Organizational chart has long history. In 1855 railway general manager Daniel McCallum designed the first modern organizational structure. He demonstrated chart of the New York and Erie railway (Lucidchart 2017).
This paper will examine how business leaders can design their organization structure.
Organizations structure is one of the most important factors for the organizational designer. Business leaders should define the company's vision, then they need to design an organizational structure to accommodate the tactics that will reach this vision. Design organizations structure is not very simile because it requires several significant components such as relationship, responsibilities and reporting channel. Organizational structure define how power, authority and accountability are formally distributed throughout the company and clearly has a strong influence on how executives and employees and different business units interact with one another and the degree to which they will share information and collaborate to achieve the overall goals and objectives of the company (Gutterman 2015).
Key issues for designing the organizational structure
It is very challenging to create the best design and structure for your own company. First, the managers and employee's role and responsibilities should be very clear. Second, the hierarchy of authority and power should be established to recognize the locus for decision making within the company. Third, the communication channel and information flow should be made through the creation of reporting rules and procedures. Forth, create mechanisms to control and monitor the staff activities (Gutterman 2015).
The importance of good structure
Organizations design refers to a company considering at the complicated relationship between tasks, employees, responsibilities, and authority, and making sure these the objectives of the company. Good company design assists communications, efficiency, and innovation. It makes a good environment where employees can work effectively.
It is important for a company to divide the work among its members in order to achieve its goals and objectives. Structure gives the framework of a company and for its administration pattern. The executives need to know the significance and effects of company structure and design.
The organizational structure can improve the company in serval ways such as efficiency, economic performance, moral and job satisfaction of employees.
Business productivity and performance issues can be related to bad organization design. Many companies have mission, vision stamen, expert employees and leadership yet not perform well due to bad organizational design (Organization Design 2017).
Mistakes in Organizational Structure
The strategy changes but the structure does not
Whenever the strategy changed including when there is a change to new phase of the implementation lifecycle the managers need to re-assess and change the structure. The mistake happened in restructuring is that the new shape of the business follows the old one. Although the new strategy is made, the old hierarch remains implanted in the so entitled new structure. Changing a company structure can be very challenging due to several factors such as interpersonal relationships, expectations, positions, career paths, and functions. In fact, employees do not like changes and they will fight for it and this can lead to loss of power.
Functions focused on effectiveness report to functions focused on efficiency
Efficiency will always tend to overcome effectiveness. For this reason, managers will never want to have functions focused on effectiveness (marketing & sales, staff development, accounting administration, and policy) reporting to functions focused on efficiency (operations, quality control, administration, and customer service). For instance, a company wants to achieve Six Sigma (doing things right). Later the processes and the system become so efficient and firmly controlled, so there will be little flexibility or margin for mistake. Managers should consider that things might become very efficient that they lose their effectiveness. Managers always should avoid having functions focused on effectiveness reporting to functions focused on efficiency. If managers do that, their business will lose its effectiveness when time passes and it will fail (Sisney p4 2014).
Not balancing the need for autonomy vs. the need for control
It is obvious that there is natural conflict between autonomy and control. Autonomy requires freedom to generate results, whereas control need to regulate for better efficiencies. Sisney 2014 suggest that the design principle is that a lot of autonomy should be given to those closest to the client (functions such as accounting management and sale) whereas the control for systemic risk (functions like accounting, legal, and human recourse management) must be centralized as much as possible.
The main important element of organizations are not a building or rules, procedures and policy, they are created for employees and their relationships with another. CEO deliberately structure and organize organizational resources to achieve the organization goal. Business cannot exist without interacting with clients, dealers, competitors, and other components of the outside environment. Moreover, some organizations are cooperating with their competitors sharing some important information and technology to their mutual benefits.
Dimensions of organization design
There are two of organizational dimensions: structural dimensions which describe the internal characteristics of a company and contextual dimensions characterize the whole company, including its size, technology, environment and goals.
' Formalization it is means documentation that incudes procedures, job explanations, rules and regulations manuals. Formalization is usually measured by counting many pages of documentation in the company.
' Specialization means organizational jobs are subdivided into different tasks. When specialization is high, each member in the company performs only a narrow range of tasks. On the other hand, when specialization is low people perform a broad range of tasks in their jabs.
' Hierarchy of authority explain who reports to whom and limit of control for each executive. The hierarchy is referring to limit of authority (the number of staffs reporting to a supervisor). If the limit of control is narrow, the hierarchy seems to be tall, whereas if the span of control is wide the hierarchy of power will be shorter.
' Centralization refers to the level of hierarchy that has power to make decisions. When decisions making are held at the top, the company is centralized but the decisions making are kept to the lower level, the company decentralized.
' Professionalism is referring to the formal training and education of staff. When the staff require long time of training to hold jobs in the company, professionalism is considered high. Professionalism measured as the average of number of years of employee's education that could be as high as 20 years in a medical practical and less that 10 years in constructions companies.
' Size can be measured for the entire business or for certain components like a plant or division. Since company is social systems, size is often measured by the number of workforces. Other measures like sales or assets also reflect size, but they do not show the size of the human part of the system.
' Organizational technology indicates the tackles, methods, and actions used to transform inputs into outputs. It pays attention to how the business makes the goods and services it provides for consumers and contains such things as flexible manufacturing, advanced information systems, and the Internet.
' The company's goals and strategy describe the purpose and competitive methods that set it separately from other organizations. Goals are usually written down as permanent statement of business intent. A strategy is the plan of action that defines resource allocation and actions to deal with the environment and for achieving the company's goals.
' Organization's culture is the fundamental set of values, beliefs, understandings, and norms shared by people. These main values and norms may concern to ethical behavior, pledge to staff, efficiency, or customer service, and they keep the glue to hold company members together. Moreover, organization's culture is unwritten but can be seen in its stories, slogans, ceremonies, and office layout. Daft, R. L. (2016).
Designing my own company structure can very difficult and challenging task. I need to manage the vertical and the horizontal dimensions of the structure all the time and select the best appropriate allocation of authority and job responsibilities. Select the best organization structure depends on number of factors such as the size of the business, nature of the business, work flow and the hierarchy. As I learned in the class there are different type of organizations structures and each one has benefits and drawback. In addition, as the company grows I need to change the structure to cope with this growth. There are three important components in term of definition of organization structure:
First, organization structure defines official reporting relationships, including the levels in the hierarch and the span of control of executives and supervisors.
Second, organization structure recognizes grouping together of individual in the subdivision and of the division into the total business.
Finally, organization structure involves the design of system to make sure effective communication, coordination, and integration of strengths across departments.
The organization chart below shows different departments at the company, how they are connected, and how each position and department fits into the whole organization.
Functional structure based on group of experts work together and share the same knowledge. In other word who report to whom. For instance, all R&D staff are located in the R&D department and the vice present of R&D is responsible for entire R&D activities and the picture below explains the functional structure.
Advantages of a Functional Structure
' Functional structure it provides employees the opportunity to learn from each other and become specialized and productive. The most expert person can be giving responsibility to train new employees and the employees who are promoted can become supervisors and executives.
' Employees who are grouped together by same skills and area of experts can supervise and control one another behavior.
' Employees role and responsibilities are known which simplifies easy accountability for the job.
' The hierarchy in the company is very clear. Therefore, employees do not need to report to different managers. Everyone report to his/her functional supervisor, so this reduce the number of communication channels.
' Employees feel safe and secure so they perform will. Also, they become loyal to the company.
Disadvantages of the functional structure
' Communication is poor among the company departments. Therefore, communication issues can reduce coordination level and mutual adjustment among departments and it became more complex for the company to respond to customers and market demands.
' Strategic problems. As the company grows and becomes more complex, CEO might spend too much time to find solutions to daily coordination issues that he has no time to address the longer-term strategic issues facing the business.
' Control Problems. As the company grows functional structure creates control problem. The issue that encountering a successful business is how to keep control of gradually complicated activities as it grows and differentiates. As the company provide more and more service, becomes geographically diverse, or faces growing competition for consumers, control problems delay CEO capability to coordinate organizational activities.
CEO can find solution to control problems such as poor communication between department by reshaping the functional structure to increase integration between functions or can move from functional structure to divisional structure. Jones, G. R., & Jones, G. R. (2013).
As it mentioned above there some disadvantages from using this structure but the advantages are outweighed the drawbacks. Despite the functional structures drawback, many successful companies such as Amazon and Google are using functional structure.
Flat organizations mean that a company has few layer or just one management. That means the 'chain of command from top to bottom is sort and the span of control is wide' (Rishipal 2014 p.58). span of control mans the how many employees that an executive is responsible for. If an executive has many staff reporting to them, their span of control can be wide. Whereas a manager with a small number of employees of direct reports has a narrow span of control.
Advantages of flat organizations
companies with fewer lever between managers and staff can easy implement strategic plans, act for short-term objectives and act on policy and technical changes. When a manager become closer to front line employees, he can receive quick feedback about the feasibility of a specific plan as well as monitor progress toward achieving the company goals. Moreover, decision can be made very quickly in flat organization because there are few layers of communication between the staff who doing the job and those who making the decision.
Influence over Power
In flat organizations managers use their influence decision in the right direction with involvement from everyone.
Approachability over Unreachability
Managers are typically very approachable in flat organizations. If a manager is not physical presence, there are other managers available over emails, chats, and other such tools to make sure approachability.
Communication in flat organization can be very easy between employees at all levels. Flat organization structure remove all obstacle between staff and top level managers. Communication flow cross the company rather than from the top to bottom.
Employees in flat originations seem to be more flexible and adoptable in changing because of the smaller hierarchies and lack of bureaucracy.
Innovation and Creativity
Ideas come from anywhere in a flat organization. When a company gives, everyone chance in submitted new ideas and feedback on operational processes, products, services, business models and company policies, a company can find new ideas that might lead competitive achievement.
Flat organizations depend on highly skilled staff who have a vice in decisions making. For that reason, employees feel powerful and more responsible for a company operations and progress. Therefore, they work harder since they have own interest in seeing the company flourish. Rishipal. (2014).
My concept for organizational design
Designing and structure my company is very important because it means create value and making profit or destroy value and loss profit. First, I believe successful business requires ECO who has leadership style. Leader who has vision and idea so that he can lead the business toward success. For instance, Steve Jobs left Apple for many years and the company did not achieve its goals. Therefore, companies require leaders who can design and structure a company in the way that will suite everyone in the organization. CEO must understand the significant importance of structure in carrying out company activities and its relation to strategy. Failure to select the right structure has it consequences on business as it will not only affect health of the company but also it will employee's loyalty, motivation at workplace and job satisfaction. For that reason, CEO need to take all aspects that relates to employees and working of a company when he deciding for design a company structure.
Google is one of the most biggest company in the world. The organizational structure plays significant role in this tremendous success of google because the effective organizational structure. The hierarchy for google is relatively small and it use flat structure. Based on google head of technology department Tony Keusgen said flat structure is very important for google. Google uses functional and flat structure because its helps the company grow and become more successful in the future. Google believe flat structure make the communication easier among employees and managers. Moreover, flat structure encourages employees to bring up their ideas because ideas and innovations can come from anywhere from the top to the bottom in the organization.
As I mentioned earlier functional structure and flat organization both are playing significant role in the business success. After I have spent too much time looking for the best structure finally I found functional structure is the best method to implement in a company. Functional structure will benefits employees in several ways. Employees are very important for the company and they should be treated first. For instance, Southwest Airlines founder said if we treat our employees in professional manner they will provide the company customers with the best service.
Functional structure is very beneficial for CEO and employees. I have design my own organizations structure below. The hierarchy is very clear and everyone in the company knows his role and task. There will be board of directors in the top, following by the company CEO. Each functional structure has its own manager and supervisor. Every employee report to his supervisor and the supervisor report to the manager of that division. Finally, the managers' report to CEO directly. Moreover, there will be open communication channel among the company departments so that can increase the company productivity and meet the customer's needs. I will arrange weekly meeting for all manager's departments to make sure communication gaps not exist anymore.
In addition, I will use flat structure in the company to reduce the level of hierarchy. Flat structure very effective in term of communication and innovation and many successful companies use it. To avoid any communication problems flat structure will totally reduce this issue.
From my own experience, communication gap is big issue in organizations not only between manager's department but also between CEO and low level employees. Most of place that I have worked in, the CEO was not very approachable. CEOs in third world countries do not like to be approached by employees and they do not prefer direct contact to the subordinates. In most companies in developing countries they hierarchy is big and most of decisions made by top management. In this type of organization employees feel useless and they come to work just to earn their pay cheque.
Flat structure the CEO can be very approachable and interacting with his employees. Flat structure encourage staff to be engaged in making decision. Flexibility and change can be done very easily in the company because the employees are part of the decision making. Innovation is very important of the company so flat structure can encourage people to bring their own ideas or thought that can benefit the company. innovation come from anyone in the company and is not only limited to CEO.
The company structure is very complicated but it has a low level of centralization and formalization. The organization create a democratic environment so that CEO act as role of guides for his people. Manager encourage and motivate his employees so that staff can increase the effectiveness of their performance.
Reporting system should be very clear so all employees of the company know what their responsibilities are and understand to whom they are reporting. These clear relationships make it easier for executives to supervise those in lower level on the company. Each member of employee benefits by understanding whom they can turn to for advice and assistance of help. Executive is fully aware of who is outside the span of their authority, so he does not overstep their limits and interfere with another executive's responsibilities.
One of the most significant success factors is communication between employees and top management. I will use different methods to improve the communication among all the parts of the company. Feedback one of the useful method that I can use to improve effective communication. People opinions are very important to me because I am not always right. Whether positive or negative feedback, it will help the company as well as the employees. Furthermore, I will monitor employees progress and give them honest feedback based on their job performance. I will avoid judgment for staff instead I will provide advice and recommendations if needed. I will make sure that I spend some time out of my office talking to my employees to know how they feel about the company and the job environment.
Hierarchical Communication can be defined 'as exchange of information and influences the organization's members, because there is any involvement between one and another, managers and employees in formal organization.' Widhiastuti, H. (2012). (P186)
CEO at the company provides his employees with different type of information through communication such as job training, feedback, job rational, company procedure and policy, and a company goals.
In order to run successful business there are some key elements need to be addressed.
' First, vision is very important for a company and for employees. Have vision that is matter. Every company has its own vision and mission statement. Vision and mission statements are not something that the company wrote on a paper, but should make sense for the company as well as the employees.
' Second, designing organization structure is the fundamental step to operate successful business. CEO need to ensure that organization structure works for everyone in the company. The hierarchy should be very clear and flat. Every employee knows to whom is reporting, they do not need to report to multi supervisors.
' Third, manager should have leadership skills to lead a company. Director should have clear direction and future plan for the company. He should know exactly where is the company right now and where it will be tomorrow.
' Forth, managers need to influence their employees instead of using power. When people motivated and encouraged to do bring up their own ideas they feel proud of the company and their performance will improve.
' Fifth, innovation is important for organization. CEO need to empower his employees and make them creative. Ideas come from different people in different level in the organization. Therefore, manager should create good environment that can help employees to bring their own invented ideas or give them some time to work on a project that they are interested in.
Implications of a bad organizational structure
It is important for managers to understand the consequences of poor organizational structure. A company with poor organizational structure might face some issues in the future. organizational structure can determine a company success or failure upon entry into the market.
Employee eventually lose motivation if a company does not have a clear structure. Employees become very frustration if they do not have a clear organizational structure to follow up and this can lead to low morale. Although, companies have clear and positive vision and mission statements, clear goals and effective leadership, poor organizational structure can cause business failure.
Clients who always face challenges in trying to receive their products finally they will find another companies to meet their needs. Poor internal organization ultimately reaches the company clients, who might lose confidence in the company capability to effectively serve them. Typically, unhappy customers tend to talk about their bad experience and frustration with dealers and suppliers, making the situation worse to establish new business.
Bad organizational structure can cause miscommunication because people confused who needs information or where to send important messages. For instance, a manger from sale department in small business might set a new client sign-up form to assist clients ordering more easily, to get approval from the owner of the business to use this form. If this form is not with the bookkeepers, maybe they do not know how to qualify these new clients for credit and invoice them in professional manner (Ray 2013). Lack of innovation
Businesses with poor organizational structure are slow to innovate. Some workers might be very creative and they have innovative ideas but their voice never reach the right source for development and implementation. Staff who have new idea might keep it themselves or take it a new company. Moreover, people will focus more on their individual task and not offer help to others colleague unless instructed to do so by a manager (Joseph 2010).
Too many bosses
Poor organizational structure means that employees might need to report to multi managers. Workers become easily confused by getting different massages from different managers and being given conflict orders. Staff might play with one manager against the other, eventually this will lead to attention between executives (Joseph 2010). Conclusion
It is very important to find the organizational structure that is best for fit for a company. By using the wrong organizational structure can lead to lack of communication, poor product development, poor customer service, and numerous of other business problems. These issues can be cause damage to a company and could result in lost income or might complete failure of the company. For instance, Starbucks has designed its company structure long time ago. In 2007 Starbucks was growing swiftly, such that it changed focus away from consumers to strategic worldwide growth. Nevertheless, the company faced huge drop in sales in 2007. After Howard Schultz returned to his position as CEO in 2008, he changed the company organizational structure to bring back attention on customer's experience. He created new regional divisions and Starbucks employees were given better training. Therefore, the new organizational structure of the company is a result of this change to improve customer experience as well as better profit (Meyer & Pauline 2017).
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