Management Organisations

Useful vocabulary organising organisational structure organisational chart organisational design work specialisation departmentalisation chain of command authority responsibility unity of command span of control centralisation decentralisation formalisation mechanistic organisation organic organisation simple structure functional structure divisional structure

Today’s lecture We will: Describe six key elements in organisational design Contrast mechanistic and organic structures Discuss the contingency factors that favor either the mechanistic model or the organic model of organisational design Describe traditional organisational designs

What is an organisation? “A consciously coordinated social unit composed of two or more people that functions on a relatively continuous basis to achieve a common goal or set of goals.” (Robbins, 2011)

Three elements to understanding organisations Individual Group Organisation System

Why look at organisations? Understanding organisations helps improve manager effectiveness A more effective manager = –Lower turnover of quality employees –Higher quality applications for recruitment –Better financial performance = Business and people success!

Reasons for organising

Designing organisational structure Organising - arranging and structuring work to accomplish an organisation’s goals (one of the 4 functions of a manager) Organisational Structure - the formal arrangement of jobs within an organisation (organogram/organisational chart) Organisational Design – elements which affect the organisational structure

Organisational design There are six key elements: 1.Work specialisation (sub-dividing jobs) 2.Departmentalisation (grouping jobs) 3.Chain of command (who reports to who) 4.Span of control (how many people you manage) 5.Centralisation and decentralisation (where does decision making power lie) 6.Formalisation (the level of rules and regulations)

Organisational design Work specialisation The degree to which tasks in the organisation are divided into separate jobs with each step completed by a different person (Taylor – pig in a cart) Over-specialisation can result in human diseconomies such as boredom, fatigue, stress, poor quality, increased absenteeism, and higher turnover.

Organisational design – 2 Departmentalisation Functional Grouping jobs by functions performed Product Grouping jobs by product line Geographical Grouping jobs on the basis of territory or geography Process Grouping jobs on the basis of product or customer flow Customer Grouping jobs by type of customer and needs

2. Departmentalisation – Function and Geography

2. Departmentalisation - Product

2. Departmentalisation – process and customer

Organisational design - 3 Chain of Command is the continuous line of authority that extends from upper levels of an organisation to the lowest levels of the organisation—clarifies who reports to whom.

3. Chain of command – authority, responsibility, unity Authority - the rights inherent in a managerial position to tell people what to do and to expect them to do it. Responsibility - the obligation or expectation to perform. Unity of Command - the concept that a person should have one boss and should report only to that person.

3. Example of chain of command and authority

3. Line and staff authority Line = contributes directly to the achievement of organisational goals.

Organisational design - 4 Span of Control is the number of employees who can be effectively and efficiently supervised by a manager.

4. Span width is affected by… Skills and abilities of the manager Employee characteristics Characteristics of the work being done Similarity of tasks Complexity of tasks Physical proximity of subordinates Standardisation of tasks Sophistication of the organisation’s information system Strength of the organisation’s culture Preferred style of the manager

4. Span examples

Organisational design – 5 Centralisation - the degree to which decision making is concentrated at upper levels in the organisation. This is common in organisations in which top managers make all the decisions and lower-level employees simply carry out those orders.

Organisational design – 5 Decentralisation - when an organisation relegates decision making to managers who are closest to the action. Employee Empowerment Increasing the decision-making authority (power) of employees

5. Comparing centralisation and decentralisation

Organisational design - 6 Formalisation - the degree to which jobs within the organisation are standardised and the extent to which employee behavior is guided by rules and procedures. Highly formalised jobs offer little discretion over what is to be done. Low formalisation means fewer constraints on how employees do their work.

Organisational structures

Mechanistic or organic structures?

Contingency factors Structural decisions are influenced by: Strategy - overall strategy of the organisation Size - size of the organisation Technology – technology and how it is used in the organisation Environment Uncertainty - degree of environmental uncertainty

Contingency factors (1) Strategy Frameworks: Innovation Pursuing competitive advantage through meaningful and unique innovations favors an organic structuring Cost minimization Focusing on tightly controlling costs requires a mechanistic structure for the organisation

Contingency factors Strategy and Structure Achievement of strategic goals is facilitated by changes in organisational structure that accommodate and support change. Size and Structure As an organisation grows larger, its structure tends to change from organic to mechanistic with increased specialisation, departmentalisation, centralisation, and rules/regulations.

Sizes of organisations

Contingency factors (2) Technology and Structure organisations adapt their structures to their technology. Woodward’s classification of firms based on the complexity of the technology employed: –Unit production of single units or small batches –Mass production of large batches of output –Process production in continuous process of outputs routine technology = mechanistic organisations non-routine technology = organic organisations

Contingency factors (3) Environmental Uncertainty and Structure Mechanistic organisational structures tend to be most effective in stable and simple environments. The flexibility of organic organisational structures is better suited for dynamic and complex environments.

Woodward – technology and structure

Traditional organisation designs Simple structure low departmentalisation, wide spans of control, centralised authority, little formalisation Functional structure departmentalisation by function operations, finance, marketing, human resources, and product research and development Divisional structure composed of separate business units or divisions with limited autonomy under the coordination and control of the parent corporation

Traditional organisation designs

Summary diagram

Summary Today: Design and structure of organisations Factors which affect the structure and design Traditional designs Tomorrow: Contemporary designs and structures

Reading Please read Chapter 11 before tomorrow’s lecture.

Activity Using the organogram, describe this organisation in terms of the 6 organisational design key elements. Eg. This organisation has a span of… Is it mechanistic or organic?

An organogram/organisational chart