UNIT 5 EMERGING ORGANIZATIONAL FORMS AND STRUCTURES

After reading this unit you will be able to understand: the emerging organisational forms and structures.

5.1 Introduction 5.2 2 1 st Century Organizational 'Trends 5.3 Organizational Design 5.4 Organization Structure 5.5 Different Types of Organizational Structures 5.6 Amoeba-shaped Organization 5.7 Vertical~TalOrganizations l 5.8 Horizontal/FlatOrganisation 5.9 Inverted Pyramid 5.1 0 Orcliestra 5.1 1 Clilster Organization 5.1 2 Virtual Organization 5.13 Matrix Organization 5.14 Functional Organization Structure 5.15 Product Organization Structure 5.16 Self-AssessmentQuestions 5.17 Further Readings

5.1 INTRODUCTION
Organizatio~is economic and social entities in which a number of persons perform are are multifarious tasks in order to attain common goals. ~r~an'izations effective instruments which help individuals in accomplishing their personal objectives which cannot be achieved by them alone. According to Argyris, organizationsare usually formed to satisfy objectives that can best be met collectively.

5.2 2lST CENTURY ORGANIZATIONALTRENDS

There are five key organizational trends

Globalization
I ncreasiligly globalized sales, manufacturing, research, management.

Movement from direct exports to having sales offices in different countries spread across the globe. Increasingly globalized labor market.

Forms of Organisationnl
Change

Due to:
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wduced cost and improved quality of international transportation and communication. search for unsaturated markets. exploit regional cost and expertise differences.

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Diversity
Wcrkforce getting more heterogeneous sexually, racially, culturally, individually, etc. Source of both innovation and conflict/communicationproblems. Need to cope with different styles of interaction, presentation, dress, physical appearance. Due to: changing demographics. globalization of the labour market.

Organizational systems and processes and people that can respond differently to difirent situations Fewer detailed rules and procedures Greater autonomy, encouragement for initiative Cus tomizable employment relationships: telecommuting,job sharing, pay for skills Lifetime employability, not lifetime employment Due to: differentiated customer needs- filling them exactly is source of competi tive advantage increasing diversity in workplace increased pace of change in technology and markets
Flat

Fewer levels of management, Workers empowered to make decisions Fewer differences in responsibility(not in pay) across levels Due to: need for speed, which makes it helpful to empower employees to make decisions, which means fewer managers are needed changes in information technology mean less need for the communication and control functions of middle managers globalization means intensified competition, which increases the need to cut costs
Netvvorkimg

Direct communication across unit & f r boundaries, ignoring chain of im comrnand Cros!s-unitteam structures

a a
a a a

Outsourcing & downsizing Strategic alliances with competitors and others Now have firms that are your competitors, customers and collaborators all at the sanie time Close coordination among firms (e.g., JIT systems) and information sharing (open computer systems) Across the board contact with customers, not just official boundary spanners Decentral ization
a a a

~ m k r ~ i h rga~futional ~g Forms and Structures

Due to: new information technologies, especially groupware, client-server, distributed computing fast changing customer needs and competitor offerings more complicated products require better integration of manufacturing, design, and marketing functions.

Here is a diagram linking up all the concepts above. The dashed arrows with blue heads mean, "creates the need for", while the solid arrows with black heads mean "causes" or "enables". Because of al l tlie above stated trends there is a strong need to design and redesign the organizations again and again from time to time in order to keep up the efficiency and effectiveness.

5.3 ORGANISATIONAL DESIGN

Organizational design deals with structural aspects of organizations. It aims at analyzing roles and relationshipsso that collective effort can be explicitly organized to

differentiated

,
I

exploit regional costlexpertiselneeds differences

betfer communication,
and transpotlation lechnolojy

customer needs

Forms of Olg.nb.Uor.1 Change

achieve organizational goals. The design process leads to the development of an organization structure consisting of units and positions. There are relationships involving,exercise of authority and exchange of information between these units and positions. Organizational design is "The process of systematic and logical grouping of activities, delegation of authority and responsibility and establishing working relationships that will enable both the company and employee to realize their mutual objectives"

5.4 ORGANISATION STRUCTURE

An organizational structure defines howjob tasks are formally divided, grouped and coordinat~:d. Managers need to address six key elements when they design their organization structure a
a

Work specialization Departmentalization Chain of command Span of Control Cen1:ralizationand Decentralization

a a a

Work Specialization: This is also called division of labour. The degree to which tasks in the organization are sub-divided into separate jobs. Departmentalization: The basis by which jobs are grouped together. Chain of Command: The unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom. Span of Control: The number of subordinates a manager can efficiently and effectively direct. Centralization and Decentralization: Centralization refers to the degree to which decision rnaking is concentrated at a single point in the organization. Decentralization is the degree to which decision discretion is pushed down to lower level employees. Formalization: The degree to whizjobs within the organization are standardized.

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5.5

D [FFERENT TYPES OF ORGANIZATIONAL STRUCTURES

Spaghetti Organization
It is a forrn of boundary-less organization. General Electrical Chairman Jackwelch coined thr: term boundary-less organization. The boundary-lessorganization seeks to eliminate the chain ofcommand having limitless span ofcontrol and replace departments with empowered teams. The main objective of a boundary-less organizatl~on to eliminate vertical and horizontal boundaries within the company and is breakdown external barriers between the company and its customers and suppliers. By removing vertical boundaries, management flattens the hierarchy. Status and rank " are rninirr~ized. This way the organization looks more like a silo than a pyramid. These boundaries can be eliminated by creating cross-hierarchical teams, participative decision-making practices and the use of 360-degree performance appraisals.

Horizontal boundaries can be reduced by replacing the functional departments with cross-functional teams and by organizing activities around process. These boundaries can also be cut through job rotation of people into different functional areas. This turns specialist into generalists. The external barriers can be removed with the help of globalization, strategic alliances, customer-organizationlinkages and telecommuting. The one common technological thread that makes the boundary-less organization possible is a networked computer. They allow people to communicate across intra organizational and inter organizational boundaries.
Advantages
1)

Emerging qrgmhtional Forms and Structures

I n the absence of vertical and horizontal boundaries communication is fast in the organization and also decision making.
This kind of organization structure promotes participative decision making which motivates the employees and develops there analytical and creative abilities. This structure provides for job rotation, which leads to the development of the employees in all the functional areas. The reach of the organization spreads, as there are no external boundaries.

2)

3)
4)

Disadvantages
1)

2)

I n the absence of vertical and horizontal boundaries the relationship between superior and subordinates is not clearly established. Tlle authority and responsibility are not clearly delegated as a result of which, there may be confusion regarding"Who is responsible for what" in the organization.

5.6 AMOEBA-SHAPED ORGANIZATION

It is another form of boundary-lessorganization which is structured like an 'amoeba', with a central nucleus and a flexible operating structure enabling it to move into different types of projects and markets while operating as cross functional teams. An amoeba structured company could spin off into smaller independent companies. For example, ENTACT Inc., an environmental services company based in Texas, US divides like amoebae to form new companies. When it has about 40 employees, it spins off another business with the first company retaining a 90 % stake hold in the new business, while the employees of the spin off unit retain 10%, in this manner, ENTACT Inc., is able to attract new companies. Since it operates without much of a structure and has no middle level management, there is a lot of latitude and fieedom in its operations and it can be divide into new operative units with ease.
Advantages
19

Flexibilty in its operations. The freedom to take decisions in the organization motivates the employees.

2)

Disadvantages

I)
1

As there is no middle level management the flow of communication from first line employees to the top management may be affected. More number of operating units may drive the organization into confusion due to lack of cooperation and coordination.

2)
i

Forms of Organisational
Change

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,5.7 V:ERTICAL / TALL ORGANIZATIONS Ve~.tical/tall organizations refer to increase in the length af the organizatian chain af connmand. The hierarchical chain of command represents the company's authorityaccountabilityrelationship between superiors and subordinates. Authority and responsibility flows from the top to the bottom through all the levels ofhierarchy. Accountiability flow from the lowest level to the highest level. Advantages 1) Efhctive analysis of factors and efficient decision making are possible as a number of managers at different levels supervise and check the activities. Therse organizations provide better communication of company's mission, goals and objectives to all employees. This structure enhances coordination of functional areas and ensures that each area is working closely with otlier functions.

'

2)
3)

Disadvantages 1 ) Too many hierarchical levels may waste time in communication which may inturn lead to delays in decision-making. 2) There is too much centralization in vertical organizations. 3) Tight operatima1control delays the decision-making process.

5.b

EIORIZONTAL / FLAT ORGANIZATION

The horizontal organization is a more appropriate model for the knowledge age. Co~npanies increasingly find this structure more effective. Frank Ostroff in his book "Tihe Hclrizontal OrganizationV(l999)emphasizes the need to start with an understandingof an organization's core competencies and to develop a horizontal str~~cturt: there. His fairly academic book advances a trend that is already well from documented. Horizontal organizations promote more decentralized, downsized, teamoriented organizations with empowered workers. In ithe U:Ssuch well-known corporate giants as AT&T, DuPont, General Electric, and Motorola are moving towards what is becoming known as "the horizontal cot-poration"in which traditional internal departmental divisions and well-defined layers olfauthority are blurred or destroyed to allow an organization to respond more qullckly;andeffectively to market changes. Flatness, or the absence of an organizational hierarchy, does not mean the elimination of individual roles or responsibilities. It does mean the end of people with over-riding aulliority over other people's work.
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Forms of Organisational
Change

--- INVERTED PYRAMID 9

The traditional business is styled in the form of a pyramid with the chief executive officer at the top, senior executives underneath, and so on. There are many layers in the management structure, which reflect who reports to whom. Once the pyramid is sluetchad on a white board, the crucial question is asked: Who are below the rank-andfile employees? The answer sought is: The customers. Once the customers are drawn at the bottom of the pyramid, just below the lowestlevel empbyee\s, the process of rending one's garments begins. How can the senior management of a company tolerate such an arrangement, with the most important p~sople customers) being kept at the bottom! It is obvious that the enterprise has (the n13 hope of getting anywhere with this obsolete management structure - especially in today's beleaguered markets. Fortuniitely, management is offered a fix -simply, turn the management structure upside down, and put the most important people in the business, namely the customers, at the top. Reversal of the pyramid not only gives the customers the most in-lportantrole in driving the business, it also gives the front-line employees a similar ability. As they are closest to the customers, this appears to be a reasonable and longoverdue: proposition.

' relatior~s with the customers, but also to improve the business itself. The flow of
cc~mmunication from the customers and within the enterprise should vastly improve. Once the inverted pyrawid idea is presented, it is postulated that the role of nr -~.'a~.r.rne~.t to L needs fvom a commanding role to a supporting one.

Tl~us, inversion ofthe management pyramid is not only deemed to improve the

Presided

Advantages
1)
111this structure the most

important people called customers are given the first preference. This way it becomes very easy to understand their preferences and plan the strategies of the organization accordingly.

2)

3)
4)

Front line employees are given more responsibility and authority in the organization than the top management because they are closest to the customers. Delcentralization of authority and responsibility place a very important role in prompt and timely decisions. The inverted pyramid structure motivates the employees as they are placed in a berter position than the top management.

Disadvantages

Emerging Orprnizntional Forms and Structures

1)

2)

This kind of structure may be dangerous because the role of top management is been shifted to supporting one from that of commanding one which ultimately leads to direction-less organization. In this structure there is absence of clear authority and responsibility levels and as a result of which people become confused and the business veers out of control. Frontline supervisor cannot make strategies regarding organizations even though they have proper understanding of the customer's because they are not equipped to do so.

3)

5.10 ORCHESTRA
A firm styled as an orchestra could be an efficient management structure (Richardson, 1990). The conductor (CEOItop management) and the team (employees/managers) operate to the same score, though each one operates a different instrument and at different times. Everyone operates as a player in hislher own right and plays directly to the CEO without an intermediary but with a high level of integrated effort (synchrony). It is an organization of specialists of different kinds directing themselves and doing different,kinds of work (the roles and responsibilities of each is clear in relation to hislher own task and that of others).

It is more an information-based management system than an authority-based bureaucratic command-control one. The objectives are clear and are translated into particular actions. 111the context of a business organization, it involves defining the goal (score) to be achieved and delineating performance expectations for the enterprise. subsystem, and individual around organized feedback allowing for the exercise of self-control (Drucker, 1988). Each one is clear as to what information he needs to have topel-form better and of the informational dependencies within a role set (i.e., wlio depends upon me for what information and on whom do 1depend in turn?). Layers of bureaucracy are thus trimmed down. The organization may be turned upside down, where information comes to employees first and the top management does not give orders but only asks the right questions.
Advantages

1)
2)

There is a lot of cooperation and coordination between the employees and the management. The objectives are clearly defined. The flow of information in the organization is perfect because it is more of information - based management rather than the bureaucratic command - control.

3)

Disadvantages 1) A perfect synchroi~y cannot be expected from the top management and the employees always because there may be some hindrances in communication flow as there is no middle leveI management.

2) 3)

The authority responsibility aspects are not clearly defined. The control of whole organization by the top management alone without the help of middle level management may not give good results.

Forms cf Organisational r Change

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-5.11

CLUSTER ORGANIZATION

An organization may be restructured around certain clusters that are inter- locked or r networked representing a cluster organization. Each cluster consists rf a group of people drawn from different functional and staff areas working together cm a semi permaiient ba~is accocnplishcertain preset goals. A cluster handles its to adm~nistrativc functions, develops the required expertise, relates to customers, and is accouiltable for its actions. Each individual within the! cluster has responsibility for hi:$particular area of activity and also of the performance of the cluster as a whole.

Individ~lal clusters in an organization may differ in size consisting usually of 30 to 50 members to provide for a broad range of functional and staff expertise. Within itself a cluster !nay have smaller teams of 5 or more individuals to facilitate its work.
A typical cluster organization would be: a number of interlocked circles with the CEO at the center and the senior and middle level management in adjacent circles, while others are grouped around in a number of independentclusters (each duster with a spxific mission or purposv).

Atlvant ages

1)
2)

Well defined responsibilities.

This structure empowers the employee by fostering individual and team work.

Bbadvautages
I)

2)

3)

Employees in this structure work on a semi permanent basis. The state of being no1 ernpIoyed on a permanent basis by the organization may depmss the employees and kill their initiative. A c:luster, which manages all the activities associated witb accbmplishingtheir corporate goals may become 'Vack of all, master of none". There is lack of formal hierarchical structure, which may lead to direction-less of the organization.

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5,112 --VIRTUAL ORGANIZATION

A iirm i:; said to be having a virtual organisational structure when it contracts out alnlost all functions. The only function retained by the organization is the name and the coorrjination among the parties. A virtual organization might not have even have a permanent office.

Esl)eciallycommon in the fishion industry where you can have clothing labels that are just that. Say the labd is "John Taylor". The label has a clear identity in thk public eye, but when you try to track down the John Taylor company, you find there are no Johin 'ra!dor designers, no John Taylor manufacturers. It's just 3 people in an office subcontractingout all fbnctions. It is a nettworkof firms held together by the product of the day. It is an open-ended system of ideas and activities and firms.

1)

2)
3)
I4

These structures enable f<)r doing business with less capital, less human resources and other inputs. These structures provide flexibility of operation. These structures develop ancillary industries.

Disadvantages I)
2)
Companies do not have strong foundations or strengths in their operations. Orga~lizatims have to heavily depend upon outsourcing. Failwe in the network results in failure of the organization.

Emerging Organizational Forms and Structures

3)

5.13
I

MATIUX ORGANIZATION

Matrix organization structure possesses a dual chain of command. Both functional and project managers exercise authority over organizational activities in a matrix structure. The strength of the matrix lies in his ability to facilitate coordination when the organization has a multiplicity of complex and inter dependent activities. The direct and frequent contact between different specialities in a matrix can make a better cornmunicatiori and more flexibility. Information permeates the or~nization more and quickly reaches those people who need to take account of it.
Managing Director

-1

General Manager

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r
aumptl

I
Manager Finance

Manager
Production

Manager Marketing

I
Manager

PZsMlum I

RbD

I
Production Specialists

I
Marketiag Specialists

I
R&D
Specialists

Finance Specialists

Manager

Manager

Production
Specialists
Specialists

Specialists

Specialists

Matrix also facilitates that efficient allocation ofspecialists. When individuals with highly specialized skills are lodged in one functional department or product group thdr talents are monopolized and underutilized. The matrix achieves the advantages of economies of scale by providing the organization with both the best resources and an effective way of ensuring their efficient deployment.

Advantages
1)
2)

3)
4)

This structure has considerable flexibility. The personnel can be transferred from one project to the other depending upon the need of the project. The lower level functional employees are highly motivated and satisfied with theirjob, as they are involved in decision making. Promotes making trade-off decisions on the basis of, "what is the best for organization as a whole". Encourages cooperation, consensus building, conflict resolution and coordination of related activities. Makes efficient use of functional expertise.

5)

Forms o f Organisational Change

Disadvantages 1) 2) It is very complex to manage. The authority is so much shared that it can result in misappropriated amounts of time being spent on communications. This structure violates unity of command. Requires too much time for meetings and collaboration. It is h~ard move quickly and decisively without getting clearance from many to other people.

3) 4) 5 )

-5.141 - IWNCTIONAL ORGANIZATION STRUCTURE -

In this structure each functional department consists of those jobs in which employees perform similarjobs at different levels. The commonly used functions are: Marketing, Finar~ce accounting, Human Resources, Manufacturing, Research & Development and and Enginc:ering.

EL
Chie! Manag

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T'
Engineering Control Employment Training & Development Administration Industrial Relations

Produeti011

Advantages
1)

2)

3) 4)

In-depth specialization and focussed concentration on performing functional tasks can enhance operating efficiency and development of core competencies. This type of structure promotes maximum utilization of up-to-date technical skills imd enables the form to capitalize on specialization and efficiency. This structure promotes common values and goals among employees ofthe department, facilitatingcooperation and collaboration with the functionaldepartment. Enhances operating efficiency where tasks are routine and repetitive.

Disadvanta~ges 1) l'he department members will see the activities from the narrow viewpoint of the department rather than the total organization. This aspect results in absence of and inter-departmental coordinatio~l cooperation. 2) l'he narrow specialization kills the initiative of entrepreneurs and the zeal of innovartivenessand creativeness. 3) 'I'his kind of structure promotes over specialization and narrow management viewpoints. of 4) ?'his k ~nd structure is effective only in stable environment. ?'his also results in absence of accountability. 5)

5.15 PRODUCT ORGANIZATION STRUCUTRE

Co~llpanies producing more than one product structure their organizations basedon product structures. Activities are divided on the basis of individual products, product line, services and are grouped into departments in product organization structure. All important functions viz., marketing, production, finance and human resources are contained within each department.
Advantages
1)

Emerging Orgrniutlonsl Forms and Structures

2)
3)

This organization structure is appropriate to those forms which produce multiple products. Coordination among functional areas like product design, producing, marketing is effective as all functions are formed in the same department. Responsibility and accountabilityfor market share, sales, profitlloss is clearly fixed.

Disadvantages
1)

Each department will have production, marketing, human resource, finance managers, secretarial and.supporting staff, computers and testing equipment. As such specialized personal and equipment cannot be procured. Inter departmental conflicts arise regarding sharing of common resources, allocation of common and overhead expenses etc., Managing Director General Manager

2)

Scooters

Cars

Vans

5.16 SELF-ASSESSMENT QUESTIONS

1)

What are the reasons for organizations to design and redesign in order to be efficient and effective? Discuss. Discuss different types of organizational structures and their merits and demerits. For example, if your organization requires restructuring which type of structure would you choose and why? Give reasons.

2) 3)

5.17 FURTHER READINGS

1)

Management of Organizational Change Leveraging Transformation - Prof. K IWanagement and Organizational Behavior - P Subba Rao. Organizational Behavior - Stephen P Robbins.

2) 3)