Understanding the Basic Concepts of Organizational Structure

Leading early organizational theorists such as Max Weber, Frederick Winslow Taylor and Henri Fayol all argued, to some degree, that organizations can and should be structured in accordance with certain universal rules and principals.  The result of all this was “bureaucracy” and “scientific management” that treated organizations as machines to be run in a mechanistic fashion relying on specialization of tasks, formal procedures and rules and centralized authority.  As time has gone by, however, the balance has shifted toward the so-called “contingency approach” based on the belief that the most important factor in designing the organizational structure is the organization’s operating environment and, specifically, the sources of uncertainty within that environment.  If this is true, senior managers and those working with them on organizational design cannot rely on a single “best structure” for all situations and must instead search for a unique structure that allows them to best control their external environment and quickly and effectively respond to contingencies that have been identified in advance.  This process can be difficult and time-consuming and should begin with making sure that the process of designing the organizational structure is understood.  The questions below can serve as a means of getting started: 

What does the term “organizational structure” mean?  Organizational structure is the way in which the members of an organization and their job responsibilities are arranged.  The key components of an organizational structure include roles and responsibilities (task allocation), coordination processes and relationships between members and groups of members, hierarchical structure of power and authority (supervision), monitoring and control mechanisms and channels for communications and information flows. 

What are the building blocks of an organizational structure? The organizational structure typically consists of various business units (i.e., groups of organizational members supported by appropriate resources) formed around functions (e.g., research and development, manufacturing, sales and marketing, finance, human resources, etc.), products, markets or customers that are arranged in a hierarchical fashion.  Eventually, many organizations evolve toward the use of some combination of two or more of these types (i.e., a “matrix” structure) as their activities continue to grow and become more complex.  

What are the most important influences on the design of the organizational structure?  The most important determinant of organizational structure is the strategy of the organization.  For example, if the strategy is based on identifying and satisfying the needs of a particular target group of customers, the human and other resources of the organization should grouped in the way that is most effective for creating and delivering the outputs demanded by those customers.  In addition to strategy, other factors that are thought to have a significant influence on organizational structure include the preferred styles of leaders and managers of the organization, the organizational climate and culture, the size and complexity of the organization, the skill capabilities of the members of the organization, the level of uncertainty in the organization’s external operating environment, the societal culture, the technology used in organizational activities, the geographic dispersion of the organization’s activities, the origin and history of the organization, the type of ownership and control of the organization and the degree of interdependence on other organizations. 

What dimensions are typically used for profiling and comparing organizational structures?  Researchers generally rely on some or all of the following dimensions of organizational structure for their comparative work: specialization (i.e., division of labor); standardization (i.e., reliance of regularly used and legitimized organizational procedures); standardization of employment practices; formalization (i.e., used of formal rules and instruction to guide organizational members in carrying out their activities); centralization (i.e., location of decision making authority); methods of coordination; and configuration. 

What are the key questions and challenges for organizational designers?  Organizational designers must wrestle with the appropriate degree of differentiation, both vertical and horizontal; the appropriate balance between differentiation and integration; the appropriate level of decentralization; and the appropriate balance between standardization and mutual adjustment. 

What are the most important goals and objectives when establishing the organizational structure?  The organizational structure should relate well to the being pursued by the organization and its overall environment including competitors, suppliers, government agencies and the like; facilitate the use and effective exploitation of the core competencies of the organization including its people and technology; motivate the members; and promote the flow of information necessary for all members of the organization to perform their activities and tasks.

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