Basic Challenges of Organizational Design | Commerce & Accountancy Optional Notes for UPSC PDF Download

Balancing Differentiation and Integration

Horizontal differentiation aims to enhance productivity by allowing individuals to specialize. However, companies frequently encounter challenges, as specialization tends to hinder communication between subunits, limiting the exchange of knowledge. Due to horizontal differentiation, members of distinct functions or divisions tend to develop a subunit orientation. This perspective involves viewing one's role in the organization solely from the standpoint of the time frame, goals, and interpersonal orientations of one's respective subunit.

Integration and Integrating Mechanisms

How to facilitate communication and coordination among subunits is a major challenge for managers. One reason for problems on this front is the development of subunit orientations that makes communication difficult and complex.

• Integration: The process of coordinating various tasks, functions, and divisions so that they work together and not at cross-purposes. Seven integrating mechanisms or techniques that managers can use as their organization’s level of differentiation increases.
• Hierarchy of Authority: The simplest integrating technique is the organization’s hierarchy of authority, which differentiates people by the amount of authority they possess. Because the hierarchy dictates who reports to whom, it coordinates various organizational roles. Managers must carefully divide and allocate authority within a function and between one function and others to promote coordination.
• Direct Contact: Direct contact between people in different subunits is a second integrating mechanism; there are often more problems associated with using it effectively than with the hierarchy of authority. The principal problem with integration across functions is that a manager in one function has no authority over a manager in another.
• Liaison Roles: As the need for communication between two subunits becomes increasingly important, often because of a rapidly changing environment, one or a few members from each subunit are often given the primary responsibility to work together to coordinate subunit activities.
• Task Forces: As an organization increases in size and complexity, more than two subunits may need to work together to solve common problems. A task force is a temporary committee set up to handle a specific problem. One or a few members of each function join a task force that meets regularly until a solution to the problem is found. Task force members are then responsible for taking the solution back to their functions to gain their input and approval. To increase the effectiveness of task forces, a senior manager who is not a member of any of the functions involved usually chairs the meetings.
• Teams: When the issue a task force is dealing with becomes an ongoing strategic or administrative issue, the task force becomes permanent. A team is a permanent task force or committee.
• Integrating Roles or Departments: As organizations become large and complex, communication barriers between functions and divisions are likely to increase. Managers in divisions making different products, for example, may never meet one another. An integrating role is a full-time managerial position established specifically to improve communication between divisions.
• Managers facing the challenge of deciding how and how much to differentiate and integrate must do two things:
  1. Carefully guide the process of differentiation so an organization builds the core competences that give it a competitive advantage.
  2. Carefully integrate the organization by choosing appropriate coordinating mechanisms that allow subunits to cooperate and work together to strengthen its core competencies.

Balancing Centralization and Decentralization 

• The hierarchy defines the area of each person’s authority within the organization. Many companies, however, complain that when a hierarchy exists, employees are constantly looking to their superiors for direction.  When some new or unusual issue arises, they prefer not to deal with it, or they pass it on to their superior, rather than assume responsibility and the risk of dealing with it.
• The solution involved decentralizing authority; that is, employees at lower levels in the hierarchy were given the authority to decide how to handle problems and issues that arose while they performed their jobs. The issue of how much to centralize or decentralize the authority to make decisions offers a basic design challenge for all organizations.
•  When the authority to make important decisions is retained by managers at the top of the hierarchy, authority is said to be highly centralized.
• The advantage of centralization is that it lets top managers coordinate organizational activities and keep the organization focused on its goals. Centralization becomes a problem, however, when top managers become overloaded and immersed in operational decision making about day- to-day resource issues.
• By contrast, when the authority to make important decisions about organizational resources and to initiate new projects is delegated to managers at all levels in the hierarchy, authority is highly decentralized.
• The advantage of decentralization is that it promotes flexibility and responsiveness by allowing lower-level managers to make on-the-spot decisions. Managers remain accountable for their actions but have the opportunity to assume greater responsibilities and take potentially successful risks. The downside of decentralization is that if so much authority is delegated that managers at all levels can make their own decisions, planning and coordination become very difficult. Thus too much decentralization may lead an organization to lose control of its decision-making process.

Balancing Standardization and Mutual Adjustment

The challenge for all organizations, regardless of size, is to create a structure that strikes the right balance between standardization and mutual adjustment. Standardization involves conformity to specific models or examples defined by well-established rules and norms considered proper in a given situation. It relies on standardized decision-making and coordination through rules and procedures, making actions routine and predictable. On the other hand, mutual adjustment is an evolving process where individuals use their current best judgment rather than standardized rules to address problems, guide decision-making, and promote coordination. Achieving the right balance ensures predictability in many actions, allowing the organization to accomplish ongoing tasks and goals while giving employees the flexibility to respond creatively to new and changing situations.

Formalization: Written Rules

Formalization is the use of written rules and procedures to standardize operations. Rules are formal written statements specifying the appropriate means for reaching desired goals. High formalization typically indicates authority centralization, where people follow specified principles. Low formalization implies coordination through mutual adjustment among individuals across organizational functions, indicating a dynamic decision-making process where employees apply their skills to respond to change and solve problems. Mutual adjustment typically leads to authority decentralization, allowing employees the authority to commit the organization to specific actions.

Socialization: Understood Norms

Norms are standards or styles of behavior considered typical or representative of a certain group of people, regulating and governing their behavior. Members of a group follow norms as generally agreed-upon standards. Norms often arise informally as people work together over time. Socialization is the process through which organizational members learn and internalize unwritten rules of conduct. Organizations can encourage the development of standardized responses or innovative ones.

Standardization versus Mutual Adjustment

The design challenge for managers is to find optimal ways to use rules and norms to standardize behavior while allowing for mutual adjustment to enable employees to discover new and better ways of achieving organizational goals. Managers need to balance the need for standardization against the need for mutual adjustment, understanding that individuals at higher levels in the hierarchy and in functions performing complex, uncertain tasks rely more on mutual adjustment than standardization to coordinate their actions.