Design of Organisation Structure: 9 Factors

This article throws light upon the nine main factors to be kept in mind while designing the organistaion structure. The factors are: 1. Strategy 2. Technology 3. People 4. Tasks 5. Decisions 6. Informal Organization 7. Size 8. Environment 9. Managerial Perceptions.

Factor # 1. Strategy:

Strategy determines a course of action to direct the organisational activities. It makes plans to co-ordinate human and physical resources to work towards a common objective. It defines a course of action through which organisation can align its activities with the environment, in order to achieve its goals. Strategy is a pre-requisite to organisation structure and also follows it.

The relationship between strategy and organisation structure is depicted as follows:

Strategies are made to achieve organisational goals by designing the desired organisation structure. Strategy and organisation structure are closely related to each other. When a strategy is framed to achieve the organisational goal, the organisation structure is designed to suit the strategy framed. Organisation structure helps in implementing the strategy. The structure is, thus, a means to the end (the objective desired to be achieved through the strategy.)

The organisation structure, thus, follows the strategy. Changes in strategy are followed by changes in the organisation structure so that new strategy can be effectively implemented. If not so done, there will be behavioural and administrative problems in achieving the objectives with the existing organisation structure.

However, the new structure is designed only if the existing structure cannot achieve the objectives with the new strategy. The re-designing of structure, thus, follows only if there are problems which affect profitability of the organisation.

The structure following the strategy, thus, follows the following sequence:

1. Creation of new strategy.

2. New administrative problems in executing the new strategy with the existing organisation structures.

3. Decline in organisational performance.

4. Change in the organisation structure.

5. Effective strategy execution resulting in improved organisational performance.

The structure is, thus, designed according to the need of the strategy and, therefore, follows it. Strategy is pre-requisite to the organisation structure. Strategy also follows the organisation structure. Organisation structure also affects the choice of strategy.

The structure is designed by the top management keeping in view the organisational goals and the environmental (internal and external) variables which will affect these goals. Within the confines of these goals and the environmental variables, the strategy is designed suitable to the organisation structure.

The strategy and organisation structure are, thus, interdependent. One depends on the other for effective attainment of the organisational goals. Strategies to diversify product lines or markets require decentralised organisation as decision­-making is done at wider level and strategies for organisations working in stable environment where managers do not diversify their operations require a centralised organisation structure.

As the organisation moves from small size, single product company where decision making is centralised to a larger structure diversified into multiple products where departmental heads are appointed who specialise in managing their functional areas to further decentralised structures which allow decisions to be taken at the level where the problem arises rather than reporting them to the departmental heads, the firms adopted the strategy of changing the organisation strategy, that is, moving away from the functional structure to divisional structure.

Factor # 2. Technology:

The technology for manufacturing also affects the organisation structure. The effect of technology on organisation structure was studied by Joan Woodward in her research of 100 firms in London.

She analysed three types of technology:

(a) Mass production technology:

This technology is used for producing same products at a mass scale, for e.g., manufacturing automobiles. The products are stocked and assembled differently for different customers. They are by and large standardised but lie within the range of standardisation that is suitable to the needs of customers.

Though homogeneous, they are heterogeneous based on the way they are assembled. Cars, for example, use mass production technology but same brand sells in different models (LX, VX, AX etc.) to meet the needs of heterogeneous customers.

(b) Continuous production technology:

This technology is used where inputs are transformed into outputs in a continuous process, for e.g., production of pharmaceuticals or paper. Most of these processes are automated and, therefore, require very few workers. Goods are produced in anticipation of demand and production techniques are primarily standardised and automated.

(c) Unit or small-scale production technology:

This type of technology is used to manufacture goods which meet the constantly changing consumer preferences, for e.g., garments. Goods are heterogeneous and produced in small quantities with individual production runs. Customer orders, where separate production runs are required to meet their demands utilize small batch or unit technology.

In case of mass production technology, mechanistic organisation structure is more appropriate because mass production technologies involve standardisation and specialisation of work activities. In case of mass-production technology, activities of departments and individuals are inter-dependent.

Work groups (individuals and departments) are specialised in their activities (as in case of manufacture of automobiles) and, therefore, horizontal relationships amongst them are more important than the vertical relationships. Departments focus more on departmental goals than the overall goals so that top managers have to exercise control from the top. The focus is on hierarchy and, thus, a mechanistic organisation structure.

In case of continuous production or small-scale production technology, the appropriate form is organic structure because continuous or unit production technologies require low levels of standardisation and specialisation.

In case of unit production technology, work performed by different individuals or groups is not inter-dependent and, therefore, coordination required amongst their activities is also not huge. People perform tasks according to their skills and there is no hierarchy of command. The organic structure is, thus, suitable for unit production technology.

Factor # 3. People:

People are important organisational asset or resource and greatly affect the design of organisation structure. Both superiors and subordinates, their behaviour patterns, ways of thinking, needs and motivators desired to satisfy those needs affect the organisation structure. Organisation has to be a source of satisfying people’s individual needs so that people also satisfy organisational needs.

Organisation structure has to be encouraging and need satisfying so that cordial behaviour patterns are observed at the work place. Different people in different organisations have different needs and organisation structure should be suitably designed to meet the needs of maximum number of people.

People can affect organisation structure in the following ways:

(a) Top management philosophy regarding organisation’s interaction with the environment, competitors’ policies, type of industry, autonomy to subordinates for decision making, faith in subordinates’ competence to make decisions affect the structure of the organisations.

If top managers feel that subordinates are committed, have the decision­-making ability and strong communication network, they prefer to adopt the organic structure. If they feel that subordinates have low decision-making ability and are not highly committed to work, that is, belong to Theory X assumptions of McGregor’s theory, they would prefer mechanistic organisation structure.

(b) Skills and need satisfaction of employees largely affects the organisations structure. If people are skilled, experienced and motivated to satisfy their higher-order needs, organic structure is more appropriate. If people are unskilled and inexperienced, mechanistic or classical form of organisation structure is more suitable. Skilled people are more professional and involved in their jobs.

They have a sense of individuality and prefer to work in an environment of achievement and recognition. Organic structure is conducive to satisfy their need for autonomy and participative decision-making. Organisation structure defines work, groups it into departments and appoints people to run those departments. People at different jobs must have the skill, knowledge and efficiency to accomplish the related tasks.

Factor # 4. Tasks:

Tasks are the activities performed by people which transform organisational plans into reality.

Various task characteristics are:

(a) Skill variety:

It is the extent to which creativity and variety of skills and talent are required to do a task. People with high degree of task varieties (for example, a dress designer) perform tasks that increase their intellectual ability and give them high job satisfaction.

(b) Task identity:

Task identity determines whether to produce a product in whole or in parts. When a product is produced as a whole, it has greater task identity. People performing tasks with high task identity (for example, a computer programmer) perform various job functions related to that task from beginning to the end, derive job satisfaction out of their work and feel motivated to repeat those tasks.

(c) Task significance:

The importance of task affecting the well-being or lives of people inside and outside the organisation determines significance of the task. People performing tasks with high task significance, i.e., tasks which positively affect the well-being and safety of others (for example, traffic police inspector), feel satisfied with their job and perform work of high quality and esteem.

(d) Autonomy:

Whether or not an individual plans the task on his own determines autonomy of the task. It determines the extent to which a person enjoys the freedom of performing various job activities and determines the procedure to carry them out.

People who are responsible for all the functions and schedules related to a job (for example, a project manager) hold accountability for that job and enjoy greater autonomy with respect to that task and derive greater job satisfaction.

(e) Feedback:

It is the information that people receive about successful completion of their task. It enables a person to know effectiveness of his job performance through superiors, peers or subordinates. People who have quick feedback on the job perform better in future.

Organisation structure should be designed in a manner that people perform jobs with high degree of all the five task characteristics. It should provide job satisfaction and motivation to perform high quality work. This will reduce labour turnover and absenteeism.

Organisations where people perform activities with high task characteristics are designed according to organic structures and organisations where activities have low task characteristics are designed on the basis of mechanistic structures. Managers analyse these task characteristics so that right task can be assigned to the right person. This promotes superior-subordinate relationships and, thus, organisational productivity.

Factor # 5. Decisions:

Questions like who makes decisions – top level or lower-level managers, how does information flow in the organisation for decision-making affect the organisation structure. Centralized decision-making powers give rise to mechanistic structures and decentralized decision-making processes give rise to organic or behavioural structures.

Decisions can broadly be grouped into two categories:

Programmed decisions and Non-programmed decisions. Decisions related to structured situations, where the problem is more or less routine and repetitive are known as programmed decisions. Managers depend on pre-established criteria for taking decisions.

Various policies, schedules and procedures guide these decisions and, therefore, policies and procedures should be as clear as possible. Since decisions are based on pre-defined standards, they do not require much of brain storming and are taken normally by middle and lower-level managers.

Such decisions usually support mechanistic structures. Non-programmed decisions are taken in unstructured situations which reflect novel, ill-defined and complex problems. The problems are non-recurring or exceptional in nature. Since they have not occurred before, they require extensive brainstorming. Managers use skills and subjective judgment to solve the problems through scientific analysis and logical reasoning.

These decisions involve fair degree of uncertainty since outcomes of decisions are not always known.

As we move up the organisational hierarchy, the need for taking non-programmed decisions increases.

Such decisions usually support organic structures.

Environment of decision-making represents the known and unknown environmental variables in which decisions are made. Some decisions are taken in situations of complete certainty and others in the situation of complete/partial uncertainty.

In the environment of certainty, mechanistic organisation structures are more suitable and in environment of uncertainty, organic structures are more suitable as clear lines of hierarchy cannot support decision-making in risky/uncertain environment conditions. It requires free­ flow of communication amongst members of the organisation at various levels.

Factor # 6. Informal Organization:

Informal organisations are an outgrowth of formal organisations. Social and cultural values, religious beliefs and personal likes and dislikes of members form informal groups which cannot be overlooked by management. P.J. Stonich rightly puts it, “where the organisation design specifically attempts to frustrate part of the informal organisation, harmful conflict may result”.

Where informal relationships between organisational members are recognised, organic structure is appropriate. Mechanistic structure is preferred where formal relationships are dominant forces of decision making.

Factor # 7. Size:

A group known as Aston Group conducted research on firms of different sizes and concluded that as firms increase in size, the need for job specialisation, standardisation and decentralisation also increases and organisations are structured accordingly.  

Which increase in size, the organisation moves from organic to a more formal or mechanistic structure. Small-sized organisations have better coordination, control, communication and interaction is limited to small groups of people.

There is less need for formal structures and, therefore, it supports the organic structure. Large-sized organisations have more formal reporting relationships amongst the members and, thus, a formal control, co-ordination and communication system is supported by a mechanistic structure.

Factor # 8. Environment:

Organisation structure cannot ignore the effects of environment. Organisations must adapt to the environment, respond to environmental opportunities and satisfy various external parties such as customers, suppliers, labour unions etc..

Organisations are part of the environment and cannot survive without active interaction (input-output conversion) with the environment. However, depending upon the degree of interaction, organisations may be more or less open systems. More the interaction, more open are the systems. The nature of environment (stable or dynamic) largely affects the structure of the organisation.

In stable environment where people perform routine and specialised jobs which do not change frequently, a closed or mechanistic organisation structure is appropriate. In the changing and dynamic environment where rules, regulations and technology are constantly changing, where jobs are constantly restructured, and where communication flows freely in all directions, organic structure is more appropriate.

Factor # 9. Managerial Perceptions:

Organisations where top managers perceive their subordinates as active, dynamic and talented entrepreneurs prefer organic form of structure. If they hold negative opinion about their subordinates, they prefer mechanistic organisation structure.