Considering the EnvironmentConsiderations of the external environment—including uncertainty, competition, and resources—are key in determining organizational design. Show
Learning Objectives Identify the inherent complexities in the external environment that influence the design of an organization's structure Key TakeawaysKey Points
Key Terms
OverviewOrganizational design is dictated by a variety of factors, including the size of the company, the diversity of the organization's operations, and the environment in which it operates. Considerations of the external environment are a key aspect of organizational design. The environment in which an organization operates can be defined from a number of different angles, each of which generates different structural and design strategies to remain competitive. ComplexityComplexity theory postulates that organizations must adapt to uncertainty in their environments. The complexity theory treats organizations and firms as collections of strategies and structures that interact to achieve the highest efficiency within a given environment. Therefore, companies in a highly uncertain environment must prioritize adaptability over a more rigid and functional strategy. Alternatively, a fixed and specific approach to organizational design will capture more value in a mature market, where variability and uncertainty are limited. Resource DependenceAnother perspective on organizational design is resource dependence theory—the study of how external resources affect the behavior of the organization. Procuring external resources is important in both the strategic and tactical management of any company. Resource-dependence theory explores the implications regarding the optimal divisional structure of organizations, recruitment of board members and employees, production strategies, contract structure, external organizational links, and many other aspects of organizational strategy. CompetitionAnother environmental factor that shapes organization design is competition. Higher levels of competition require different organizational structures to offset competitors' advantages while emphasizing the company's own strengths. A company that demonstrates strength in differentiation relative to the competition benefits from implementing a divisional or matrix strategy, which in turn allows the company to manage a wide variety of demographic-specific products or services. Alternatively, a company that demonstrates a low-cost strength (producing products cheaper than the competition) benefits from employing a structural or bureaucratic strategy to streamline operations. Identifying External FactorsIn considering organizational design relative to the environment, managers may find it helpful to employ two specific frameworks to identify external factors and internal strengths and weaknesses:
Porter's five-forces model: Porter's five-forces analysis identifies five environmental factors that can influence a company's strategic design: power of buyers, power of suppliers, competition, substitutes, and barriers to entry. Smaller, more agile companies tend to thrive better in uncertain or constantly changing markets, while larger, more structured companies function best in consistent, predictable environments. Understanding these tools and frameworks alongside the varying external
forces that act upon a business will allow companies to make strategic organizational decisions that optimize their competitive strength. Considering Company SizeThe size and operational scale of a company is important to consider when identifying the ideal organization structure. Learning Objectives Explain how the size of a company helps determine the organizational structure that optimizes operational efficiency and managerial
capacity Key TakeawaysKey Points
Key Terms
Company Size and Organizational Structure Organizational design can be defined narrowly as the strategic process of shaping the organization's structure and roles to create or optimize competitive capabilities in a given market. This definition underscores why it is important for companies to identify the factors of the organization that determine its ideal structure—most specifically
the size, scope, and operational initiatives of the company. Types of Organizational StructureCompanies may adopt one of six organizational structures based upon company size and diversity of scope of operations. Pre-bureaucraticIdeal for smaller companies, the pre-bureaucratic structure deliberately lacks standardized tasks and strategic division of responsibility. Instead, this is an agile framework aimed at leveraging employees in any and all roles to optimize competitiveness. BureaucraticA bureaucratic framework functions well in large corporations with relatively complex operational initiatives. This structure is rigid and mechanical, with strict subordination to ensure consistency across varying business units. Post-bureaucraticThis structure is a combination of bureaucratic and pre-bureaucratic, where individual contribution and control are coupled with authority and structure. In this structure, consensus is the driving force behind decision making and authority. Post-bureaucratic structure is better suited to smaller or medium-sized organizations (such as nonprofits or community organizations) where the importance of the decisions made outweighs the importance of efficiency. FunctionalA functional structure focuses on developing highly efficient and specific divisions which perform specialized tasks. This structure works well for large organizations pursuing economies of scale, usually through production of a large quantity of homogeneous goods at the lowest possible cost and highest possible speed. The downside of this structure is that each division is generally autonomous, with limited communication across business functions. DivisionalA divisional structure is also a framework best leveraged by larger companies; instead of economies of scale, however, they are in pursuit of economies of scope. Economies of scope simply means a high variance in product or service. As a result, different divisions will handle different products or geographic locations/markets. For example, Disney may have a division for TV shows, a division for movies, a division for theme parks, and a division for merchandise. MatrixA matrix structure is used by the largest companies with the highest level of complexity. This structure combines functional and divisional concepts to create a product-specific and division-specific organization. In the Disney example, the theme park division would also contain a functional structure within it (i.e., theme park accounting, theme park sales, theme park customer service, etc.). Strategic Organizational Design Structure becomes more difficult to change as companies evolve; for this reason, understanding which specific structure will function best within a given company environment is an important early step for the management team. Smaller companies function best as pre-bureaucratic or post-bureaucratic; the inherent
adaptability and flexibility of the pre-bureaucratic structure is particularly effective for small companies aspiring to expand. Larger companies, on the other hand, achieve higher efficiency through functional, bureaucratic, divisional, and matrix structures (depending on the scale, scope, and complexity of operations). Considering TechnologyTechnology impacts organizational design and productivity by enhancing the efficiency of communication and resource flow. Learning Objectives Recognize the intrinsic structural value of the ever-evolving technological environment Key TakeawaysKey Points
Key Terms
Organizational design can be defined narrowly as the strategic process of shaping an organization's structure and roles to create or optimize capabilities for competition in a given market. Technology: Technology has opened doors to incorporating new and advanced forms of organizational design. This is most notably seen through rapid global communications and the ability to constantly and economically be in contact. Technological Organizational Structures An
example of an organizational structure that has emerged from newer technological trends is what some have called the "virtual organization," which connects a network of organizations via the internet. Over the internet, an organization with a small core can still operate globally as a market leader in its niche. This can dramatically reduce costs and overhead, remove the necessity for an expensive office building, and enable small, dynamic teams to travel and conduct work wherever they are
needed. Technology and Traditional Structures Technology can also affect other longstanding
elements of an organization. For example, information systems allow managers to take a much more analytic view of their businesses than before the advent of such systems. Managers can communicate and delegate much more effectively through using technologies such as email, calendars, online presentations, and other virtual tools. Considering the Organizational Life CycleThe life cycle of an organization is important to consider when determining its overall design and structure. Learning Objectives Describe the way in which life cycles influence an organization's overall design and structure Key TakeawaysKey Points
Key Terms
Organization design can be defined narrowly as the strategic process of shaping organizational structure and roles to create or optimize capabilities for competition in a given market. The life cycle of an organization, industry, and/or product can be an important factor in organization design. The life cycle of a business: Organizations must always be striving to sustain their position in a given competitive environment. This often requires structural evolution and rapid iterations in the feedback loop of disruption, growth, refinement, and renewal. Overview of the Life CycleFrom an organizational perspective, "life cycle" can refer to various factors such as the age of the organization itself, the maturation of a particular product or process, or the maturation of the broader industry. In organizational ecology, the idea of age dependence is used to examine how an organization's risk of mortality relates to the age of that organization. Generally speaking, organizations go through the following stages:
The Enterprise Life CycleThe Enterprise Life Cycle is a model that underlines the way in which organizations remain relevant. The Enterprise Life Cycle is the dynamic, iterative process of changing an enterprise over time by incorporating new business processes, technologies, and capabilities, as well as maintaining, using, and disposing of existing elements of the enterprise. Richard L. Daft's Four StagesRichard L. Daft theorized four stages of the organizational life cycle, each with critical transitions:
Structural Implications of the Life Cycle The life cycle of an organization is important to consider when making decisions about the organization's structure and design. Richard L. Daft's model underlines critical problems within each stage of an organization's life cycle that can often be solved through intelligent structural design. Licenses and AttributionsCC licensed content, Shared previously
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What elements need to be considered when designing the structure of an international company?There are four primary dimensions that need to be considered when designing the structure of an international company:. Product and technical expertise.. Geographic expertise.. Customer expertise.. Functional expertise.. What are the factors influencing an organizational design give three reasons?These factors are:. Strategy. Strategy dictates the strategic priorities of an organization. ... . Environment. The environment a company operates in influences its strategy but also dictates how it positions itself. ... . Technology. Information technology is a key enabler for decision making. ... . Size & life cycle. ... . Culture.. Which of the following are the two dimensions of formality informality that must be considered by a multinational corporation?Multinational companies (MNCs) realize there are two dimensions of formality-informality that must be considered: internal and external.
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