations with this type of structure put the customers at the top and givethem the most important role in driving the business. The front-line employeeslike sales representatives, people in charge of help-desk, etc. who come indirect contact with the customers, are also given a similar position. The ChiefExecutive Officer of the organisation is at the bottom of the structure(Figure 11). Thus, in this form of organisation, the role of the managementchanges from a commanding one to a supporting one.

Some of the advantages of the inverted pyramid are:

1. This structure gives first preference to the customers. Therefore, it becomeseasy for the organisation to know the customers’ choices, and to work outappropriate strategies to ensure customers’ satisfaction; and

2. In this form of organisation, the employees are given more responsibility andauthority than the top management.

A major disadvantage of the inverted pyramid relates to formulation ofstrategies. The frontline foremen are not quite equipped to formulate strategiesregarding the organisation. This leaves sufficient ground within the organisationto doubt about their capabilities to make appropriate strategies.

Figure 11 : Inverted Pyramid Organisation Structure


Customers

Front-line employees

Supporting Staff

CEO


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3.16 TASK FORCES

A task force is a temporary structure comprising of specialists from differentfunctional departments, formed primarily to accomplish a specific and complextask. It co-exists with the traditional structure. As such, it can be viewed as ascaled-down version of the temporary matrix. The members of a task force aretransferred to another task force, once the goal of their task force is achieved.

Ford Motor successfully experimented with the task force structure in the U.S.in the early 1980s.

One of the advantages of the task force is that an organisation can enjoy thebenefits of both the traditional structure and the task force simultaneously. Thebenefits are: stability, flexibility, and efficiency.

The major disadvantage is that, if the management fails in its job ofcoordinating the activities of the task force and maintaining harmoniousinterpersonal relationship within the task force, the very purpose of creating thetask force gets defeated.

3.17 MECHANISTIC AND ORGANIC STRUCTURES

In a landmark study conducted in 20 British firms during the 1960s, Tom Burnsand G.M.Stalker identified two types of organisations— mechanistic andorganic. They observed that the mechanistic organisation was characterisedby: rules, procedures, a clear hierarchy of authority, centralised decision making,and the control of incoming and outgoing communications from the top and atendency for information to be provided on a need to know basis. By contrast,the organic organisation was characterised by: low formalisation, rules andregulations were not written or if written down were ignored, and open andwidely used communication patterns which incorporate horizontal, diagonal aswell as vertical channels.

Burns and Stalker’s research work stressed the belief that the organisationcould change its structure in relation to its environment. Thus, in a rapidlychanging environment, an organisation tends to change to organic form from themechanistic form in order to remain competitive. The mechanistic form oforganisation structure is adopted when there is relative stability in theenvironment.

According to Stephen P. Robbins, these forms of organisation structuresrepresent two extremes of a continuum. While the mechanistic model isgenerally synonymous with the bureaucracy, the organic model looks more likethe boundaryless organisation. The relation of one form to the other is elastic.As such, an organisation may oscillate from one end (mechanistic) to the other(organic) depending upon the nature of the environment and other factors likethe overall strategy of the organisation, organisation size, and technology.

Activity C

Briefly describe the structure of your organisation. Find out which type oforganisation structure it comes closer to.

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..........................................................................................................................

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3.18 SUMMARY

We have briefly described the various types of organisation structures that haveevolved over a period of time in response to the paradigm environment. Thecontinuum of structures ranges from the traditional bureaucratic structure to themodern virtual organisation. Each type of structure has its advantages anddisadvantages. As the traditional structures no longer proved to be adequate inthe new paradigm environment, the modern horizontal, bounaryless, virtualorganisations have emerged. Organisations’ needs for flexibility, adaptability tochange, creativity, innovation, knowledge, and ability to overcome environmentaluncertainties are among the biggest challenges facing the modern organisations.Some bureaucratic characteristics are in decline. But, bureaucracy is alive, andperhaps will be in vogue in the distant future.

3.19 SELF-ASSESSMENT QUESTIONS

1. Distinguish between the functional organisation and the product organisation.

2. What is a matrix structure? When is it used?

3. Briefly describe the horizontal, boundaryless and virtual organisation designs.Explain how they meet the challenges of the new environment.

4. Contrast the mechanistic organisation with the organic organisation.

3.20 FURTHER READINGS

Tom Burns and G.M. Stalker, 1961. The Management of Innovation, London:Tavistock.

K Harigopal, 2001, Management of Organisational Change: LeveragingTransformation, New Delhi: Response Books.

Fremont E Kast. and James E. Rosenzweig , 1974. Organisation andManagement, Tokyo: McGraw Hill Kogakusha Ltd.

Fred Luthans, 2002. Organisational Behavior, Boston: McGraw Hill Irwin.

V. Nilakant and S. Ramnarayan, 1988. Managing Organisational Change,New Delhi: Response Books.

Robert A. Paton and James McCalman, 2000. Change Management, NewDelhi: Response Books.

V.S.P. Rao and P. S. Narayana, 1986. Organisational Theory and Behaviour,New Delhi: Vani Educational Books.

Stephen P. Robbins, 2001. Organisational Behavior, New Delhi, Prentice Hallof India Private Limited, (9th Edition).

B.P. Singh and T. N. Chhabra, 2002. Organisational Theory and Behaviour,Delhi: Dhanpat Rai & Co. (P) Ltd.



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UNIT 4 SOME BASIC ORGANISATIONDESIGN AND RESTRUCTURINGSTRATEGIES

Objectives

After reading this unit, you should be able to understand:

the meanings of organisation design and restructuring,

the evolutionary process of organisation design,

the universal perspectives of and the new perspective on organisation design,

organisational restructuring strategies.

Structure

4.1 Introduction

4.2 The Design Process

4.3 Evolutionary Process of Organisation Design

4.4 Universal Perspectives of Organisation Design

4.5 From “Strategy- Structure” to “Process”: The New Perspective onOrganisation Design

4.6 Restructuring Strategies

4.7 Summary

4.8 Self-Assessment Questions

4.9 Further Readings

4.1 INTRODUCTION

Every organisation has certain basic parts that are made up of people whoperform, supervise, and plan besides those who render support services andtechnical advice. As such, studying the structure or design of an organisationmeans analysing how these parts are put together, who reports to whom, thedegree of centralisation or decision making power concentrated at the top, theextent of rules, policies, regulations, and procedures in the organisation. Thebuilding of the initial structure of an organisation may be based on theconditions prevailing in the society and the industry characteristics prevailingat the time and the personality of the founder (entrepreneur). As theorganisations grow in their size from small to large over a period of time, theirpriorities do change and it becomes necessary for the organisations to makechanges in the organisation design in order to ensure that the organisationsfunction efficiently.

Modern organisations are open systems. They are in constant interaction withthe external environment. As such, any change that takes place in theenvironment — social, political, technical, economic, legal — have implicationsfor the organisations. In order to remain competitive, organisations respond tothe pressures exerted by the environmental factors. The nature of theirresponse depends upon the degree of the pressure. Normally, organisationsrespond by formulating new business strategies when the degree of pressure ishigh. Changes in strategies often necessitate changes in organisation design.Thus, restructuring of organisation design becomes inevitable when theenvironment for the organisation becomes turbulent and unstable.

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Burton and Thakur (1995) define organisation design as the total pattern ofstructural elements and patterns used to manage the overall organisation.Organisation design should be seen as a tool for implementation oforganisational strategies and the attainment of organisational goals.

According to Banner and Gagné (1995), studying the structure of anorganisation means analysing the following:

how an organisation is put together;

who reports to whom;

the degree of centralisation or decision making power concentrated at thetop; and

the extent of the rules, policies, regulations, and procedures in anorganisation.

4.2 THE DESIGN PROCESS

Any organisation’s design process involves both science and art. The designdoes not evolve purely by principles alone. The circumstances of theorganisation and the whims and fancies of the entrepreneur (chief executive)also influence the design of an organisation. Within the organisation, often thereis a trade-off between conflicting considerations and goals. Herbert Simonsuggests that as an alternative to the principles of design we must attempt tounderstand the decision making and communication processes which producethe effect.

Allen suggests a seven-step sequence that could be followed to set the designprocess into action. Those are:

1. Identify the major objectives of the firm and derive primary line functionsneeded to accomplish the objectives.

2. Organise from the top down by establishing a scalar change of authority andresponsibility.

3. Organise from the bottom up by integrating the activities of each function.

4. Decide what management positions are needed for each activity.

5. Identify positions in group related work.

6. Seek groupings to ensure balance in the distribution of resources.

7. Check whether the spans of control are appropriate.

4.3 EVOLUTIONARY PROCESS OF ORGANISATIONDESIGN

Organisations develop from small to large units by moving through four stagesof a life cycle: birth stage, youth stage, middle stage, and maturity stage. Thisprocess of development is accompanied by corresponding changes in theorganisation design (Burton and Thakur, 1995).

Birth Stage: This is the stage when the organisation is created. At this initialstage, the organisation’s decision making is highly centralised. The organisationis informal. There are usually few rules and regulations, no professional staffand no internal system for planning.

Youth Stage: During this stage, additional employees are employed as the salesfor the company’s products and services increase.

Some Basic OrganisationDesign and Restructuring

Strategies


22

Although authority is fairly centralised, a few trusted employees are involved indecision making process. Some informal rules and procedures are involved.There are now a few professionals and administrative personnel in theorganisation. The division of labour begins to occur as the newly formeddepartments are assigned tasks.

Middle stage: By the time the organisation reaches this stage, it has becomesomewhat successful and grown in size. Its structure is similar to that of aformal bureaucracy with formalised departments, supporting staff departmentsand many professional and clerical staffs. A large set of rules and procedureshave been introduced. Authority has been effectively decentralised. The divisionof labour has become extensive.

Maturity Stage: During this stage the organisation becomes very large andmechanistic. A set of bureaucratic rules, regulations and policies prevail.Decision making is centralised. The division of labour is highly refined. As aresult of the rigid virtual hierarchy, the organisation is on the brink ofstagnation. At this stage, the organisation attempts to become innovative andflexible. As such, it decentralises authority within the lateral structures such asliaison personnel, task forces, and project teams.

Thus, it is clear that an organisation’s structural characteristics undergodifferent stages of organisation’s life cycle.

4.4 UNIVERSAL PERSPECTIVES OFORGANISATION DESIGN

The mechanism of organisation design is still not mature to offer theoreticalprinciples and proven practices which would encompass a variety oforganisations (Lomash and Mishra, 2003). However, there are universalperspectives of an organisation design: 1) the bureaucratic model; 2) thebehavioural model; and 3) the contingency perspective.

4.4.1 The Bureaucratic Model

Max Weber, a German sociologist, conceptualised the idea of bureaucracy.Central to his work is the development of the concept of the bureaucraticorganisation design. According to Weber a bureaucracy is defined asorganisation founded on a legitimate and formal system of authority.

The Weberian approach held that an ideal organisation should have thefollowing characteristics:

1. A division of labour based on functional specialisation.

2. A well-defined hierarchy of authority so that the scalar chain of commandruns from the top of the organisation to the bottom.

3. A system of rules covering the rights and duties of employees.

4. A system of procedures for dealing with work situations.

5. Promotion and selection based on technical competence.

6. Impersonality of interpersonal relations. All managers should conductbusiness in an impersonal manner, maintaining an appropriate social distanceform their subordinates.

One of the basic strengths of this model is that this was the first model oforganisation design developed, and it still serves as the basic foundation for theunderstanding and application of newer organisation design approaches.However, this model has many drawbacks. The major drawbacks are :

23

(1) This model tends to get bogged down with the rules and regulations, and inthis process loses sight of the actual objectives of the organisation; and (2) itis not well-suited for a changing and uncertain external environment.Bureaucratic structures can become so rigid and formalised that organisationssimply cannot change fast enough to cope with external change.

4.4.2 The Behavioural Model

This model has evolved from the Human Relations School of managementthought. In the classical bureaucratic model, an individual is not identified andthe effect of an entire group is considered in the total process of management.On the contrary, in the behavioural model the performance of an organisationis believed to depend on human beings, their behaviour, characteristics and theirmutual relationships emerging from work patterns and organisational settings.The important factors which play significant roles are needs, motivations,attitudes, values, leadership, group behaviour, perceptions, communications,responsibility and authority relationship, etc. (Lomash and Mishra, 2003). Inother words, the behavioural models of organisation design reflect the social andpsychological implications of organisational life. The most popular behaviouralmodels of organisation design— the socio-technical systems theory and Likert’sSystem 4 Organisation — are briefly explained here.

Socio-technical Systems Theory

The socio-technical systems theory was developed by Eric Trist and K.W.Bamforth through their study of alternative methods of coalmining ; and A.K.Rice and his colleagues through their research at England’s TavistockInstitute. The socio-technical approach is based on the need to balance anorganisation’s human side with its technical and mechanical side. As such, thistheory focuses on two systems: (1) a social system that provides theframework for all the human interactions that sustain both formal and informalorganisations; and (2) a technical system that provides the framework of thetasks that produce the organisation’s goods and services. For example, thetechnical systems involved in the production of aluminium include the equipment/ machinery and operations such as crushing and grinding the ore (Bauxite),desanding and desilication , settling, washing and filtration, precipitation andclassification, and conversion of alumina into aluminium metal. On the otherhand, the social system that operates the equipment and performs theoperations includes individuals and groups whose interests, ideas, creativity ,motivation, and needs must be maintained. Thus, the socio-technical modelcontends that management must give equal importance to the technical systemand the social system of the organisation in order to ensure the efficient andeffective functioning of the organisation.

Likert’s System 4 Organisation

Rensis Likert was a social scientist at Michigan’s Institute for Social Research.Likert discovered critical relationship between organisational design andorganisational effectiveness. His research focused on eight characteristics oforganisations: the leadership process, the motivation process, the communicationprocess, the interaction process, the decision process, the goal-setting process,the control process, and performance goals.

He observed that organisations tend to incorporate these characteristics throughfour different approaches, which he called Systems 1, 2, 3, and 4. Of thesefour, Systems 1 and 4 have made significant contributions to organisationaldesign theory.

Likert’s System 1 represents bureaucratic form of organisation design(information flows only downwards and distorted centralised decision process,


Strategies


24

goal-setting process located at the top of the organisation, centralised controlprocess, group-participation discouraged) and his System 4 represents abehavioural form of organisation (information flows freely throughout theorganisation and undistorted, decentralised decision process, goal-setting processencourages group participation in setting high realistic objectives, controlprocess dispensed throughout the organisation and emphasises self control andproblem-solving).

On the basis of his studies, Likert concluded that organisations should adoptSystem 4 approach to organisation design.

The most significant strength of Likert’s System 4 is that unlike thebureaucratic model which treated workers as if they were impersonal, System4 behavioural model recognises the unique value of each and every member ofthe organisation. A major weakness of System 4 approach is that it was basedon the premise that there is only “one best way” to design organisations. It iswell established that what works for one organisation may not work for another(Burton and Thakur, 1995). There is a strong evidence that the best way todesign a given organisation depends on a number of contingency factors.

4.4.3 The Contingency Perspective

The contingency perspective on organisation design is founded on the premisethat the best design for any organisation is dependent on a number ofsituational factors. The most critical situational / contingency factors are :

1. External environment

2. Technology; and

3. Organisation size

Organisations can be open systems or closed systems. A system is a set ofinterdependent parts forming an organic whole. The open systems havepermeable boundaries and they constantly interact with their externalenvironment. As such, they can act on the environment and are affected bythe activities in that environment. The closed systems have no suchtransactions with the external environment. They are self-contained and operateindependently of their external environment. For the purpose of our discussion,we assume that modern organisations are open systems that interact with theirenvironments.

As the objectives of an organisation are derived from the overall strategy ofthe organisation, it is natural that an organisation’s design is closely linked to itsstrategy. As such, if a management makes a significant change in its strategy,the organisation’s design needs to be modified to accommodate and support thatchange. There is considerable empirical evidence to indicate that choice of anorganisation’s strategy is determined by the contingency factors as illustrated inFigure 1.

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Figure 1: Contingent Determinants of Organisation Design

ExternalEnvironment

Technology

Organisation Size

Organisation’sOverall Strategy

OrganisationDesign

25

Strategy

An organisation’s strategy describes the organisation’s goals and the ways theorganisation expects to reach those goals. An organisation’s strategy may needto change as changes occur in its external environment.

There is strong support from empirical research for the fact that “structurefollows strategy”. The strategic planning process of an organisation plays amediating role between the external environment, the organisation’s design, andthe technical process i.e. the system the organisation uses to produce itsproducts or services. For example, the strategic planning process can react tothe uncertainties in a product’s market (external environment) by increasinginnovation relating to its product. For carrying out this product innovationsuccessfully, the organisation’s design and / or technical process will have to bechanged.

External Environment

Any organisation is surrounded by the ‘general environment’ and the ‘taskenvironment’. The general environment consists of economic, technical, socio-cultural, political, legal, and international dimensions which have an impact onthe organisation and its task environment. The task environment comprises ofcustomers, competitors, suppliers, and government agencies.

Burns and Stalker (1961) discovered, through their research in England, thelinkages between organisation design and the environment. They identified twocontrasting forms of environment: (1) a stable environment that remains fairlyconstant over the time; and (2) an unstable environment which is subject tochange and uncertainty. Through their study of different organisations operatingin these two environments, they found that the organisations in stableenvironments tended to have a different kind of structure than those operatingin unstable environments. Burns and Stalker called these organisations (havingtwo different forms of structures) mechanistic and organic organisations.

A mechanistic organisation is in many respects similar to Max Weber’sbureaucratic organisation or Likert’s System 1 organisation. Generally found instable environments, the mechanistic organisation is characterised by rules,regulations, standardised procedures and centralised decision making.

An organic organisation resembles the behavioural model and Likert’s System4 organisation. It is generally found in unstable environments. Due to thefrequent changes in the environment, organic organisations adopt flexibility,non-routine methods, few rules and regulations (which are not often writtendown), decentralised authority and create autonomous work teams.

Figure 2 illustrates the different characteristics of organic and mechanisticorganisations.

The work of Burns and Stalker was expanded by two Harvard Business Schoolresearchers, Paul Laurence and J. Lorsch . Their research indicated that asenvironments become more uncertain, organisations need special coordinationmechanisms such as liaison managers, task forces, and teams.

Technology

Technology refers to the process by which an organisation converts the inputs(people, materials, equipment, money, plant, and facility etc.). The process maybe mechanical as in manufacturing organisations, or it can be a service toclients as in banks, hospitals or insurance companies. The process can also belargely mental as in organisations that solve the problems or create new ideas,


Strategies


26

products and services. R & D organisations, advertising agencies and softwaredevelopment firms are examples of the latter.

The research examining relationship between technology and organisation designhas aroused considerable controversy. While some studies such as those byJoan Woodward, James Thompson, Charles Perrow and Howard Aldrichsupport technology as a contingency factor of organisation design, other studiesdo not. For example, the Aston Groups’ study conducted in Birmingham,England concluded that organisation size was more important than technologyas a determinant of structure.

On the basis of the findings of the studies that supported technology - designlinkage, the following conclusions have been drawn:

1. Unit and process technologies work better with smaller spans of control andorganic structure, whereas mass production technology flourishes with widerspans of control and bureaucratic structure.1

2. Routine technologies feature bureaucratic structure — centralised decisionmaking that uses formal written rules and procedures to guide decisions.However, organisations that use routine technologies and have manyprofessionals use fewer formal procedures than organisations with fewerprofessionals.

3. Organisations that use complex non-routine technologies have moredepartments, fewer levels of authority, and more participation in decisionmaking than that use more routine technologies. For such organisations, anorganic structure is appropriate.

4. New Information Technology allows for reciprocal interdependency amongthe parts of an organisation, which in turn, flourishes in an organic structurerather than a bureaucratic one.

1Unit or small batch production technology produces goods in small batches of one or afew products that are designed to customer specification. Examples include locomotives,submarines, space satellites, and custom clothing.

Mass or large-batch production technology produces large volumes of products throughstandardized production runs. Examples include automobile assembly lines and the largebatch processes that produce appliances.

Process production technology provides a completely mechanized workflow, and is themost sophisticated and complex from of production technology. The machinery does all thework, while employees read gauges, monitor cathode ray tubes (CRTs), maintain and repairmachines, and manage the production process: Examples include petroleum refineries,chemical plants and nuclear power plants.

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Figure 2: A Continuum Of Organisational Designs Strategies: Mechanistic andOrganic Organisations

Source: John Sechremerhorm, 1989. Management for Productivity, New York: John Wiley& Sons, p. 204

MechanisticOrganisation

Centralised

Many

Precise

Narrow

Formal &Impersonal

Hierarchy orAuthority

Rules &Procedures

Division ofLabour

Spans ofControl

Coordination

Organicorganisation

Decentralised

Few

Ambiguous

Wide

Informal &Personal

27

Size

Research tells us that large organisations have different structural features thansmall organisations. Typically, small organisations have little specialisation, fewformal written rules and procedures, and narrow spans of control, informaldecision process and a simple design. By contrast, large organisations tend tohave elaborate specialisation, many formal written rules and procedures, moreformalised relationships, and use a decentralised form.

Mintzberg’s Typology

Henry Mintzberg’s typology for integration of organisation structure tocontingency factors provides a clear understanding of the linkage between anorganisation’s business strategy and organisation design.

Mintzberg believed that every organisation has five basic parts as shown inFigure 3. The top management is created at the very top of eachorganisation. This part is also known as ‘strategic apex’. The middlemanagement is found at the intermediate level. In the bottom is the technicalcore, which is otherwise called as ‘operating core’. These three parts areshown in a sequence indicating a single line of hierarchical authority. In otherwords, the line function is the chain of command that runs from topmanagement to the technical core.

The technical and professional staff personnel are shown to the left of themiddle line. These personnel are the engineers, researchers and systemsanalysts, who assist in the creation of the many plans and controls that areapplied to the technical core. The administrative staff shown to the right ofthe middle line performs such indirect services as maintenance, accounting, andclerical. According to Mintzberg, the relative size of each of these parts indetermined by the organisation’s contingency factors.

Mintzberg further proposed that each of these five organisational parts combinetogether in five basic forms : (1) simple structure, (2) machine bureaucracy ,(3) professional bureaucracy (4) divisionalised form, and (5) adhocracy . Table1 gives details of the main features of these five forms.

Simple Structure

This form of structure typifies the firm when it is small and entrepreneurial.The structure consists of a top manager and only a few workers (assistants)performing overlapping activities. While they may be a very small administrative

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Figure 3: The Five Basic Parts of Organisation

Source: Henry Mintzberg, 1979. The Structuring of Organisations, Englewood Cliffs,New Jesey: Prentice Hall.


Strategies

TopManagement

(Strategic Apex)

Technical /Professional

Staff

MiddleManagement

AdministrativeSupportive Staff

Technical Core(Operating Core)


28

staff, the technical / professional staff are virtually absent. Its other featuresare centralised decision making, informal coordination, and minimal division oflabour. Organisations employing service technology or small batch processingtechnology adapt this form of structure. This structure adapts well to theenvironment. Its goals are stress survival and innovation.

Table 1 Characteristics of Mintzberg’s Five Organisational Types

Simple Machine Professional Divisionalised Adhocracystructure structure bureaucracy form

StructureApproach Functional Functional Functional, Division, Matrix

sometimes hybridhybrid

Formalisation Low High Low to High within Lowmoderate divisions

Centralisation High High Low to Decentralised Lowmoderate to divisions

Lateral Few Few Many Some across Many, builtrelationships divisions, many into structure

within divisions

ConfigurationTechnical / None Many Few Many Many-part ofProfessional headquarters matrixsupport staff departmentsAdministrative Few Many Many Many within Manysupport staff divisions

ContingencyEnvironment Simple, Stable, certain Stable, Complex, Unstable,

changing complex changing uncertainTechnology Routine Routine Service Divisible, Non-routine,

product or product or varies across sophisticatedservice service divisions

Size, life Very small, Large, mature Any size, age Large, mature Moderate,cycle midlifeStrategic Innovation, Efficiency Innovation, Adaptability, Innovation,objectives survival quality efficiency adaptation

(Source: Mintzberg, 1979)

Machine Bureaucracy

The machine bureaucracy is usually found in a large company organisedalong functional lines with little lateral coordination. Its other features are:bureaucratic principles with heavy specialisation, many rules and regulations ,centralised authority, large technical/professional and administrative staff andformalised processes. Organisations adopting routine services or massproduction technology use this form of structure. The environment of theorganisations using this form of structure is generally stable. The goal of theorganisation is to improve internal efficiency.

Professional Bureaucracy

This form of structure is usually found in big functionally designed organisationsemploying professional people. These organisations adopt non-routine servicetechnology (in which new problems arise everyday and task variety is very highand in which employees rely on experience, education, training and trial anderror search for alternative procedures as there are no readymade proceduresfor the problems that are encountered). Hospitals and universities are the bestexamples. Although highly formalised, these organisations decentralise thedecision making authority to those professionals who are actually engaged inthe non-routine services. Organisations having this structure operate in complexand relatively stable environments. Their goals are innovation and quality. As

29

the core tasks are performed by the professional staff, the technical staff issmall. But there is generally a large administrative staff.

Divisionalised Form

Typically, a divisionalised form of organisation is a large organisation havingdifferent subunits (divisions ) within it, such as product or market subunits.These units have few lateral coordinating devices. They are also providedliaison service by the corporate level personnel. Decision making isdecentralised. Each division is fairly autonomous. The units/divisions may havevarying non-routine manufacturing technologies. The organisation’s externalenvironment tends to be stable. The technical staff is concentrated at corporateheadquarters and it provides services for all subunits/divisions. Theadministrative support is available within each division.

Adhocracy

This form of organisation is much like a matrix organisation . It evolves incomplex environments. The technology used by the organisation is sophisticated.The structure of the organisation tends to be informal. There is dual chain ofcommand for the purpose of coordination of different activities. Another featureis that the administrative staff is large, but the technical support staff is smallas most of the technical work is performed by the experts located in thetechnical core.

Activity A

Fill the basic parts in Figure 3 with the typical job titles of an organisation withwhich you are familiar. State the functions/ activities performed by the peoplein various positions in each part.

Activity B

(i) Identify the strategy being adopted by an organisation with which you arefamiliar; and examine whether corresponding structural changes are beingmade in the organisation design.

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(ii) Make a brief analysis of the contingent factors that have influenced thestrategy of the said organisation.

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Strategies


30

4.5 FROM “STRATEGY-STRUCTURE” TO“PROCESS”: THE NEW PERSPECTIVE ONORGANISATION DESIGN

Bartlett and Ghoshal (1992) consider the studies on strategy-structurerelationship by Chandler (1962), Stopford and Wells (1972), Daniels, Pitts andTretter (1984) and Egelhoff (1988) as the first generation approaches toorganisation design because the complexity and dynamic nature ofenvironmental demands has made the structural fit (strategy-structure linkage)less relevant and harder to achieve. Coupled with this, there has been agrowing realisation that just focusing on organisational structure may not beenough to implement complex strategic concerns successfully. Therefore, asecond generation of models of organisation design have been developed whichfocus on the management process that will make strategic decision work.

The second generation models are based on the premise that all structuredforms are not equally effective in implementing a given strategy, and therefore,the role of the management is to create an internally consistent and balanceddesign.

Design Parameters for Second Generation Organisation DesignModels

In order to create an organisation design that is internally consistent andbalanced, the following design parameters can be used (Jaap Paauwe andPhilip Dewe, 1995):

Structural and formal coordinative mechanisms;

Systems and tools (administrative mechanism);

Cultural transformation (socialisation , normative integration).

Structural and Formal Coordination Mechanisms

These include: centralisation, formalisation, and specialisation

Centralisation (or decentralisation) refers to whether the power of decisionmaking lies at the upper or lower levels of the chain of command.

Formalisation: (also called standardisation ) indicates the extent to which thepolicies, rules, job descriptions etc. are written down, and the procedures areestablished through standard routines.

The degree of specialisation refers to the number of specific tasks that arecarried out through separate and distinct functions.

Systems and Tools (Administrative Mechanisms)

The coordination mechanisms mentioned above will need to be supported andsupplemented by various systems and tools (also called as administrativemechanisms). Some of the administrative mechanisms are: data managementmechanisms, manager’s management mechanisms, and conflict resolutionmechanisms (Y. Doz and C. K. Prahalad, 1981)

Data Management mechanisms include information systems, measurementsystems, resource allocation procedures, strategic planning, budgeting processes.Manager’s management systems refer to the choice of key managers, careerpaths, rewards and punishment systems, compensation schemes, managementdevelopment and pattern of socialisation.

Conflict resolution mechanism include coordination committees , task forces,issue resolution processes.

31

Cultural Transformation (Socialisation/Normative Integration)

In order to deal with all the diversity and complexity involved in managing anorganisation effectively, the socialisation of managers in key positions is crucial.In other words, the managers have to internalise certain values so as to be in aposition to make strategic choices and operational decisions that are in line withthe mission and goals of the company and with the relevant values of thecompany.

The socialisation can be facilitated through:

job rotation, regular transfer of people, management development;

building up an informal network through management developmentprogrammes;

international conferences and forums to facilitate international and inter-unittransfer of knowledge and learning;

task forces;

encouraging informal communication channels.

4.6 RESTRUCTURING STRATEGIES

An analysis of the empirical studies on the relationship between organisationdevelopment strategies and structures indicates that there is a certain pattern inthe relationship between the two.

Table 2 gives a summary of relationship between strategies of organisationaldevelopment and structure.

Table 2: Summary of Relationships between Strategies ofOrganisation Development and Structure

Strategies of organisational development Structural changes that are oftenassumed to be outcomes

Organisational growth Increased vertical differentiation—Growth in size per se lengthening hierarchies—Growing number

of jobs and departments—horizontaldifferentiationRising formalizationIncreased delegationPossible economies inadministration, offset by rising problemsof administering complexity

Growth via diversification Increased specialisation of skills andfunctionsDivisionalisation of majorsubunits Rising formalisation, especially ofplanning and resource allocation-procedures Increased delegation

Technological Development Growth of specialised professional staffIncreased specialisation of skills andfunctions Other structural concomitantsdependend on the type of technologyemployed

Acquiring a secure domain through Establishment of new roles, especially tonon-competitive means— especially manage relationships with otherjoint programmes organisations Increased delegation More

active internal communications via lateralrelationships


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Improving managerial techniques with Depends on methods adopted, but usuallya view to enhancing flexibility associated with: Establishment of new

specialised roles to service verticalinformation systems— for example,computer-based systems— are to promotelateral coordination More active internalcommunication via lateral relationshipsIncreased delegation

Source: John Child and Alfred Keiser, 1981. “Development of organisations, over time”in Paul C. Nystrom and William H. Starbuck (Eds.), Handbook ofOrganisational Design (Vol. 1), London: Oxford University Press, p.39

The four strategies of organisational development outlined in Table 2 are by nomeans mutually exclusive. Their choice and combination depend largely uponcircumstance. Growth, for example, is possible through increase in volume ofoperations or through acquisitions. Both need different approaches. The degreeof diversification varies depending on the company’s share in the market,technological synergy, government regulations, management capacity etc.

As organisations seek to become flexible, or to retain flexibility in the face ofgrowing complexity and as they employ larger number of professional andtrained personnel, the forms of effective and acceptable control and integrationwithin the organisations change. This means that the familiar model ofbureaucracy needs to be modified. The problem of elongation of organisationalhierarchies and the serious problems thereof need to be tackled through policiesaimed at increasing spans of control, and , thereby, delegation of responsibility.Organisational control systems have to shift from an emphasis on thespecification and supervision of means— how people are to behave and carryout their work — towards an emphasis on results.

4.7 SUMMARY

In this unit we have outlined the seven-step sequence suggested by Allen thatcould be followed to set the organisation design process into action. We havedescribed the evolutionary process of organisation design and noted thatorganisation’s structural characteristics undergo different stages of organisation’slife cycle. We have discussed the universal perspectives of organisationdesign— the bureaucratic model, the behavioural model, and the contingencyperspective — in order to understand the theoretical principles and differentvariable of organisation design. We have examined why the “structure followsstrategy” approach to organisation design has been considered less relevant andharder to achieve.

We have briefly discussed the new perspective on organisation design whichfocuses on the management process that will make strategic decisions work.We have noted that the restructuring strategies have to be appropriate to thedevelopment strategies.

4.8 SELF-ASSESSMENT QUESTIONS

1. Briefly describe the evolutionary process of organisation design.

2. Outline the universal perspectives of organisation design.

3. Briefly explain the design parameters of second generation of models oforganisation design.

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4.9 FURTHER READINGS

Louis Allen, 1958. Management and Organisations, New York: McGraw-HillInc., pp. 72-77

David K. Banner and T. Elaine Gagné, 1995. Designing EffectiveOrganisations: Traditional and Transformational Views, Thousand Oaks,California: Sage Publications.

C. A. Bartlett and S. Ghoshal, 1992. Transnational Management: Text, Casesand Readings in Cross-Border Management, Irwin: Homewood , IL.

Tom Burns and G. M. Stalker, 1961. The Management of Innovation, London,Tavistock.

Gene Burton and Manab Thakur, 1995. Management Today: Principles andPractice, New Delhi: Tata McGraw-Hill Publishing Company Limited.

A. D. Chandler, 1962. Strategy and Structure: Chapters in the History ofIndustrial Enterprise, Cambridge, MIT Press.

J. D. Daniels, R. A. Pitts and M. J. Tretter, 1984. “Strategy and Structure ofUS Multinationals”, Academy of Management Journal, 27 (2), pp. 292-307.

Y. Doz and C. K. Prahalad, 1981. “Headquarter’s Influence and StrategicControl in MNCs”, Sloan Management Review, 23, Fall, pp.15-29.

W. G. Egelhoff, 1988. “Strategy and Structure in Multinational Corporations: ARevision of the Stopford and Wells Model”, Strategic Management Journal, 9,pp.1-14.

K. Harigopal, 2001. Management of Organisational Change: LeveragingTransformation, New Delhi: Response Books.

Pradip N. Khandwalla, 1991. Organisational Designs for Excellence, NewDelhi: Tata McGraw-Hill Publishing Company Limited.

Sukul Lomash and P. K. Mishra, 2003. Business Policy and StrategicManagement, New Delhi: Vikas Publishing House Pvt. Ltd.

Fred Luthans, 2002. Organizational Behavior, Boston: Tata McGraw-Hill Irwin.

Henry Mintzberg, 1979. The Structuring of Organisations, Englewood Cliffs,New Jersey: Prentice Hall.

Paul C. Nystrom and William H. Starbuck (Eds.), 1981. Handbook ofOrganisational Design (2 Volumes), London: Oxford University Press.

Jaap Paauwe and Philip Dewe, 1995. “Organisational Structure of MultinationalCorporations: Theories and Models” in Anne-Wil Harzing & Joris VanRuysseveldt (Eds.), London: Sage Publications Ltd., pp. 51-74.

Stephen P. Robbins, 2001. Organizational Behavior, New Delhi: Prentice Hallof India Private Limited (9th Edition).

Anup K. Singh, Rajan K. Gupta and Abad Ahmad (Eds.), 2001. Designingand Developing of Organisations for Tomorrow, New Delhi: ResponseBooks.

B. P. Singh and T. N. Chhabra, 2002. Organisation Theory and Behaviour,Delhi: Dhanpat Rai & Co. (P) Ltd.

J. M. Stopford and L. T. Wells, 1972. Managing the MultinationalEnterprise, New York: Basic Books.


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