Organizational Design is the decision-making process by which managers choose an organizational structure appropriate to the strategy for the organization and the environment in which members of the organization carry out the strategy. While designing an organization structure, there are three basic issues which should be taken care of. They are:
1. What should be different units of the organization?
2. What components should be joined together and what components should be kept apart?
3. What is the appropriate placement and relationship of different units?
To find the answers of these questions, managers may adopt below approaches for organizational design.
1. Process
Approach: This approach relates to identification of sequence of activities
involved and then deciding the various units of organization, combining various
units and placing them at appropriate places so that activities are performed
properly. The main emphasis is put on three things. First, all necessary activities
for achieving objectives are performed. Second, there is not unnecessary
duplication of performance of activities. Third, all the necessary activities
are performed in a synchronized way. Thus, various organizational units may be
created based on the activities to be undertaken, their relationship will be
based on the sequence of activities performed by these units; their relative
position will depend on the relative importance of activities performe4d by
them.
The process
approach of organizational design has some unique advantages. It sharpens understanding
of the dynamics of operating sequences and requirements of the business. In this
light, various organizational processes – communication, co-ordination,
delegation of authority, centralization and decentralization can be prescribed
to meet the needs of the strategy. This
approach has one limitation in the form of prescribing a stable structure. This
process works well in smaller organizations which concentrates on one ore
lesser number of related products.
2. Result Approach: The focal point for developing the organizational structure through a result approach involves the following steps:
1. Defining the business on this basis of potential area of market opportunities
2. Establishing the objectives to be accomplished
3. Determining the requirements for success and functional skills needed to meet them
4. Determining the degree of authority
keeping in mind the degree of centralization best suited to decision making.
However, if
an organization has several clusters of market opportunities which are not common,
but the organization wants to take the advantages of these, it should be structured
based on strategic business units (SBU). An SBU can be thought of as a clustering
of discrete product / market units based on some important common strategic elements.
3. Decision Approach: Decision approach of organizational design mechanism puts certain questions about the decisions and the answers of these questions become the basic for designing the structure. These questions are:
1. What decisions are needed to obtain results for achieving organizational objectives?
2. What is the is the nature of such decisions?
3. At what levels of the organization, should such decisions be made?
4. What are the activities involved in or affected by such decisions?
The answers
of these questions would determine the degree of authority in a position, its
intension with other positions, and the placements of the position in organizational
hierarchy.
Above three
approaches focus on different sets of importance of various activities.
However, these approaches are not mutually exclusive; rather they can be
integrated.