Organisational Change Management Volume 2

Organisational Structure

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Introduction

. When you change an organisational structure, it threatens people's status. Status is one of the prime drivers of the brain. If you perceive you are losing status, this can be very stressful.

. Organisations require different structures and these structures have a bearing on employees' attitudes and behaviour, ie an organisational structure defines how job tasks are formally divided, grouped and coordinated.

. There are 6 key elements and related questions that managers need to address when they design their organisation's structure:

i) workspace specialization

ii) departmentalisation

iii) chain of command

iv) span of control

v) centralization and decentralization

vi) formalization

Six key questions for designing organisational structure

. To what degree can tasks be subdivided into separate jobs? (work specialization)

. On what basis will jobs be grouped together? (departmentalisation)

. To whom do individuals and groups report? (chain of command)

. How many individuals can a manager efficiently and effectively direct? (span of control)

. Where does decision-making authority lie? (centralization and decentralization)

. To what degree will the rules and regulations be used to direct staff? (formalization)

. Organisational structures can be categorised as 6 basic types

i) simple structure

ii) bureaucracy

iii) matrix structure

iv) team

v) virtual/networked

vi) boundary-less

Six Key Elements of Organisational Structure

1. Workspace Specialization

. This involves the degree to which tasks in the organisation can be divided into separate jobs. In other words, tasks are broken into a number of steps/jobs, with each being completed by a separate individual, ie individuals specialize in doing part of an activity rather than the entire activity. The advantages of specialization are

- very efficient way of using people skills, especially in highly sophisticated and complex operations

- less time is spent changing tasks

- skills levels are increased through repetition

- training is easier and less costly

- efficiency and productivity are increased by encouraging the creation of innovation.

. Specialization has worked well for McDonalds and for specialists in medicine.

. On the other hand, human dis-economies occurred, such as boredom, fatigue, stress, low productivity, poor quality, increased absenteeism, higher staff turnover, etc

. Alternatives to specialization include enlarging the scope of work, increasing variety of work, working in teams, etc to optimise output and increase employee satisfaction.

2. Departmentalisation

 

. This is the process of grouping jobs together so that common tasks can be coordinated, such as activities grouped by function/products or services or program/geography or territory, etc.

. Functions can include engineering, accounting, manufacturing, marketing, etc. The function can change to reflect the organisation's objectives and activities. The main advantage of this type of grouping is obtaining efficiencies from putting like specialists together, ie placing people with common skills and orientations into common units.

. Each production unit will have staff who specialise in all functions related to the product/service period; the main advantage of this structure is increased accountability for product/service performance.

. Process departmentalization occurs when each department specialises in one specific phase of the production, type of customer, etc. Each process requires different skills and this method offers a basis for the homogeneous categorising of activities.

. Customer departmentalisation is use to explain the particular type of customer the organisation seeks to reach. The assumptions underlying this is that the customer in each department has a common set of problems and needs that can best be met by having a specialist for each.

. In the 1990s customer departmentalisation become more structurally significant so that the needs of the customer are now monitored and organisation are better able to respond to changes in those needs, ie this allows a better understanding of the customer and a faster response to their requirements.

. Another trend is that rigid, functional departmentalisation is being complemented by teams across traditional departmental lines. This is a better way to handle the more complex tasks.

. Another way to departmentalise is based on geography/territory, with each region as a department based around geography.

Question: on what basis will jobs be grouped together?

3. Chain of Command

. The chain of command is an unbroken line of authority that extends from the top of the organisation to the lowest echelon and clarifies who reports to whom. It answers questions from employees, such as "to whom do I go if I have a problem?"and "to whom am I responsible?".

. The chain of command is associated with the concept of authority and unity of command. Authority refers to the managerial position that gives orders and expects the orders to be carried out. To facilitate coordination, each managerial position is given a place in the chain of command, and each manager is given a degree of authority in order to meet his or her responsibilities. The unity of command helps preserve the concept of an unbroken line of authority, ie a person should have one, and only one, superior to whom he or she is directly responsible. If the unity of command is broken, a subordinate might have to cope with conflicting demands from several superiors.

. With advances in computer technology and trends towards employing employees, the chain of command, authority and unit of command concepts are less relevant today. Computers have given a wider access across the organisation to information, and allowed for better communications between all levels of an organisation. Associated with this empowerment is notion of teams (self-managed, cross-functional, etc)

Question: to whom do individuals and groups report?

4. Span of Control

. The span of control determines the number of levels and managers an organisation has. Generally, the wider or larger the span, the more efficient organization (including lowering labour costs), eg

Organisational Level

Members at Each Level

 

Assuming a span of 4

Assuming a span of 8

Highest 1

1

1

2

4

8

3

16

64

4

64

512

5

256

4,096

6

1,024

 

Lowest 7

4,096

 

Comments

Of the 4,069 staff, the number of managers and supervisors (levels 1 - 6), are 1,365

Of the 4,069 staff, the number of managers and supervisors (levels 1 ‐ 4) are 585

The smaller the span, the easier to maintain control. On the other hand, the reduced span has 3 major drawbacks

i. It is expensive to add levels of management

ii. It increases the complexity of vertical communications in an organisation as it adds levels of hierarchy, slows down decision-making and tends to isolate upper management

iii. Tends to encourage overtly tight supervision and discourage employee autonomy

The trend in recent years has been towards larger spans of control. This is consistent with the efforts to reduce costs, cut overheads, achieve speedier decision-making, increase flexibility, get closer to the customer and empower employees.

Question: how many individuals can a manager efficiently and effectively direct?

5. Centralisation and Decentralization

. Centralisation refers to the degree to which decision-making is concentrated at a single point of the organisation like top management; decentralisation, on the other hand, involves decision discretion being pushed down to lower level staff. In a decentralised organisation, action can be taken more quickly to solve problems, more people provide input into decisions, and staff members are less likely to feel alienated from those who make decisions that impact their working lives.

. With the trend to making organisations more flexible and responsive, decentralised decision-making is becoming more prevalent. Lower-level staff are closer to the action, such as the interface with customers than higher levels of staff in the organisation.

. When delegating authority, the following steps are important

. clarifying the assignment

. specifying the staff's range of discretion

. allowing the staff to participate

. informing others that delegation has occurred

. establishing feedback controls

Question: where does decision-making authority best lie?

6. Formalisation

. Formalisation refers to the extent to which jobs within the organisation are standardised. If a job is highly formalised and standardised, staff have little discretion over what is to be done, what it is to be done, and how it is done. There are explicit job descriptions, lots of organizational rules and clearly defined procedures. When formalisation is low, on the other hand, staff have a great deal of freedom to exercise discretion.

Question: to what degree will there be rules and regulations?

Six key questions for designing organisational structure

. To what degree can tasks be subdivided into separate jobs? (work specialization)

. On what basis will jobs be grouped together? (departmentalisation)

. To whom do individuals and groups report? (chain of command)

. How many individuals can a manager efficiently and effectively direct? (span of control)

. Where does decision-making authority lie? (centralization and decentralization)

. To what degree will the rules and regulations be used to direct staff? (formalization)

. Organisational structures can be categorised as 6 basic types

i) simple structure

ii) bureaucracy

iii) matrix structure

iv) team

v) virtual/networked

vi) boundary-less

Two examples of the 6 elements, ie mechanistic and organic

organisational development change management

Six Basic Types of Organisational Structures

. The range of organisational structures includes simple structure, bureaucracy, matrix structure, team, virtual/networked structure and boundary‐less. The first 3 are the traditional and most common forms of organisational structure, while the latter 3 are relatively new.

1. Simple structure

organisational development change management

. This is characterised by a low degree of departmentalisation, wider span of control, authority centralised in a single person and little formalisation. It is a flat organisational structure with two or three vertical lines, a loose body of employees, and one individual in whom the decision-making authority is centralised.

. This structure is most common in small businesses in which the manager and the owner are one and the same.

. The strength of the structure lies in its simplicity, as it is fast, flexible, inexpensive to maintain, and accountability is clear.

. Its major weakness is that the structure becomes increasingly inadequate as an organisation expands, owing to information and responsibility overload at the top. As size increases, decision-making becomes slower and slower. The other weakness is that the risk level is high when everything depends upon one person.

2. Bureaucracy

organisational development change management

. This model relies upon standardisation of work processes for coordination and control. It is characterised by a highly routine operating task achieved through specialisation, very formalised rules and regulations, tasks being grouped into functional departments, centralised authority, narrow spans of control, and decision-making that follows the chain of command.

. Its main strength lies in its ability to perform standardised activities in a highly efficient manner, such as putting specialties together in functional departments which result in economies of scale, minimal duplication of personnel and equipment, and the grouping together of like-minded staff.

. The many rules and regulations substitute for managerial discretion. Standardised operations coupled with high formalisation allow decision-making to be centralised. There is little room for innovation by experienced decision-makers below the senior level.

. A major drawback is that specialisation creates sub-unit conflicts where functional unit goals over-ride the overall goals of the organisation.

. Associated with this design is the obsessive concern with following rules, at all times. There is little or no room for modification. It has been argued that this structure cannot respond rapidly to change and hinders staff initiative. To counter these weaknesses, the span of control can be widened, authority can become more decentralised, and the functional departments can be supplemented with the increased use of teams. An alternative approach is to segment into smaller, fully functional mini bureaucracies of between 150 to 250 people.

3 Matrix structure

organisational development change management

. This creates dual lines of authority that combine functional and product/service departmentalisation.

. Its main strength lies in putting specialists together while minimising the number necessary, and allowing the pooling and sharing of specialised resources across product/service is/programs. Its major disadvantage is the difficulty of co-ordinating the tasks of diverse functional specialists who have responsibility for completing their activities on time and within budget.

. Product/service departmentalisation has exactly the opposite benefits and disadvantages. It facilitates coordination among specialties to achieve on-time completion and to meet budget targets. Furthermore, it produces clear responsibilities for all activities related to product/service/program.

. The matrix structure works on the strength of each (functional and product/service departmentalization) while avoiding its the weaknesses. On the other hand, it breaks the "unity of command" concept with the dual responsibilities, such as sharing staff, reporting to more than one boss/manager, eg their functional department managers and product/service/program managers.

. The strength of the matrix structure lies in its ability to facilitate coordination when the organisation has a multiplicity of complex and inter-independent activities. As an organisation gets larger, its information processing capacity can become overloaded. The direct and frequent contact between different specialties in the matrix can make for better communications and more flexibility, with information flowing through the organisation more quickly to the staff who need to know. Furthermore, the matrix reduces "bureau-pathologies", with the dual authority reducing tendencies for "silo thinking".

. Another advantage is that it facilitates the efficient allocation of specialists by allowing the advantage of the economies of scale to prevent monopolisation and under-utilised resources that can occur in one function departments or product/service group.

. The major disadvantage of the matrix lies in the confusion and ambiguity it creates, such as reporting to more than one boss, its propensity to focus power struggles, and the stress and insecurity it places on individuals. It is frequently unclear who reports to whom and conflicts arise about the allocation of staff.

4. Teams

organisational development change management

. The main characteristics of a team structure are that it breaks down departmental barriers and decentralises decision-making to the level of the team. Teams require staff to be both generalists and specialists. There are many types of teams, such as

i) multi-skilled (members with differing skills come together)

ii) self-managing (members of the team take over operational responsibility previously performed by their managers and supervisors)

iii) self-leading (members participate in the development and implementation of strategy at the work group level, eg holacacy)

. There are various subsets of these types of team (see more in volumes)

5. Virtual organization (networked or modular organization)

organisational development change management

. This typically is a small, core organisation that has outsourced its major business functions. In structural terms it is highly centralised with little or no departmentalisation. The movie industry is a good example, as most movies are made by a collection of individuals and small companies who come together project-by-project to make films; after each film they disperse.

. The advantages of this structure are

- It allows each project to be staffed with the most suitable talent (from inside and outside the organization)

- It minimises the bureaucratic overheads as there is no lasting organisation to maintain

- It lessens long-term risk and costs because there is no long-term: it is assembled for a finite period and then disbands

- It allows maximum flexibility to develop and can act on innovative ideas

- It creates a network of relationships/contacts

- It allows the organisation to concentrate on what it does best and outsource other functions

- It allows managers to spend most of their time coordinating and controlling external relations, typically by way of computer-network links

. Its major drawback is that it reduces management's control over key part of its business.

6 Boundary-less organization

organisational development change management

. This term describes an organisation that seeks to eliminate the chain of command, has limitless spans of control, and aims to replace departments with empowered teams.

. It aims to illuminate vertical and horizontal boundaries within an organisation and break down external barriers between the company, its customers and suppliers.

. The characteristics of this are

- a flattened hierarchy

- minimization of status and rank

- creation of teams that can cross hierarchies, disciplines, products, services, programs, functions, etc

- a low level of formalization

- more competitive decision-making practices

- creation of comprehensive information and relationship networks

. An example of the boundary-less organization is the lattice structure. This is different from the ladder structure found in most organisations where people are promoted up the chain of command and information is passed down from above. The lattice structure links everyone in the organisation with each other. Lines of communication run directly from person-to-person and team-to-team, free from management intervention. People who cannot handle this structure are those who like a clear understanding of 'who I am responsible to' and 'what I am responsible for'. To get the best out of the lattice structure, staff members need to create their own networks. Two examples of this structure are W L Gore and Associates, and Semco, ie

. W L Gore and Associates is a successful example of the lattice structure where almost all staff are referred to as "associates". Annually theses associates are asked to conduct the reviews of colleagues with whom they work most closely (around 20 people). Leaders who emerge from the reviews form committees to rank other associates on their contribution (financial, technical, etc) which then determines their compensation. Thus compensation is not based on seniority.

"... decision-making at Gore doesn't get reflected in the hierarchy, it gets reflected in where the powerbase is..."

Terri Kelly as quoted by Matthew Smith, 2009

As an organisation gets bigger, there is a temptation to introduce bureaucratic control systems. Gore has handled this by keeping staff numbers small at each location, ie below 200 people. This has resulted in a concept called "campus clusters"

- Another example of the lattice structure is what Ricardo Simmler has done with the Brazilian industrial manufacturer, Semco. He introduced a flat organisational structure, doing away with job titles, got rid of 60% of executives and let associates set their own salaries based on the their contributions to the different teams. This has been coined hyper-democratic business principles.

. Traditional hierarchical organisations' reactions to this management system can be

"...deeply disturbing to executives who've grown comfortable with power and perks of life in hierarchical companies. Leaders who have learned to rely on their titles to get things done are likely to view Gore's model with as much trepidation as envy..."

Gary Hamel as quoted by Matthew Smith, 2009

(sources: Stephen Robbins, 1998; Matthew Smith,, 2009)

 

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