Organizational Structure and Centralization

Organizational Structure

• Organizational structure is a system outlining how activities are directed to achieve organizational goals. This includes rules, roles, and responsibilities.
• Structure determines how information flows between levels within the company.
• A successful structure defines each employee's job and how it contributes to the overall system.
• Two main types of organizational structures exist: centralized and decentralized.

Centralised Organizational Structure

• Decisions and processes are defined and handled by top management.
• Employees and managers follow top management decisions.
• Employees lower in the chain of command have a minimal role in decision-making.
• Decision flow is top-down.
• Examples: military, Flipkart, Apple, McDonalds

Pros of a Centralized Structure

• Clear communication and chain of command
• Cost reduction (administrative costs)
• Fast implementation of decisions
• Improved work quality and reduction in task replication

Cons of a Centralized Structure

• Dictatorship in leadership
• Work delays due to dependency on management
• Employees feel disconnected, reducing work efficiency
• Managers lack authority

Decentralized Organizational Structure

• Day-to-day tasks and decision-making processes are delegated to supervisors at middle and lower levels.
• Top management lets lower level executives make decisions to improve efficiency.
• Top management focuses on major decisions.
• Empowerment and increased responsibility for employees result.
• Examples: start-up companies, technology-based companies

Pros of a Decentralized Structure

• Better customer service
• Better staff motivation
• Quick decisions
• Effective communication
• Improved supervision and control

Cons of a Decentralized Structure

• Difficult coordination
• Expensive process
• Unnecessary cost increases due to external factors

Elements of Organizational Structure

• A well-designed structure defines functions, hierarchy, roles, responsibilities, and aligns organizational goals with staff/teams.
• Poor design can lead to ambiguity, lack of trust, rigid work environments, slow decision-making, and low productivity.
• Six key elements of organizational design:
  • Line/Chain of Command: Authority and power are delegated from top to bottom.
  • Span of Control: The direct control of supervisors over subordinates, depending on: number of tasks, geographical location, team/superior abilities, complexity of tasks.
  • Type of Structure: Centralized or decentralized, based on decision-making authority.
  • Specialization: Large organizations divide functions based on areas of expertise and subtasks.
  • Formalization: Specifies rules, procedures, duties for individuals, teams, departments etc. in writing.
  • Departmentalisation: Divides organizational functions into departments based on job specializations or responsibilities; to handle common tasks by specialized teams.

Formalization

• Formalization specifies rules, procedures, and duties for individuals, teams, departments, and the whole organization.
• It indicates organizational goals, tasks, hierarchy, and relationships, authority, and responsibilities.
• Two types: Formal and Informal

Informal Organization

• Emphasizes individuals, job responsibilities are based on individual skills and preferences regardless of department.
• Individuals can be assigned roles based on self-interest and skills.

Departmentalisation

• Divides organizational functions into departments based on job specialization or responsibilities.
• Two types: Rigid and Loose
  • Rigid: Minimal interaction between teams.
  • Loose: Teams interact for common tasks.