Organizational design is a process of developing and changing the organization’s structure by its managers. It is a chart containing the reporting structure i.e. who reports to whom. Organizational structure is thus a framework on which an organization is patterned for coordinating and carrying out organizational tasks.
Organizational design involves decisions about the following six elements:
1. Work Specialization:
Work specialization describes to which the overall task of the organization is broken down and divided into smaller component parts. For example, one person would paint a wall and another person fixes a door. So by breaking jobs up into small tasks, it could be performed over and over every 10 seconds while using employees who had relatively limited skills.
The main thought of this process is that the entire job is not done by an individual and it is broken down into steps, and a different person completes each step. The work will be done efficiently and effectively. It saves time and also the employee skills of performing his job successfully increase through repetition.
It also has some disadvantages as well. When specialization is overdone, jobs can become more simplified. And when employees do one single task, they become bored and tired. Also, the scope of the employee’s growth will be limited. Specialization in one task is good but by getting the training for all other tasks too, is better to cop up with other activities in the company.
Once jobs have been specified through work specialization process, now they will be grouped in common tasks. There will be formed departments with common activities for effective coordination of effort. There are five common forms of departmentalization:
- Functional Departmentalization: It is the most common forms of departmentalization in which similar tasks grouped together into a common department, such as marketing, finance, human resources, etc. The efficiencies from putting together similar specialties and people with common skills and knowledge could be beneficial and also the coordination with functional areas will be stronger. But cross-department coordination can be difficult and there will be limited views of organizational goals.
- Product Departmentalization: It is grouped on the basis of product line. Each manager will be responsible for an area within the organization depending on his/her specialization. As managers are specialized in that particular area, it will give a broader experience and it will be easier for him to access the work-unit performance. The decision making here will be quite faster than the functional departmentalization. On the other side, the duplication of functions could increase the cost. It will be difficult to coordinate across departments and also there will be limited views of organizational goals.
- Geographical Departmentalization: Big organizations find beneficial in organizing this form of departmentalization so that all activities performed in a region are managed together. It forms sections by the different regions. It will be more effective and efficient for the managers in handling specific regional issues that arise. It could response and serve better to the demand of different markets. But there could be duplication of functions and resources which will increase cost.
- Matrix Departmentalization: It is a structure where two or more forms of departmentalization are used together; most common forms combine functional and product in which employee reports two bosses, i.e. the functional as well as the product. It will increase cross-functional interactions. It will be beneficial to manage effectively and efficiently large and complex tasks. It will require high levels of management skills and high levels of coordination as well. It will also increase the level of conflicts.
- Customer Departmentalization: This form of departmentalization groups organization’s activities according to its customers. An organization finds it beneficial to organize according to the types of customers it serves. It will be helpful to focus and meet the customers’ needs. But again there will be duplication of resources and they may find difficulties to achieve coordination across departments.
3. Chain of Command
Another element in an organizational design is defined an order which authority and power in an organization is used and delegated from top management to the lower management. It also ensures clear assignment of duties and responsibilities of every employee at every level.
4. Span of Control
The span of control in an organization is defined as the number of employees reporting directly to one supervisor/manager. It is said, the wider the span, the more efficient the organization. It determines the number of employees that a manager can effectively and efficiently manage.
5. Centralization Vs Decentralization
Robbins and Coulter describe this very well, “If top managers make the organization’s key decisions with little or no input from below, then the organization is centralized.”
Decentralization can be defined as “the spread of power away from the centre to local branches or governments.”
The environment is stable in centralization and complex, uncertain in decentralization. Also, the lower-level managers are not as capable or experienced at making decisions as upper-level managers in centralization and on the other side in decentralization, they are very capable and experienced at making decisions. In centralization, the company is large and in decentralization, companies are geographically dispersed.
Formalization is the extent to which employee behavior is guided by rules and procedures. The organizations with high formalization have strict rules and regulations. The low formalization organizations have very few written rules and procedures and are less stable.