Organization is formed when people work together in a structured way to achieve a specific goal or a set of goals. In order to achieve the goal, the organization needs proper planning and design. Organizing can be done in either in a formal or informal way. But the possibility of achieving objectives without formal organizing likely to create a huge loss of resources and time.The main intention of every organization is to produce maximum profit in short interval of time, so in order to achieve it, every organization needs a proper design for the proper utilization of the resources as well as time. The organization design is an ongoing process and it keeps on changing to meet the environmental change. Every organization has a vision and mission, it can be only be achieved through a well defined designed structure. The design of an organization includes the information flow system, hierarchical structure; allocation of resources to various departments, division of work, division of labor, etc. For an effective working of an organization and to achieve the desired goal all the departments within the organization should work each other, so they need effective coordination between the departments. Organization design plays an important role in the effective coordination between the coworkers of various departments. There are two organizational systems: mechanistic and organic. In a mechanistic system, organizational activities are broken down into specialized task and objectives of each worker is defined by higher level managers. In an organic system, the individuals form a team and work as a team rather doing alone, here the high level managers have limited role. The report discusses about how a firm design their organization and what all factors they have to look into while designing it. What are the design processes? When we have to redesign? Organization design approaches, Organization design applications in the 21st century etc. PRINCIPLES OF ORGANISATION DESIGN From the organization design journal’s I could find some of the important principles that the organization should follow while designing the organizations, they are: • Goals should be a clear and flexible strategy- Goals should be well defined in the begin stage itself and the strategy should be flexible enough to reach the goal. • Minimum critical specification – The new technology wants the employee should learn quick and fast response. So specification must be least as possible regarding how the tasks convert into task and how employee should interact within the organization. • Information flow- Information system should be designed in such a way that the right information should reach the right place at the right time for the effectiveness of the task. • Variance control – Variances are an unprogramed event and it should be under control even if you can’t eliminate it completely, because it will seriously affect the outcome.

1. Organization Design
Principles of Management Term Paper
In partial fulfillment of the requirements of the Course On
PGDM
Submitted by,
Sanuraj R
2014
Submitted date
8/27/2014

2. 2
TABLE OF CONTENTS
SL.NO TOPICS PAGE NO
1 Executive summary
3
2 Introduction 4
3 Principles of organizational design 5
4 Organizational design approaches 6
5 Types of organizational design 8
6 Organization design process 9
7 Factors influencing organization design 11
8 When we have to redesign? 13
9 Applications of organization design in 21st century 15
10 Conclusion 15
11 Reference 16

3. 3
1) EXECUTIVE SUMMARY
Organization is formed when people work together in a structured way to
achieve a specific goal or a set of goals. In order to achieve the goal, the
organization needs proper planning and design. Organizing can be done in either in
a formal or informal way. But the possibility of achieving objectives without
formal organizing likely to create a huge loss of resources and time.The main
intention of every organization is to produce maximum profit in short interval of
time, so in order to achieve it, every organization needs a proper design for the
proper utilization of the resources as well as time. The organization design is an
ongoing process and it keeps on changing to meet the environmental change.
Every organization has a vision and mission, it can be only be achieved
through a well defined designed structure. The design of an organization includes
the information flow system, hierarchical structure; allocation of resources to
various departments, division of work, division of labor, etc. For an effective
working of an organization and to achieve the desired goal all the departments
within the organization should work each other, so they need effective
coordination between the departments. Organization design plays an important role
in the effective coordination between the coworkers of various departments. There
are two organizational systems: mechanistic and organic. In a mechanistic system,
organizational activities are broken down into specialized task and objectives of
each worker is defined by higher level managers. In an organic system, the
individuals form a team and work as a team rather doing alone, here the high level
managers have limited role. The report discusses about how a firm design their
organization and what all factors they have to look into while designing it. What
are the design processes? When we have to redesign? Organization design
approaches, Organization design applications in the 21st century etc.

4. 4
2) INTRODUCTION
Organizational design is the process of structuring the organization in a way
that facilitates employee productivity and support the organization to achieve their
goal. An appropriate organizational design support employees to achieve the
organizational goal by giving them the freedom to explore their potential and also
by giving a structure necessary to perform the task. Organizational design
determines who make the decision and how the decisions are made. While
designing, the managers should consider both internal and external environmental
factors. The basic building blocks of the organizational structures are the division
of labor, departmentalization, hierarchy and coordination.
The organization design becomes more complicated when the company
grows in size. One effective design won’t be so effective in another situation. So
the organizational design is an ongoing process. Through the division of labor the
work in the organization is divided into separate jobs. For every job there is a
supervisor and he knows the nature of the work that has to be done. So he can
support the subordinates in their task.
Once the job is divided, the organization needs to group the jobs together so
that common task can be coordinated. The basis by which the jobs are grouped
together is known as departmentalization. Jobs can be departmentalized by the type
of the products organization produces. Another way of departmentalization is
based on the geographical. Another way is to use the particular type of customers
the organizations seek to reach more at. The small companies’ uses simple
structure to perform the task as the company grows in size the structure become
more complicated. Structures like functional, matrix, and divisional structure. The
organizational design should be flexible enough to accommodate the future needs
of the organization.

5. 5
3) PRINCIPLES OF ORGANISATION DESIGN
From the organization design journal’s I could find some of the important
principles that the organization should follow while designing the organizations ,
they are:
 Goals should be a clear and flexible strategy- Goals should be well
defined in the begin stage itself and the strategy should be flexible enough to
reach the goal.
 Minimum critical specification – The new technology wants the employee
should learn quick and fast response. So specification must be least as
possible regarding how the tasks convert into task and how employee should
interact within the organization.
 Information flow- Information system should be designed in such a way
that the right information should reach the right place at the right time for
the effectiveness of the task.
 Variance control – Variances are an unprogramed event and it should be
under control even if you can’t eliminate it completely, because it will
seriously affect the outcome.
 Compatibility – The design process must compatible with the objectives.
The design should be flexible, interactive, participatory if we need a
participation and flexibility within the organization.
 Boundary location – If the management has boundaries between the
departments or between the department and the organization or between the
organization and the external world, then the members within the
departments are responsible to control all the activities. The manager is
responsible for the allocation of resources, and coordination between the
departments.

6. 6
These are some of the principles that should follow while designing.
4) ORGANIZATIONAL DESIGN APPROACHES
The majority of the organizations are designed on the basis of Weber’s
hierarchical model in which low level managers report to the middle level
managers and this mangers will report it to the top level managers this can be done
either upward or downward. In the hierarchical model, there is variation in the
number of levels and the set of activities. The manager is responsible how to group
the employee in order to perform the activities. There are basically five approaches
of designing
1) Functional structure
2) Divisional structure
3) Matrix structure
4) Network structure
Functional structure
The functional structures are formed based on similar activities, skills,
expertise, and resources. Some of the examples of the functional groupings are
marketing, human resources, finance, etc. They have well-defined channels for
communication. The productivity is high in this case. This structure makes the
employees comfortable to do their work. Features of this structure are as follows:
 Division of work is done by inputs.
 The decision- making is highly centralized.
 The coordination mechanisms are based on hierarchical plans and
procedures.
 Effective utilization of resources.
 They are appropriate for stable environments.
 Suitable for focused and low cost strategies.

7. 7
Divisional structure
The Divisional structures are formed when the managers find it difficult in
keeping track of company’s products and activities. The departments are divided
based on the organizational output. Some of the categories of division grouping are
productions customer services etc. it makes the manager easy to monitor the
performance. The structure is flexible in nature. Some of the features are:
 Division of work is based on organizational output.
 Coordination mechanism is done through directors of divisions and
staffing.
 Separation of strategies and operations.
 Suitable for diversification strategies & scarce resource efficiency.
Matrix structure
On the matrix structure, each low-level manager reports to two or more
superiors. The matrix structure is a combination of functional and division
structure. It is complex in nature. The employees in matrix structure must be a part
of at least two formal groups. So they have to report to two managers one within
the team and other within the functional group. Some features are:
 Division of work is based on organizational input and output.
 They have Dual- Hierarchical relationship.
 They have a moderate resource efficiency.
 Suitable for market adaptation strategies.
 They have shared decision making rights.

8. 8
Network structure
Network structure depends on other organizations to perform functions on
a contractual basis. This provides flexibility and the manager will be more
comfortable with this structure because the size of the staff is reduced. But the
outcome of this structure is not predictable because they rely on another
organization to perform the critical functions. Some of the features are:
 The division of work is based on the knowledge.
 Decision making is highly decentralized.
 Administration cost is less.
 Suitable for innovative strategies.
 They are suitable for volatile environment.
 Excellent efficiency of resources.
 High risk of organizational failure.
5) TYPES OF ORGANIZATIONAL DESIGN
When the organization decided to redesign they have to look into two
approaches first one is top down approach and the second one is bottom- up
approach. The first approach starts at the top level of the organization and focused
on composition and reporting relationship. The second starts at the basic level of
an organization and works upward. There are two types of design decisions are
 Strategic organization design.
 Operational organizational design.
Strategic organization designs are driven by strategy and it provides a basic
architecture to pursue the strategic objectives. The direction is from top to bottom.

9. They pursed only top two to four levels within the organization.Strategic
objectives are long term organizational goals. The objectives are usually too broad.
Operational designs are driven by operational concern that includes cost, quality,
and time. The direction is from bottom to top. They pursued at different levels
within the organization. Operational objectives are short term organizational goals.
The objectives are highly specific in nature. Even though they are different they
are interlinked with each other. Strategic objectives only become useful when it is
translated into operational objectives and operational design is useful only when it
design to serve the strategic objectives.
9
6) ORGANIZATION DESIGN PROCESS
The leaders in the organizations are responsible for the restructure of their
organization. Change in leadership, shift in the strategies or changing factors
within the organization are responsible for the restructuring. The leaders have to
make their decisions with limited constraints like resources and time. The result is
often failing to produce the desired effects, creating further problems in the
organization.
Organization design is one of the key tools used for the restructure. The
entire activities in the organization design process can be grouped into four phases :
(I) Preliminary analysis
(2) Strategic design
(3) Operational design
(4) Implementation.
Preliminary analysis

10. It is the first step in the design process. It involves collection of data or
information required for the decision making process. Problem solving begins with
how the organization is functioning, and finds out the performance gaps and how
performance relates to the strategies. The data collection includes the data
concerning strategies, specific strategic objectives, and how the firm operates.
10
Strategic design
After the preliminary analysis the next step is the strategic design. It mainly
focuses on the top level of the organization. The entire strategic design process
goes through several phases. The phases in the design process are as follows
 Generate design criteria -It review information from the preliminary
analysis and generate criteria for new design. It includes the
statement about what the new criteria design able to do.
 Generate grouping alternative- It creates different grouping
alternatives to meet the design criteria.
 Evaluations of grouping alternatives- In this phase the alternatives are
eliminated, modify and refine alternatives.
 Grouping alternatives against the criteria- It includes identifying the
information processing need working from the design criteria.
 Generate linking mechanisms- It generates a set of linking
mechanisms such as liaison roles, integrated departments, etc. it
depends on the need information links between the groups for a
particular design.
 Evaluate linking mechanisms- It monitors each alternative on the
basis of design criteria such as eliminate, modify or refine
alternatives.

11.  Impact analysis- It is conducted to know the impact of new design that
will have on the organization. Finally a design is selected using the
information and ideas in each step
11
Operational design
The operational design involves deciding supervisory role, management and
operational process, workflows, jobs, measures for the strategic design decisions.
In some cases the strategic designs only reposition the groups in that case the role
of the operational design is simple. In some cases the strategic design reshapes the
entire organization in this the role of the operational design is complex. In this case
the operational design required detailed information and attention regarding the
work flow, business process, resources, reporting relationship and human resources
practice etc.
Implementation
It is the last step in the design decision process. It involves the transaction of
current designs to the new design. Everybody thinks the job is over after the new
design is implemented, but the real problem starts from here, the majority of the
redesign fails because of lack of planning. Once the design is implemented, we
should monitor the new design closely whether they are performing well or need
any change in design and must provide constant management.
7) FACTORS INFLUENCING ORGANIZATIONAL DESIGN
Managers have to coordinate a number of elements for an effective design of
an organization. It must satisfy the overall purpose and objectives. Organization
design is basically a design process which determines the elements of the
organization, proper allocation of resources, establishing a chain of command for

12. information flow. Several factors influence the organization design decisions such
as
12
 Size of the company.
 Technology.
 Environmental factors.
 An overall corporate strategy.
 Network.
Size
The size of one organization is different from other. So they need
different organizational structure. The smaller organization uses simple
organizational structure while the larger organization uses much more complex
organizational structure. As the smaller company grows into a larger company, the
company changes its mode of communication into chain of communication mode.
The larger company incorporates communication technologies into their
hierarchical structure of causal interactions. The larger organization uses
bureaucratic structure for the communication purpose.
Technology
Different organization, departments need different levels of technologies.
For example the technology used by a cotton industry is entirely different from an
IT based industry. The technology used for work procedures are known as
operational technology. For example, the technology used for production purpose
is known as production technology. The technology used for communication
purposes is known as information technology. So technology also plays a crucial
role in the organization design.
Environmental factors

13. Environmental factors have a huge impact on the elements of the
organizational design. There are basically two types of environments: general
environment and specific environment. The general environment, mainly consists
of a set of political, legal, economic, social surroundings. While the specific
environment comprises of the company’s market, standards etc.
13
Network
For an effective organization, we need an effective network system.
Organization design goes beyond the company to have a network of their
supportive business and business alliances. The organizations with network of
external alliance are strong because of the mutual understanding and support with
each other. The alliances produce many businesses boosting activities such as joint
venture. Joint venture means the foreign company joins with a domestic company
to start a business, for example, Tata Docomo; it is a joint venture between TATA
Tele-service of India and NTT Docomo of Japan.
8) WHEN WE HAVE TO REDESIGN?
The organization needs to re-design whenever there is a change in business
or when an economic fluctuation occurs. Some of the situations that lead to the
redesigning are as follows:
 Strategic shifts.
 Redefinition of work.
 Cultural or political change.
 Growth.
 Staffing change.
 Ineffective organization design.

14. Strategic shifts: A major change in strategy wants a significant change in
performance, so it is inevitable for the organization to change its organizational
structure in order to achieve such performance.
Redefinition of work: Whenever redefinition of work occurs, it calls for redesign
of the organization. Changes in technology, quality, availability of resources, and
cost of production causes redesign in order to meet the changes in the
organization’s work.
Cultural or political change: The political, climatic change or cultural changes
may lead to the redesign process. Redesigns are mainly used to reshape the
informal organization. Changing the formal organization will influence informal
operating environment.
Growth: The organizations have to undergo a redesign process whenever there is a
growth. As the organization grows there will be a change in the strategies and
goals which cannot be achieved with the current design. So redesign is necessary
for the survival of the organization.
Staffing changes: When new people take charge of the company the existing
arrangements in the organization become useful. Their way of operation is entirely
different from that of the previous teams. So the entire organization has to redesign
properly in order to achieve goals.
Ineffective organization design: Redesign is necessary when the existing
organization design is not performing well. The symptoms indicating ineffective
organizational design are as follows:
 Lack of coordination: communication is the key factor for effective
communication. It is not possible to complete a project when the workers are
unclear about their responsibility. It occurs mainly due to ineffective
organizational design.
14

15.  Unclear roles: Employees are unclear about what is expected from them.
15
Because of this there will be lagging in the work or functions may overlap.
 Exploiting of resources: overutilization or underutilization of resources
occurs when there is no effective organizational design.
 Poor work flow: Disruptions disturb the effective flow of work during a
process.
 Reduced responsiveness: due to ineffective design the organization cannot
respond fast to the change in market conditions, environment etc.
These are some of the symptoms shown by the organization because of
ineffective design.
9) APPLICATIONS OF ORGANISATIONAL DESIGN IN 21ST CENTURY
Globalization, e-commerce provides greater scope for an organization. In
order to survive in the market the design variables and design criteria have to be
restructured. The ‘structure follows strategy’ rule is being replaced by ‘processes
follow proposition’. The organizations need to be well structured in order to
support high level performance of the employees as well as for the success of the
organization. The organizations in the 21st century need high capacity of data
processing and information so efficient utilization of resources is necessary in
order to achieve this strategic and operational design should be well planned and
implemented. Nowadays Team-based structure is common in every organization.
The productivity is higher when they work together as a team rather than doing
alone. It reduces the levels in the management hierarchy. Self directed teams have
more freedom and self determination than any other group in the organization so
they can respond quickly to the changes in the environment.
Virtual organization is an important organizational design approach in the
21st century. It is basically a cluster of multiple organizations that are aliened for

16. the purpose of product development or serving clients. By working together
creates a temporary organization that will meet all the necessary needs of the
customers.
16
10) CONCLUSION
From my point of view the organizational design should be flexible in nature
in order to adapt future needs of an organization. It is the only source of
competitive advantage. In this area the environment is changing at a faster rate so
organization design is a never ending process better the organization design better
will be the result.
11) REFERENCE
 Organization Design - Ruth A. Wien claw.
 Organization Design - Gary Connor, Michael McFadden and Ian McLean.
 Strategic Organization Design – Oliver Wyman.
 Organizational Design in the 21st Century - J. Strikwerda
 Organization Design - Milton Harris and Arutur Raviv