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Organizational Structure. LEARNING OBJECTIVES Explain the roles of formalization, centralization, levels in the hierarchy, and departmentalization in.

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Presentation on theme: "Organizational Structure. LEARNING OBJECTIVES Explain the roles of formalization, centralization, levels in the hierarchy, and departmentalization in."— Presentation transcript:

1 Organizational Structure

2 LEARNING OBJECTIVES Explain the roles of formalization, centralization, levels in the hierarchy, and departmentalization in employee attitudes and behaviors. Describe how the elements of organizational structure can be combined to create mechanistic and organic structures. Understand the advantages and disadvantages of mechanistic and organic structures for organizations

3 Introduction How individual and team work within an organization are coordinated. Organizations can function within a number of different structures, each possessing distinct advantages and disadvantages

4 Building Blocks of Structure Four aspects of structure that have been frequently studied in the literature: 1. Centralization 2. Formalization 3. Hierarchical levels 4. Departmentalization

5 Centralization Centralization is the degree to which decision-making authority is concentrated at higher levels in an organization In centralized companies, many important decisions are made at higher levels of the hierarchy, whereas in decentralized companies, decisions are made and problems are solved at lower levels by employees who are closer to the problem in question

6 Decentralized companies give more authority to lower-level employees, resulting in a sense of empowerment Many companies find that the centralization of operations leads to inefficiencies in decision making

7 Hitting the right balance between decentralization and centralization is a challenge for many organizations

8 Advantages of Centralization 1.Reduced cost—The standardized procedure and method helps in considerably reduction of office cost. 2. Uniformity in action — Uniformity in action is established throughout the organization because of central administrative control. The same executive supervises the work and same type of office equipments are used which ensure uniform performance of activities. 3. Personal leadership— Centralization encourages and permit personal leadership. 4. Flexibility — Centralization permits flexibility and adaptability of the organization to the changed circumstances. 5. Improved quality of work—Improved quality of work is possible because of standardized procedure, better supervision and use of improved- machinery. 6. Better co-ordination — Centralization facilitate better co­ordination among various operations. Direct control and supervision are facilitated which results in less likelihood of conflict of authority and duplication of work.

9 Disadvantages of Centralization 1. Delay in work— Centralization creates loss of man-hours and delay in performance of work because of transmission of records from and to the central control room. 2. Remote control—Better supervision is not possible as the executives are under heavy pressure of work. 3. No loyalty—Workers work like machine which results in no involvement in work and absence of zeal. 4. No Secrecy 5. No special attention—In centralization no special attention is given to special work as all works are done at one place.

10 Advantages of Decentralization 1. Secrecy of departmental affairs is well maintained. 2. Delay in performing the operation is avoided because it is performed at the department where it is needed. 3. Staff attached to the department develops a sense of loyalty to it, and also develops personal interest in the work. 4. Since a worker is working, in a functional department, work can be performed promptly. 5. Higher levels of job satisfaction on the part of employees - Departmental employees are conversant with the problems of the department and have knowledge of technicalities of the department. Therefore staff can perform the work more quickly and in a better way.

11 Disadvantage of Decentralization 1. The total workload of the office cannot be distributed among the personnel of different departments. 2. The quality of work may be poor because of lack of specialization and specialized machines. 3. There will be duplication of efforts, equipment's and machines etc., this leads to uneconomical operations. 4. There may not be uniformity of office procedure followed in different department. 5. Standardization of the office procedure and equipment is not possible. The work may be done in different departments in different way and with different equipments. 6. Decentralization creates problems of co-ordination of work among the different departments.

12 Formalization Formalization is the extent to which an organization’s policies, procedures, job descriptions, and rules are written and explicitly articulated An advantage of formalization is that it makes employee behavior more predictable ; this leads to consistency of behavior

13 A high degree of formalization may actually lead to: 1. Reduced innovativeness because employees are used to behaving in a certain manner 2. Reduced motivation and job satisfaction 3. Slower pace of decision making

14 Hierarchical Levels - Keeping the size of the organization constant, - Authority is Obvious - Managers are Skilled in Specific Area - Departmental Loyalty Tall structures have several layers of management between frontline employees and the top level, while Flat structures consist of only a few layers

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18 In tall structures, the number of employees reporting to each manager tends to be smaller, resulting in greater opportunities for managers to supervise and monitor employee activities. In contrast, flat structures involve a larger number of employees reporting to each manager leading to greater levels of freedom of action for each employee.

19  In flat structures Employees experience greater levels of role ambiguity Advancement opportunities will be more limited because there are fewer management layers Employees and work groups in flat organizations tend to be more adaptable in changing or unique circumstances, due to their smaller hierarchies and lack of bureaucracy. More Innovation and Creativity  In tall structures employees feel a greater sense of job security

20 Departmentalization Organizational structures differ in terms of departmentalization,( functional or divisional).  Functional structures Organizations using functional structures,group jobs based on similarity in functions Such structures may have departments such as marketing, manufacturing, finance, accounting, human resources, and information technology. In these structures, each person serves a specialized role and handles large volumes of transactions

21  Divisional structures In organizations using divisional structures, departments represent the unique products, services, customers, or geographic locations the company is serving Each unique product or service the company is producing will have its own department. Within each department, functions such as marketing, manufacturing, and other roles are replicated Employees will be in charge of performing many different tasks in the service of the product

22 Functional structures tend to be effective when an organization does not have a large number of products and services requiring special attention Functional structures are more effective in stable environments that are slower to change.

23 Pharmaceutical Company with a Functional Departmentalization Structure

24 Pharmaceutical Company with a Divisional Departmentalization Structure

25 Two Configurations: Mechanistic and Organic Structures Mechanistic structures are those that resemble a bureaucracy. These structures are highly formalized and centralized. communication tends to follow formal channels and employees are given specific job descriptions delineating their roles and responsibilities

26 Mechanistic organizations are often rigid and resist change, making them unsuitable for innovativeness and taking quick action The main advantage of a mechanistic structure is its efficiency The presence of a mechanistic structure has been shown to be related to firm performance in new ventures

27 Organic structures are flexible and decentralized, with low levels of formalization communication lines are more fluid and flexible Employee job descriptions are broader Employees are asked to perform duties based on the specific needs of the organization at the time as well as their own expertise levels Higher levels of job satisfaction on the part of employees

28 EXERCISES What are the advantages and disadvantages of decentralization? would you prefer to work in a tall or flat organization? Why? What are the advantages and disadvantages of departmentalization by product? would you prefer working in a Mechanistic organization or Organic structure organization? Why? /why not?


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