Designing Organizational Structures | Commerce & Accountancy Optional Notes for UPSC PDF Download

Introduction

• The organization's structure significantly impacts task division, activity grouping, coordination, and overall task completion. Since the organization's structure concerns relatively stable relationships and processes within the organization, all influencing factors must be considered when designing the organization's structure.
• According to Robbins, the organization's structure defines how tasks are allocated, who reports to whom, and the formal coordination mechanisms and interaction patterns to be followed. 

John Ivancevich and Michael Matteson also share this view and advocate that managers must make the following four decisions when designing the organizational structure:

• Division of the Overall Task into Smaller Jobs: This involves breaking down the overall task into smaller, more manageable jobs or activities.
• Distribution of Authority among the Jobs: This involves determining the level of authority and responsibility each job will have.
• Bases by Which the Individual Jobs are to be Grouped Together: This involves deciding how different jobs will be grouped together based on their similarities or interdependencies.
• The Appropriate Size of the Group Reporting to Each Superior: This involves determining the optimal size of the groups reporting to each superior to ensure effective communication and coordination.

Now, let's delve into each of these components in detail:

Division of Labour

Adam Smith emphasized the division of labour in his renowned work, "Wealth of Nations." In the early twentieth century, Henry Ford implemented assembly line operations for manufacturing automobiles, assigning a specific, repetitive task to each worker. The entire task was broken down into several smaller steps or activities, each completed by a separate individual. This approach resulted in workers specializing in particular activities, providing several benefits to the organization:

• Enhanced Work Efficiency: Specialized job performance increases work efficiency, allowing employees to use their skills most effectively.
• Quick Attainment of Perfection: Due to the short work cycles, workers can quickly attain perfection in their jobs.
• Increased Productivity: Specialized workers contribute to higher productivity.
• Easy Training: Workers can be easily trained to perform repetitive tasks.
• Reduced Training Costs: Specialized training costs are lower.
• Matching Workers with Job Skills: It's easier to match workers with specific job skills.

However, the division of labour has been criticized for the following reasons:

• Not Suitable for All Jobs: It may not be suitable for all types of jobs.
• Monotony and Boredom: It can lead to monotony and boredom for workers.
• Focus on Physical Performance: It focuses on the physical aspects of the job and may overlook workers' behavioral aspects.

Despite these criticisms, the benefits of work specialization outweigh the drawbacks. Hence, work specialization has been widely used as a means of enhancing productivity in organizations.

Delegation of Authority

Delegation is a managerial process where a manager splits their assigned work to effectively carry out the part they can manage due to their position. It involves giving legitimate authorization to a manager or employee to act in specific ways, allowing them to work independently within the supervisor's set limits and the organizational framework of objectives, policies, rules, and procedures. Delegation encompasses:

• Entrusting work to another for performance.
• Granting power, right, or authority to perform the work.
• Creating an obligation for the person accepting delegation.

Delegation is a crucial element in the organizational process. Organizations are characterized by a network of activities and roles, and delegation establishes interrelationships among individuals in their different roles within the organization.

• Delegation is essential because it is physically impossible for a single person to manage all the affairs of a large organization. A manager's success lies in their ability to multiply themselves through other people. Modern organizations are not only large but also complex, and managers cannot possess all the skills and expertise to perform diverse jobs.
• Moreover, large-scale business activities are not limited to one location; they often have multiple branches and units in various places, making delegation necessary for their operation.
• An organization is a continuous entity, and while managers may come and go, the organization continues to operate. Delegation ensures the continuity of operations in the organization and aids in managerial development.
• Delegation is vital for any organization because it reduces the managers' burden, allowing them to focus on crucial organizational matters. It also helps develop and train subordinates to take on higher responsibilities, maintains organizational continuity, and fosters a healthy organizational climate by enhancing employee understanding.

The major benefits of delegation include:

• Professionalism is promoted.
• Managerial decisions can be creative and innovative.
• A competitive environment is fostered within the organization.
• Managers can make quick decisions.

However, there are limitations to delegation:

• Managers may resist delegating authority.
• Managers may need training to make decisions, which can be costly.
• Not everyone may effectively handle high-level decision-making.
• Administrative costs may increase.
• Despite these limitations, delegation of authority enhances efficiency within the organization.

Departmentalization

• Departmentalization is the process of grouping activities within an organization into separate units to ensure efficient functioning. The term varies across different organizations; for instance, in business undertakings, the terms are division, department, and section; in government, these are called branch, department, and section; in the military, they are regiment, battalion groups, and company.
• The impact of departmentalization is twofold: it delineates executive responsibilities and groups operating activities. Every level in the hierarchy below the apex is departmentalized, and each successive lower level involves further departmental differentiation.

The main benefits of departmentalization include:

• Specialization: Departmentalization leads to specialization as organizational activities are grouped according to their relation to specific functions or objectives. Each departmental manager specializes in the tasks assigned to them.
• Administrative control: Departmentalization aids in effective managerial control because performance standards for each department can be precisely laid down. Every department has a specific objective, which facilitates keeping expenditure within limits.
• Fixation of responsibility: Since organizational work is divided into manageable units, and authority and responsibility are precisely defined, it is easier to fix the accountability of different managers for the performance of various tasks.
• Freedom or autonomy: The departments created through departmentalization are semi-autonomous units. Their heads are given a sufficient degree of authority to run their departments, which increases the efficiency of the departments.
• Development of managers: Departmentalization helps in the development of managerial personnel by providing them opportunities to take independent decisions and initiative. Executives can develop themselves for promotion to higher jobs.

Span of Control

Span of control refers to the number of individuals a manager can effectively supervise. It is expected that the span of control, i.e., the number of subordinates directly reporting to a superior, should be limited to make supervision and control effective because executives have limited time and ability.

The ideal span of control depends on several factors, including:

• Nature of the Work: If the work is simple and repetitive, the span of control can be wider. However, if the work requires close supervision, the span of control must be narrow.
• Ability of the Manager: Some managers are more capable of supervising a large number of people than others. For a manager with qualities of leadership, decision-making ability, and communication skills, the span of control may be wider.
• Efficiency of the Organization: Organizations with efficient working systems and competent personnel can have a larger span of control.
• Staff Assistants: When staff assistants are employed, contact between supervisors and subordinates can be reduced, and the span broadened.
• Time Available for Supervision: The span of control should be narrowed at higher levels because top managers have less time available for supervision.
• Ability of the Subordinates: Fresh entrants to jobs take more of a supervisor's time than trained persons who have acquired experience in the job.
• Degree of Decentralization: An executive who personally makes many decisions is able to supervise fewer people than an executive who merely provides encouragement and occasional direction.

The size of the span of control is related to numerous variables, and no single limit is likely to apply in all cases. A variety of factors can influence the resulting number of employees comprising the optimum span of control in any particular organization. The span of control also influences the creation of tall and flat structures.

Tall and Flat Structure

• A tall organizational structure consists of many hierarchical levels, resulting in a long distance between the topmost manager and the bottommost manager. It also involves a large number of job titles and a clear career path for employees. 
• A tall structure typically requires a manager to guide a smaller number of subordinates. On the other hand, a flat structure features a wider span of management and fewer hierarchical levels. In a flat structure, managers are responsible for guiding a larger number of subordinates. Choosing an appropriate span of management is crucial for two reasons. 
• First, it affects efficiency: a span that is too wide may result in overextended managers and insufficient guidance for subordinates, leading to potential errors. Conversely, a span that is too narrow may underutilize managers. 
• Therefore, the extent of work division, the nature of authority delegation, the process of departmentalization, and the need for effective supervision (i.e., the span of control) all influence the design of an organization's structure.