The organizational structure is designed to ensure that tasks, technologies, and people are used in the most efficient way to achieve the mission of the organization. The structure provides managers with a way to balance the following two conflicting things:
- Dividing tasks into logical groups
- Integrating these groups to ensure the efficiency and effectiveness of the organization
Structure determines the executive, managerial, and administrative organization of the firm, indicating responsibility and hierarchy. This affects the flow of information as well as the context and nature of the interactions among people. The organizational structure is usually described in terms of its dimensions—centralization, formalization, and complexity. The complexity of the organization's structure is reflected in the following:
- Horizontal differentiation is the extent to which the tasks of a particular organization are divided into homogeneous groups
- Vertical differentiation refers to the number of levels in the hierarchy of a particular organization
- Spatial dispersion reflects the extent to which a particular organization has few or many locations, as well as its overall geographic scope
Formalization of the organizational structure reflects the extent to which rules and procedures govern the activities of a particular organization. Formalization can be a double-edged sword. On the one hand, this can reduce the uncertainty and confusion over the powers and responsibilities to the minimum; on the other hand, it can limit individual discretion, risk-taking, and innovation. Formalization differences are usually quite different among functional fields and the hierarchical levels in an organization.
The centralization of the organizational structure is the extent to which the powers of decision-making at higher management levels remain within one organization. Although it provides an important means of coordinating decisions, it can also put excessive demands on executives at the top. Together with the growth of the organization in size and scope, their decision-making activities must be decentralized.
The main types of structure are simple, functional, divisional, and matrix. Keeping hold on companies and multinational structures can be considered departmental variations. Dimensions and types of structure are linked to the organization's strategy and are interrelated. Each type of structure is acceptable under certain conditions and has certain advantages and disadvantages.
The formation of the organizational structure and process flows through organizational methods and approaches. We also use organizational profiles in the form of different views. In the method of organizational structure and process design, we use methods of analysis and the shaping of organizational structures and processes.
The process of shaping or supplementing the organizational structure and processes flows through the following steps:
- Recording the current state
- Analyzing the current structure and processes
- Designing new structures and processes
- Implementing new structures and processes
The responsibility for shaping changes in organizational structures is the management of the company. The degree of complexity and the extent of the change depend on whether these issues are handled by upper management or middle management. In the case of changing the overall organizational structure, the inter-connectedness of individual parts in the organizational structure would be handled by upper management. Smaller changes to the organizational structure of departments or services are middle-management tasks. In any case, upper management must be familiar with the changes to approve them.
The results of the organizational structure and the process-shaping phase are changes in the organizational structure and processes that are aimed at supporting the implementation of the company's adopted strategy.
When it comes to strategic management, the design of the organizational structure comes in two levels:
- The first is related to the analysis of the state of the enterprise. The existing organizational structure is one of the most important factors in the phase of determining its capabilities.
- The second phase of shaping the organizational structure and processes is related to the phase of shaping the company's strategy.
Based on the accepted strategy of the company, we have to establish the scope of organizational changes, to support the company's strategy.