Organizational Design, Change and Development

This Presentation is an Unit - I of Organizational Design, Change and Development. In this presentation, we delve into the Organizational Design their Determinants, Components, Basic Challenges of design, Differentiation, Integration, Centralization, Decentralization, Standardization, Mutual adjustment, Mechanistic and Organic Structures, Technological and Environmental Impacts on Design, Importance of Design, Success and Failures in organizational design.​

1. Organizational Design, Change and Development UNIT – I Organizational Design © Sasidharan Murugan IND, Inc. All Rights Reserved.

2. Contents Organizational Design – Determinants – Components – Basic Challenges of design – Differentiation, Integration, Centralization, Decentralization, Standardization, Mutual adjustment -Mechanistic and Organic Structures- Technological and Environmental Impacts on Design - Importance of Design – Success and Failures in design. © Sasidharan Murugan IND, Inc. All Rights Reserved.

3. Meaning Organizational design is the process of aligning an organization's structure with its goals, roles, responsibilities, workflows, networks, and procedures.  The goal is to improve efficiency and effectiveness, and to help the business reach its goals.  Organizational design can involve changes at the corporate level, through business units, and individual processes. © Sasidharan Murugan IND, Inc. All Rights Reserved.

4. Example © Sasidharan Murugan IND, Inc. All Rights Reserved.

5. Definition According to Sargent and McConnell, "Organizational design can be defined as a process for improving the probability that an organization will be successful by assessing and reshaping structure and positions to better meet (Business) goals". © Sasidharan Murugan IND, Inc. All Rights Reserved.

6. Features of Organizational Design Getting Work Done Organizational Goals Fulfilment Way of Intergration Aligning Strategic Action Deciding Organizational Structure Allocation of Resources © Sasidharan Murugan IND, Inc. All Rights Reserved.

7. Concepts in Organizational Design Span of Control Authority Responsibility Delegation Chain of Command Accountability Line Authority Staff Departments © Sasidharan Murugan IND, Inc. All Rights Reserved.

8. Types of Organizational Design © Sasidharan Murugan IND, Inc. All Rights Reserved.

9. Traditional Designs A simple structure features a flat hierarchy, centralized decision-making, informal processes, and direct supervision, typically suited for small organizations or startups due to its flexibility. Example: a small local coffee shop. A functional structure organizes a company into specialized departments like marketing, finance, or production, each managed by a functional head to focus on specific tasks and expertise. Example: a large corporation. A divisional structure divides a company into semi-autonomous units based on products, services, or markets, each with its own resources and functions. Example: a multinational corporation. © Sasidharan Murugan IND, Inc. All Rights Reserved.

10. Contemporary Designs A team structure organizes a company into cross-functional teams that work collaboratively on projects. For example, a tech company might form teams for product development, each with members from engineering, marketing, and design working together to create new products. A matrix structure combines functional and divisional approaches, with employees reporting to both functional managers and project or product managers. For example, in a consulting firm, consultants might report to both a department head (e.g., finance) and a project manager overseeing specific client engagements. A project structure organizes a company around specific projects, with dedicated teams and resources focused solely on completing those projects. For example, a construction firm might create separate project teams for each building project, with each team handling all aspects from planning to execution. © Sasidharan Murugan IND, Inc. All Rights Reserved.

11. Cont... Autonomous internal units are semi-independent divisions within a company that manage their own operations. For example, a multinational company with separate units for consumer electronics and home appliances, each operating independently. A borderless organization eliminates traditional hierarchical and departmental boundaries, fostering a fluid and collaborative environment where teams work across functions and geographies without rigid structures. For example, a tech company that encourages cross-departmental project teams and global collaboration without strict reporting lines. A learning organization constantly adapts and improves through ongoing knowledge sharing and innovation. For example, a tech company that invests in employee training and embraces feedback to enhance its processes and products. © Sasidharan Murugan IND, Inc. All Rights Reserved.

12. Determinants of Organizational Design Various factors which determine the organizational design are; Environment Strategy Size Organization Lifecycle Technology Organizational Culture © Sasidharan Murugan IND, Inc. All Rights Reserved.

13. Determining Factors The environment influences organizational design by shaping how a company structures itself to respond to external factors like market conditions, competition, and regulatory changes. For example, a tech startup in a rapidly evolving industry might adopt a flexible, agile structure to quickly adapt to new technologies and market trends. The strategy determines organizational design by aligning the structure to achieve specific goals, such as efficiency, innovation, or market expansion. For example, a company pursuing a differentiation strategy might use a decentralized structure to foster creativity and innovation in product development. © Sasidharan Murugan IND, Inc. All Rights Reserved.

14. Cont... The size of an organization affects its design by influencing the complexity of its structure; larger organizations typically require more formal and hierarchical structures, while smaller organizations often operate with simpler, flatter structures. For example, a large multinational corporation may have multiple layers of management and specialized departments, whereas a small startup might have a flat structure with fewer management levels. The organizational lifecycle influences design by dictating changes needed at different stages of growth, from startup to maturity. For example, a startup might use a flexible, informal structure, while a mature organization may adopt a more formal, hierarchical design to manage increased complexity. © Sasidharan Murugan IND, Inc. All Rights Reserved.

15. Cont... Technology impacts organizational design by determining how tasks are performed and how information flows. For example, a company using advanced digital tools may adopt a more decentralized, collaborative structure to leverage technology effectively. Organizational culture shapes design by influencing the values, behaviors, and norms that guide the structure and operations. For example, a company with a culture of innovation may use a flexible, team-based structure to encourage creativity and collaboration. © Sasidharan Murugan IND, Inc. All Rights Reserved.

16. Components of Organizational Design © Sasidharan Murugan IND, Inc. All Rights Reserved.

17. Differentiation Differentiation in organizational design refers to creating distinct roles, departments, or structures to focus on specific tasks, products, or markets. This approach helps optimize performance and address diverse needs within the organization. © Sasidharan Murugan IND, Inc. All Rights Reserved.

18. Types of Differentiation Horizontal Differentiation : Division of an organization into different departments or units based on functions, products, or services at the same hierarchical level. Example : A retail company with separate departments for Marketing, Sales, and Customer Service. Vertical Differentiation : The hierarchy within an organization, defining levels of authority and decision-making from top management to lower-level employees. Example : A manufacturing firm with a structure including Executives, Managers, Supervisors, and Line Workers. Spatial Differentiation : The geographical or physical distribution of organizational units or operations across different locations. Example : A global tech company with offices in the U.S., development centers in India, and sales offices in Europe. © Sasidharan Murugan IND, Inc. All Rights Reserved.

19. Integration Integration in organizational design refers to the process of coordinating and aligning different parts of an organization to work together effectively toward common goals. This involves ensuring that various departments, functions, or teams collaborate efficiently and share information to achieve organizational objectives. © Sasidharan Murugan IND, Inc. All Rights Reserved.

20. Integrating Mechanisms Hierarchy of Authority : A system where coordination is achieved through a formal chain of command, with higher levels of management overseeing and directing lower levels. Example : In a traditional manufacturing company, department heads report to a senior manager, who coordinates and integrates their efforts through hierarchical oversight. Direct Contact : Coordination achieved through direct communication between individuals or teams to address issues or share information. Example : Engineers and marketers working together on a product launch might have regular meetings or calls to align their efforts directly. © Sasidharan Murugan IND, Inc. All Rights Reserved.

21. Cont... Liaison Roles : Individuals designated to facilitate communication and coordination between different departments or units. Example : A project manager acts as a liaison between the R&D and sales teams to ensure that product development aligns with market needs. Temporary Task Force : A group formed for a specific project or time period to address particular issues or achieve specific goals, after which it disbands. Example : A cross-functional task force assembled to address a new regulatory requirement and then disbanded once the compliance measures are implemented. © Sasidharan Murugan IND, Inc. All Rights Reserved.

22. Cont... Permanent Teams : Permanent teams are established to handle continuous or recurring tasks and responsibilities, ensuring current coordination and collaboration. Example : A product development team within a tech company that consistently works on new product features and updates. Integrating Roles : Roles specifically designed to bridge gaps between different parts of the organization, facilitating integration and alignment of activities. Example : An integration manager who oversees and coordinates the efforts of various departments during a company merger. © Sasidharan Murugan IND, Inc. All Rights Reserved.

23. Centralization Centralization refers to an organizational structure where decision-making authority is concentrated at the top levels of management, with lower levels having little autonomy in decision-making. This approach centralizes control and coordination within a few key individuals or a single central authority. © Sasidharan Murugan IND, Inc. All Rights Reserved.

24. Advantages of Centralization Common Vision : Ensures uniform strategic direction and consistency across the organization. Quick Decision-Making : Allows for faster decisions as fewer people are involved. Minimized Conflicts : Reduces disagreements by centralizing authority and decision-making. Ease in Control of Operations : Simplifies management and oversight with centralized control. © Sasidharan Murugan IND, Inc. All Rights Reserved.

25. Disadvantages of Centralization Lack of Creativity : Limits innovation as decision-making is concentrated and less input is solicited from lower levels. Communication Gap : Can lead to delays or misunderstandings in information flow between top management and lower levels. Inflexibility : Makes it difficult to adapt quickly to local needs or changes due to rigid central control. Misinterpretation of Orders : Increases the risk of errors as orders and directives may be misinterpreted or poorly communicated. © Sasidharan Murugan IND, Inc. All Rights Reserved.

26. Decentralization Decentralization refers to an organizational structure where decision-making authority is distributed among various levels of management or departments, rather than being concentrated at the top. This approach allows lower levels of the organization to make decisions and act autonomously, fostering greater flexibility and responsiveness. © Sasidharan Murugan IND, Inc. All Rights Reserved.

27. Advantages of Decentralization Reduced Workload of Top Management : Distributes decision-making tasks, easing the burden on top executives. Development of Personnel : Enhances skills and experience of lower-level managers by involving them in decision-making. Quick Decision-Making : Facilitates faster responses to local issues and opportunities due to decision-making authority at lower levels. Ease in Performance Appraisal : Simplifies evaluation of performance as managers are more directly responsible for their decisions and outcomes. © Sasidharan Murugan IND, Inc. All Rights Reserved.

28. Disadvantages of Decentralization Dependence on Personnel : Relies heavily on the competence and judgment of lower-level managers. Not Appropriate for Smaller Organizations : Can be inefficient for small organizations where centralized control may be more practical. May Pose Challenges : Can create inconsistencies and coordination issues between different parts of the organization. Requires Information : Demands comprehensive and accurate information flow to ensure effective decentralized decision-making. Tedious to Monitor and Control : Makes oversight and control more complex as decisions are spread across various levels and locations. © Sasidharan Murugan IND, Inc. All Rights Reserved.

29. Centralization Vs Decentralization Basis of Distinction Centralization Decentralization Meaning Concentration of Decision-Making authority in the hands of selected managers at the top. A systematic diffusion of decision-making authority down the line of hierarchy through a process of delegation. Authority of Top Management Complete control and command in the hands of the top management who take all the decisions and exercise all powers excluding the lower-level managers. Top Management decides vision, strategy, and policy leaving the implementation on managers down the line. Only major decisions are taken by the top management. It provides direction and retains overall control. Authority of Middle and Lower Management Implement decisions taken at the top. No discretion or authority to deviate or innovate. Within the broad guidelines provided by the top, middle and lower management have the freedom to take decisions involved in implementing the decisions. Generally, these managers have the freedom to innovate. © Sasidharan Murugan IND, Inc. All Rights Reserved.

30. Centralization Vs Decentralization Basis of Distinction Centralization Decentralization Freedom of Action Little or no freedom of action. All actions are done as per the guidelines from the top. The employees are closely monitored and controlled. Freedom to act as per discretion and as required by the circumstances. Employees have the scope to innovate. Control and supervision is non-intrusive in nature, more in the form of facilitation to perform. Flexibility No flexibility to respond to new emergent situations, challenges or emergencies. Have to look up to the top management to respond to such situations. No innovation and creativity in trouble shooting, and problem-solving. No flexibility in problem-solving, trouble-shooting and responding to operational challenges. Managers have the freedom to respond and act as per the situation on the ground. Significance Better controlling and monitoring as the performances are measured by the top management itself. Quick decision-making, flexibility, and development of creativity and innovation are the prime advantages. © Sasidharan Murugan IND, Inc. All Rights Reserved.

31. Standardization Standardization refers to the process of establishing uniform procedures, processes, and practices across an organization to ensure consistency, efficiency, and quality. It involves creating standardized guidelines, policies, and systems that all parts of the organization follow. In a fast-food chain, standardization is used to ensure that every restaurant follows the same procedures for food preparation, customer service, and hygiene. This ensures that customers receive the same experience and product quality regardless of which location they visit. © Sasidharan Murugan IND, Inc. All Rights Reserved.

32. Mutual Adjustments Mutual adjustments refer to a coordination mechanism where individuals or teams adapt their actions and work processes through informal communication and negotiation to achieve alignment and solve problems collaboratively. In a product development team, mutual adjustments occur when team members from different departments (like design, engineering, and marketing) frequently communicate to adjust their plans and ensure that the product meets both technical specifications and market demands. © Sasidharan Murugan IND, Inc. All Rights Reserved.

33. Basic Challenges of Design © Sasidharan Murugan IND, Inc. All Rights Reserved.

34. Balancing Differentiation and Integration They are key challenges in organizational design, where the need to specialize tasks (differentiation) must be balanced with the need to coordinate these specialized units (integration). Example : In a tech company, the R&D, marketing, and sales departments each focus on their own tasks (differentiation), but must work closely together to successfully launch a new product (integration). © Sasidharan Murugan IND, Inc. All Rights Reserved.

35. Balancing Centralization and Decentralization It involves finding the right mix between centralized control for consistency and efficiency, and decentralized decision-making for flexibility and responsiveness. Example : A retail chain might centralize purchasing decisions to leverage bulk discounts (centralization), while allowing local stores to adjust their inventory based on regional customer preferences (decentralization). © Sasidharan Murugan IND, Inc. All Rights Reserved.

36. Balancing Standardization and Mutual Adjustments It involves creating consistent processes for efficiency and quality while allowing flexibility for teams to adapt and respond to specific situations. Example : A global consulting firm might standardize its project management methods across all offices (standardization) but allow teams to adjust their approach based on client needs and local conditions (mutual adjustments). © Sasidharan Murugan IND, Inc. All Rights Reserved.

37. Mechanistic Structure A Mechanistic Structure is an organizational design characterized by a rigid hierarchy, clear lines of authority, extensive rules and procedures, and a high degree of specialization. It is typically used in stable environments where efficiency and predictability are prioritized. Example : A large manufacturing company with a strict chain of command, where employees have specific, well-defined roles and follow standardized procedures to ensure consistent production quality. © Sasidharan Murugan IND, Inc. All Rights Reserved.

38. Characteristics of Mechanistic Structure Stable Environment : Designed for predictable, unchanging environments where routines and consistency are key. Low Differentiation of Tasks : Employees have narrowly defined roles with little variation in tasks. Low Integration of Departments and Functional Areas : Departments operate independently with minimal collaboration across functions. Centralized Decision-Making : Decision-making authority is concentrated at the top levels of management. Standardization and Formalization : Processes and procedures are highly standardized, with strict rules and guidelines to follow. © Sasidharan Murugan IND, Inc. All Rights Reserved.

39. Organic Structure An Organic Structure is a flexible, adaptable organizational design characterized by less rigid hierarchies, decentralized decision-making, and a high level of collaboration and communication. It is suited for dynamic, fast-changing environments where innovation and responsiveness are crucial. Example : A tech startup with a flat structure, where employees work in cross-functional teams, share responsibilities, and make decisions collaboratively to quickly adapt to market changes. © Sasidharan Murugan IND, Inc. All Rights Reserved.

40. Characteristics of Organic Structure Dynamic and Uncertain Environment : Designed for fast-changing and unpredictable environments, allowing the organization to adapt quickly. High Differentiation of Tasks : Employees have diverse, varied roles that often overlap and require multi-skilled capabilities. High Integration of Departments and Functional Areas : Departments and teams collaborate closely, with strong communication and teamwork across functions. Decentralized Decision-Making : Decision-making is distributed across various levels, encouraging input and autonomy from all members. Little Standardization and Formalization : Flexible processes with minimal rules, allowing for creativity and innovation. © Sasidharan Murugan IND, Inc. All Rights Reserved.

41. Mechanistic Vs Organic Structure Mechanistic Structure Organic Structure Have narrow span of control. Have wider span of control. Have high degree of formalization. Characterized by little formalization. Centralized decision-making. Decentralized decision-making. Follow strict rules and regulations. More flexible and adaptable. Vertical communication flow. Communication flow from all directions. Tasks are rigidly defined. Tasks are more fluid. Task altered only with the sanctions of higher authority. Tasks can be altered according to situations and needs. Operate best in stable environments. Operate best in dynamic environments. © Sasidharan Murugan IND, Inc. All Rights Reserved.

42. Technological Impact on Design It refers to how advancements in technology influence the structure, processes, and operations of an organization, often driving changes toward more efficient, flexible, and innovative designs. Key Impacts Automation of Tasks : Technology automates routine tasks, reducing the need for manual labor and allowing for streamlined workflows. Increased Connectivity : Enhances communication and collaboration across departments, locations, and time zones, supporting more integrated and flexible structures. Decentralization of Decision-Making : Technology empowers employees with real-time data and tools, enabling quicker, decentralized decision-making. Virtual Teams and Remote Work : Advances in technology facilitate remote work and the creation of virtual teams, reducing the need for physical office space and rigid hierarchies. Innovation and Adaptability : Technology fosters a culture of continuous innovation, requiring organizations to adopt more organic, adaptable structures to keep pace with rapid changes. © Sasidharan Murugan IND, Inc. All Rights Reserved.

43. John Woodward's Combination of Structure and Technology Small Batch and Unit Production Structure : Organic, flexible, and decentralized. Example : A custom furniture workshop where workers adapt to unique client orders. Large Batch and Mass Production Structure : Mechanistic, rigid, and hierarchical. Example : An automobile assembly line with standardized, repetitive tasks. Continuous Process Production Structure : Hybrid, combining standardization with the need for skilled adaptability. Example : A chemical plant where production is automated and continuous, but skilled operators adjust as needed. © Sasidharan Murugan IND, Inc. All Rights Reserved.

44. Impact of IT on Organizational Design Smaller Organizations : IT reduces the need for large administrative layers, enabling organizations to operate efficiently with fewer employees. Example : A tech startup uses cloud services to manage operations, allowing it to scale without needing a large support staff. Decentralized Organizational Structure : IT empowers employees with real-time data, supporting decision-making at lower levels. Example : A global retail company uses data analytics tools, enabling local managers to make inventory decisions based on regional demand. Improved Horizontal Coordination : IT facilitates communication and collaboration across different departments and teams. Example : A healthcare system uses electronic health records to ensure seamless coordination between doctors, nurses, and specialists. © Sasidharan Murugan IND, Inc. All Rights Reserved.

45. Cont... Improved Interorganizational Relationships : IT enables seamless integration and collaboration between organizations, enhancing partnerships and supply chains. Example : An automobile manufacturer uses an integrated supply chain management system to coordinate with its parts suppliers in real-time. Enhanced Network Structure : IT supports the creation of flexible, networked organizations that can quickly adapt to changes. Example : A consulting firm operates with a network structure, using virtual collaboration tools to connect remote experts across the globe for various projects. © Sasidharan Murugan IND, Inc. All Rights Reserved.

46. Environmental Impact on Design The environment in which an organization operates plays a crucial role in shaping its design. Factors such as complexity, stability, and uncertainty influence how organizations structure themselves, determining levels of specialization, formalization, and centralization to effectively respond to external conditions. © Sasidharan Murugan IND, Inc. All Rights Reserved.

47. Impact of Environment on Organizational Design Environment and Complexity : In complex environments with diverse demands, organizations tend to have more specialized roles and departments to handle the variety. Example : A multinational corporation operating in various countries creates specialized teams to address each region's unique market conditions. Environment and Formalization : Stable environments encourage higher formalization with strict rules, while dynamic environments require flexibility and less formalization. Example : A government agency in a stable regulatory environment follows strict procedures, while a tech startup in a rapidly changing market keeps processes flexible. Environment and Centralization : Uncertain environments push organizations toward decentralization to enable quicker, localized decision-making. Example : A retail chain decentralizes decision-making to regional managers during economic volatility, allowing for rapid adjustments to local market conditions. © Sasidharan Murugan IND, Inc. All Rights Reserved.

48. Importance of Organizational Design Handling Contingencies : Enables the organization to adapt to unexpected changes or challenges in the environment. Example : A flexible organizational structure helps a company quickly shift production during a supply chain disruption. Competitive Advantage : A well-designed organization aligns resources and strategies, giving it an edge over competitors. Example : A tech company with a streamlined R&D department can bring innovative products to market faster than its rivals. © Sasidharan Murugan IND, Inc. All Rights Reserved.

49. Cont... Managing Diversity : Supports the integration and effective collaboration of a diverse workforce. Example : A global firm designs cross-cultural teams to leverage diverse perspectives for better decision-making. Efficiency and Innovation : Balances routine efficiency with the flexibility needed for innovation. Example : A company uses standardized processes for production efficiency while fostering creative teams for product development. © Sasidharan Murugan IND, Inc. All Rights Reserved.

50. Cont... Provides Clarity : Clearly defines roles, responsibilities, and reporting lines, reducing confusion and conflict. Example : An organization with a clear hierarchy ensures that employees know who to report to and what is expected of them. Higher Growth Opportunities : A well-structured organization is better positioned to scale and expand. Example : A retail chain with a strong organizational design can easily replicate its model in new locations. Motivates Employees : Aligns organizational goals with individual roles, enhancing job satisfaction and motivation. Example : A company that empowers employees with decision-making authority boosts their engagement and commitment to the organization. © Sasidharan Murugan IND, Inc. All Rights Reserved.

51. Success and Failures in Design Success and Failures in Organizational Design reflect how well a structure aligns with an organization's strategy and environment. Success : A well-aligned design enhances efficiency, communication, and adaptability, driving productivity and goal achievement. Example : A tech company with a flat, agile structure outpaces competitors by rapidly innovating. Failure : Misaligned design leads to inefficiencies, confusion, and missed opportunities, harming performance and morale. Example : A rigid manufacturing firm in a dynamic market loses ground to more agile competitors due to its inability to adapt. © Sasidharan Murugan IND, Inc. All Rights Reserved.

52. Characteristics that Indicates Success Clear Communication : Information flows smoothly across all levels, ensuring everyone is aligned. Efficient Operations : Resources are optimized, and processes run smoothly, minimizing waste. Flexibility and Adaptability : The organization quickly responds to changes in the environment or market. High Employee Engagement : Employees are motivated, satisfied, and understand their roles and contributions. Achieving Strategic Goals : The organization consistently meets or exceeds its objectives and targets. Strong Collaboration : Teams and departments work well together, fostering innovation and problem-solving. Sustainable Growth : The organization scales effectively, maintaining performance while expanding. © Sasidharan Murugan IND, Inc. All Rights Reserved.

53. Characteristics that Indicates Failures Poor Communication : Information is fragmented, leading to misunderstandings and misalignment. Inefficient Operations : Processes are cumbersome, resources are wasted, and productivity suffers. Inflexibility : The organization struggles to adapt to changes, causing missed opportunities. Low Employee Morale : Employees feel disengaged, confused about their roles, or dissatisfied with their work environment. Unmet Strategic Goals : The organization fails to achieve its objectives and targets consistently. Weak Collaboration : Departments or teams work in silos, hindering innovation and problem-solving. Stagnant or Declining Growth : The organization faces difficulties in scaling and maintaining performance during expansion. © Sasidharan Murugan IND, Inc. All Rights Reserved.

54. Key to Success in Organizational Design Simplicity : A straightforward structure reduces complexity and confusion, making processes easier to manage. Example : A small startup with a flat organizational structure can quickly adapt to changes and make decisions efficiently. Flexibility : The ability to adapt to changing conditions and requirements ensures the organization remains responsive and effective. Example : A tech company uses agile teams that can pivot quickly to meet new market demands. © Sasidharan Murugan IND, Inc. All Rights Reserved.

55. Cont... Reliability : Consistent and dependable systems and processes ensure stability and predictability in operations. Example : A manufacturing firm implements standardized procedures that ensure high-quality products every time. Economy : Efficient use of resources minimizes costs while maximizing output and effectiveness. Example : A logistics company optimizes its supply chain to reduce operational costs and improve delivery times. Acceptability : The design must be embraced and supported by employees to ensure successful implementation and performance. Example : A company involves employees in the redesign process to gain their buy-in and improve acceptance of the new structure. © Sasidharan Murugan IND, Inc. All Rights Reserved.