Organizational Design:Organizational Structure and

Culture(Part 1)

QSB2413 Management Science

Organizational Design

• The way in which the activities of an organization are arranged and coordinated so that its mission can be achieved.

Organizational DesignDesign defines:-• The configuration of organizational members –

organizational structure• The types of mechanisms (system / software)

used to integrate and coordinate the flow of information, resources and tasks

• The locus (path / course) of decision making – the level of the organizational hierarchy (who makes the decision – Strategic, Tactical, Operational)

Organizational Design• These components enable an organization’s

members to fulfill their mission and work toward their goals.

• Each component will vary (differ) with an organization’s overall strategy.

Organization Structure

Locus of Decision Making

IntegrationMechanism

Organizational Structure

• Organizational structure refers to the primary reporting relationships within an organization.

• The chain of command and hierarchy of responsibility, authority and accountability are established through organizational structure.

• These relationships are often illustrated in an organizational chart.

*Think about the organizational structure in your family.

Organizational Structure

• The structuring process involves creating departments by grouping tasks on the basis of some common characteristics such as function (e.g. marketing, finance), product (e.g. SUV, budget car) or geographic (e.g. Northeast, Southeast) market.

Organizational Structure

• An organization’s strategy has significant implications for its structure.

• When an organization changes its overall strategy, it needs to change its structure to fit the new strategy.

• E.g. IBM – sold the PC department (product) and focus on providing technology services, business consulting services (services).

Design an organizational structure for a construction firm.

What type of structure will be more appropriate / suitable ? Function? Product? Geographic?

More complex or small organization (size) that produces a single product with small workforce?

Types of Organizational Structure

1. Functional Structure: Specialization and Efficiency (Focus on one dimension)

2. Divisional Structures: Providing focus (Focus on one dimension)

3. Matrix Structure: A dual focus (Focus on two or more dimensions)

4. Network Structures: Flexibility

(1) Functional Structure

• Functional Structure groups organizational members according to the particular function that they perform.

• It is based on specialization.• Employees only focus on a particular job.• Departments are formed such as Marketing,

Production, Finance, Human Resource and Information Technology.

• Most commonly used organizational form.

(1) Functional Structure

(1) Functional Structure

What are the advantages and disadvantages if an organization is operating according to functional structure?

What about construction firm?

(2) Divisional Structures

• A divisional structure is designed so that members of the organization are grouped on the basis of common products or services, geographic markets or customers served (fresh-graduated students, housewife, staff employed, businessman, salary range, position, business usage, own usage).

(2) Divisional Structures

Product Divisions (Product and service)• Product managers assume responsibility for the

production and distribution of a specific product to all the organization’s geographic and customer markets.

E.g. YTL – cement, Banks – investment / loan, Lafarge – cement, concrete , Property agent – types of houses – prices, car dealer – types of cars

(2) Divisional Structures

• These managers coordinate all functional tasks (finance, marketing, production) related to their product line (e.g. Toyota Car – Vios, Altis, Camry, Hilux, Estima, Alphard).

• Product divisional structures are considered most appropriate for organizations with relatively diverse product lines that require specialized efforts to achieve high product quality (defined by markets – different targeted groups of customers).

(2) Divisional Structures

• Think about the different products produced in construction industry which targeted different groups of buyers.

• Example, high-rise buildings, green buildings, landed property (areas), commercial buildings, private schools, hospitals and etc.

(2) Divisional StructuresGeographic Divisions• Groups the organization’s activities along

geographic lines.• Each geographic division is responsible for

distributing products and services within a specific geographic region.

• This structure permits organizations to concentrate their efforts and allocate their resources towards penetrating multiple markets (meet local needs and preferences).

(2) Divisional Structures

• Example, the needs / requirements of types of houses of those people staying in Australia / New Zealand might be different from people staying in Singapore / Malaysia.

• Smaller size of the houses (landed) and bigger space of garden might be required in Australia and New Zealand.

• High-rises building houses might be required in Singapore and Hong Kong.

• What about people staying in Malaysia?

(2) Divisional Structures

• A geographic divisional structure is appropriate for organizations of varying strategic conditions.

• This structure is most appropriate for organizations with limited product lines that either have wide geographic coverage or desire to grow through geographic expansion.

• Example, YTL is the main producer / supplier of cement to different places / countries.

• MRT/LRT systems (Singapore, Malaysia, China, Japan, Thailand, Australia, HK, etc).

(2) Divisional Structures

Customer Divisions• Groups tasks in a way that will help meet the

demands of different customer groups.• Customer divisional structure is appropriate

when groups of customers want different things and each group is large enough.

• Suitable for organizations that wish to grow by targeting new and distinct customer groups. (E.g. SOHO concept)

(2) Divisional Structures

• Think of a “construction product” which is considered new and distinct to grow in construction industry to meet their demands.

(3) Matrix Structure

• When do the organizations use this structure in their operation?

(3) Matrix Structure

• Functional and Divisional structures have grouped their activities along a specific, single dimension of the organization’s operation.

• In some cases, there is a need to focus on two or more dimensions at the same time.

(3) Matrix Structure

• Assume that a company has a functional structure but also needs to be sure that each product or product group meets certain requirements.

• An organization might have a product-based structure, but it also must tune into the requirements of different geographic markets.

(3) Matrix Structure• The matrix structure was developed to deal with

these situations.• Matrix structure defines work groups on the

basis of two dimensions simultaneously.• Such as product – function, product – geographic

region and so on.

Product – Function Matrix Structure

(3) Matrix Structure

• Do you think construction’s projects are recommended to use matrix structure in their organization’s operation?

• What are the potential advantages of a matrix structure?

(4) Network Structures

• An organization that has a core coordinating with other organizations or organizational units.

• Example, Contractor XYZ project’s in KL, all piling works are done by Company A (sub-contractor) and excavation works are done by Company B (sub-contractor).

(4) Network Structures

• Some organizations work in situations, or prepare and deliver products or services, that require very high flexibility.

• One situation, or customer, might require a certain type of specialty and equipment (e.g. Ikea – super flat floor).

• In construction, contractors need crane for construction, piling, excavator, and etc.

(4) Network Structures

For example, a building contractor might construct a building made primarily of masonry for one customer and a building made of mostly wood for another.

For the first project, the contractor needs people with masonry skills, whereas for the other, skills in wood-working are required.

(4) Network Structures

In this type of situation, the contractor might find it much better to rely on network of other companies or tradespeople and put together a team for each specific job or project.

Each member of the network performs some portion of the activities necessary to deliver the products or services of the network as a whole.

Managing ComplexityThrough Integration

Integration

• Integrating the activities of an organization involves controlling and coordinating the flow of information, resources and tasks among the organizational members and work groups.

Integration

• Whereas structure serves to segregate organizational members into different work units.

• The goal of the integration component of organizational design is to coordinate these distinct groups’ work.

• Coordinating is keeping organization units that interact with or influence each other in contact with each other to share information and other things to enhance task accomplishment.

Integration

• An organization’s operational complexity will affect its need for integration.

• Normally, the more complex an organization’s operations, the more sophisticated its coordinating mechanism must be.

• An organization’s integration needs will vary with the level of interdependence that exists among work groups.

Integration

• In organizations where work groups must closely coordinate their activities to achieve organizational goals, integration needs will be high.

• What do you think the level of complexity in construction industry’s operational activities? Complex? What about the level of interdependence among work groups?

Integrating Mechanisms

Integrating Mechanisms• At the foundation of an organization’s ability to

coordinate its subunits’ activities is its information-processing capacity.

• Effective coordination depends on the information flow between the organization’s individual units so that work can be scheduled, resources shared and transferred.

Integrating Mechanisms

• Organizations develop integration mechanisms to enhance their information – processing capacity and support their need for coordination.

• Integration mechanisms are methods for managing the flow of information, resources and tasks throughout the organization.

Integrating Mechanisms

• Many different mechanisms can be used to process information and coordinate interdependent work units’ activities.

• General Management Systems – Some work unit coordination may be achieved by developing general managerial systems such as managerial hierarchy, basic rules and procedures and plans and goals (form the foundation of an organizational integration system).

Integrating Mechanisms

• Information Systems facilitate the flow of information up and down the traditional chain of command and across organizational units.

• The computerized transfer of important information and data provides a powerful tool for coordinating diverse departments or operating units.

• Examples, Clouds software / system.

Locus of decision making

• Refers to the level in the organization at which authority resides for making major decisions.

Locus of decision making

• If the primary decision-making authority is rests with corporate headquarters or top management levels of an operating facility, its organizational structure is centralized.

• An organization that maintains its locus on decision making at lower levels, such as at the department or employee level, is decentralized.

Summary• Organizational design is crucial in developing

an overall organizational structure that will help us achieve the organization’s overall strategy and mission.

Discussion

• Define fragmented industry.An industry in which no single enterprise has large enough share of the market to be able to influence the industry's direction.• Cloud communication used in construction

industry to share information.• Are construction industry’s work groups

interdependence?

Discussion

• Do you think construction industry is complex? If yes, do you think integration is required in their operation?

• Communication is very important in construction industry. That’s why the size of the organization is prefer to stay small and lesser reporting level in the organization. Need fast respond in action and flexible. Integration is needed.

Discussion

• Chain of command• Span of control• Virtual team• Difference Between Centralization and

Decentralization• http://

keydifferences.com/difference-between-centralization-and-decentralization.html

The End