SESSION – 1

SIGNIFICANCE OF ORGANIZATION STRUCTURE AND

DESIGN
What is organization?

Organization is essentially a formal structure of people, which is set up to achieve some

defined goals. Commonly we use following terms to define any organization.

• Organization is a group of people who are organized to achieve a common purpose.

• It is an entity, a unit or a establishment, which utilises resources to achieve some
common purpose.
• It shows a structure of relationship in an enterprise
• It is a process, which facilitates to relate tasks and facilities of people working in an
enterprise, to achieve intended goals.

According to Arthur Young to create an organization, we group the activities, establish

authority and responsibility, and describe the working relationships
What is organization? (continued)

In simple terms organization is made of group of people with some specific goals and
objectives. It is defined as relations among components of a system.

Organization structure denotes the components and relations that bind people working with
the organization.

Three pillars of organization are the people, the organization itself (considering it as a
separate entity) and the technology.

•People issues encompass education, training and attitudes. Organization issues cover
strategy, policy, culture and bureaucracy. Technology issues are hardware, software,
telecommunications and information systems.
•Three different levels of organization structure are strategic, tactical and operational.
•Strategic level represents decision making level, i.e., the corporate or the top level of an
organization.
•Tactical or business level is the middle management level, where strategic decisions are
transformed into tactics to achieve the strategic intents.
•Operational level represents the actual implementation level, where first level employees
and workers, execute the tactics, adopting the actions plans.
ORGANIZATION STRUCTURE

Organization structure helps us to determine the authority relationships among the members
of organization, and hence it influences the behaviour of individuals, groups and divisions
within the organizations.

Among others, structure of an organization affects the division of tasks, communication

systems, decision making patterns and finally the way how people relate to each other.

Global competition now requires many organizations to re-define their structure and even to
relocate, taking advantage of state of art technology and communication support.
Organization, Organizing, Organization Structure, Organization
Design, Organizational culture, and Organizational change

•Organization is a social group, deliberately created and maintained to achieve some intended
goals. Also it is referred as a process of determining activities to achieve intended goals,
creating various roles and ensuring effective operation of the total system.
•A social organization focuses on social conditions, going beyond financial benefits to its
funders, managers, employees, or customers. With the increasing privatization of
Government services, importance of social organizations are rising.

•Organizing is a management process of identifying; classifying, grouping and assigning

various activities with adequately defined authority relationships to achieve intended goals.

•Organization structure is the outcome of organizing process. It is a framework of decision-

making authority, i.e., a system of relationships, which govern the activities of the people
working in the organization to achieve some intended goals.

•Organization design denotes policies, strategies, processes, and systems that fit with
organization structure. Through this managers select and manage organizational structure
and culture to control activities to achieve its goals.
Organization, Organizing, Organization Structure, Organization
Design, Organizational culture and Organizational change (continued)

Organizational change is the process by which organizations redesign their structures and
cultures to move from their present state to some desired future state to increase their
effectiveness.

Organizational culture is the set of shared values and norms that controls organizational
members’ interactions with each other and with suppliers, customers, and other people
outside the organization.
The Relationship among Organization, Organizing, Organizational
Structure, Design, Culture, and Change
Importance of Organizational Design and Change

•Dealing with contingencies

1. Contingency: An event that might occur and must be planned for

2. The design of an organization determines how effectively an organization is able to
respond to various pressures in its environment and so obtain scarce resources
3. Challenges organizations must be ready to face
 Globalization
 Changing technology

•Gaining competitive advantage 

 
1. Competitive advantage: The ability of one company to outperform another because its
managers are able to create more value from the resources at their disposal
2. Core competences: Managers’ skills and abilities in value-creating activities
3. Strategy: The specific pattern of decisions and actions that managers take to use core
competencies to achieve a competitive advantage and outperform competitors
Importance of Organizational Design and Change (continued)
•Managing diversity

1. Differences in the race, gender, and national origin of organizational members have
important implications for organizational culture and effectiveness
2. Learning how to effectively utilize a diverse workforce can result in better decision
making and more effective workforce

•Promoting efficiency, speed, and innovation

1. The better an organization functions, the more value it creates

2. The correct organizational design can lead to faster innovation and quickly get new
products to market
Why do Organizations Exist

•To increase specialization and the division of labour

1. Division of labour allows specialization

2. Specialization allows individuals to become experts at their job

•To use large-scale technology

1. Economies of scale: Cost savings that result when goods and services are produced in
large volume on automated production lines
2. Economies of scope: Cost savings that result when an organization is able to use
underutilized resources more effectively because they can be shared across different
products or tasks. Example a common solidification unit in HUL plant. Using same
assembly line for multiple product lines ensuring less interchangeability time.

•To manage the organizational environment

1. An organization’s environment is the source of valuable input resources and is the

marketplace into which it releases outputs
2. It is the source of economic, social, and political pressures that affect an organization’s
ability to obtain these resources
Why do Organizations Exist (continued)

•To economize on transaction costs. Transaction costs are associated with negotiating,
monitoring, and governing exchanges between people
•To exert power and control. Organizations can exert great pressure on individuals to
conform to task and production requirements in order to increase production efficiency

These five factors help explain why more value can be created when people work
together, coordinating their actions in an organized setting, than when they work alone.
Five factor Model of Organizational Existence
The Consequences of Poor Organizational Design

•Decline of the organization

•Talented employees leave to take positions in growing organizations
•Resources become harder to acquire
•The process of value creation slows down

How do Managers Measure Organizational Effectiveness?

•Control - Having control over the external environment and having the ability to attract
resources and customers
•Innovation - Developing an organization’s skills and capabilities so the organization can
discover new products and processes
•Efficiency - Means developing modern production facilities using new information
technologies that can produce and distribute a company’s products in a timely and cost-
effective manner
How organization creates value?

Organization creates value through three stages; input, process or conversion,

and output.
Activities in each stage are affected by the environment in which organization
operates.
The organizational environment is the set of forces and conditions that affect
organizational value creation activities, i.e., from resource acquisition to output
generation.
Organizational environment can be both internal and external. Balancing the
external and internal environment, organization can achieve effectiveness in
value creation.
A typical value creation framework thus considers resources/capabilities (inputs), pattern of
activities (process), scale/scope/externalities (externalities/interactions), value proposition
(output).
Organizational value creation model is explained in next slide.
Model of value creation
Value Creation and Systems view of Organization

•Organizations are viewed from systems perspectives, as systems is a collection of parts (or
sub-systems), which is integrated to accomplish the goals and objectives of the organization.
•Organizational value creation process suffers, unless we embrace systems view of an
organization.
•Systems have inputs, processes, outputs and outcomes, with ongoing feedback among these
various parts. If one part of the system is removed, the nature of the system is changed.
•Organization is viewed as a system, as organization is a unitary whole. It consists of
arrangement of activities to achieve its objectives.
•Systems theory also provides new perspective for managers to interpret patterns and events
in their organizations.
Components of Organizational Structure

According to Mintzberg (1981), organizational structure is the sum total of the ways in which
it divides it’s labour into distinct tasks and then achieves coordination among them.

As Mintzberg believed organization structure is a configuration systems and relationships, he

suggested six components, as illustrated in the figure below:

•people in the operating core part of the organization are involved in the production of goods
and services.
•The strategic apex part of the organizations is involved with controlling.
•The middle line managers aligns strategic apex with the operating core.
•People at the techno-structure core, designs, plan, change or train the operating core. The
support staff provides support to the organization, which is outside of the operating core.
•Finally ideology is the traditions and beliefs that make one organization distinctly different
from another.
Systems Theory Principles

Systems theory identifies certain commonalities in systems. Such commonalities are

developed based on certain well accepted principles of systems for organizations.
Behaviour of systems depends on the structure of the organization.
Organizational structure determines the various behaviours, and behaviour determines
various events in organizations.
Breaking organizational systems only by responding to the events become more an effort like
addressing to organizational problems, as and when they arise. Such organizations,
characteristically, adopt incremental strategies (short-term) to fix some events.

Based on the above discussions, we can list the systems principles as under:

•Organizational systems follow pattern of events in a cycle.

•Each pattern of event indicates some specific phases, and at each phase, behaviour of the
organization changes
•Systems interpret patterns and events in their organizations
•Systems seek balance with the organizational environments
•When systems do not interact with their environment, it becomes limited.
•A circular relationship exists between the overall system and its parts.
Open Systems approach in organization

In today’s changing world, open system approach to organization is considered more relevant.

•Open systems approach attributes are; energy, throughput, output, cycles of events, negative
entropy, information input, steady or dynamic homeostasis, differentiation, integration and
co-ordination, and equifinality
•Cycle of Events is a process in open systems organization, by which it receives inputs from
the environment and then transforms them and generate output.
•Negative Entropy represents ability of the organization to autonomously repair itself and
then survive and grow by importing resources from its environment and transforming them to
outputs.
•Organizations through steady or dynamic homeostasis maintain equilibrium over a period of
time.
•Through differentiation, organizations develop structures and develop specialized functions.
•Equifinality principle of the open systems organization achieves their objectives through
several different courses of action.
Viable Systems Model, Organizational Cybernetics and
Organizational Systems

•Viable System Model (VSM) postulated by S. Beer (1979) VSM is an important instrument in
the operationalization of the organizational cybernetics approach.
•According to Beer cybernetics is ‘the science of effective organization’. A system is said to be
viable when it is able to adapt effectively to environmental changes, even though such
changes are unforeseen.
•VSM thus consists of operation (O) with embedded management (M) and environment (E). It
is used in organization to diagnose different elements, in designing information systems,
designing management structure, etc. Even in designing organizational vision, mission and
structure it is used. Therefore, VSM also helps in systematic thinking in organizations.
•Thus VSM as an organizational framework of various functions and relationships, creates the
conditions, making use of which, organisations can diagnose the major dysfunctions, and
develop necessary intervention strategies.
•Based on his study of organic systems, Beer observed organizational systems can sustain
independent existence despite the operations of Law of Requisite Variety.
•The law describes how complexity could operate to overpower a system of management. In
cybernetics, the word variety denotes complexity, which is infinite. Management instead of
dealing with the environmental complexity should create the appropriate operating process,
which can interact with the environment, and sustain its independent existence.
Operations of the Law of Requisite Variety, according to Beer exhibit
following properties,

•Maintenance of identity (every organization must have a purpose and accordingly should
organise its means to achieve the same).
•Ability to self repair (organisation should be capable enough to self-repair to sustain
existence).
•Self awareness (organization must aware of themselves on what they comprise).
•Self organising (organizational structure should be environment and context specific).
•Self balancing (homeostasis).
•Open systems (adaptive to extract information from their environment)
 5

Total Environment
Identity Meta
System

The 4
Future? Intelligence 3
Control

Audit
Coordination
3* 2

Env 1
A
Op A Operating
System
Env 1
B Op B

Viable System
Viable system (continued)

As per the model, System 5 represents the identity, i.e., the total system purpose and the
measures of success. System 5 passes down to System 3, i.e., the policies and authority,
which govern the overall system outcomes. System 5 balances the present and the future,
external and internal perspectives, moderating its relationship between systems 3 and system
4. Change in System 3, influence System 1 (operational systems, i.e., A and management
function, i.e., B). System 3 and each of System 1 (A and B) through interactions establish
agreements, i.e., managed by System 2. System 4 examines the external environment and
gains the intelligence about the totality and the future.

Therefore, in VSM, any of the six systems operate with a cybernetic intervention at any point
in time, and in the process ensure that the organisation become a self-controlling system.  
Organizational Effectiveness

•Effectiveness is the extent of an activity that helps in achieving the long-term goals. Since we
measure effectiveness for specific activity, we can define activity specific effectiveness is the
outcome that support the broader goals of an organization.
•To measure the effectiveness, we can use both the qualitative and quantitative tools.
Behavioural parameters like; values, attitudes, skills and behaviour are measured using
qualitative tools.
•Value and volume of output changes, customer satisfaction, changes in the profitability, etc.
are measured using quantitative tools.
•Organizational effectiveness is the extent to which the organization, as a whole, achieves its
goals optimizing its resources. It depends on the degree of interpersonal skills, positive
attitudes, technical competencies, small group activities, etc., which together contributes to
the achievement of organizational goals and objectives.
•Organizational effectiveness refers to the corporate management systems that produce
development results of an organization. Among others, an effective organizational structure
helps in achieving organizational effectiveness.
Approaches to Measuring Organizational Effectiveness
Measuring Effectiveness achieving Organizational Goals

•Official goals: Guiding principles that the organization formally states in its annual report and in
other public documents
•Mission: Goals that explain why the organization exists and what it should be doing
•Operative goals: Specific long-term and short-term goals that guide managers and employees
as they perform the work of the organization