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Factors That Influence Organizational Structure And Design Pdf

factors that influence organizational structure and design pdf

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Numerous internal and external forces affect an organization.

Factors That Influence Organizational Structure

Considerations of the external environment—including uncertainty, competition, and resources—are key in determining organizational design. Considerations of the external environment are a key aspect of organizational design. The environment in which an organization operates can be defined from a number of different angles, each of which generates different structural and design strategies to remain competitive.

Complexity theory postulates that organizations must adapt to uncertainty in their environments. The complexity theory treats organizations and firms as collections of strategies and structures that interact to achieve the highest efficiency within a given environment.

Therefore, companies in a highly uncertain environment must prioritize adaptability over a more rigid and functional strategy. Alternatively, a fixed and specific approach to organizational design will capture more value in a mature market, where variability and uncertainty are limited. Another perspective on organizational design is resource dependence theory—the study of how external resources affect the behavior of the organization.

Procuring external resources is important in both the strategic and tactical management of any company. Resource-dependence theory explores the implications regarding the optimal divisional structure of organizations, recruitment of board members and employees, production strategies, contract structure, external organizational links, and many other aspects of organizational strategy.

Another environmental factor that shapes organization design is competition. A company that demonstrates strength in differentiation relative to the competition benefits from implementing a divisional or matrix strategy, which in turn allows the company to manage a wide variety of demographic-specific products or services.

Alternatively, a company that demonstrates a low-cost strength producing products cheaper than the competition benefits from employing a structural or bureaucratic strategy to streamline operations.

In considering organizational design relative to the environment, managers may find it helpful to employ two specific frameworks to identify external factors and internal strengths and weaknesses:.

Smaller, more agile companies tend to thrive better in uncertain or constantly changing markets, while larger, more structured companies function best in consistent, predictable environments. Understanding these tools and frameworks alongside the varying external forces that act upon a business will allow companies to make strategic organizational decisions that optimize their competitive strength.

The size and operational scale of a company is important to consider when identifying the ideal organization structure. Explain how the size of a company helps determine the organizational structure that optimizes operational efficiency and managerial capacity.

This definition underscores why it is important for companies to identify the factors of the organization that determine its ideal structure—most specifically the size, scope, and operational initiatives of the company. The organizational structure should be designed in ways that specifically optimize the effort and input compared to output. Larger companies with a wider range of operational initiatives require careful structural considerations to achieve this optimization.

Companies may adopt one of six organizational structures based upon company size and diversity of scope of operations. Ideal for smaller companies, the pre-bureaucratic structure deliberately lacks standardized tasks and strategic division of responsibility. Instead, this is an agile framework aimed at leveraging employees in any and all roles to optimize competitiveness. A bureaucratic framework functions well in large corporations with relatively complex operational initiatives.

This structure is rigid and mechanical, with strict subordination to ensure consistency across varying business units. This structure is a combination of bureaucratic and pre-bureaucratic, where individual contribution and control are coupled with authority and structure. In this structure, consensus is the driving force behind decision making and authority. Post-bureaucratic structure is better suited to smaller or medium-sized organizations such as nonprofits or community organizations where the importance of the decisions made outweighs the importance of efficiency.

A functional structure focuses on developing highly efficient and specific divisions which perform specialized tasks. This structure works well for large organizations pursuing economies of scale, usually through production of a large quantity of homogeneous goods at the lowest possible cost and highest possible speed. The downside of this structure is that each division is generally autonomous, with limited communication across business functions.

A divisional structure is also a framework best leveraged by larger companies; instead of economies of scale, however, they are in pursuit of economies of scope. Economies of scope simply means a high variance in product or service.

For example, Disney may have a division for TV shows, a division for movies, a division for theme parks, and a division for merchandise. A matrix structure is used by the largest companies with the highest level of complexity. This structure combines functional and divisional concepts to create a product-specific and division-specific organization. In the Disney example, the theme park division would also contain a functional structure within it i. Structure becomes more difficult to change as companies evolve; for this reason, understanding which specific structure will function best within a given company environment is an important early step for the management team.

Smaller companies function best as pre-bureaucratic or post-bureaucratic; the inherent adaptability and flexibility of the pre-bureaucratic structure is particularly effective for small companies aspiring to expand. Larger companies, on the other hand, achieve higher efficiency through functional, bureaucratic, divisional, and matrix structures depending on the scale, scope, and complexity of operations.

Technology impacts organizational design and productivity by enhancing the efficiency of communication and resource flow. Technology is an important factor to consider in organizational design. Modern organizations can be treated as complex and adaptive systems that include a mix of human and technological interactions. Organizations can utilize technological tools to enhance productivity and to initiate new and more efficient structural designs for the organization, thereby adding potential sources of economic value and competitive advantage.

Technology : Technology has opened doors to incorporating new and advanced forms of organizational design. This is most notably seen through rapid global communications and the ability to constantly and economically be in contact.

Over the internet, an organization with a small core can still operate globally as a market leader in its niche. This can dramatically reduce costs and overhead, remove the necessity for an expensive office building, and enable small, dynamic teams to travel and conduct work wherever they are needed. A similar organizational design that is heavily reliant upon technological capabilities is the network structure. While the network structure existed prior to recent technologies i. Technology can also affect other longstanding elements of an organization.

For example, information systems allow managers to take a much more analytic view of their businesses than before the advent of such systems. Managers can communicate and delegate much more effectively through using technologies such as email, calendars, online presentations, and other virtual tools. Technology has also impacted supply chain management —the management of a network of interconnected businesses involved in the provision of product and service packages required by the end customers in a supply chain.

Supply chain management now has the capacity to track, forecast, predict, and refine the outbound logistics, contributing to a wide variety of logistical advantages such as minimizing costs from warehousing, fuel, negative environmental impacts, or packaging.

Technology simplifies the process of managing reports, collecting communications, and keeping in touch, enabling management in more formal structures to take on more workers. Increases in technology have essentially allowed organizations to scale up their companies through more effective and efficient teams. The life cycle of an organization is important to consider when determining its overall design and structure. Organization design can be defined narrowly as the strategic process of shaping organizational structure and roles to create or optimize capabilities for competition in a given market.

The life cycle of a business : Organizations must always be striving to sustain their position in a given competitive environment. This often requires structural evolution and rapid iterations in the feedback loop of disruption, growth, refinement, and renewal. Generally speaking, organizations go through the following stages:. The Enterprise Life Cycle is a model that underlines the way in which organizations remain relevant. The Enterprise Life Cycle is the dynamic, iterative process of changing an enterprise over time by incorporating new business processes, technologies, and capabilities, as well as maintaining, using, and disposing of existing elements of the enterprise.

Richard L. Daft theorized four stages of the organizational life cycle, each with critical transitions:. Daft first notes that the entrepreneurial or startup stage of an organization requires leadership.

In this situation, decision-making must be enabled and bureaucracy should be minimized. This lends itself well to pre-bureaucratic stuctures in which everyone involved is empowered to take the reins and employ their creativity and innovation.

In the collectivity stage, momentum has been created and expansion is required. This is where functional or divisional strategies may begin to emerge, enabling managers to build teams and delegate tasks. Companies continue to expand in the formalization stage, requiring increased bureaucracy and more levels of authority to approve a given decision.

In this stage they grow large enough to accommodate functional, divisional, or even matrix structures in order to produce at scale. Organizations in this stage must be careful not to fall too strongly into rigid structures that inhibit or disrupt efficiency, communication, or decision-making. The Enterprise Life Cycle comes strongly into play in the elaboration stage.

This requires a great deal of organized creativity and exploration of new markets, which may justify team or divisional structures within the broader organizational structure. Such structures allow small teams to experiment and react quickly as they try new entrepreneurial strategies while the larger organization maintains operative efficiency in established markets. Privacy Policy. Skip to main content. Organizational Structure.

Search for:. Factors to Consider in Organizational Design. Considering the Environment Considerations of the external environment—including uncertainty, competition, and resources—are key in determining organizational design.

According to several theories, considerations of the external environment are a key aspect of organizational design. These considerations include how organizations cope with conditions of uncertainty, procure external resources, and compete with other organizations. A company in a highly uncertain environment must prioritize adaptability over a more rigid and functional strategy.

In contrast, a company in a mature market with limited variability and uncertainty should pursue more structure. A company with a low-cost strategy relative to its competition may benefit from a more simplistic and fixed structural approach to operations, while a company pursuing differentiation must prioritize flexibility and a more diversified structure. Key Terms strategy : A plan of action intended to accomplish a specific goal. Considering Company Size The size and operational scale of a company is important to consider when identifying the ideal organization structure.

Learning Objectives Explain how the size of a company helps determine the organizational structure that optimizes operational efficiency and managerial capacity. Key Takeaways Key Points Company size plays a substantial role in determining the ideal structure of the company: the larger the company, the greater need for increased complexity and divisions to achieve synergy.

Companies may adopt any of six organizational structures based on company size and diversity in scope of operations: pre-bureaucratic, bureaucratic, post-bureaucratic, functional, divisional, and matrix. Smaller companies function best with pre-bureaucratic or post-bureaucratic structures. Pre-bureaucratic structures are inherently adaptable and flexible and therefore particularly effective for small companies aspiring to expand.

Larger companies usually achieve higher efficiency through functional, bureaucratic, divisional, and matrix structures depending on the scale, scope, and complexity of operations. Understanding the varying pros and cons of each structure will help companies to plan their organization design and structure in a way that optimizes resources and allows for growth. Key Terms economies of scale : Processes in which an increase in quantity will result in a decrease in average cost of production per unit.

factors that influence organizational structure and design pdf

Organizational size. The larger an organization becomes, the more complicated its structure. In reality, if the organization is very small, it may not even have a formal structure. Rules and guidelines are not prevalent and may exist only to provide the parameters within which organizational members can make decisions. Small organizations are very often organic systems.

Organizational Structures and Design What are mechanistic versus organic organizational structures? What are the factors that influence organizational structure? Therefore, this paper discusses the factors that can influence the pay structure. In this chapter, we present information about designing appropriate organizational structures. Factors Affecting Organizational DesignAlthough many things can affect the choice of anappropriate structure for an organization, the followingfive factors are the most common: size, life cycle,strategy, environment, and technology. Organizational sizeThe larger an organization becomes, the morecomplicated its structure. Fiol and Lyles have identified four contextul factors that influence organizational learning: corporate culture, strategy, organizational structure and the environment.

factors that influence organizational structure and design pdf

Factors Affecting Organizational Structure

Each business is unique and often demands a more adaptive and flexible approach to organizational structure. Read on to find out which organizational factors you should consider when deciding the best organizational structure for your company.

5 organizational factors to consider when determining team structure

January 27, No Comments Uncategorized factors that influence organizational structure and design pdf For this research, we adopted case study methodology and three free software communities were studied. What strategies are adopted by the sponsor to influence the organizational structure of free software communities? The best structural option here might be a mix between mechanistic and organic structure, which would allow tight control for current business and looser structures for new pursuits.

In those groups that consider the variables of internal factors to be modifiers of structure the organizational structures are of the "complex classical" type, whereas simple forms predominate in the group that believes these variables do not modify their structure. Strategy to Achieve Objectives Organizational structure follows strategy. Materials and information were sourced from the Human Resource Departments of the firms Makerere University. In most of these studies, the impact of culture on organizational structure is not considered. Structured ques-tionnaires were administered with respect to these factors. Organizations vary according to the relative influence of a number of factors related to both the objective of the organization and the instruments and strategies chosen to achieve them. Although many things can affect the choice of an appropriate structure for an organization, the following five factors are the most common: size, life cycle, strategy, environment, and technology.


Size and complexity of.


As a business owner, you have multiple structural choices for your company. These choices are made easier by the number of organizational design principle examples from successful companies that you can adopt. Common organizational design principle examples include maximizing the talents and skills of your staff, encouraging accountability, and focusing on the things you can control. However, choosing the appropriate business structure requires you to take into account several factors that can determine the success or failure of your company. For example, a business that has a large number of employees who work on many different projects, may benefit from a structure in which you authorize project leaders to make important decisions without needing upper-management approval.

Considerations of the external environment—including uncertainty, competition, and resources—are key in determining organizational design. Considerations of the external environment are a key aspect of organizational design. The environment in which an organization operates can be defined from a number of different angles, each of which generates different structural and design strategies to remain competitive.

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