Organizational design is the overall configuration of structural components that defines jobs, groupings of jobs, the hierarchy, patterns of authority, approaches to co-ordination and line-staff differentiation into a single and unified organizational system. Consider, for example, the differences in organizational design that might exist between a computer manufacturer and university. Since the computer manufacturer has to respond to frequent technological breakthroughs and changes in its competitive environment, it is likely to have a relatively flat and decentralized design whereas the university has a more stable environment and is less affected by technology. Therefore, it has a more centralized structure with numerous rules and regulations.
Every organization has its own unique design depending on its technology, limits and potentials of its environment and the life cycle stage it follows. Following are the various contemporary forms of organizational design:
1. The U-Form Organization
In the U-form organization. U stands for Unity, It is also called as “functional design as it relies exclusively on the functional approach to departmentalization. Members of the organization who perform the same functions arc grouped together into departments. Such organization requires perfect co-ordination to operate smoothly aiming the various departments, since each department is highly dependent on another.
The U-Form design has several advantages. It allows an organization to staff each department with experts; it also facilitates wide spans of management and helps the Managing Director to maintain centralized authority.
However, the U-form design shows decision-making and employees within each department may concentrate on their own function forgetting overall organizational goals. It tends to make it hard for organization to monitor the performance of individual managers within each functional area. When the organizations grow, they often find that the disadvantages of the U-form tend 10 become more significant and adopt different designs as they evolve through their life cycles.
2. The H-Form Organization
In the H-form organization, H stands for Hybrid and is also known as conglomerate. The design relics on product departmentalization with the various products constituting different businesses. This design usually results from the corporate strategy of unrelated diversification of the products.
This design has two advantages. First, such an organization can protect itself from cyclical fluctuations in a single industry. The loss in one product is compensated by profit in another. Secondly, an organization can buy and sell its individual businesses with little or no disruption to the others. The main disadvantage of this form of organization is that it is complex and diverse thereby creating difficulty for top managers in having knowledge about all products.
3. The M-Form Organization
In the M-form organization M stands for Multi-divisional and it is called the divisional design. It is similar to the H-form design but has one notable distinction. Most of its businesses are in the same or related industries. For example, an organization with an M-form design might own one business that manufactures automobile batteries, other that manufactures lyre and still another that manufactures car polish. Although each is distinct from the other but still related, in terms of manufacturing products that is used by automobile owners. Thus, the M-form design is used to implement a corporate strategy of related diversification.
A primary advantage of the M-form organization is that it can achieve a great deal of synergy in its operations. For example, a consumer familiar with an organization’s batteries will be inclined to buy its tyres and car polish. Moreover, because the various units are in the same or related businesses, it is easy for top managers to understand, co-ordinate and control them. However, if the businesses are too closely related, ‘the organization cannot escape from the effect of cyclical fluctuations.
4. The Matrix Organization
A matrix organization is created by overlaying product-based departmentalization on to a functional structure. A matrix design is seldom used for an entire organization and is often used for a portion of it. A matrix design allows an organization to capitalize on the advantages of both functional and product departmentalization. It has also some drawbacks such as an organization lacks a clear chain of command thereby resulting into confusion about which manager lies authority over a given employee. The organization also has to devote more resources to coordination because of high levels of interdependence that result from a matrix.
5. Global Organization
An organization, which has assets in more than one country other than its home country is called as global organization. Such companies have offices and/or factories in different countries and usually have a centralized head office where they coordinate the global management. These organizations have centralized head office in their home country that controls their various office in other parts of the world.
A global organization must modify and adapt its design to allow it to function effectively. e.g. Nestle is a big global organization and highly decentralized. Nestlé’s various organizations scattered around the world are operated by its own general managers, who are empowered with a great deal of autonomy and authority to make decisions. As a result, Nestle is almost a confederation of independent operating organizations. Its design is similar to the M-form but because the operating units are so far apart that there is little synergy.
It is to be remembered that there is no one best form of design that all organizations should adopt. Each organization has to carefully assess its own strategy, its strengths and weaknesses, its history, its technology, environment, life cycle and size. It must then choose a design that fit these elements most effectively.