Organization design is the process of structuring the organization in a way that facilitates employee productivity and supports the organization in reaching its goals. The basic building blocks of organizational structure are division of labor, centralization of authority, and formalization. The organization can also be departmentalized functionally or divisionally. However, the requirements of today's electronically-enabled organizations have resulted in changes in the way that some organizations are structured. Matrix, network, and even virtual approaches are becoming more common. Organization design is an iterative process, however. As the organization grows and changes, the design may need to be reconsidered in order to keep the organization competitive.
Not every organization is created equally. Universities have formal organizational structures at the top of the hierarchy, but individual professors are given the authority to evaluate students and assign grades. Banks are run by strict rules and the individual tellers must follow strict procedures for fund disbursement, record keeping, and other tasks. Engineering firms are often run as teams that direct their own activities, with each person reporting both to a functional or departmental manager (e.g., programming department) and to a project manager (e.g., widget development project).
Depending on what they are trying to accomplish -- e.g., encourage creativity, mass produce products, provide services -- different types of organizations need to be structured differently. These structures include how labor is divided among employees, how communication flows both down and up the organizational hierarchy, and how formal power is consolidated or distributed. The design of the organization is the structure through which it is organized to conduct its business. Organization design sets limits on how work can be accomplished. An appropriate organization design can support employees in meeting organizational goals by giving them the freedom or the structure necessary to perform their tasks. For example, a team-based structure often works well for creative tasks where employees working together can experience the synergy that results in an outcome that is greater than they could have developed as individuals. An inappropriate organization design, on the other hand, can hinder the employees in their tasks and keep the organization from reaching its goals. For example, giving employees too much freedom in a bank could lead to bad or inconsistent decisions about lending, poor record keeping, and a resultant lack of profits for shareholders.
The design of an organization involves consideration of several things, including the division of labor and concomitant patterns of coordination of work activities, centralization and the structure of power relationships, and the degree of formalization of the organization. Division of labor is the way that work in the organization is divided into separate jobs. The more that work is subdivided, the greater the degree of specialization the individual employee needs to be able to do the job well. The development of a simulator to teach aircraft mechanics how to maintain and repair a fighter jet, for example, would require the inputs of numerous types of employees, including the subject matter experts who know what tasks are involved in these tasks, the training specialists who determine the best way to teach these tasks to students, the engineers who know how to turn the trainers' requirements into a piece of equipment that can be used to teach these tasks, the computer programmers who write the programs that run the simulator and present the information to students, and the production workers who actually put together the equipment for delivery to the customer. In addition to the workers performing the tasks, there are usually supervisors for each type of job. These individuals understand the nature of the work to be done, can support the employees in their tasks and make sure that the needs of the organization are met.
When jobs are divided in this way, they also need to be coordinated so that the work done by the individual employees or groups will fit together to create the work product needed by the organization. There are several general ways to coordinate work. Every organization uses informal communication when employees share information about tasks they are working on or when they form mutual ways to coordinate their work activities. Although informal communication can be quick and easy, it tends to work best when the organization is small and there are few barriers to communication. The mom-and-pop grocery store on the corner, for example, is more likely to use informal communication to coordinate the activities of workers than they are to have a formal set of procedures that cover every possible task. No matter the size of the organization, however, informal communication can occur directly (e.g., Harvey tells Chuck that he needs him to close out the cash register for the day) or through liaison or integrator roles (e.g., the project leader of the simulator development team encourages the various work groups to communicate with each other and coordinate their activities). Coordination can also be done through a formal hierarchy, where formal organizational power is given to an individual who directs work and allocates resources. This often is done through direct supervision (e.g., George's boss tells him to finish the report by the end of the day) or through the corporate structure (e.g., the head of the Zenda operation of the organization coordinates the work for the organization in that country). Coordination can also be accomplished through standardization of skills, processes, or outputs. In this approach to coordination, the organization sets policies and procedures for dealing with various common activities. This is helpful in routine situations (e.g., the receiver in each of the organization's stores enters information into the computer in the same format), but is not so helpful when unusual circumstances arise.
The power structure within the organization is determined by its span of control and degree of centralization. Span of control is the number of employees that report directly to a supervisor in the next level up in the organization. At one time it was thought that a narrow span of control of 20 employees or less was the best approach to structuring an organization. Research has found, however, that in today's environment, the average span of control in effective organizations is 31. The most appropriate span of control will depend on what the organization is trying to accomplish and what types of people it employs. Larger spans of control are harder to supervise. However, when the employees self-manage (either as professionals or as self-managing work teams), this task becomes easier.
Another characteristic of an organization's structure is the degree to which formal decision-making power is centralized or carried out by a small group of people. In a centralized organization, a very limited number of individuals -- usually at the top of the organizational hierarchy -- have the power to make decisions. This is particularly true in smaller or emerging organizations where the founder or CEO tends to make most, if not all, of the decisions. However, as an organization grows, one person (or even a small group of people) is no longer able to make all the decisions, so the authority is distributed throughout the organization. For example, in a multinational firm it is logical to have some of the decisions made at a local level. Similarly, decisions about various activities can be made at a departmental or operational level.
Finally, organizations differ on the degree to which they formalize behavior through the imposition of rules, policies, practices, procedures, or formal training. Formalization can help employees know how to do their jobs. It can also help customers know that they are getting the same product no matter which of the organization's stores they patronize. A franchise coffee shop, for example, may specify the temperature to which the coffee is kept heated, how frequently the coffee is brewed, how much milk is added to a latte, and so forth. Formalization is more effective in organizations where employees' tasks are routine. So, for example, it is easier to formalize an organization...
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