Jul 18, 2017

Moving Toward Optimal Organization Design

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Moving Toward Optimal Organization Design


Using this week’s lesson and resources as a start, locate three reputable sources that inform you about the process of organizational design (you can include non-journal sources for this assignment). Discuss an example where optimal (or improved) organization design resulted in greater functional effectiveness and productivity of an organization.

Your initial post should contain 3 citations and 3 references minimum (your textbook may serve as a source for this forum).

Instructions: Your initial post should be at least 250 words. 


Characteristic Hierarchical structure Organic structure

Complexity High – with lots of horizontal separation into functions, departments and divisions Usually lower – less differentiation or functional separation

Formality High – lots of well defined lines of control and responsibility Lower – no real hierarchy and less formal division of responsibilities

Participation Low – employees lower down the organization have little involvement with decision making Higher participation – lower level employees have more influence on decision makers

Communication Downward – information starts at the top and trickles down to employees Lateral, upward, and downward communication – information flows through the organization with fewer barriers

Functional structures and divisional structure are both examples of hierarchical organization structures.

In a functional structure, functions (accounting, marketing, HR etc) are quite separate; each led by a senior executive who reports to the CEO. The advantage can be efficiency and economies of scale where functional skills are paramount. The main disadvantage is that functional goals can end up overshadowing the overall goals of the organization.

In a divisional structure, the company is organized by office or customer location. Each division is autonomous and has a divisional manager who reports to the company CEO. Each business unit is typically structured along functional lines. The advantage here relates to local results, as each division is free to concentrate on its own performance. The disadvantage is that functions and effort may be duplicated. For example, each division may have a separate marketing function, and so risk being inefficient in its marketing efforts.

More organic structures include: simple, flat structures, matrix organizations and network structures:

Simple Structure – Often found in small businesses, the simple organization is structure is flat. It may have only two or three levels; employees tend to work as a large team with everyone reporting to one person. The advantages are efficiency and flexibility, and responsibilities are usually clear. The main disadvantage is that this structure can hold back growth when the company gets to a size where the founder or CEO cannot continue to make all the decisions.

Matrix Structure – In a matrix structure, people typically have two or more lines of report. For example, a matrix organization may combine both functional and divisional lines of responsibility. For example, in this structure, a marketing manager may report both to the functional marketing director and the country director of the division he or she works in. The advantage is that the organization focuses on divisional performance whilst also sharing functional specialist skills and resources. The (often serious) downfall is its complexity – effectively with two hierarchies, and with the added complexity of tensions between the two.

Network Structure – Often known as a lean structure, this type of organization has central, core functions that operate the strategic business. It outsources or subcontracts non-core functions which, depending on the type of business, could include manufacturing, distribution, information technology marketing and other functions. This structure is very flexible and often can adapt to the market almost immediately. The disadvantage is inevitable loss of control, dependence on third parties and the complexity of managing outsource and sub-contract suppliers.

Making Organization Design Decisions

Given the many choices of structure, how do you go about making organization design decision for your business? Different organization structures have different benefits in different situations. What matters is the overall organization design is aligned with the business strategy and the market environment in which the business operates. It must then have the right business controls, the right flexibility, the right incentives, the right people and the right resources.

Here are just some of the many things that you can consider when thinking about the structure of your organization.

Strategy – The organization design must support your strategy. If your organization intends to be innovative then a hierarchical structure will not work. If however, your strategy is based on low cost, high volume delivery then a rigid structure with tight controls may be the best design.

Size – The design must take into account the size of your organization. A small organization could be paralyzed by too much specialization. In larger organizations, on the other hand, there may be economies of scale that can be gained by maintaining functionally specialist departments and teams. A large organization has more complex decision making needs and some decision making responsibilities are likely to be devolved or decentralized.

Environment – If the market environment you work in (customers, suppliers, regulators, etc.) is unpredictable or volatile, then the organization needs to be flexible enough to react to this.

Controls – What level of control is right in your business? Some activities need special controls (such as patient services in hospitals, money handling in banks and maintenance in air transport) whilst others are more efficient when there is a high degree of flexibility.

Incentives – Incentives and rewards must be aligned with the business`s strategy and purpose. When these are misaligned, there is a danger that units within the organization become self-serving. Using the earlier example of a company that wants to grow by acquiring new customers, the sale team is incentivized on customer retention, and therefore is self-serving rather than aligned with the business purpose.

There is much more to organization design than deciding on its structure. This list shows just some of the facets organization design that can be taken into accountin thinking about this. With each stage of growth or each change, the organization design needs to be reassessed and realigned as necessary. The list can also help you identify issues that might be causing team problems or holding back you business.

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Moving Toward Optimal Organization Design Name: Institutional Affiliation: Date: When starting a new business enterprise, one should consider designing a company’s organizational structure. This is decided depending on the company’s size and industry goals. One should see organizational structures as communication flowcharts. Poorly designed organizational structures will result in inefficient, sluggish communication in which managers at different levels are requi


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