Organisational Structure

Professor Ming Sun

School of Energy, Geoscience, Infrastructure & Society

Heriot-Watt University

DEFINITION OF

ORGANISATION

What is an Organisation?

• The planned co-ordination of the activities of a

number of people for the achievement of some

common, explicit purpose or goal, through

division of labour and function, and through a

hierarchy of authority and responsibility

Schein E. H. (1988) Organizational Psychology, third edition, Prentice

Hall, p15

Basic Components of an Organisation

Structure

• Top management

• Middle management

• Operational core

• Organisational support

• Operational support

ORGANISATION STRUCTURE

Key Elements of Organisation Structure

Design

• Naoum (2011) identified the following key elements

associated with organisation structure:

– Group formation

– Communication networks

– Power and authority

– Centralisation and decentralisation

– Mechanistic and organic systems

– Span of control

Group Formation • It is about setting up divisions, department and work

sections.

• Grouping is usually done by knowledge and skills, by

work process and function, by time, by output, by client,

by place, by project, etc.

• The purpose of grouping is both achieving

organisational objectives and satisfying personal needs

of staff members.

Communication Networks

• Communication networks enable information

flow within an organisation.

• Their effectiveness has a direct impact on the

performance of the organisation.

Power and Authority • Power and authority describe the relationship between

individuals in different positions in an organisation

structure. Power refers to the ability of one person to

carry out his/her will; and authority refers to a person’s

right of decision making.

• Allocation of power and authority is an important

consideration when deciding organisation structure.

Centralisation and

Decentralisation • Most organisation structures are in a form of hierarchy.

• In a highly centralised organisation, power is mainly

located at the top of the hierarchy structure. In a

decentralised organisation, power is usually dispersed

to lower levels of the hierarchy.

Mechanistic and Organic

Systems • Mechanistic systems: formal structure; emphasis on

functional specialisation; bureaucratic. More suitable for

stable conditions.

• Organic systems: importance of special knowledge and

unique skills; roles are allowed to adjust. More suitable

for changeable conditions.

Span of Control

• Span of control refers to the number of

subordinates under the supervision of one

manager.

• Narrow span of control means fewer

subordinates and a tall hierarchy structure.

• Wide span of control means more subordinates

and a flat structure.

Factors Affecting

Organisational Design

Environment

Strategy

Human

Resources

Technology Determine design

of organizational

structure

Source: Gareth R Jones & Jennifer M George,

(2007), Contemporary Management, published

by McGraw-Hill Higher Education

Determinants of Structure The environment: The quicker the

environment changes, the more problems face managers.

• Structure must be more flexible when environmental

change is rapid.

– Usually need to decentralize authority.

Strategy: Different strategies require the use of different structures.

• A differentiation strategy needs a flexible structure,

low cost may need a more formal structure.

• Increased vertical integration or diversification also

requires a more flexible structure.

Determinants of Structure Technology: The combination of skills,

knowledge, tools, equipment, computers and machines used in the organization.

Human Resources: the final factor affecting organizational structure.

• Higher skilled workers who need to work in teams usually need a more flexible structure.

• Higher skilled workers often have professional norms (CPA’s, physicians).

Managers must take into account all four factors (environment, strategy, technology and human resources) when designing the structure of the organization.

Factors influencing organisation

structure

• Similar idea is

offered by Shamil

Naoum (2011) on the

factors influencing

the design of

organisational

structure.

Naoum’s Three Types of

Organisational Structure • Shamil Naoum broadly divided organisational

structure into three types:

– Simple structure

– Functional structure

– Matrix structure

Simple Structure

• Informal line relationship between members

• Centralised power

• Wide span of control

• Direct supervision

• Single decision making

• Fast reaction to a dynamic environment

Functional Structure

• Functional grouping of specialists

• Decentralisation of function power

• Narrow span of control

• Direct and indirect control

• Formal communication

• Slow to react to a dynamic environment

Matrix Structure • Larger projects, with an

organisation, require skills

of different functional

departments. The

conventional vertical

functional structure is

overlaid by horizontal

project based lateral

authority, influence or

communication.

Characteristics of Project based

Organisations

• Decisions are not repetitive. Early decisions have impact on later

decisions.

• Learning time for members is limited.

• Work pattern is not well defined.

• Personnel are drawn from many organisations (matrix structure).

• Personnel may work on multiple projects simultaneously (matrix

structure).

• Project organisation changes over different stages.

Advantages of Matrix Structure • Efficient use of resources where expertise can be

shared by multiple projects

• Integration of different disciplines to create ‘team’ spirit

• High-quality and fast decision making with support of different experts

• Balance the conflicting objectives of the client with that of the business

• An individual can make on multiple projects simultaneously and it makes the tasks more varied and interesting

Disadvantages of Matrix Structure

• Role ambiguity leads to confusion as to who is

responsible for what.

• It can also lead to role overload; an individual is

given too much by different superiors.

• Project manager may not have full authority

and control over staff from functional

departments.

Mintzberg’s Five Types of

Organisation Structure

• Henry Mintzberg identified five different

structures:

– Small, or entrepreneurial, structure

– Machine bureaucracy

– Divisionalised structure

– Professional bureaucracy

– Adhocracy

Small, or Entrepreneurial, Structure

• Simple, informal, flexible

• Little or no middle-line

hierarchy

• Activities revolve around the

chief executive

• Controls through direct

supervision

Machine Bureaucracy

• Centralised bureaucracy with formal procedures

• Clear division of labour with function grouping

• Extensive hierarchy

• Government departments

Divisionalised Structure • Market based, autonomous

divisions

• Central administrative headquarters

• Each division may adopt a Machine Bureaucracy structure

• Large construction companies

Professional Bureaucracy

• Bureaucratic yet decentralised

• Rely on many individual professionals

• Universities, hospitals

Adhocracy

• Fluid and organic

• Multi-disciplinary teams

• Matrix structure

• A project based consulting or R&D company

Organisational Evolution

Learning Outcomes • Students should know the main components of a typical

organisation;

• Students should understand the main elements of organisation

design;

• Students should know the influencing factors or main determinants

of organisation design;

• Students should know the main features and applicability of five

organisation structures suggested by Henry Mintzberg;

• Students should understand the main characteristics of project

based organisations.