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Most new buildings which we see shooting up like mushrooms in the city are designed to function as apartment blocks, offices, shopping malls, factories or warehouses. The aim of most building owners is to offer the spaces they have created for rent and surprisingly enough most of them manage indeed to attract organizations and companies which are willing and capable of paying the rent, usually one year in advance.
I am always curious what kinds of business occupy the offices, warehouses and factories and I am even more curious how these businesses are managed or perhaps a better way of putting it, how they are designed to be managed. Not all in the same way obviously as a travel agency requires a different set up than a factory for example. How do managers adjust the basic elements of organizational structure to fit the scale of the operation, the work to be done, the demands of the customers and the way the organization competes with others in the same sector?
The process of choosing and implementing a structural configuration is referred to as organizational design and the challenge for management is to adjust the structural configuration to best meet the challenges faced at any given time.
Perhaps the most obvious and most easily recognised factor in designing an organization is the company’s scale of operations or size. Large organizations cannot just be bigger versions of their smaller counterparts. How does size then influence organizational design? As the number of individuals in a company grows the number of possible interconnections among them increases exponentially and geometrically. In other words, direct interpersonal contact among all members in a large organization is impossible to maintain. Thus, impersonal coordination techniques must be substituted for direct personal contact. Policies, rules and procedures are used as substitutes for direct supervision both to save money and to ensure consistency.
One of the competitive strengths of larger organizations can be their efficiency. There are potential economies of scale when an organization can produce products and services efficiently through repetition. Specialization of labour, equipment and departments is one way of capturing the potential economies of scale. Increasing specialization calls for increased control and coordination to ensure that action is directed towards common goals and linked together in a meaningful way.
Larger organizations are often more complex than are smaller ones in terms of their products, production processes, geographic locations and so on. This additional complexity calls for a more sophisticated organizational design.
Next to size technology influences organizational design. Technology is the combination of resources, knowledge and techniques that creates the products or services of the organization. Technology may be divided into three categories: small-batch, mass production and continuous-process manufacturing.
In units of small-batch production, a variety of custom products are tailor-made to fit customer specifications, such as tailor-made suits. The machinery and equipment used are generally not very elaborate but considerable craftsmanship is often needed. In mass production, the organization produces one or a few products with an assembly-line type of system. The work of one group is highly dependent on another; the equipment is typically sophisticated and the workers are given very specific instructions. Automobiles are produces in this way for example. Organizations using continuous-process technology produce of few products with considerable automation. Examples are chemical plants and oil refineries.
The combination of organizational structure and technology is critical to the success of an organization. When technology and organizational design are properly matched, a company is likely to be more successful. Specifically, successful small-batch and continuous-process plants have flexible structures with small work groups at the bottom. In contrast, successful mass production operations are rigidly structured and have large work groups at the bottom.
If organizational design were merely dictated by size and technological concerns it would be comparatively easy to specify a configuration for any particular organization. But an effective organizational design also reflects powerful external forces and competitive elements that drive the selection and survival of a particular organizational design.
Next week we will look more into these environmental factors and into some specific organizational designs.
Source: Managing Organizational Behavior – by Schermerhor/Hunt/Osborn