Organization Structure and Management Control

Four different types of organization structures have been identified for managing the tasks of the organization. These are (i) a centralized functional structure,   (ii) a decentralized divisional structure, (ii) a hybrid (matrix) structure, and (iv) network/coupling structure. An important aspect in the design of management control systems is that it should be linked with responsibility centers. Because of this  intimate linkage between the control system and the organization structure, it becomes important to know about key control considerations in the choice of an organization structure. Important parameters on the basis of which choice of the structure can be decided are (i) efficiency and effectiveness, (ii) economies of scale, (iii) problems of coordination, (iv) assignment of profit responsibility, (v) conflict and cooperation. Since efficiency is related to level of activity, as the level of activity increases efficiency also increases. Size permits the division of labor and specialization within each discipline, which in turn results in increased productivity as a result of better learning of the task to be performed. Therefore, functional structures offer better potential for increasing efficiency.  However, the benefits of efficiency  are available only up to the optimum size i.e., the size at which it operates at the minimum cost per output.

Though functional structures offer the advantage of economies once optimum size is surpassed, a subdivision will be called for to a advantage of economies of scale. In practice, it is usually difficult to determine the optimum size for the organization. The assignment of profit responsibility is another important consideration for organization structure design. While the assignment of profit responsibility is difficult the case of functional organizations, the divisional structure offers the advantage of assignment of a responsibility to the divisional manager. From the control systems point of view, this is an important factor in favor of divisional structure. It may, however, be pointed out that within a division, the departments are organized on functional basis and therefore the control problem with the division is similar to the control problem confronted in functional structures. The issues related to conflict and cooperation assume importance if is greater interdependence and if it is difficult to assign specific responsibilities for non-achievement of targets. In functional structure, inter- function conflict is likely to be more intense compared divisional structures because it vests total responsibility for the project/programme with the manager whose exclusive task is to plan, coordinate and integrate the activities that cut across several functions. In such structures, functional managers have technical responsibility and are  to provide all the necessary support to the project/programme managers. As this structure suffers from the weakness of diffused responsibility, it becomes difficult to find accountability in case of failures to achieve targets. The network/coupling type of structure is more suited when there is need to create autonomous but mutually interlocked organizations such as the three-tier structure of cooperative organizations, in which each tier is an autonomous organization but is interlocked with the next level. These structures are also better suited in those situations where there is need for greater inter-enterprise coordination among various autonomous enterprises working for the same cause.

Bookmark the permalink.