Organizational structure is a formal system of working relationships that both separates and integrates functions and duties. While separation of duties identifies the work responsibilities for each employee, integration of duties guides people how to engage together in teamwork. This enables combining all resources together effectively to achieve the operational and strategic objectives of a company.
Those Strategic objectives, along with the mission and the vision of a company, shall determine the organizational structure that facilitates the correct implementation of the strategy and business plans.
Organizational structures are implemented to ensure that every aspect of the organization, employment, decision making, and management is integrated within the strategic objectives of the company and that it contributes to the successful achievement of those objectives.
Organizational structures help managers and employees work together effectively by forming a basis for the following:
Assigning employees to well-defined duties that enables them to realize their objectives and incorporate these into the strategic objectives.
Clarifying employees’ responsibilities and how they should use lines of authority based on the organizational structure, which eases responsibility and accountability.
Designing effective communication channels that define the flow of information and employees’ relationships, to ensure effective organizational performance.
Elements of the Organizational Structure
The four basic elements in designing a suitable organizational structure for a company.
The four basic elements of an organizational structure
Specialization
Is the process of identifying tasks and assigning them to individuals or work groups who have been trained to do them? Managers could be differentiated into two types: Business Managers who usually supervise one subsidiary and Functional Managers who might oversee a function such as finance.
Standardization
Standardization is defining the managerial levels in a clear manner, and unifying job titles and organizational entities within the same managerial level.
Coordination
Coordination is the formal and informal procedures that integrate the activities performed by separate groups in an organization. Departmentalization divides the organizations’ work and allows for specialization and standardization of activities. However, in order to achieve organizational objectives, managers also need to coordinate people, and tasks.
Coordination facilitates integration between different functions, since coordination can be defined as the process of integrating all the parts of the whole to achieve common objectives. Without coordination, people’s efforts are likely to end in delay, frustration, and waste.
For these reasons, you need to consider coordination as one of the basic elements of the organizational structure. Whereby, Coordination has three basic principles:
1. Unity of Command Principle
The unity of command principle states that an employee should have only one direct supervisor. Every employee needs to know who is giving the orders and to whom he or she reports.
Organizational structure must minimize any confusion over who makes decisions and who implements them, since uncertainty in this area can lead to serious productivity and morale issues.
2. Scalar Principle
The scalar principle states that a clear and unbroken chain of command should link every person in the organization with someone at a higher level, all the way to the top of the organizational structure. Tasks should be delegated clearly, with no overlapping or splitting of assignments.
3. Span of Management Principle
The span of management principle states that the number of people reporting directly to one manager must be limited since one manager cannot effectively supervise many subordinates.
There is no specific number of subordinates that a manager can supervise effectively. The four key factors that determine the best span of management for this given situation:
The competence of the manager and the employees.
The similarity or dissimilarity of tasks being supervised.
The incidence of new problems in the manager’s department.
The extent of clear operating standards and rules.
Authority
Authority is the fourth element of organizational structuring; it is the right to act or decide. Authority implies responsibility and accountability, i.e. Managers accept the responsibility for acting and are willing to be held accountable for success or failure. Furthermore, when delegating tasks to others, managers should take into consideration matching the responsibility they confirm with authority and then insist on accountability for results.
1. Responsibility
Responsibility is an employee’s obligation to perform assigned tasks. The employee acquires this duty upon accepting the job or a specific assignment. A manager is responsible not only for carrying out certain tasks but also for the actions of subordinates.
2. Accountability
Accountability is the expectation that each employee will accept credit or blame for results achieved in performing assigned tasks. Management also expects employees to report the results of their work. This feedback enables management to determine whether effective decisions are being made and whether tasks are being performed properly.
A manager cannot check every task an employee performs. The manager should establish guidelines within which work must be done, and then the employee is accountable to perform within these limits. Thus, unlike authority, accountability always flows from the bottom to the top. It should be emphasized that accountability is the point at which authority and responsibility meet.
3. Delegation of Authority
Delegation of authority is one of the important issues which was considered during establishing the organizational structure and could be defined as the process by which managers assign the right to act and make decisions in certain areas to subordinates. In other words, the manager assigns a task to a subordinate along with adequate authority to carry it out effectively.
Delegation starts when the structure of the organization is being established and tasks are divided. It continues as new tasks are added during day-to-day operations. The basic components of the delegation process are determining expected results, assigning tasks and the authority to accomplish them, and holding others accountable for results achieved.
4. Centralization and Decentralization of Authority
Centralization and decentralization of authority are basic overall management philosophies of delegation of where decisions are to be made. Centralization of authority is characterized by authority concentrated at the top of an organization or department.
Decentralization of authority is characterized by a high degree of delegated authority throughout an organization or department. Centralization is an approach that requires managers to decide what and when to delegate, to carefully select and train personnel, and to formulate adequate controls.
Neither centralization nor decentralization is absolute. A single manager cannot make all the decisions, even in centralized settings, and total delegation would end the need for middle- and first-line managers. Thus, a combination of centralization and decentralization are taken into consideration in the design of the organizational structure.
How to formalize an organization?
Each area addresses the activities necessary to formalize an organization.
What is your current company situation?
Support functions do not fully support core businesses, leading to some core businesses building their own support functions.
Lack of documentation of key policies and procedures leads to redundancies and mission overlap.
What will tomorrow look like for your company?
Streamlined structure effectively facilitates company’s mission. Core business areas have clear mandates and support services are structured to provide strategic value-add services.
The company has clear documentation for all policies and procedures, increasing understanding of roles and accountability and removing unnecessary mission overlap.
The 3 activities necessary to formalize an organization
Optimize Core Structure
Near Term (1-6 months)
Undertake benchmarking to identify relevant best practices
Undertake structural assessment to ensure optimization for achieving company’s mission and alignment with best practices
Incorporate findings into updated core business structure
Define and document roles, responsibilities, job descriptions, and mandates for all core departments
Medium Term (6-12 months)
Create and stand up functionally focused sections within all departments and appoint manager for each section
Complete stand-up of the organization including migration of staff to new structure
Optimize Support Structure
Near Term (1-6 months)
Define and document roles, responsibility, job descriptions, mandates for all support departments
Recruit and hire seasoned operational management to manage all support functions, and coordinate with core department oversight committee, to ensure alignment with core business needs
Medium Term (6-12 months)
Create functionally focused sections within all departments and appoint team leader for each section
Optimize Core and Support Department Structure Initiative
To undertake an international study tour, benchmark review, and company leadership workshops to facilitate development of clear mandate, structure and documentation and the removal of unnecessary mission overlap for all company core and support departments.
Objectives
To develop a streamlined structure that effectively facilitates company’s mission
To provide all core departments with clear mandates and structure support services to provide strategic value-add services
To develop clear documentation for all company departments, increasing understanding of roles and accountability and removing unnecessary mission overlap
Key Activities
Undertake benchmarking review for organizational structures
Conduct company leadership workshops to review outcomes of benchmarking and recommend framework for revised company organizational structure
Develop and finalize report of recommendations for core and support department structure
Define and document roles, responsibilities, and mandates for all departments
Document Policies & Procedures
To develop company’s policies and procedures manual based on focus group output and assessment of current policies and procedures against best practices.
Near Term (1-6 months)
Organize focus groups to identify and review documentation requirements
Assess existing documented policies and procedures and identify gaps
Medium Term (6-12 months)
Develop policies and procedures manual which documents all key company processes and procedures
Communicate to and train staff on policies and procedures
Objectives
To develop clear documentation and clarity for all company policies and procedures
To increase understanding of roles and accountability and remove unnecessary mission overlap
Key Activities
Plan and carry out focus groups of company staff to identify and review needed policies and procedures against baseline