An old @markkirkwood “tweet,” and some interesting organizational design math and information to consider thereto.
Tweet: Two management models to contemplate… Bottom-up, horizontal [= transparency] v. top-down, vertical [= secrecy]. New v. old…
WHAT IS ORGANIZATIONAL STRUCTURE?
An organizational structure defines how tasks are formally divided, grouped, and coordinated. The six elements of an organization’s structure—Key design questions and answers for designing the proper organization structure:
- Work specialization. To what degree are activities subdivided into separate jobs?
- Departmentalization. On what basis will jobs be grouped together?
- Chain of command. To whom do individuals and groups report?
- Span of control. How many individuals can a manager efficiently and effectively direct?
- Centralization and decentralization. Where does decision-making authority lie?
- Formalization. To what degree will there be rules and regulations to direct employees and managers?
Chain of command
- “To whom do I go to if I have a problem,?” and
- “To whom am I responsible?”
Authority and unity of command discussions also belong with the chain of command concept…
Span of control
Here is where things get really interesting, and this point was the root of my earlier tweet…
How many employees can a manager efficiently and effectively direct? This question of span of control is important because it largely determines the number of levels and managers an organization has. All things being equal, the wider or larger the span, the more efficient the organization.
Example: Assume two organizations each have about 4,100 operative-level employees. One firm has a uniform span of four and the other company a span of eight.
Members at each level:
- Span of 4: i.e., 1, 4, 16, 64, 256, 1,024, 4,096, or 7 levels. Operatives = 4,096; Managers [Levels 1-6] = 1,365
- Span of 8: i.e., 1, 8, 64, 512, 4,096. Operatives = 4,096; Managers [Levels 1-4] = 585
As the example illustrates, the wider span will have two fewer levels and approximately 800 fewer managers. If the average manager makes $50k a year, the wider span will save $40 million a year in management salaries! Obviously, wider spans are more efficient in terms of cost. However, at some point when supervisors no longer have time to provide necessary leadership and support, they reduce effectiveness and employee performance suffers.
COMMON ORGANIZATIONAL DESIGNS
Three of the most common organizational designs: the simple structure, the bureaucracy, and the matrix structure.
NEW DESIGN OPTIONS
Two new structural options to consider that can better help a firm to compete more effectively are: the virtual organization, and the boundary less organization.
WHY DO STRUCTURES DIFFER?
Consider two extreme models:
Model 1
- High specialization
- Rigid departmentalization
- Clear chain of command
- Narrow spans of control
- Centralization
- High formalization
Model 2
- Cross-functional trams
- Cross-hierarchical teams
- Free flow of information
- Wide spans of control
- Decentralization
- Low formation
The major causes or determinants of an organization’s structure are:
Strategy
Because structure is a means to achieve objectives, and objectives derive from the organization’s overall strategy, it is only logical that strategy and structure should be closely linked. In fact, structure should follow strategy. If management significantly changes the organization’s strategy, the structure must change to accommodate said.
Organization size
Large or small …
Technology
How does the organization transfer inputs into outputs?
Environment
What outside institutions or forces affect the firm’s performance? For instance, suppliers, customers, competitors, government regulatory agencies, public pressure groups, uncertainty, etc. An organization’s environment typically has three dimensions: capacity, volatility, and complexity.