An organizational structure describes the way the job tasks are divided grouped and synchronized. Whenever we have to design the organizations structures, we must look into the following important concepts namely work specialization, departmentalization, and line of command, span of control, centralization, decentralization and formulation. These concepts can be briefly described as below:
- Work specialization – Work specialization is usually identified as division of labour that is descriptive of the degree to which tasks in the organization are sub-divided into different jobs. The essence of work specialization is the breakdown of the entire job into a number of steps each of which is to be completed by a separate individual, unlike the entire job being done by only one individual. This means the individuals focus in the part of the activity as opposed to the entire activity. In fact, the pioneer to this work specialization is Henry Ford in the earlier 20th century, who showed that work could be performed more effectively if employees are permitted to specialize. Consequently by late 1940 this was utilised in most of the industries. This resulted into some jobs being very specialized requiring employees skills and some jobs unskilled which can be performed by even untrained workers. The outcome of this was high productivity and good product value and introduction of increased payment for skilled workers.
- Departmentalization – After the jobs are divided through work specialization they can be clustered together so that common tasks are synchronized. The basis of job clustering is called departmentalization. The most frequent way for clustering the activities is by the functions they perform. Functional departmentalization without doubt helps in accomplishing the economics of scale by placing people with common skills and orientation into common units, for example: the plant can be organized by separating accounting, engineering, personnel, and material, technical and manufacturing specialist into common departments. Task can also be departmentalized according to type of product the organization manufactures, for example: varied products manufactured by an organization can be placed under the authority that has the complete responsibility for that product. This type in fact increases the responsibility for product performances since all actions related to a specific product are under the order of a single authority, for example: a public sector undertaking manufacturing life saving drugs can appoint separate authority accountable for running their products in global market, the product being penicillin, streptomycin, ampicillin, and gentamicin as well as formulated products.
Recently, services have entered in a big way in the industrial setup. In such case also each service can be independently clustered. The third way for departmentalization is on the basis of territory/ geography. Sales or marketing function is one such illustration or various small factories at different territories enterprise also fall in such categories, for example: a consumer manufacturing company may have factories of the same product at separate geographic location in a country or in the global territory. Off late, departmentalization has been used for certain type of customer. This is especially true for large corporations like Microsoft, where software developers form a homogenous group. A good organization may utilise all the forms of departmentalization, especially when it is a major global player.
- Line of command – The line of command means continuous line of authority, which expands from the top of the organization to the bottom of the organization and makes clear as to who should report to whom. This line of command includes two important ideas, namely authority and unity of command. Authority means the right with the managerial position to issue orders and anticipate the same to be followed. Therefore, each manager is allocated a place in the chain of command with a degree of authority so as to meet his job demands. The principle of unity of command helps to protect the concept of an unbroken line of authority. In other words a person should have only one supervisor to whom he can be accountable. In the global competition, the hierarchy is being done away with and the structure is developing to be more horizontal and therefore this line of command holds less relevance. One more reason for this is also the concurrent empowerment to make decision for operating personal.
- Span of control – This means the number of employees a manager can supervise with efficiency and effectiveness. This is to restructure the number of levels in hierarchy. A large or wider span results in the effectiveness of the organization. But the wideness also has constraints beyond which effectiveness and efficacy decreases, since the supervisors do not have adequate time to provide required guidance, support, leadership, etc. By having a small span of control restricted to 5-6 employees, a greater degree of control can be extended by a manager, but this becomes a disadvantage as the levels of structure are added. All of a sudden upward and downward communication becomes complex and inaccurate and it results in dispiriting employee autonomy. In the present environment, the focus is more on cost reduction. It seems that this is being achieved mainly by introduction of voluntary retirement schemes. It will be remarkable to watch how the organizational structure takes shape if factors other than VRS are also given importance for cost reduction measure.
- Centralization – It is common that top management takes all decisions and the low management simply executes the same, but there are some organizations where the decision making is authorized down the level also. The former case is known as centralized organization and the later the decentralized one. Centralization means focus of decision making at a single point in the organization. In centralized organizational structure, decision making process is quick. Lot more information flows from other and the employees are free from any feeling of exclusion from the decision makers. The Indian industry was a centralized organization since the business was run by family members. In the beginning for the 21st century we have noticed considerable change which has into professionalism in the managers substituting centralized structure by a decentralized structure. This has given organization more elasticity and responsiveness.
- Formulation – This means the degree to which the jobs within the organization are standardized. Standardization decreases the amount of judgment over what is to be done, when it is to be done and how it is to be done. This is because the employee always knows to handle similar input in exactly the same manner resulting in a more consistence and standardized output product. Therefore, organizations having formulizations have clearly defined job description, explicit procedures in work processing as well as definite organizational rules.