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Factors affecting organizational design

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Factors affecting organizational design

  1. 1. Factors Affecting Organizational DesignAlthough many things can affect the choice of anappropriate structure for an organization, the followingfive factors are the most common: size, life cycle,strategy, environment, and technology.Organizational sizeThe larger an organization becomes, the morecomplicated its structure. When an organization is small— such as a single retail store, a two-person consultingfirm, or a restaurant — its structure can be simple.In reality, if the organization is very small, it may noteven have a formal structure. Instead of following anorganizational chart or specified job functions,individuals simply perform tasks based on their likes,dislikes, ability, and/or need. Rules and guidelines arenot prevalent and may exist only to provide theparameters within which organizational members canmake decisions. Small organisations are very oftenorganic Systems.As an organization grows, however, it becomesincreasingly difficult to manage without more formalwork assignments and some delegation of authority.Therefore, large organizations develop formal structures.Tasks are highly specialized, and detailed rules andguidelines dictate work procedures. Interorganizationalcommunication flows primarily from superior to
  2. 2. subordinate, and hierarchical relationships serve as thefoundation for authority, responsibility, and control. Thetype of structure that develops will be one that providesthe organization with the ability to operate effectively.Thats one reason larger organizations are oftenmechanistic—mechanistic systems are usually designedto maximize specialization and improve efficiency.Organization life cycleOrganizations, like humans, tend to progress throughstages known as a life cycle. Like humans, mostorganizations go through the following four stages:birth, youth, midlife, and maturity. Each stage hascharacteristics that have implications for the structure ofthe firm. Birth: In the birth state, a firm is just beginning. An organization in the birth stage does not yet have a formal structure. In a young organization, there is not much delegation of authority. The founder usually “calls the shots.” Youth: In this phase, the organization is trying to grow. The emphasis in this stage is on becoming larger. The company shifts its attention from the wishes of the founder to the wishes of the customer. The organization becomes more organic in structure during this phase. It is during this phase that the formal structure is designed, and some delegation of authority occurs.
  3. 3. Midlife: This phase occurs when the organization has achieved a high level of success. An organization in midlife is larger, with a more complex and increasingly formal structure. More levels appear in the chain of command, and the founder may have difficulty remaining in control. As the organization becomes older, it may also become more mechanistic in structure. Maturity: Once a firm has reached the maturity phase, it tends to become less innovative, less interested in expanding, and more interested in maintaining itself in a stable, secure environment. The emphasis is on improving efficiency and profitability. However, in an attempt to improve efficiency and profitability, the firm often tends to become less innovative. Stale products result in sales declines and reduced profitability. Organizations in this stage are slowly dying. However, maturity is not an inevitable stage. Firms experiencing the decline of maturity may institute the changes necessary to revitalize.Although an organization may proceed sequentiallythrough all four stages, it does not have to. Anorganization may skip a phase, or it may cycle back toan earlier phase. An organization may even try tochange its position in the life cycle by changing itsstructure.
  4. 4. As the life-cycle concept implies, a relationship existsbetween an organizations size and age. Asorganizations age, they tend to get larger; thus, thestructural changes a firm experiences as it gets largerand the changes it experiences as it progresses throughthe life cycle are parallel. Therefore, the older theorganization and the larger the organization, the greaterits need for more structure, more specialization of tasks,and more rules. As a result, the older and larger theorganization becomes, the greater the likelihood that itwill move from an organic structure to a mechanisticstructure.StrategyHow an organization is going to position itself in themarket in terms of its product is considered its strategy.A company may decide to be always the first on themarket with the newest and best product (differentiationstrategy), or it may decide that it will produce a productalready on the market more efficiently and more costeffectively (cost-leadership strategy). Each of thesestrategies requires a structure that helps theorganization reach its objectives. In other words, thestructure must fit the strategy.Companies that want to be the first on the market withthe newest and best product probably are organic,because organic structures permit organizations torespond quickly to changes. Companies that elect to
  5. 5. produce the same products more efficiently andeffectively will probably be mechanistic.EnvironmentThe environment is the world in which the organizationoperates, and includes conditions that influence theorganization such as economic, social-cultural, legal-political, technological, and natural environmentconditions. Environments are often described as eitherstable or dynamic. In a stable environment, the customers desires are well understood and probably will remain consistent for a relatively long time. Examples of organizations that face relatively stable environments include manufacturers of staple items such as detergent, cleaning supplies, and paper products. In a dynamic environment, the customers desires are continuously changing—the opposite of a stable environment. This condition is often thought of as turbulent. In addition, the technology that a company uses while in this environment may need to be continuously improved and updated. An example of an industry functioning in a dynamic environment is electronics. Technology changes create competitive pressures for all electronics industries, because as technology changes, so do the desires of consumers.
  6. 6. In general, organizations that operate in stable externalenvironments find mechanistic structures to beadvantageous. This system provides a level of efficiencythat enhances the long-term performances oforganizations that enjoy relatively stable operatingenvironments. In contrast, organizations that operate involatile and frequently changing environments are morelikely to find that an organic structure provides thegreatest benefits. This structure allows the organizationto respond to environment change more proactively.TechnologyAdvances in technology are the most frequent cause ofchange in organizations since they generally result ingreater efficiency and lower costs for the firm.Technology is the way tasks are accomplished usingtools, equipment, techniques, and human know-how.In the early 1960s, Joan Woodward found that the rightcombination of structure and technology were critical toorganizational success. She conducted a study oftechnology and structure in more than 100 Englishmanufacturing firms, which she classified into threecategories of core-manufacturing technology: Small-batch production is used to manufacture a variety of custom, made-to-order goods. Each item is made somewhat differently to meet a customers
  7. 7. specifications. A print shop is an example of a business that uses small-batch production. Mass production is used to create a large number of uniform goods in an assembly-line system. Workers are highly dependent on one another, as the product passes from stage to stage until completion. Equipment may be sophisticated, and workers often follow detailed instructions while performing simplified jobs. A company that bottles soda pop is an example of an organization that utilizes mass production. Organizations using continuous-process production create goods by continuously feeding raw materials, such as liquid, solids, and gases, through a highly automated system. Such systems are equipment intensive, but can often be operated by a relatively small labor force. Classic examples are automated chemical plants and oil refineries.Woodward discovered that small-batch and continuousprocesses had more flexible structures, and the bestmass-production operations were more rigid structures.Once again, organizational design depends on the typeof business. The small-batch and continuous processeswork well in organic structures and mass productionoperations work best in mechanistic structures.