Key Concepts of Organizational Design
Organizational design has a profound effect on the way work flows in an organization, it can hamper or improve decision making, communication and hence motivation. The paper shall look at various elements of organizational design and how these reflect upon a company.
Importance of Organizational Design Choices
Organizational design choices are essential in determining the level of authority designated at the top and at the bottom of the organizational hierarchy which eventually determines the effectiveness of communication as well as the efficiency of decision making. A company must make organizational design choices because they have a direct effect on the level of coordination and motivation. Large organizations need to settle for greater hierarchy so that managers can increase interaction with employees and the opposite is true for smaller companies. (Jones, 2004)
Companies must decide on whether they will go for the tall structure (with many hierarchies) or the flat structure (with few hierarchies) as this is directly determined by the growth and size of the company. Research however shows that an increase in the number of managers is not proportional to an increase in the number of employees. In other words, when a company increases its employees by say sixty six percent, the proportion of managers that will be added to the team is likely to be about fourteen percent. Therefore a pyramid structure is better than a bloated structure. A number of problems arise out of use of the latter model.
If a company takes up the organizational design choice of a very hierarchical system, then chances are that communication will be impeded. Employees would take too long to respond to consumer requests and information is also likely to be distorted by various parties so as to suit their interests. For example, managers may want to portray themselves in a positive light and thus hide crucial information from those who may need it. Aside from that, it has also been shown that flat structures with less levels of management are more motivating. This is because managers have more authority and more responsibility. In the end, the organization becomes more effective.
It is also vey wise to go for a flat structure because it saves a lot of money. Statistics show that companies can save about three hundred million dollars annually each by getting rid of 1000 excess employees. Maintenance of a flat structure can prevent the problem of layoffs. One would wonder why some organizations have too many managers. Parkinson’s Law states that individuals may add the number of managers beneath them so as to boost their status and power. But the minimum-chain-of-command principle states that organizations need to operate under minimum hierarchies based on their environment and the goals of the company. On the other hand, span of control (or number of employees managed by a superior) can also restrict the over level of management. It has been shown that simple repetitive tasks allow a wider span of control while more complex ones tasks restrict the number of employees supervised. The second aspect that affects the level of span of control in any organization is the level of connectedness between different tasks. If this is high, then span of control will be narrow and vice versa. (Jones, 2004)
Additionally, another element of organizational design choice that can affect organizational performance is horizontal differentiation where this refers to the number of sub units found in each level. This ensures that control is still maintained even when the number of hierarchies is low. All the functions found in a particular enterprise need to decide for themselves what they can live with and what they cannot. For example, sales teams need less units as they already have their own targets. In summary organizational design choices affect motivation performance and control but this depends on the kind of organizational structures chosen – the latter will be analyzed below. The same may be said for Best Snacks.
Organizational Structures
Various companies have their own reasons for choosing a certain organizational structure. New companies opt for functional structures. The latter are characterized by groupings based on similar roles. The major advantage with this is that it maximizes differentiation but it may not incorporate interrelatedness so it may not work for complex situations.
Alternatively, a company may adopt the product structure, in this kind of arrangement a company is designed on the basis of the kind of product being produced. Usually, such a structure is characterized by high level of autonomy in the various divisions but control is asserted by a higher authority that monitors their activities. The main advantage with this is it ensures efficient production and use of resources. On the other hand, it may create coordination problems when there are several products to be produced. (Jones, 2004)
Companies may choose to adopt a market structure in which groupings are done based on client needs. The major advantage with this approach is that it ensures fast and efficient response to consumer needs as this is the main focus. On the other hand, it may be common to find that companies using such structures may not be sensitive to changes in resource and manufacturing applications. It should be noted that this is a form of divisional structure.
Alternatively, a company may possess a matrix structure. Such models are characterized by groups with similar functions or product types. The main advantage with this approach is that it allows companies to cope with quick advances in production methods and also changes in market trends. It also allows various functional teams to learn from one another and it allows the use of all company skills. It facilitates minimization of both cost and quality. On the other hand, such a model allows little control as role ambiguity is a common problem. This vacuum may allow bureaucracy to creep into the teams. (Jones, 2004)
On the other hand, when companies need to respond to the needs of different locations of consumers, then the best structure would be the geographic one. The main advantage with this approach is that it allows customization of products depending on what consumers require. Such an approach may be disadvantageous in cases where consumer tastes vary very rapidly. Alternatively, some geographic areas may not be as profitable as others thus firms may not get due returns on concentrating equally on all geographic segments.
Some companies may choose to go for network structures in instances where there are is high level of coordination between various stakeholders in an industry. This model is characterized by cooperation between competitors since companies only carry out value adding services and then outsource or contract the rest to other specialists. The major advantage with such a system is that it gives a company flexibility to change with its environment as it has not invested too much in time and resources needed to carry out a certain function. In other words, companies can switch partners in their network as quickly as they need to. This model allows companies to save money and time as the best countries and companies are chosen to carry out functions at low cost and in a good way. Its main disadvantages are that coordination problems may arise as a result of the use of varying groups to produce one common service or product. (Jones, 2004)
Lastly, a company may possess a boundary less structure in which persons enter and leave as their needs arise. This model is effective for situations where technology, market demands and product changes rapidly occur thus costing the company too much to maintain permanent employees. On the other hand this approach may lead to accountability problems as no one is linked to the organization permanently. For the case study under analysis i.e. Best Snacks Inc, it would more effective for this company if it opted for a product structure because it must respond to the needs revolving around the creation of the Healthy foods snacks. (Healthy foods, 2006) In order to understand how this is related to their performance, it is important to see the interrelationship of structure, strategy and process.
Strategy, Structure, and Process in Organizations
Strategy has a profound effect on the path that an organization pursues; structure determines who has the capacity to make decisions while processes determine the level of communication in a certain enterprise. These are all policy areas that determine the way decisions are made and how employees respond to those decisions. Strategy is denoted by the goals and objectives of a company through its products and the value it intends on adding. (Galbraith, 2002)
On the other hand, structural issues determine the span of control, distribution of power, specialization and departmentalization. As it can be seen, structure implements strategy. Processes refer to those physiological and functional aspects of a company and they can either be vertical or horizontal. The former normally deal with budget or planning related issues. Horizontal processes revolve around workflow demands and they may be done through independent groups or though formalized teams. Work processes are determined by the structure within a corporation because planning and work flows are functions that are restricted to structure. However, there may be a need to alter one’s structure in order to meet work demands and needs. This aspect is related to company strategy because it is the latter that initially determines what work needs to be done and what does not. For instance when approving a certain budget (a work process function) a company must prioritize what can add value to the company or what cannot (a strategy issue). (Galbraith, 2002)
Best Snacks Inc needs to start with its strategy to deal with its current problems because it should know where it wants to go in the long term and short term future. It can then restructure so that it aligns decisions making authority with structure. Work processes can then be created around the latter two.
Organizational Design and Decision-Making Processes
Every time a company chooses a certain organizational decision, then this has a direct effect on its decision making ability. Companies ought to match the level of coordination required with the amount of work processes in place (either vertical or horizontal). When vertical and lateral processing is too much or too little, then very little can be achieved by the concerned organization. Companies that choose flatter structures or fewer lateral processes may have the capacity to change quickly to consumer needs and their external environment. (Galbraith, 2002)The decisions to decentralize may be inevitable if it has been established that points of contact between consumers and employees are low and that lower level employees have the capacity to access information as it enters the institution. Cost issues are often affected by organizational structure and design. This is largely because decisions made by such decentralized groups may not be better than those ones made by higher level management. This is especially the case if it happened that the group under consideration did not consider strategic issues when making their decisions. Companies must train and improve their IT systems such that this decision making is better and the latter move can be quite expensive. Time spent on such things like reengineering could cost the company valuable consumer interest. It is therefore up to an organization to do an opportunity cost which is what Best Snacks Inc needs to do.
Conclusion
Making the right organizational design choices influences the way companies control their employees hence their ability to meet consumer needs. On the other hand the choice of organizational structures will depend upon the need to be met whether it is geographic, product or market related. In the case of Best Snacks a product based structure should be adopted. Structure, strategy and process have an influence on the way things get done in a certain enterprise. Lastly, strategy determines structure and hence processes. Best snacks should ask whether its structure is meeting its strategic goals and hence shape its processes around the latter.
References
Chapter 4-Jones, Gareth. (2004). Organizational Theory, Design, and Change. New Jersey: Pearson-Prentice Hall.
EBOOK COLLECTION: Chapter 5-Jones, Gareth. (2004). Organizational Theory, Design, and Change. New Jersey: Pearson-Prentice Hall.
EBOOK COLLECTION: Chapter 6-Jones, Gareth. (2004). Organizational Theory, Design, and Change. New Jersey: Pearson-Prentice Hall.
EBOOK COLLECTION: Chapter 2-Galbraith, J. (2002). Designing Organizations: An Executive Guide to Strategy, Structure, and Process. New and Revised. San Francisco
EBOOK COLLECTION: Chapter 4-Galbraith. (2002). Designing Organizations: An Executive Guide to Strategy, Structure, and Process. New and Revised. San Francisco.
EBOOK COLLECTION: Chapter 5-Galbraith. (2002). Designing Organizations: An Executive Guide to Strategy, Structure, and Process. New and Revised. San Francisco.
Healthy foods (2006). Editorial comments. Health Foods Today, 42 (5).