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:

Organisation

When certain goals have to be achieved, and individuals have to come together to share work and act with an understanding over a period of time - we say an organisation is formed. Family is also a type of simple organisation.

In our families certain roles are defined e.g mothers make food (or go to offices), fathers go to offices, children are expected to study and achieve good grades etc. A lot of planning goes into this simple organisation like how much money needs to saved, in which school children will study and in future what are they going to be doctor, engineer etc. However roles and relationships become more complex in bigger organisations, corporations.



ORGANISATION: DEFINITIONS

The term organisation can be defined in different ways emphasizing different aspects:

1) Organisation is the form of human association for the attainment of common purpose e.g family, youth welfare association etc. where stress is on cooperative endeavor of human beings.

2) Organisation is the arrangement of personnel for facilitating the accomplishment of some concrete purpose through the allocation of functions and responsibilities. For e.g Public transport system, running of vehicle overseen by crew, maintenance staff upkeep vehicles, then auxiliary staff for support services.

3) Organisation is the pattern of relationship between persons in an enterprise so arranged as to fulfill the enterprise's function. Relationships here mean superior-subordinate relations which ensure hierarchy.

4) For most practicing managers 'organisation is formalized intentional structure of roles', although it sometimes denotes enterprise (the company) too. "Intentional structure of roles" means people coming together must fulfill certain roles.



ROLES
The people who come together to work should know the roles they should play. Designing & maintaining these systems of roles is basically the managerial function of organizing.

For eg. in banks cashier has a role to accept or give cash & loan officer has a role to give credit/Loan. This is not their internal setting for the day (what we call 'jugaad' in hindi), it's formally designed that way, a lot of planning goes into it. Individuals are given a role for a period of time and if they do well (or they've an aptitude for the job) they are continued otherwise they are relocated.

The roles people fulfill should be so intentionally designed that required activities are done & that activities fit together so that people can work smoothly, effectively & efficiently in groups.

To have meaningful roles it should have:
a) Verifiable objectives i.e. at the end of period it should be possible to determine whether or not the objective has been achieved.

b) a clear idea of major duties/activities involved

c) understood area of discretion or authority. For more effective roles necessary information & tools should be supplied.




NATURE OF ORGANISATION
Organisation can be viewed in 2 ways: a) as a process and b) as a structure or framework of relationships.

a) Organisation as a process is a function of every manager. As planning premises changes, so does organisation. Whenever there is a change in circumstances - organisations, people, activities, duties have to evolve. Staffing i.e. recruitment of right kind of people also have to be updated with the changing circumstances. This concept is dynamic view of organisation and it's main focus is on people. A good e.g. I can think of is earlier I never heard of computer proficiency in general recruitments but nowadays nearly all organisations want new people to be computer literate.


Organisation as Structure or Framework of relationships
b) Organisation can also be viewed as internal network of authority & responsibility relationships. It is the working arrangement between people to fulfill enterprise's function.

In any organisation the top management is responsible for policy formulation, middle management for programming, planning and 'rank & file' for implementation. The superior-subordinate relationship ensures the tasks are assigned, responsibilities are fixed, people are held accountable and thus smooth achievement of goals. If it wouldn't for this hierarchy structure enterprises would not have existed. For e.g Army, there is defined hierarchy, roles, responsibility, powers attached to each rank. Our Army is one of the best functioning organisation.

The compilation of organisation structure has to be properly planned & structured. It has to be designed to channel flow of authority & responsibility. The structure once prepared is not liable to change soon. It's a static concept of organisation as against dynamic view of process.