What Factors Affect Organizational Design?

The primary factors contributing to the decision of how to the design characteristics of an organization include:

• Strategy - What is the organizational strategy? How is best promoted by the organizational structure?
• Size - How large is the organization? Larger organizations tend to have more mechanistic (formalized) structures.
• Technology - What technology is employed in the operational process. For example, the technology will vary based upon whether the company engages in Unit Production, Mass Production, or Process Production.
• Environmental Uncertainty - How uncertain is the competitive or operational environment. As noted above, the various characteristics of the organization react differently to the level of environmental uncertainty.

What to Consider when Designing an Organization?

There are numerous methods or manners for organizational design. The primary elements of Organizational Design include:

• Organizational Hierarchy
• Span of Organizational Control
• Work Specialization
• Departmentalization
• Chain of Authority
• Centralized or Decentralized Decision Making
• Formal vs Informal Reporting Structures

Each of these is discussed below.

What is a Hierarchical Organizational Structure? 

Hierarchical organizations have numerous layers between the front-line employees and senior managers. 

What is a Flat Organizational Structure?

Flat structures have very few layers of hierarchy between the front-line employee and the senior management. 

What is the Span of Control in an Organization?

This concerns how many subordinates are below a single manager. 

In a hierarchical structure, one manager will generally have fewer subordinates as direct reports. 

In a flat organizational structure, the manager will generally have more direct reports than in a flat structure. This means that she has a higher span of control. 

What is the Effect of a Higher Span of Control?

The effect of a higher span of control is that the manager has less opportunity to directly supervise the employee. As such, the flat organizational structure requires higher levels of autonomy for each employee. 

Is a Higher Span of Control a Good Thing? 

A higher spans of control requires greater employee autonomy. Autonomy can be a positive and a negative. 

Positives: 

A higher span of control allows employees to be more creative in addressing problems. This leads to increased ingenuity and innovation. It has been shown to lead to greater employee satisfaction and self-actualization.

Negatives:

A high span of control allows for less predictability of employee action.  Further, employees are more likely to experience role ambiguity (not fully understanding their role or job in the organization). Also, there is less opportunity for advancement in position in these organizations. 

What is Work Specialization? 

Work specialization concerns the extent to which employee roles are defined. 

In a highly specialized organization, the job roles of individuals are highly specific in terms of function and knowledge. 

In a less specialized organization, the role of employees may be far more varied. That is, the employee may be required to work cross-functionally as opposed to remaining within their area of professed expertise.

What is Departmentalization?

Departmentalization concerns how work efforts are grouped across the organization. The two most common approaches include functional Divisional Departments.

What is a Functional Structure? 

A functional structure segments employees into groups based upon their functions in the organization. As such, employees with similar jobs or specialties will work in the same department. 

Common functional areas include administration, marketing, sales, accounting, and operations. These functional areas may also be further divided. 

What are the Benefits of a Functional Structure? 

The benefits of this type of separation are knowledge aggregation, team background, and cohesion. 

Functional structures tend to do better during stable times when the company has a limited number of value offerings. 

What are the Negative Aspects of a Functional Structure?

The downside of a functional structure is that it isolates similar groups of employees from other professional groups within the organization.

What is a Divisional Structure? 

The divisional structure divides employees based on related characteristics in the organization, such as operating division, product or service line, account or project, or geographic location. 

Most organizations employ a mix of functional and division structures.

Benefits of a Divisional Structure?

The benefit of this arrangement is that it brings together diverse types of employees - which can lead to creativity and innovation. These structures tend to be more agile in difficult times.

Negatives of a Divisional Structure?

The downside is that it may sacrifice efficiency allowed by work specialization in function structures. 

What is the Chain of Authority in an Organization? 

The chain of authority concerns to whom the employee will report. Will the reporting structure be hierarchical, team-based, etc. 

An important concept in this regard is establishing unity of command for purposes of authority and decision making.

What is Centralization and Decentralization in an Organization? 

Centralization and Decentralization concern whether employees have decision-making authority or whether all decision making is reserved for managers. 

In highly-centralized organizations, decisions are made at higher levels in the organization. Employees have very little authority to make decisions. 

In decentralized organizations, employees who are closer to the actual problem are empowered to make decisions. Allowing employees this level of authority is generally empowering. 

When to Use Centralized Decision Making?

Centralized organizations do well when facing critical hardships. Having a single decision-maker can be beneficial for uniformity and finality. 

When to Use Decentralized Decision Making?

Decentralized organizations do well in rapidly changing market environments. Allowing employees to quickly respond to situations that are unique to them allows for speed, flexibility, and creativity.

What is Formalization in an Organization?

Formalization determines the extent to which manager and subordinate activity is standardized. That is, a highly formalized organization will have explicit policies, procedures, and rules applicable to operations. 

The organization seeks to make employee behavior more routine and predictable. 

The result of such a rule-heavy organization is to reduce the autonomy of individual employees. 

The benefit is a reduction in ambiguity. The negative aspect is that is known to reduce ingenuity and innovativeness of the workforce.