Organizational Structure

Dr. Mandi came up with another topic "Organizational Structure"

I have seen companies spending extravagant amount of time and money changing their organization structure. Infosys Ltd redesigned its organization structure realigning its services around four verticals - BFSI, ECS, Retail and Manufacturing. It makes complete sense since the company wants to present a uniform and consistent deal to its clients and avoid the problems of multiple deals across different offerings. But this was the same company which was split across Geographies in the late 90's. By 2003, the geographies were merged and company was realigned based on respective delivery units. Gradually the whole company was re jigged across six different verticals. Come 2007 and five horizontal units were embedded within these verticals. Finally just a year back, it was realigned on the lines of four verticals with most of the horizontal business units being merged to respective verticals. So coming back to the question. Why does companies spend so much of their money and time on re-jigging their organization structure?

One word answer - because it is that important to the success of the firm. While the strategic decisions are taken by the top line management, it is the effectiveness of the organization structure which translates this strategy into successful implementation.

An organizational structure consists of activities such as task allocation, coordination and supervision, which are directed towards the achievement of organizational aims. It can also be considered as the viewing glass or perspective through which individuals see their organization and its environment. 

What are the 4 basic elements of Organization Structure ?

a) Span of Control: Number of people directly reporting to the next level in the hierarchy.

b) Centralization: Degree to which formal decision authority is held be a small group of people, typically those at the top of the organizational hierarchy.

c) Formalization: Degree to which organizations standardize behavior through rules, procedures, formal training, and related mechanisms.

d) Departmentalization: Organizational charts that specifies how employees and their activities are grouped together.

How does the Organizational Structure affect the organization ?

Organizational structure affects organizational action in two big ways. 

a) Provides the foundation on which standard operating procedures and routines rest. 

b) Determines which individuals get to participate in which decision-making processes, and thus to what extent their views shape the organization’s actions.

TYPES OF ORGANIZATIONAL STRUCTURES

a) Functional Organization

This type of organizational structure:

•  - Brings together in one department everyone engaged in one activity or several related activities that are called FUNCTIONS. 
•   - This leads to operational efficiencies within that group. However it could also lead to a lack of communication between the functional groups within an organization, making the organization slow and inflexible.
•  - Mainly used by the smaller firms that offer a limited line of products.
•  - Makes supervision easier as each manager must be expert in only a narrow range of skills. It also helps to group a particular set of people with the specialized kind of skill set.
•  Disadvantages :
•    i) As each department functional managers need to report to central headquarters (President), it can be difficult to make quick decisions.
•    ii) Harder to judge performance because which department to blame when a new product fails.
•    iii) Difficult to coordinate the functions of members of the entire organization as each department may have difficulty working with other departments in a unified way to achieve organizational goals.

b) Product/Market/Divisional Organization

  - Brings together in one work unit all those involved in the production and marketing of a product or a related group of products, all those in a certain geographic area, or all those dealing with a certain type of customer.

  - Can follow three patterns as described above:

    i) DIVISION BY PRODUCT

ii) DIVISION BY GEOGRAPHY

iii) DIVISION BY CUSTOMER 

c) Matrix Organization:

One example of Matrix Organization in real life example is the Organization structure of Accenture. 

This organizational method is more common in the consulting world and has the following characteristics:

• Each worker is assigned to two bosses in two different hierarchies. The first hierarchy is the executive aspect and is there to get projects completed using the resources that the company has.
• The second kind of hierarchy in the matrix structure is the functional aspect and its purpose is to train employees in industry specific knowledge. At Accenture this functional aspect is also a matrix and is made up of five industry-based operating groups and three capability groups.

Goodbye till the next blog..................