DESIGNING ORGANISATION STRUCTURES

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1 DESIGNING ORGANISATION STRUCTURES John van Rijn INDEVELOPMENT

2 DESIGNING ORGANISATION STRUCTURES Any part of this publication may be fully reproduced or translated provided that the source and author are fully acknowledged. Edition

3 Table of Contents: 1 Introduction Typical Structures Designing Structures Locating authority

4 1 INTRODUCTION The structure of the organisation describes the functions, tasks and authorities of the departments, divisions and individual employees and the relationships between them (line of command, communication and procedures). It also describes the number of employees in each division, unit and department. On the one hand the structure divide departments, divisions and individuals on basis of tasks, functions and authorities. On the other hand the structure coordinates these units through lines of communication and command. Only when the different units work in conjunction, the organisation is able to function as a whole. The organisation structure has to facilitate the different processes in the organisation. A general rule of the thumb is that the organisation structure should enhance the progress of the processes. It is not recommendable to breakdown processes unnecessarily because of the structure of the organisation. The structure has to provide coordination mechanism if the process is divided over more units. This document provides descriptions of typical structures and some guidelines for designing structures. 4

5 2 TYPICAL STRUCTURES Organisations can be structured in different ways. Usually the structure is based on splitting and grouping of tasks. The grouping of tasks can be done on basis of 6 different criteria and the final structure is often a combination of these six criteria: 1. Outputs (goods/services) 2. Functions 3. Target groups 4. Skills 5. Geographical areas 6. Work shifts Grouping criteria The method of grouping depends on a number of issues. First of all the grouping should facilitate the processes in the organisation and not disturb them. The faster the processes progress and the cheaper the organisation can produce the better. Progress may stagnate and result in cost overruns due to inappropriate coordination of activities. The structure should facilitate coordination to reduce problems between officers who needs each other s work. Ideally the structure would fully utilise every officer and piece of equipment. The structure influences the motivation of the staff. If the staffs feel that their work is monotonous or they have to carry out to many tasks below their level, they may become dissatisfied with their work. The nature and level of activities should match as close as possible with the capacities of the employees. Furthermore the span of control of the managers is not unlimited. In other words the span of control affects the number of units. The output and function grouping are the most common form of grouping forms. Output, target group and geographical area structure primarily groups tasks on basis of the connections between activities. All activities are combined in one group that produces the output, or related to meet the demands of the target group or take place at a specific location. A typical example of grouping on output is presented below. The university is organised in faculties. Each faculty representing a group of outputs (study programs). Grouping on function has the major advantage that it standardises the processes. The officers are grouped on basis of similarity in activities. The production process is split up in sub processes. Each sub process produces a semi-finished product and requires a group of people and 5

6 equipment with specific skills, education and personal characteristics that are of little use to the other groups. Each group tends to operate more or less independently of each other. A typical example of functional grouping is the provincial road agency. These agencies are often organised in five departments, each with their specific functions. Standardisation of the process can also be achieved through grouping on skills. In a way grouping of skills is variation of functional grouping. Each unit provide specialised skills and work on a specific process. For example: Structuring the organisation on basis of functions or skills/knowledge has a number of advantages and disadvantages: Disadvantages Because of the economics of scale, it is more likely that the utilisation degree of staff and equipment of function and skill oriented groups is high. This means that these forms of structures are more conducive to investments in expensive specialists, up-to-date skill development programs and the latest technology. Furthermore the officers become more efficient in their operation, as they develop routines and do not have start and ending difficulties. However the officers may perceive the tasks as monotonous. The main disadvantage of the functional structures is that because of the independent character of each unit, the units tend to operate as independent companies with little interaction with the other units. This may result in mismatches between the expectations of the semifinished product producing and receiving unit. The utilisation degree of equipment or personnel in output based structures like universities are usually lower, but these structures have 6

7 also a number of advantages: Faster progression of production due to optimal location of equipment and persons Less problems due to easier communication between the different individuals of different backgrounds Coordination Mutual adjustment Supervision Standardisation Line organisations Organisations structures not just group tasks and functions in units, divisions or department, but also regulate the coordination between them. There are basically three ways of coordination: 1. Mutual adjustment 2. Supervision 3. Standardisation Mutual adjustment coordinates work by (informal) communication. Mutual adjustment can be regulated through horizontal and diagonal links. Supervision achieves coordination by having one person take responsibility for the work of others. The manager thinks how to use the hands of others, give the workers instructions and monitor their performance. The vertical lines of command present supervision. It is also possible to coordinate the work through standardisation. Standardisation allows coordination to take place on the drawing board, before the action takes place. Standardisation cannot be presented in an organisation structure. The above-presented charts are all so-called line organisations. The line organisation is the most basic form of organisation. The line organisation present all the management levels and operational functions of the organisation, but does not contain advisory functions. The lines of command and communication in a line organisation are typically vertical lines. However the structure may have developed in several layers, resulting in long communication lines. The top of the organisation also has to take many decisions for the low level echelons. In many organisations the managers of the different units or their subordinates have to consult each other about specifics. The hierarchical lines will become overloaded, when all communication would flow over these lines. The line organisations may develop horizontal and diagonal contact lines in the organisation to facilitate the consultation and coordination process. The fat lines present the horizontal and diagonal relationships between the different Design & Implementation divisions. When the consultation process does not result in positive results the different units may pursue the hierarchical lines to get a workable solution. 7

8 Contact Passerelle Staff organisation Another form of organisation is the staff organisation. The staff organisation is similar to the line organisation but includes units which role is only to advice. These advisory units do not have hierarchical responsibilities and authorities. The advisory units are usually experts with regard to policy development. They are authorised to issue advice at all times and are not limited to requests. But only the line units can transform the advice in action. The advisory units are usually expensive and often it is cheaper to procure expertise externally. An important precondition is that the advisory unit keep in contact with the line units and are able to sell their ideas to the line agencies. A special form of advisory unit is a unit that give binding advice to line agencies. The binding advice is often operational of nature and formulated in legal documents like procedures, by-laws, the law, etc. These advisory units do not direct the line units but tell them if they want to pursue in a certain direction they have to do the following. And often these advisory units not only provide the binding advice but also implement it. Typical examples are the admin & financial departments and the human resource departments. Unfortunately quite a few of these advisory units have translated their role into a controlling one. They no longer provide advice to the line units and do not implement it. These additional control lines frustrate many line units. The more the binding advisory unit is involved in implementation, the higher the acceptance of its role. In the chart below presents the human resource development department as an advisory unit. 8

9 Functional organisation A more complex structure is the functional organisation. Where the advisory unit in the staff organisation is only able to advice in the functional organisation these specialists have a limited, clearly defined scope of authority and are able to give directions. In 1999 the International Labour Organisation worked with this structure. Technical backstoppers at headquarters or in the so-called Multi-Disciplinary Teams had to direct technical activities of all operational offices. This structure is often misunderstood and result in power conflicts between the traditional line-managed units and these specialists. Project and matrix organisations One of the characteristics of a project is the limited duration in which a particular output has to be created or problem has to be solved. Large projects, like donor-funded projects may last several years before it is completed. Such projects may set up a full-time project team for the duration of the project. The members of the project team may be permanently employed and seconded to the project from the department or division or may be specially recruited for the project and given a fixed term contract. There are also organisations that continuously carry out a range of smaller projects. The composition of the project team may vary during the duration of the projects and often the team members tend to work on several projects at the time. These organisations often adopt a matrix structure. The specialist sections become resource pools and the project manager and the head of the resource pool make 9

10 agreements about the resource allocation to specific projects. The specialist section may also have sanction authority over the project result. However this authority often leads to conflicts with the project managers. The manager of the specialist section usually has to develop the capacities of his/her staff. Charts and descriptions It is seldom enough to present the organisation on a chart. The chart does not provide information about the contents of the function of each unit, the tasks that have to be carried out, the authorities of the unit and a description of the relationships with other units. If the unit is not an individual, it also needs description about the number and composition of its staff members and a description of its intra structure. 10

11 Evolving organisations Why reorganisations Basic functions of organisations Mintzberg s Basic Parts Core operations Support operations Technostructure Strategic Apex Middle Line Management 3 DESIGNING STRUCTURES Organisation structures are seldom designed from scratch. An organisation usually starts small and hopefully becomes more successful and grows. Because it grows, it needs to structure itself. Most organisations do not grow from a one-person operation to a hundred-person operation overnight. They evolve and so does the organisation structure. The larger organisations are able to take larger expansion-steps. These steps may have more impact on the organisation structure. However after some time most organisations conclude that something went seriously wrong with its structure and decide to reorganise it. Because reorganisations are often associated with staff reductions they are very sensitive processes. A part of the sensitivity can be overcome to reorganise during years with low unemployment rates and to work actively to find job prospects elsewhere. The reorganisation often has as objective to improve the effectiveness and/or efficiency. It also may be initiated to enhance the ability of the organisation to adapt itself to changing environments, to become more flexible. Reorganisations are often initiated to enhance the capacity of the organisation to sustain its activities. Besides earlier given considerations the structure should reserve place for all the organisation functions. Henry Mintzberg s identified 5 main functions that each organisation has to fulfil. The so-called Basic Parts are: 1. Core Operations 2. Support Operations 3. Technostructure 4. Strategic Apex; 5. Middle Line Management The core operations are the actual production processes. It contains activities like purchasing, operating machines, assembling, sales and shipping. Support operations facilitate the core operations. For example: legal counselling, public relations, Industrial relations, research & development, pricing, pay roll, reception, mailroom and cafeteria. The Technostructure maintains and develops the efficiency and effectiveness of primary and support operations, including development, standardisation, monitoring and evaluation. Typical technostructure units are; strategic planning, controller, Personnel training, Operations Research, Production Scheduling, and workstudies. The Strategic Apex formulates and controls strategies for the whole organisation. Typical examples of the strategic apex are board of directors, president, and executive committees. The middle line management connects the strategic apex with the rest 11

12 of the organisation. Typical examples of middle line managers are plant managers, regional sales managers, foremen and district managers. In smaller organisations one unit may carry out more than one of these functions, but nonetheless every organisation has to carry out these functions. Goods & services The starting point for the design of the organisation process is typically the identification of the main outputs that the organisation intends to deliver and the locations of delivery. Where do the costumers live or operate. Do the costumers go to the sales point or does the organisation go to the costumers? If the costumers go to the sales point the sales points should be as close as possible to the costumers. If the sales point is too far and competitors have sales points closer to potential costumers the organisation may lose a part of its market. However each sales point should attract enough costumers to be feasible. Large organisations often have several sales departments at different locations. Depending on the production process (technology) and the transport costs for both inputs and outputs, the organisation may also geographically distribute the production units. This is common for service providing organisations. The services are produced at same location as they are distributed. Certain organisations depend on others for the delivery of their outputs and realisation of their objectives. For example the projects of the International Labour Organisation (ILO) are paid for by donor organisations. The employees working on these projects have fixed term contracts for the duration of the project and are laid off after the project is completed. The core operation of the ILO in the countries is to formulate and mobilise funding for project proposals and to supervise the projects. The ILO has chosen for this set up in order to be able to provide assistance as many member states as possible and to be as flexible as possible. Breakdown production process Activities For the design of the structure it is necessary to analyse the production process of each output. It may be possible to identify sub-outputs that break the production process like semi-finished products that are produced in-house and are an input in one of the outputs. Subsequently all the activities to produce and deliver the outputs have to be identified. Furthermore the activities lead times and possible links need to be described. The linkages will be limited due to a number of factors like; Procedures of organisation Previous investments in equipment and buildings Available technology on the market In particular public organisations have to follow certain procedures. The procedures often affect the (decision) processes and therefore affect the activities and there linkages. Organisations will only offer expensive equipment items and buildings for an organisation structure when the organisation structure results in 12

13 higher returns. Because these comparisons are extremely difficult, most organisations adapt their structure to the existing equipment and building items. The available technology is not only concerned with the hardware like equipment and tools but is also concerned with human ware like skills and knowledge. The structure should not be based on unreal equipment items or human resources. After all there are not many civil engineers that also have a degree in social science. Resources In addition it is necessary to identify for every activity the inputs in terms of manpower and equipment, expressed both in quantity and quality. Finally the required support operations are identified and similarly analysed. These activities are repeated for the Strategic Apex and the Technostructure. After collecting and analysing of all the necessary data, the design process starts. The design process is often similar to a planning process. The activities are put in a time frame and connected with relationships. While doing so, the designer assigns tasks to certain persons. The designer may adjust the planning to accommodate the available human resources and equipment. After all the designer want to avoid that resources are overloaded or under-utilised and want to create interesting job descriptions for the different officers. 3.1 LOCATING AUTHORITY An important question is who receives the authority to take decisions and about which issues? To answer the question the organisation has to answer the following sub- questions: Who has the information to take the decision and who can obtain such information quickly? Who has the skills and knowledge to take the decision? Does the issue relate to an emergency and is the decision urgent? Is coordination with other locations or other units, divisions or departments required? What is the impact of the decision? What is workload of the qualified officers? Is it possible to motivate employees by giving them decision authority? Hierarchical problems If the authorities are not well divided it may result in a number of problems. For example: Capacities of units and persons are under-utilised The authority goes beyond the capacity of the person The control over the resources is insufficient to carry out the 13

14 tasks efficiently The unit has more control of the resources than its tasks/function requires Conflict over the allocation of resources if two or more units have control over them Conflict between formal and informal powers & responsibilities The decision process takes too long The decisions miss out on particular interests 14

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