What is Organizational Structure and Its Strategic Implementation Makeup?


By: Site Engineer, Staff

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An organization is simply an arrangement of people (structure) showing their task performance and reporting channels in such a way as to facilitate the accomplishment of its goals. This is depicted pictorially as the organization chart, diagram, or organigram and displayed in the offices of the organization.

Organizational structure determines how an organization’s resources can be best used to create goods and services and processes.

Organizational structure is derived from organizing. It is a framework or structure of the organization. Organizing is a process that managers use to establish a structure of working relationships that allow organizational members to work together to achieve organizational goals.

Organizing can also be defined as the arrangement of men’s materials and machines which will facilitate the goal accomplishment. That is to say, it involves grouping people into departments according to the kinds of job-specific tasks they perform.

In organizing, managers also layout the lines of authority and responsibility between different individuals and groups and they decide how best to coordinate organizational resources, particularly human resources.

The outcome of organizing is the creation of an organizational structure a formal system of task and reporting relationships that coordinates and motivates organizational members so that they work together to achieve organizational goals.

The organizational structure varies from one organization to another. That is, there is no organizational structure that is applied universally. In that case, the organizational structure must be made to fit the needs of individuals concerned if it is to operate successfully.

Organizational Structures

Although there is an almost infinite variety of structural forms certain basic types predominate in modem complex organizations. The conglomerate structure is a variant of divisional structure and is thus not depicted as a fourth structure.

Types of Organizational Structure

1. Divisional Structure: It is appropriate for a large corporation with many product lines in several related industries. Employees tend to be functional specialists organized according to product/market distinctions. In terms of stages of development, this is a Stage III Company.

Strategic Business Units (SBUs) is a modification of the divisional structure. SBUs are divisions or groups of divisions composed of independent product market segments that are given primary responsibility and authority for the management of their functional areas.

An SBU may be of any size or level, but it must have:

  • An external market focus
  • Control of its business functions
  • A unique mission
  • Identifiable competitors

The idea is to decentralize based on strategic elements rather than based on size, product characteristics, or span of control and to create horizontal linkages among units previously kept separate.

For instance, rather than organize products based on packaging technology, such as frozen foods, canned foods, and bagged foods. General Foods organized its products into units based on consumer-oriented menu-segments: breakfast foods, beverages main meals, desserts, and pet foods.

2. Functional Structure: It is appropriate for a medium-sized firm with several product lines in one industry. Employees tend to be specialists in the business functions that are important to that industry such as manufacturing marketing, finance, and human resources. In terms of stages of development, this is a Stage II Company.

3. Simple Structure: It has no functional or product categories and is appropriate for a small, entrepreneur-dominated company with one or two product lines that operate in a reasonably small easily identifiable market niche. Employees tend to be generalists and jacks-of all-trades. In terms of stages of development, this is a Stage I Company.

4. Conglomerate Structure: It is appropriate for a large corporation with many product lines in several unrelated industries. A variant of the divisional structure, the conglomerate structure (sometimes called a Holding Company) is typically assemblage of legally independent firms (subsidiaries) operating under one umbrella but controlled through the Subsidiaries’ Boards of Directors. The unrelated nature of the subsidiaries prevents any attempt at gaining synergy among them. In terms of stages of development, this is also a Stage III Company.

If the current basic structure of a corporation does not easily support a strategy under consideration, top management must decide whether the proposed strategy is feasible or whether the structure should be changed to a more advanced structure such as a matrix or network.

Corporate Culture: The Company Way

There are three ways to do any job – the right way, the wrong way, and the company way. In organizations, the “company way” is derived from the corporation’s culture. Corporate culture is the collection of beliefs expectations and values learned and shared by a corporation’s members and transmitted from one generation of employees to another.

The corporate culture generally reflects the values of the founders and the mission of the firm.” It gives a company a sense of identity: “This is who we are. This is what we do. This is what we stand for.” The culture includes the dominant orientation of the company such as customer service.

It often includes several informal work rules (forming the “company way”) that employees follow without question. These work practices overtime become ways of a company’s and unquestionable tradition. The culture, therefore, reflects the company’s values, beliefs, mission and way of doing business.

Corporate culture has two distinct attributes: intensity and integration.

  • Cultural Intensity: This is the degree to which members of a unit accept the norms, values or other culture contents associated with the unit. This shows the culture’s depth. Organizations with strong norms promoting a particular value have intensive cultures whereas new firms (or those in transition) have weaker, less intensive cultures. Employees in an intensive culture tend to exhibit consistent behavior, that is, they tend to act similarly over time.
  • Cultural Integration: This is the extent to which units throughout an organization share a common culture. This is the culture’s breadth. Organizations with a pervasive dominant culture may be hierarchically controlled and power-oriented, such as Defence and military units, and have highly integrated cultures. All employees tend to hold the same cultural values and norms. In contrast, a company that is structured into diverse units by functions or divisions usually exhibits some strong subcultures and a less integrated corporate culture.

The Benefit of Corporate Culture

  • Adds to the stability of the organization as a social system.
  • Serves as a frame of reference for employees to use to make sense of organizational activities and to use as a guide for appropriate behavior.
  • Conveys a sense of identity for employees.
  • It helps generate employee commitment to something greater than them.

Corporate culture shapes the behavior of people in a corporation. The reason is that cultures have a powerful influence on the behavior of people at all levels they can strongly affect a corporation’s ability to shift its strategic direction.

A strong culture should not only promote survival but it should also create the basis for a superior competitive position by increasing motivation and facilitating coordination and control. For instance, a culture emphasizing constant renewal may help a company adapt to a changing hypercompetitive environment even to extent that a corporation’s distinctive competence is embedded organization’s culture, it will be a form of tacit knowledge and very difficult for a competitor to imitate.

Formal and Informal Organizational Structure

Organizations have a formal structure which is the way that the organization is organized by those with responsibility for managing the organization. They create formal structures that enable the organization to meet its stated objectives.

Many times, these formal structures will be set out on paper in the form of organizational charts. However, over time, an informal structure develops in most organizations, which is based on the reality of day-to-day interactions between the members of the organization. This informal structure may be different from that which is set out on paper.

Informal structures develop because:

  • People forget what the formal structures are.
  • It is easier to work with informal structures.
  • People find new ways of doing things which they find easier and save them time.
  • Patterns of interaction are shaped by friendship groups and other relationships.

Sometimes the informal structure may conflict with the formal one. Where this is the case, the organization may become less efficient at meeting stated objectives. However, in some cases, the informal structure may prove to be more efficient than the formal structure at meeting organizational objectives because the formal structure was badly set out.

Managers need to learn to work with both formal and informal structures. A flexible manager will realize that elements of the informal structure can be formalized i.e by adapting the informal structure to incorporate improvements that result from the day-to-day working of the informal structure.

Formal Structure

A formal organizational structure is one in which the social positions and the relationships among them have been explicitly specified and are defined independently of the personal characteristics of the participants occupying these positions. The process of creating and maintaining a formal structure is formalization.

Informal Structure

In an informal structure, it is impossible to separate the role from the person, and as participants enter and leave the system their roles develop and change as a function of their characteristics.

It is based on the characteristics or resources of the specific participants and can be distinguished from a formal basis by observing the changes resulting from a change in personnel at a particular position. You know individuals enter the organization with individually shaped ideas, expectations, and agendas, and they bring with them differing values, interests and abilities.

Yet interestingly, this informal structure is also stable. Participants within formal organizations generate informal norms and behavior patterns status and power systems communication networks, socio-metric structures and working arrangements.

These informal systems are necessary because no one can devise a formal system that can function under all possible contingencies or remain adaptive with change.

In sum, some people believe that highly centralized and formalized structures are doomed to be ineffective and irrational in that they waste the organization’s most precious resource: the intelligence and intuition of its participants.

The Benefit of Informal Over Formal Structure

The rational system response to increasing task demands is to shorten and straighten the leash -provide superiors with more and faster information, increase the ratio of superiors to performers to process information more quickly. While increasing complexity often brings decentralization, it also causes more formalization. It is recommended to enlace roles internal control and to confront high levels of uncertainty and complexity.

Functional Policy

Functional scheduling is a non-feedback scheme for determining a job’s importance. Functional scheduling associates a job with the submitting user, project or department. Functional scheduling is sometimes called priority scheduling. The functional policy setup ensures that a defined share is guaranteed to each user, project job or department at any time. Jobs of users, projects, or departments that have used fewer resources than anticipated are preferred when the system dispatches jobs to idle resources.

At the same time, full resource usage is guaranteed because unused share proportions are distributed among those user’s projects, departments, and jobs that need the resources. Past resource consumption is hot taken into account.

Functional policy entitlement to system resources is combined with other entitlements in determining a job’s net entitlement. For example, functional policy entitlement might be combined with override policy entitlement.

The total number of tickets that are allotted to the functional policy determines the weight of functional scheduling among the scheduling policies. During installation, the administrator divides the total number of functional tickets among the functional categories of user, department, project, and job.

Functional Shares

Functional shares are assigned to every member of each functional category: user, department, project, and job. These shares indicate the proportion of the tickets for a category to which each job associated with a member of the category is entitled. For example, user John has 200 shares and user Peter has 100. A job submitted by John is entitled to twice as many user-functional-tickets as a job submitted by Peter.

The functional tickets that are allotted to each category are shared among all the jobs that are associated with a particular category.

Resource Management

In any organization, human resources management is the forecast point of activity. In organizational studies, resource management is the efficient and effective deployment for an organization’s resources when they are needed. Such resources may include financial resources, inventory, human skills, production resources, or information technology (IT). In the realm of project management, processes techniques and philosophies as to the best approach for allocating resources have been developed. These include discussions on functional vs. cross-functional resource allocation ’as well’ as processes espoused by organizations like the Project Management Institute (PMI) through their Project Management Body Of Knowledge (PMBOK) methodology to project management. Resource management is a key dement to activity resource estimating and project human resource management. Both are essential components of a comprehensive project management plan to execute and monitor a project successfully. As is the case with the larger discipline of project management, there are resource management software tools available that automate and assist the process of resource allocation to projects and portfolio resource visibility including supply and demand of resources.

Human Resource (HR) Management

This is the science of allocating human resources among various projects or business units, maximizing the utilization of available personnel resources to achieve business goals; and performing “the activities that are necessary maintenance of that workforce through identification of staffing requirements, planning and oversight of payroll and benefits, education and professional development, and administering their work-life needs.

Corporate Resource Management Process

Large organizations usually have a defined corporate resource management process which mainly guarantees that resources are never over-allocated across multiple projects.

One resource management technique is resource-leveling. It aims at smoothing the stock of resources on hand, reducing both excess inventories and shortages.

The required data are the demands for various resources, forecast by period into the future as far as is reasonable, as well as the resources’ configurations required in those demands, and the supply of the resources, against forecast by period into the future as far as is reasonable.

The goal is to achieve 100% utilization but that is very unlikely when weighted by important metrics and subject to constraints, for example, meeting a minimum service level but otherwise minimizing cost.


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