Summary BDO 222

STUDY UNIT 6 – CHAPTER 15 (FOUNDATIONS OF
ORGANISATIONAL STRUCTURE)
Study Objectives:
1. Identify the six elements of an organisation’s structure.
2. Identify the characteristics of a bureaucracy.
3. Describe a matrix organisation.
4. Identify the characteristics of a virtual organisation.
5. Show why managers want to create boundary less organisations.
6. Demonstrate how organisational structures differ and contrast mechanistic and organic structural
models.
7. Analyse the behavioural implications of different organisational designs.
8. Show how globalization affects organisational structure

What is Organisational Structure?
The way in which job tasks are formally divided, grouped and coordinated.
Six key elements should be addressed when designing organisational structure:
 Work specialization
 Departmentalisation
 Chain of Command
 Span of Control
 Centralisation & Decentralisation
 Formalisation

Key Design Questions:
The Key Question The Answer is provided by
1. To what extent are activities sub divided into separate jobs? Work Specialisation
2. On what basis will jobs be grouped together? Departmentalisation
3. To whom do individuals and groups report? Chain of Command
4. How many individuals can a manager efficiently and Span of Control
effectively direct?
5. Where does decision making authority lie? Centralisation and Decentralisation
6. To what degree will there be rules and regulations to direct Formalisation
employees & managers

Work specialisation:
The degree to which tasks in an organisation are subdivided into separate jobs
 One Job is divided into a number of steps
 Each step is performed by a different individual
 Employee becomes an Expert in a step
 Ford produced a car every 10 sec using work specialization
 Also known as Division of Labour

Diseconomies of specialisation 1960’s:
 Human diseconomies:
o Boredom,
o fatigue,
o stress,
o low productivity,
o poor quality,

, o increased absenteeism and
o high turnover
 Managers started giving people variety of tasks as a result

Departmentalisation:
The basis by which jobs are grouped so that common tasks can be coordinated

Jobs can be grouped by:
Departmentalisation  Production Department
by Function  Finance Department
 Marketing Department
 Human Resource Department
 The most popular way to group activities
 Benefit  Efficiency is gained from putting like specialists together
Departmentalisation  Two wheeler Department
by Product  Three wheeler Department
 Four wheeler Department
 Heavy Motors Department
 Jobs are grouped by product line. Each manager is responsible for an area
within the organisation depending on his/her specialisation
 Benefit  Accountability for performance lies with the product owner
Departmentalisation  North zone Department
by Geography  South zone Department
 East zone Department
 West zone Department
 Jobs are grouped on the basis of territory or geography.
 Benefit  When customers are scattered over a large geographic area and
have similar needs
Departmentalisation  Department to handle Foreign customers
by Customer  Department to handle Domestic customers
 Department to handle Wholesale customers
 Department to handle Retail customers
 Jobs are grouped by the type of customer the organisations would like to
reach
 Benefit  Customers in each department have a common set of problems
and needs best met by having a specialist for each
Departmentalisation  Spinning Department
by Process  Weaving Department
 Dyeing Department
 Printing Department
 Works for processing products as well as customers
 Think renewing of license
 Benefit  Increased Efficiency




Process
Function
Customer
Product
Geography


Chain of Command

, The unbroken line of authority that extends from the top of the organisation to the lowest level and
clarifies who reports to whom
 Far less important today, unless you are in a “life-death” industry
 Two important concepts inherent to Chain of Command:
o Authority is the rights inherent in a managerial position to give orders and expect them to be
obeyed.
o Unity of Command is the idea that a subordinate should have only one superior to whom he or she
is directly responsible.

Span of Control
The number of subordinates a manager can efficiently and effectively direct
 Wider span
o The wider or larger the span, the more efficient the
organisation
o Reduce costs, cut overheads, speedy decision making,
increase flexibility, get closer to customers and
empower employees
 Narrow span
o Expensive – adds levels of management
o Slows down decision making & isolates upper
management
o Tight supervision leads to reduced employee autonomy

Centralisation and Decentralisation
The degree to which decision making is concentrated at a single point in an organisation
Decision making is pushed down to managers or work groups closer to the action
 Centralisation
o Top management make all the decisions
o Better for avoiding commission errors (bad choices)
 Decentralisation
o Allows for quick problem solving
o More people are involved in decision making
o Better for avoiding omission errors (lost opportunities)

Formalisation
The degree to which jobs within an organisation are standardised
 Highly formalised jobs
o Discretion over tasks is minimal (what, when & how)
o Same input in exactly the same way
o Consistent and uniform output
o Explicit jobs descriptions, lots of rules, clear procedures
 Where formalisation is low
o Job behaviours relatively unprogrammed
o Freedom and discretion is exercised

Organisational Designs:
Common Designs
Simple o Low degree of departmentalisation
Structure o Wide spans of control
o Little formalization
o Authority centralised in a single person and mostly a flat organisation