The 'division of labour' referred to
in unit 17 creates a structure of relationships between management functions and also, since people undertake the tasks of
an organization, a structure of relationships between the people doing these tasks. The organization structure is therefore
a social structure. This is usually a hierarchical structure and should be related to the hierarchy of objectives stated in
a corporate plan. The structure can be viewed as a pyramid with one person at the top and an increasing number of people at
each level below the top.
Every organization will have an organization
structure of some kind. Less often will it be recognised that the organization structure is a management system; one that
has to be properly designed if it is to be effective. Clearly the organization structure must match the organization and its
activities. In many organizations the structure is static and was probably imposed a decade or so earlier to suit the whim
of the then managing director. It probably showed people rather than job titles and usually adorns the board room or the foyer.
Organizations that fail to adapt their organization structures to changing needs will find themselves becoming increasingly
An appropriate organization structure
will enable effective and speedy communication between different parts of the organization. It is both the cement, which holds
an organization together, and the lubricant, which enables it to operate flexibly and effectively. A poor organization structure
will prevent communication, interaction and involvement. It will prevent an organization from being effective and from achieving
its objectives. An organization structure for a typical manufacturing organization is shown in Figure 18.1 but would be similar
for non-manufacturing organizations. An organization structure chart shows the job titles within an organization and how they
relate to each other. Job titles are used rather than peoples’ names since people can change. The relationships are
between people holding those jobs. This structure is a process or functional structure because the different departments are
responsible for the different processes or functions of management.
This diagram shows only the top-level
functions. The vertical arrows indicate more people, that is job titles, beneath a given job title but not shown on this diagram
due to space limitations. These people form the department managed by the jobholder for the job title shown. The function
of the departments that are not shown in detail in figure 18.1 are shown in table 18.1 below. A more detailed structure for
the manufacturing function is given in unit 52.
R & D and Design
Design for market
There are several different ways of structuring
an organization, rather than the functional organization structure shown above. Some alternative structures are considered
A large organization may operate on many
different sites, perhaps in different countries and in different markets. Whilst such an organization could be organized as
a single company with operating divisions, it is more likely to comprise a group of separate subsidiary operating companies
in which all the shares are held by a single 'holding' company. The structure of such a holding company is shown in Figure
18.2. The holding company is likely to be a public company (plc.) but the subsidiaries would be private companies (Ltd.).
This structure can arise as organizations take-over other organizations but retain the original names. Complex structures
are created when organizations buy shares in other organizations, which buy shares in other organizations. Companies may be
internally split into divisions, which may be based on different sites or produce different products. Divisions are convenient
business units for effective management but are not legally registered as separate organizations and do not have to publish
their accounts. They may have considerable autonomy within the organization and will produce accounts internally for management
decisions. Such units may be referred to as Strategic Business Units. (see later in this unit)
A different structure is created when
two or more organizations set up joint-venture company in which they own the shares between them. Joint-venture companies
are set up by organizations hitherto separate in which they wish to co-operate for example on a new product or in a new market.
Each relies on the other and usually complements the skills of the other. Working together may be necessary for success and
shares the risk when developing new products or markets.
TYPES OF ORGANIZATION STRUCTURE
The shape of organizations
There is no one correct type of structure
for an organization. The managers in the organization must design a structure that is appropriate. This is likely to have
several layers or levels of management - but how many are needed ? The larger the organization the more managers and levels
are likely to be needed. More managers means more costs, so a balance is needed. A 'tall' organization would have many levels
relative to the number of operators. In this type of organization planning and decisions are centralised and the jobs of operators
reduced to the minimal manual or clerical tasks. In some organizations the number of people reporting to a manger is as low
or 2 or even 1. This would result in a tall and top-heavy organization. Such organizations need more managers and more levels
of management. It was not uncommon in the past to find public sector organizations with 10, 20 or even 30 levels of management.
This is an example of Parkinson's second law referred to in unit 17.
From 1988 to 1992 the number of managers
in Britain's National Health Service increased about twenty-fold in four years, a remarkable rate of growth, especially as
the number of nurses and hospital beds fell. All of these managers are busy, sitting on committees or telling other people
what to do, but they are only busy because they are there and the organization structure has been designed to create these
jobs. The objective is to reduce costs but the cost of doing so is often greater than the cost saved.
A modern approach would change the jobs
that people do and delegate decision making responsibility. This structure requires far less managers. Some organizations
are now changing their organization structure in this way. The process is known as 'de-layering' and the result is a 'lean'
organization. A 'shallow' or 'lean' organization would have relatively less levels of managers. In lean organizations each
manager would have more people reporting directly from one level below. The number of such people is called the 'span of control'
of the manager. It is usually considered that a span of control of a senior manager should be between 3 and 6, although at
the supervisory level managers often manage groups of 15 to 30. In this type of organization decision making is delegated.
Fewer levels of management and less managers are needed since the operators are to some extent self-managing. Clearly, a lean
organization is more effective than a tall one so a modern approach to the design of organization structures is based on this.
Some of the largest organizations in the world have only 8 levels of management so smaller organizations should need less
than this !
Position in the organization structure
The location of a particular function
in an organization structure is significant to its power, authority and success. The level of a function and the other functions
with which it relates, horizontally, under a common manager determine the importance of a function and level at which decisions
about that function are taken and grouped with other functions. In the past, Personnel and Quality management were seen as
simple tasks requiring only modest skills. These functions were often placed towards the bottom of the structure. The people
in charge did not usually have the title of manager.
In such a position these functions were
seen as not important, and in any conflict with, for example manufacturing, the views of personnel and quality were overridden.
With the increasing importance now being seen as necessary for these functions, their position is now much higher within the
organization. This gives a voice and authority for these functions since they report at a higher level. It also ensures that
conflicts are not swept under the carpet but are discussed and resolved to the benefit of the organization.
Process or functional organization
In organizations there are two basic
ways in which the total set of tasks can be divided to form the organization structure. Managers can have responsibility for
a process or function. The structure shown in figure 18.1 is functionally split. In functional organization each department
is responsible for a single function, a set of similar tasks using the same processes. People employed in a department are
skilled in that function but often understand little about the rest of the organization. Often they do not see how their function
relates to other functions. They are responsible only for one function or process they do not see how work is progressing
through the organization as a whole. This leads to organizational fragmentation, prevents interaction and synergy and holds
down productivity. This is made worse by educational specialisation since it narrows the skill base of employees to their
own specialism. They know more and more about less and less !
In process or functional organizations
problems of lack of communication and understanding arise. The organization is usually inefficient and everyone blames everyone
else for the problems. They do their own bit then push the work 'over the wall' to the next department. The walls between
departments are not only physical they are psychological. Additional people are employed to improve communication but the
if the basic structure is inefficient the appointment of more people will not make it more effective.
The alternative is for the split to be
based on products. In this case departments are responsible for all functions of management associated with a given product.
The support functions are placed in product departments. Each department sees progress at all stages of work form input to
output, from the materials coming in to the goods going out of the organization. Employees in a department interact with other
employees in the same department doing different functions, they learn from each other and see how each contributes to the
overall productivity of the department. A symbiotic relationship develops leading to individual and organizational learning.
Figure 18.3 shows a product organization structure.
The placing of every function in every
department would require more staff so in practice some functions will remain centrally and organized functionally. A suitable
balance must be determined. The financial function is likely to remain centralized, since it has a corporate wide role, but
some detailed accounting functions can be decentralized. The concept of processes and products is valid in non-manufacturing
organizations; in a university for example a lecture in a subject is a process and a degree programme is a product, a student
is the material brought in and converted into a graduate.
If organization is based on processes
a manager would have responsibility for a process and all products which required that process would pass through the department.
If the structure is based on products, a manager would have responsibility for several if not all processes involved in the
manufacture of the product. There are advantages and disadvantages of both of these approaches. These forms of organization
must match the physical layout of equipment. These aspects are expanded in units 52 and 57. A structure must be chosen that
best enables the success of the organization.
A third variant is a 'matrix' structure
which combines both process and product management and has both process and product managers. This requires more managers
but is justified on the grounds that it results in improved communication and better control. Each employee below the level
of process and product managers has two managers, a process manager and a product manager. Each manager can issue work instructions
to an employee and dictate when the work is to be done. This can lead to conflicts when an employee is required to do two
tasks at the same time. Instead of introducing more managers, a modern approach would improve communication in other ways
and create self-managing work groups.
Figure 18.4 shows how managerial responsibilities
are grouped in a matrix organization structure. It is a three dimensional structure which is not easy to show on two-dimensional
paper. This figure is an attempt to show both horizontal and vertical links. The figure shows 9 departments, 3 functions for
each of three products. 3 grey boxes represent functional managers since they are responsible for a function across all 3
products. 3 black boxes represent product managers since they are responsible for all functions for a single product. This
structure therefore requires 6 managers at this level rather than the 3 required for either functional or product management.
The managing director, MD, manages the 6 managers.
In a matrix structure, employees report
to 2 managers: one for their function and one for their product. A matrix structure is said to offer better control for managing
the complexity of multi-product manufacturing organizations. This however comes with the extra cost of the additional managers
required. There can also be conflicts between managers and confusion for employees if they receive different instructions
from the 2 managers to whom they are accountable.
Another type of structure is used for
project management. A project is a set of activities done once only rather than repetitively. The introduction of change,
such as the setting up of a new factory of manufacturing system, is a one-off activity organized as a project. The organization
of projects is explained in part 7 of this website. In an organization in which doing projects is the main activity project
organization is similar to product organization (see figure 18.3 above but substitute 'project' for 'product'). In a manufacturing
organization projects will be done by a team brought together to manage the project. In this case matrix organization is likely
to be used (see figure 18.4 above). In this form of organization an employee will have two managers, one functional and one
for the project. Employees are seconded, full-time or part-time, from their normal job to a project team for the duration
of a project. A project manager leads a multi-disciplinary project team which has the range of skills needed to implement
a project. In manufacturing, project management is used when needed for managing a change. The functions of innovation and
design are such that their normal activities are sets of one-off activities. Marketing activities are of this type. They are
therefore usually organized as projects (see part 7, unit 72 for more on project organization)
The Upside-down organization
This is not a formal organization structure
but a concept of the role of management. The traditional organization structure is a pyramid, this concept turns the pyramid
upside down. Instead of managers being at the top issuing orders to the operators, they are at the bottom. This perspective
sees the role of management as being supportive of the operators doing the primary task of the organization. Managers are
seen as facilitators and problem solvers, enabling the operators to be effective. This concept was developed by Robert Townsend.
Figure 18.5 shows this concept.
THE DECISION STRUCTURE
In designing an organization structure,
a decision structure is also being designed, since the latter are an inherent part of the former. Decisions are made by people
in the organization, so the structure of decisions relates to the organization structure. Similarly, communication and information
flow is between people in the organization. Therefore decisions are needed on where decisions are made and what information
is needed at different places in the organization structure. These are the decision and information structures. The information
structure must match the decision structure to ensure that information is available to those who need it for making decisions.
Decisions on important, long term and
strategic matters are taken centrally, at the top of the organization. Decisions on day-to-day, short-term operations will
be delegated down to managers at lower levels. Deciding the best level for decision making is important for the success of
the organization. Bureaucratic and 'autocratic' organizations tend towards centralized decision making whereas more 'democratic'
organizations seek to involve people and do so by delegating decisions. In modern, 'lean' organizations decisions are delegated,
this tends to create more interesting and challenging jobs for people in the organization. This requires fewer managers because
most employees are taking decisions themselves.
The delegation of decisions can create autonomous
groups. This concept is referred to in several units in this website. Strategic business units are referred to earlier in
this unit. The internal market, unit 20, plant within a plant, unit 57, profit centre, unit 80 and job design, unit 98, all
express a common idea of active participation of employees, challenging jobs and delegated responsibility. With such delegation
there will still be a central core for policy and strategic decisions. There may also be some central services such as personnel.
Being central does not imply higher authority, just efficiency of organization. Centralized services are the servants not
the masters of the wealth creating functions.(but in many organizations, centralized administrators think they are the masters!)THE COMMUNICATION STRUCTURE
Formal communication within an organization
arises from the lines of responsibility and accountability. Person A can only tell person B what to do if B is on the same
vertical line below A. In theory, and in a bureaucracy in practice, information and communication can flow only along these
lines of command. This is the way in which Government offices operate. Most organizations cannot operate effectively with
such limited communication so additional informal communication links need to be established. In an organization of any size
it is an important and major task to design the information system and communication structure.
Information is power, so in the past
information was kept at the centre, that is the top of the organization. It was thought by managers that if employees knew
how much money the company was making they would ask for more money for themselves. If they knew what new products the company
was developing they would tell the competitors. Such attitudes are based on mistrust and create mistrust. Information systems
were then based on this mistrust. Each department had its own information system to which other departments did not have access.
In some cases, different departments
used different data for the same thing because they did not believe the accuracy of the data being used by another department.
For example, the time for a task is needed by at least two different departments. Manufacturing need it in order to schedule
work. Accounting need it in order to cost the task. Personnel may also need this data for the payment system. Each department
would use its own, but different, data. Clearly a single data is needed.
When decisions are delegated more information
is needed at lower levels in the organization. For employees in one functional area to be effective they need to know what
is going on in other parts of the organization. New types of information system are needed if such organizations are to have
the information they need to be effective. Modern information technology using compute- based websites can provide a common
website and common data for use by the different functions within the organization. Individual employees can access the website
and obtain a more informed base for decisions. In this way the information system enables more integrated and better decisions
to be made within the organization and more people are involved in decision making.