Organizational Structure and Designing it

Que.What is "organisational structure". What are steps involved in designing the organisational structure. (RBI Grade B 2009 exam)


Organisations perform their functions to achieve set goals and objectives. Functions of government department’s are defined through their various acts. The structure, management and functions of organisations will differ due to the nature and type of the organisation as well as their respective goals and objectives.

A structure ensures the application of process, management and further creates a framework of order and command through which, the activities of the organisation can be planned, organised, directed and controlled.
Organisation structure (OS) is defined as "The logical arrangement of task and the network of relationships and roles among the various positions established to carry out the activities necessary to achieve the predetermined objectives of business". 

It is the pattern of relationships among various components or parts of the organisation which prescribes the relations among various activities and positions.

Internal Organisation structure constitutes the arteries and veins through which the blood of work flows in the body of Organisation. They are required for smooth functioning of day-to-day activities of organisation and increase their profitability.

Structures are designed as per the organisation's objectives and strategy. An organisation chart illustrates the organisational structure, it shows the way the chain of command works.

OS is arrangement of jobs & groups of jobs within an organisation.

Benefits of Good Organisation Structure (Important topic another question can be framed around it)
The structure of an organisation does not only affect the productivity and efficiency but also the morale and job satisfaction of the staff. According to Drucker, the correct design of the structure determines the organisational performance. Drucker says:
“Good organisation structure does not by itself produce good performance. But a poor organisation structure makes good performance impossible, no matter how good the individual managers may be. To improve organisation structure will therefore always improve performance”.
According to Child, the allocation of responsibilities, the grouping of functions, decision-making, coordination, control and reward, are all fundamental requirements for the continued operation of an organisation and the structure will affect how well these requirements are met.

The objectives of structures are to provide for:
The economic and efficient performance of the organisation;
The monitoring of activities;
Ensure accountability for areas of work performed;
The effective coordination of the various parts of the organisation;
Flexibility to respond to future demands and developments and to adapt to the ever changing external environment


Organisation structures can be broadly classified into the following forms:

Line Organisation Structure: Hierarchy derived from a scalar process. Organisation is quite simple in understanding and implementation. this does not offer scope for specialization. Authority flows downwards and responsibility upwards.


Line and Staff Organisation Structure: Staff personnel generally specialists in their fields advice line managers to perform their duties. Staff personnel have right to recommend, but have no authority.


Functional Organisation: Grouping of activities on the basis of functions required for the achievement of ultimate objectives.

Divisional Organisation Structure: Several fairly self-contained autonomous units were created. Each unit was headed by a manager and is directly accountable to the organisation.


Designing Organizational Structure
There is no best way to organize, the structure must take into account the current & possible future situations. Organizing doesn't imply extreme specialization which leads to work being tedious, uninteresting. For tasks to be specific doesn't mean it should be mechanical and limited. Jobs can be defined to be allow little or no personal leeway or giving widest discretion.

Organizing as a process requires several fundamentals be considered:

1) the structure must reflect objectives and plans of organisation because activities are derived from them.
2) it must reflect authority available to enterprise's management.
3) it must reflect its environment just like premises of plans. A good organisational structure can never remain static, an effective structure depends on situation.
4) grouping of activities and authority relationship must take into account people's limitations and customs. This is not to say structure should be designed around people/staff instead of goals.


Steps in designing structure
1. Establish the objectives of the organization

2. Formulating supporting objectives, policies and plans.

3. Identifying, analyzing, and classifying the activities necessary to accomplish these objectives.

4. Grouping these activities in light of the human and material resources available and the best way, under the circumstances, of using them. Groups could be based on function, area/geography or product or a matrix. Departmentalize the activities under groups. If it were not by departmentalization the limitation on no. of subordinates that can be directly managed would have restricted the size of organisations. Grouping activities and people into departments makes it possible to expand organisations infinitely, at least in theory.

5. Frame the key persons handling the top management positions. Delegating to the head of each group the authority necessary to perform the activities.

6. Define the way of communication, line of authority and control and responsibilities of designations,

7. Frame the organizational hierarchy keeping in mind whether decision-making need to be slow and centralized (Tall) or fast and decentralized (Flat)or a mix.

8. Follow up the performance and evaluate them often,

9. Make correction if necessary and update the structure.

The process can be shown by diagram as below: