Organizational design 2

Last week we looked into the concept of organizational design, which was defined as the process of choosing and implementing a structural configuration of the organization. We saw that the challenge for management is to adjust the structural configuration to best meet the challenges faced by the organization at any given time.
The most obvious and most easily recognised factor in designing an organization is the company’s scale of operations or size. Large organizations cannot just be bigger versions of their smaller counterparts. Bigger organizations have more individuals who can no longer interact in the same way as they do in smaller firms. Instead, impersonal coordination techniques are substituted for direct personal contact. Policies, rules and procedures are used as substitutes for direct supervision both to save money and to ensure consistency. Larger organizations are often more complex than are smaller ones in terms of their products, production processes, geographic locations and so on and this additional complexity calls for a more sophisticated organizational design.
Technology is another factor that influences organizational design and we divided technology into three categories: small-batch, mass production and continuous-process manufacturing.
In units of small-batch production, a variety of custom products are tailor-made to fit customer specifications, such as tailor-made suits. The machinery and equipment used are generally not very elaborate but considerable craftsmanship is often needed. In mass production, the organization produces one or a few products with an assembly-line type of system. The work of one group is highly dependent on another; the equipment is typically sophisticated and the workers are given very specific instructions. Automobiles are produces in this way for example. Organizations using continuous-process technology produce of few products with considerable automation. Examples are chemical plants and oil refineries.
The combination of organizational structure and technology is critical to the success of an organization. When technology and organizational design are properly matched, a company is likely to be more successful. Specifically, successful small-batch and continuous-process plants have flexible structures with small work groups at the bottom. In contrast, successful mass production operations are rigidly structured and have large work groups at the bottom.
An effective organizational design also reflects the environment in which the organization operates. A basic concern that must be addressed in analyzing the environment of the organization is its complexity. A more complex environment provides the organization with more opportunities and also more problems. When the economy is growing for example, customers are spending more money and banks are willing to invest in the future of the organization. More organizations survive, there are more opportunities and there is potential for change. The organizational design will need the capability to recognize these opportunities and capitalize on them. When on the other hand the economy is in decline, we see that firms typically cut working hours and begin laying off workers or find other ways to restructure. In some countries Governments sometimes come to support large companies to prevent too many people from losing their jobs.
Organizational strategy is the process of positioning the organization in its competitive environment and implementing actions to compete successfully. Two types of generic strategies are common to many businesses: differentiation and efficiency. The underlying assumption is that management selects technology to produce either comparatively inexpensive, standardized products or more expensive, tailor made products and services. If the firm competes by providing lower cost, standardized products, it relies on the economies of scale for efficiency. If it produces higher quality, unique products, it differentiates itself. Now, an organization has a better chance of prospering if it can fit its strategy and structure to environmental requirements.
In a comparatively new and growing industry for example a company may be on the leading edge of technological development. By emphasizing innovation and unique product quality, it can grow and prosper. The strategy is differentiation.
When faced with growing competition and more customers, the company may opt for an efficiency strategy. By limiting choices and providing standardized products and services, the company can cut production costs and offer lower prices. By capitalizing on economies of scale for example, fast food chains can produce standardized food for a fraction of the costs of a full service restaurant. The efficiency strategy places a premium on routine, standardization and consistency.
Obviously, the firm needs to have the skills and abilities to capitalize on its chosen strategy. A key to success for most organizations is an appropriate modification of the strategy so that the organization builds upon and refines its unique experience and competencies. In the process of building upon its capabilities, the firm may actually shift strategies and combine elements of several strategies.
Size of the operation, the technology to be used, environmental factors and strategy combined thus form the basis to choose the organizational structure that best fits the company, like for example an adhocracy (where technology dominates), bureaucracy (where hierarchy dominates), conglomerate or joint venture. The challenge for management is to find that best fit.

Source: Managing Organizational Behavior – by Schermerhor/Hunt/Osborn

- ton.haverkort@gmail.com