Organisational Structures for Effective Management

Introduction

Organizational change is an important mechanism of adaptation to the existing realities of the business landscape. New organizational structures are emerging because of advances in corporate culture, leadership strategies, knowledge management, and technology (Hatch 2015). Efficient organization of the working process has the potential of increasing quality, productivity, cost efficiency, and the overall competitive potential of the organization. Our company has been neglecting the need for reorganization for more than two decades. The purpose of this report is to analyze the key factors at play when designing organizational structures and evaluate the implications of organizational structure for managers, employees, and resource development.

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The Building Blocks of an Organization

The majority of organizations develop their structure according to the Planning-Organizing-Leading-Controlling (POLC) framework. This framework outlines the major functions of any business or company. Responsibilities are differentiated as follows (Lukovic, Speranda & Kizielewicz 2015):

  • Planning. Vision, mission, overall strategy, goals, objectives.
  • Organizing. Organizational design, corporate culture, social network.
  • Leading. Leadership, decision-making, motivation, communication, workgroups.
  • Controlling. Systems and processes, SHR (strategic human resources).

Changing organizational structure often involves alterations in all of these groups. Since our organization has existed for over 100 years, with the last major organizational change performed more than 20 years ago, it is necessary to start from the very beginning. Mission, vision, strategy, and company objectives need to be changed in order to transform the company from a producer-driven to a customer-driven enterprise. The organizational design would require changes in order to foster a better corporate culture that would improve the growth and retention of talent among the employees while at the same time increasing flexibility and production efficiency. Leadership style should change from the authoritarian hero-type leadership to a transformational type in order to facilitate change. Lastly, control systems should be constructed in accordance with the Sigma Six framework, which has proven to be very effective in many areas of industry.

When designing an organizational structure, there are four key factors to consider. These factors are Centralization, Formalization, Departmentalization, and Hierarchical Levels (Lee, Kozlenkova, & Palmatier 2015). They are affected by the nature of the industry, the vision, and the mission of the company, as well as the existing corporate culture.

Centralization stands for the degree of decision-making authority concentrated within the top levels of the hierarchy. Depending on the type, size, and purpose of the organization, its managers have different amounts of authority and responsibility for the lower divisions. As it stands, our company makes decisions from top to bottom. It makes for slower response times from people who are not working on the ground, meaning that the accuracy of their decisions is being diminished.

Formalization is the degree to which the activities of the organization’s employees are regulated by various parameters (Lock 2014). On the one hand, a high degree of formalization reduces ambiguity and establishes proper procedures. It is necessary for industries where high standards of quality are required, such as the pharmaceutics industry. On the other hand, businesses that work in the social sphere have no need for such a degree of formalization.

Departmentalization defines most organizational structures by classifying them as functional or divisional (Fairfield 2016). Functional structure exists in nearly all businesses as in its activities are grouped based on the similarity of function. Divisional departmentalization, on the other hand, means that the company is structured around the products it produces, with every service and product having its own division, which replicates all of the functional structures of the company on a smaller scale. Large globalized corporations utilize divisional departmentalization, while the functional structure is more suitable for smaller businesses.

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Lastly, there are the hierarchical factors. Organizations can have either flat or tall hierarchical structures (Lock 2014). The former stands for a few layers of hierarchy whereas the latter is multilayered. There are several advantages and disadvantages to each. Flat hierarchical structure means greater workloads on managers, which are compensated by self-actualization capabilities of the employees. Tall structure, on the other hand, allows for greater degree of micromanagement, as managers would have to supervise fewer workers.

Implications of Organizational Structures on Managers, Employees, and Resources

Traditional organizational structures have been used for the entirety of the history of humankind. They represent a top-down multilayered pyramid-like structure with a rigid system of objectives and responsibilities for each individual branch. The basis for this organizational structure was formed by Taylor’s classic theory of management, which used statistical data as well as the concepts of punishments and rewards to motivate its employees (Maylor et al. 2018). However, this system has proven to be inadequate when faced with challenges presented to the modern businesses by the ever-changing business environment. There are three main models of organizational structures, each having their own implications for managers, employees, and resources. These models are:

  • Matrix model.
  • Boundaryless model.
  • Learning model.

Matrix model came as an evolution of the traditional hierarchical model and combines its elements with a product structure (Rothaermel 2015). Matrix structure allows for faster response times to the changing conditions of the market and better use and allocation of the company’s human resources – project teams are assembled based on the task. Managers get greater freedom in assembling teams and conducting projects. The strengths of this organizational structure are in its better managerial flexibility and resource allocation. However, it is more complex than a traditional hierarchy in that employees need to respond to the demands of several managers at once. Thus, while it is more responsive, it is also more difficult to manage. Constant reshuffling of the project teams means a degree of detachment of employees from their colleagues, which makes the creation of a corporate culture more difficult.

Boundaryless organizations erase the barriers between different departments and the external environment. As a result, the departments within the organization become self-reliant, to a degree, and free to resolve any issues on their own rather than forwarding them to other departments (Ashkenas et al. 2015). As a result, managers receive significantly more freedom, and employees work in clusters, which improves dedication and familiarity with the environment. On the other hand, the company’s resources may not be used properly due to them being spread to individual departments rather than shared in a common pool.

Lastly, the learning model is focused on acquiring knowledge from testing certain behaviors and recording the effects resulting from these behaviors. Such a type of organization is widespread in research and development departments, as it allows for maximum freedom for both managers and employees to perform projects and meet the company’s needs in any way they wish (Lock 2014). Typically, learning organizations use the corporate standards as a benchmark and seek to improve existing practices. However, this type of organization has a very loose formal hierarchy, which does not always transfer into effective use of resources or managerial effectiveness.

Conclusions

Our company is in dire need of organizational and structural change. When developing a new structure, it is recommended to use the POLC framework. Some of the most important factors to consider during the development process are centralization, formalization, departmentalization, and hierarchical structure. Different kinds of organizational structures possess different implications for managers, workers, resources, and the nature of work. Choosing the right organizational framework is key to a successful transformation.

Reference List

Ashkenas, R, Ulrich, D, Jick, T & Kerr, S 2015, The boundaryless organization: breaking the chains of organizational structure, John Wiley & Sons, New York.

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Fairfield, KD 2016, ‘Understanding functional and divisional organizational structure: a classroom exercise’, Management Teaching Review, vol. 1, no. 4, pp. 242-251.

Hatch, MJ 2018, Organization theory: modern, symbolic, and postmodern perspectives, 4th edn, Oxford University Press, Oxford.

Lee, JY, Kozlenkova, IV & Palmatier, RW 2015, ‘Structural marketing: using organizational structure to achieve marketing objectives’, Journal of the Academy of Marketing Science, vol. 43, no. 1, pp. 73-99.

Lukovic, T, Speranda, I, Kizielewicz & J 2015, ‘Five types of the managerial behaviour in the function of the ROI leadership model’, in International OFEL Conference of Governance, Management, and Entrepreneurship, pp. 805-814.

Lock, D 2014, The essentials of project management, 4th edn, Routledge, London.

Maylor, H, Meredith, JR, Soderlung, J & Browning, T 2018, ‘Old theories, new contexts: extending operations management theories to projects’, International Journal of Operations & Production Management, vol. 38, no. 6, pp. 1274-1288.

Rothaermel, FT 2015, Strategic management, 2nd edn, McGrawHill, New York.

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