Running head: KEY CONCEPTS OF ORGANIZATIONAL DESIGN Key Concepts of Organizational Design Creativity, Innovation, and Organizational Design Key Concepts of Organizational Design An important part of organizational theory is organizational design. It is important to change management within the organization and shapes the organization’s culture, leading toward the achievement of reaching its goals. Organizational design becomes more complex as the company experiences growth.
In this paper, I will provide some key concepts of organizational design and its importance, assessing the relationships between strategy, structure, and process in organizations and the relationship between organization design and decision-making processes are analyzed. In the next section, I will describe the five best design choices and the characteristics, advantages, and disadvantages of various organizational structures. Importance of Organizational Design Choices One part of developing a strategy for a company is for an organizational design that fits the company’s purpose, culture, and processes.
Organizational design has become a top priority because of increased competitive pressures and the use of information technology. Organizational design is important to its success, allowing an organization to plan for contingencies. For example, competitor that uses new technology in innovative ways. “Organizational design and change have important implications for a company’s ability to deal with contingencies, achieve a competitive advantage, effectively manage diversity, and increase its efficiency and ability to innovate,” (Jones, 2004, p. 12).
Depending upon the design of the organizational structure that increases control over its environment, reflects how effective an organization will respond to certain factors in its environment. Because of the increasing pressure from consumers and competitors, it is becoming increasingly difficult to respond to the changing environment facing them. Organizational structure and culture are continually being developed by organizations to address these changes. Organizational Structures Control is the main purpose of organizational structure, used to control how people are motivated to achieving organizational goals. Organizational structure is the formal system of task and authority relationships that control how people coordinate their actions and use resources to achieve organizational goals,” (Jones, 2004, p. 8). The type of organizational structure used will depend on the organization’s size and their goals. Out of the several types of organizational structures, the five types of structure chosen for this paper include Functional, Multidivisional, Geographic, Matrix, and Network. These structures have some similarities along with various advantages and disadvantages.
Oftentimes, organizations begin using a functional structure before venturing into another structure or a combination of structures. Functional Structure Functional structures group people and tasks together based on the functions of their jobs. According to Jones (2004, p. 160), functional structure is a design that groups people based on their common skills and expertise or because they use the same resources. Galbraith, (2002, p. 36) states the kinds of strategies executed best by this basic structure as: • Small-size, single-product line • Undifferentiated market • Scale or expertise within the function Long product development and life cycles • Common standards One advantage functional structures provide is the opportunity for people to learn from each other. When group members have common skills, they learn to solve problems better, and learn productive ways for performing a task and are able to supervise and control each other’s behavior, (Jones, 2004, p. 162). Jones (2004, p. 163) states many of the disadvantages in a functional structure, which includes control problems, communication problems, measurement problems, location problems, customer problems, and strategic problems.
Control problems are usually due to organizational growth. “As the organization’s skills and abilities increase and the organization is able to produce a better or wider variety of goods or services, the organization’s ability to service the needs of its growing product line is strained. ” As more organizational functions develop through hierarchy, they separate from one another. These separate groups in a functional structure cause communication problems. Measurement problems arise when the organization does not have the capability to exercise control over something and evaluate itself.
Because the functional structure groups individuals together by expertise and experience, location problems become a factor when the organization expands to other locations. Customer problems may become an issue in a functional structure when trying to service their needs including tailoring products to suit customers may be difficult. Top managers are the ones who create strategic problems, spending “so much time trying to find solutions to everyday coordination problems that they have no time to address the longer term strategic problems facing the company,” (Jones, 2004, p. 164).
These managers are spending too much of their time trying to solve day-to-day problems. Multidivisional Structure The multidivisional structure is the one most often used by large organizations out of the three types of product structure. When a company enters new industries, it gives the company extra control that is important in dealing with competitive forces. According to Jones (2004, p. 170), “Multidivisional structure is a structure in which support functions are placed in self-contained divisions. ” Self-contained division is “a division that has its own set of support functions and controls its own value-creation activities. A multidivisional structure can provide large organizations with several advantages to include increased effectiveness within the organization, more control, and growth. Like other structures, certain problems are associated with multidivisional structures, though most can be controlled, they cannot be eliminated. Some disadvantages of a multidivisional structure are communication problems, the relationships between corporate and division, transfer pricing, divisional coordination problems, and bureaucratic costs. A geographic divisional structure is available when control problems are a function of geography.
Geographic Divisional Structure Jones (2004, p. 179) describes Geographic Divisional Structure as “a divisional structure in which divisions are organized according to the requirements of the different locations in which an organization operates. ” A geographic structure is effective when organizations experience growth to a national level from a local market. Galbraith, (2002, p. 36) states the kinds of strategies executed best by this basic structure as: This structure can reduce the costs of shipping and allow the organization to service customers within regions and control distributed geographically.
It has a regional hierarchy, and top management reports to a central headquarters. When the cost of a product may be low, but the transportation cost is high, this type of structure is very beneficial. It is important to know that many companies are seeking the best global location because they can move the work virtually anywhere, becoming location-free with the use of the Internet and technology, (Galbraith, 2002, p. 31). Matrix Structure According to Jones (2004, p. 183), matrix structure is “a design that groups people and resources in two ways simultaneously: by function and by product. There are many advantages over other structures. The first is designed to reduce functional barriers by using cross-functional teams to overcome orientation problems. Second, communications between functional specialists are opened, providing team members the opportunity develop their skills by learning different functions from one another. Third, it enables an organization the efficient use of its skilled professionals, moving from product to product. Fourth, cost and quality are a concern for function and product.
One disadvantage with a matrix structure is that it lacks the advantages of a bureaucratic structure along with a defined hierarchy structure, which can lead to resource conflicts between teams. Network Structure According to Jones (2004, p. 187), “Network structure is a cluster of different organizations whose actions are coordinated by contracts and agreements rather than through a formal hierarchy of authority. ” Oftentimes, network structures become complex as organizations form outsourcing agreements with various companies involved in producing and marketing goods and services.
An advantage of a network structure includes the ability to find a reliable partner who can help in lower production costs. Organizations can contract with other companies to avoid the high bureaucratic costs of operating a complex structure. New partners can replace network partners if they fail to perform up to the organization’s standards. Another advantage is organizations have access to foreign sources at a lower cost for their functional expertise, (Jones, 2004, p. 188). There are many advantages to a network structure but there are some drawbacks in certain situations.
One disadvantage would be with “a high-tech company racing to bring to market proprietary hardware and software faster than its competitors,” (Jones, 2004, p. 189). Next, I discuss strategy, structure, and process in organizations. Strategy, Structure, and Process in Organizations Strategy, Structure, and Process should support the organizational strategy, focusing on how the organization can adapt to their environment and processes, directly aligned with the organizational design choices. An organization should look at its strategy, ensuring effective alignment with its environment.
The organizational processes have a direct bearing on the organizational structure. According to Interactive Business Communications (2008), “changes to a business’s strategy can only happen by changing the business’s processes, either because you want to change what you deliver to your customers or you want to meet their needs using fewer resources” (Critical Issues, para. 13). Following is the relationship between organization design and decision-making processes. Organizational Design and Decision-Making Processes
Organizational design decisions shape the organization’s decision-making process, (Galbraith, 2002, p. 6). An organization with a well thought out design will have improved communications, productivity, and innovation, allowing the desired results from the changes to its structure and processes in establishing its goals. The decision making process is important within an organization, but it is only one of many processes effected by organizational design. The decision-making process also affects vertical and horizontal differentiations within the organizations and including hierarchies.
The organization must have a long-term commitment is required if the organization is to continually make design choices that have an effect on the company. Conclusion Control is the main purpose of organizational structure, used to control how people are motivated to achieving organizational goals. The type of organizational structure used will depend on the organization’s size and their goals. Out of the several types of organizational structures, the five types of structure chosen for this paper included Functional, Multidivisional, Geographic, Matrix, and Network.
These structures have some similarities along with various advantages and disadvantages and organizations must choose the structure that will provide them with the best operational design elements from each structure. In this paper, I provided only the basic terminology regarding the concepts of organizational design and structure. Its intent was to apply a basic understanding of how these concepts could be used. The organization must have a long-term commitment is required if the company is to continually make design choices that have an impact on the organization.
References Galbraith, J. R. (2002). Designing organizations: An executive guide to strategy, structure, and process. New and revised. NY: John Wiley and Sons, Inc. Interactive Business Communications. (2008). Why focusing on processes is the Holy Grail of business management . Retrieved from http://www. logisticsit. com/absolutenm/templates/article-critical. aspx? articleid=3611=31 Jones, G. R. (2004). Organizational theory, design, and change: text and cases, Fourth Edition. New Jersey: Prentice-Hall.