Designing global organizational structure and control | Management Optional Notes for UPSC PDF Download

Introduction

• Understanding the impact of organizational structure on a company's performance is crucial. Research consistently highlights the profound influence that structure and controls can have on a firm's success. The alignment between a company's strategy and its organizational structure is pivotal, and when this harmony is lacking, performance tends to decline. Organizational structure encompasses the relationships, responsibilities, and communication patterns among individuals within an organization, shaping the flow of information both vertically and horizontally. It encompasses formal reporting structures, procedures, controls, and decision-making processes. 
• Developing a structure that effectively supports a firm's strategy is a challenging task, particularly in the face of ambiguity and unpredictable variations in the rapidly changing global economy. However, when elements such as reporting relationships and procedures align seamlessly, the organizational structure becomes a powerful tool for implementing the firm's strategies effectively. The influence of organizational structure extends to managers' work and decision-making processes, directly impacting the tasks undertaken based on the company's overarching strategy.
• Effective organizational structures strike a balance between stability and flexibility. They provide the steadiness required for current strategies and the maintenance of existing competitive advantages, while simultaneously offering the flexibility needed to explore and develop new advantages for future strategies. This balance enables companies to exploit their current competitive strengths while actively working on the development of new ones. Notably, structural changes often accompany alterations in a firm's strategy, indicating a dynamic relationship between the two. 
• Despite the recognized importance of aligning structure with strategy, research indicates that organizations can face inertia when attempting structural changes, especially when performance issues arise. Companies may be resistant to change, preferring the familiar status quo until the necessity for change becomes unavoidable due to declining performance. Additionally, senior managers may be hesitant to admit problems with the existing structure, fearing implications for their past decision-making. Structural change is often induced by the actions of stakeholders, who play a crucial role in advocating for necessary transformations. 

Structural Dimensions of Organization Design

1. Formalization:

   • Refers to how many rules and procedures are in place within an organization.
   • It's about how structured and formal the work processes are.

2. Specialization:

   • Involves how specific and focused individual roles are within the organization.
   • Indicates the degree to which tasks are divided and assigned to different people.

3. Hierarchy of Authority:

   • Deals with the levels of management and the chain of command in the organization.
   • Determines who reports to whom and the overall structure of leadership.

4. Centralization:

   • Relates to where decision-making authority is concentrated.
   • Indicates whether decisions are made centrally by top management or more distributed across the organization.

5. Professionalism:

   • Refers to the level of expertise and knowledge required for roles.
   • Indicates how skilled and specialized employees are within the organization.

6. Personnel Ratios:

   • Involves the number of employees relative to the workload.
   • Indicates the staffing levels and how work is distributed among personnel.

Contextual Dimensions of Organization Design

1. Organization Size:

   • Relates to the total number of people employed by the organization.
   • Influences how the organization is structured and managed.

2. Technology Used:

   • Refers to the tools and methods used to accomplish tasks.
   • Influences the organization's structure based on the type of technology employed.

3. Environment of Operation:

   • Involves the external factors affecting the organization.
   • External conditions, such as competition and market demands, shape how the organization is structured.

An organization should not only focus on maximizing performance but also on enhancing participation and fostering innovation across all levels.

Different types of organization structures

1. Functional Structure:

   • Categorizes people based on their skills and expertise.
   • Each function (like marketing, finance) has its own department.

2. Divisional Structure:

   • Divides the organization based on product lines or specific markets/geographic locations.
   • Each division operates as a separate entity within the larger organization.

3. Matrix Structure:

   • Integrates features of both functional and divisional structures.
   • Employees report to two supervisors – one from a functional department and another from a division, product, or project.

4. Horizontal Structure:

   • Avoids rigid departmentalization by organizing managers and employees into collaborative teams.
   • Emphasizes problem-solving through teamwork.

5. Hybrid Structures:

   • Combines elements of two or more structures (e.g., functional and divisional).
   • Leverages the strengths of each merged structure.

Responsibility Structure

1. Responsibility Centres:

   • Groups of functions, divisions, or units within an organization with specified authority and responsibility.
   • Each centre is accountable for specific tasks.

2. Responsibility Accounting:

   • Management accounting system determining accountability at different management levels.
   • Emphasizes fairness in performance measurement, considering controllability and goal alignment.

3. Controllability Principle:

   • Managers assessed and rewarded only for factors under their control.
   • Focuses on evaluating performance based on manageable responsibilities.

4. Goal Congruence:

   • Managers make decisions aligned with individual and organizational goals.
   • Achieves synergy when individual objectives align with overall organizational objectives.

5. Transfer Pricing:

   • Assigns monetary values to transactions between responsibility centres.
   • A tool in responsibility accounting for evaluating inter-departmental transactions.

Nature of Responsibility Centres

1. Cost Centres:

   • Centers accountable for costs incurred.
   • Further divided into standard cost centres and discretionary expense centres.

2. Revenue Centres:

   • Focus on generating revenue for the organization.

3. Profit Centres:

   • Responsible for both generating revenue and managing costs to generate a profit.

4. Investment Centres:

   • Manage financial investments and are accountable for returns on those investments.

Organizational Controls