Understanding Organizations

UNIT 2 FACTORS AFFECTING ORGANIZATION DESIGN

At the end of this UNIT, you should be able to understand: the meaning of organization design, various objectives of organization design, different principles of organization design, theories of organization design, important factors affecting organization design, meaning of organization effectiveness, criteria to measure effectiveness.

Structure
2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 Introduction Meaning of Organizational Design Purposes of The Organization Design Principles of Good Organizational Design Theories of Organization Design Key Factors Affecting Organization Design Other Factors Organizational Effectiveness Summary Self Assessment Questions Further Readings

2.1 INTRODUCTION
Technological advancement has brought about far-reaching changes in the methods of work and also in the organisation design. Globalisation of market, changing methods of production, economic instability etc. over the factors which affect the organisation designing. It is in this context, the present unit seeks to analyse this concept and to outline the principles and theories associated with it.

2.2 MEANING OF ORGANIZATIONAL DESIGN

The term organizational design refers to how various parts of the organization and the distinct elements are brought together to make it. It considers both, how these elements match together and ways in which they may be analyzed and improved. The design aspects broadly include how the organization is structured, the types and numbers of jobs, and the processes and procedures used to: handle and pass information; make decisions; produce results; 20 manage quality;

communicate information; plan, develop and manage resources; innovate and handle crises (Cushway and Lodge, 2002).

Factors Affecting Organization Design

2.3 PURPOSES OF THE ORGANIZATION DESIGN

Broadly an organization is designed to realize a number of objectives. These could be: to support the organizations strategy. The structure should be designed in such a way as to assure the realization of the organizations goals and objectives; to arrange resources in the most efficient and effective way; to provide for the effective division of tasks and accountabilities among individuals and groups; to ensure effective co-ordination of the organizations activities and clarify the decision-making processes; to enhance and elucidate the lines of communication up, down and across the organization; to permit for the effective monitoring and review of the organizations activities; to endow with mechanisms for coping with change in markets, products and the internal and external environments; to aid the handling of crises and problems; to help to motivate, manage and give job satisfaction to individual members of the organization; and to provide for management succession (Cushway and Lodge, 2002).

2.4 PRINCIPLES OF GOOD ORGANIZATIONAL DESIGN

A good organization design should go along with the following principles: The various parts of the structure should be divided into specialist areas. These specialist areas need to be interlinked. The number of levels in the structure, sometimes referred to as the scalar chain, should be as few as possible. The span of control, i.e, the number of subordinates directly managed, will vary according to the nature of the jobs and the organization, but it should not be so narrow that it results in a structure with too many levels, or too broad to allow effective management. There should be what has been described as unity of command. For this the reporting positions and authority need to be clearly defined. Every post in the structure should have a clear role and add value to the way the organization functions. The extent to which the organization should be centralized or decentralized will need to be determined by reference to a number of factors. These include, the nature and type of industry, geographical dispersion, history, environment, resources available etc. The structure must be designed to take account of changes in the environment, which can include the economy, legislation, markets, technological developments, geography, cultural environment, and social environment. 21

Understanding Organizations

2.5 THEORIES OF ORGANIZATION DESIGN

Basically, there are two theories of organization design : universalistic & contingency theories. The universalistic theory assumes that there is one best way to organize. It means the maximum organizational performance comes from the maximum level of a structural variable, for instance, specialization (Taylor, 1947). Classical management is an earlier organizational theory that argue that maximum organizational performance results from maximum formalization and specialization and it is therefore a universalistic type of theory. Similarly, neo-human relations is also an earlier universalistic type of organizational theory, which claims that organizational performance is maximized by maximizing participation (Likert, 1961). Contingency theory differs from all such universalistic theories in that it sees maximum performance as resulting from adopting, not the maximum, but rather the appropriate level of the structural variable that fits the contingency. Therefore, the optimal structural level is seldom the maximum, and which level is optimal is dependent upon the level of the contingency variable. A contingency is a variable that moderates the effect of an organizational characteristics on organizational performance. At the most abstract level, the contingency approach says that the effect of the variable on another depends upon some third variable. The third variable moderates the relationship between two variables and can therefore be called a moderator of the relationship or a conditioning variable of the relationship (Galtung 1967). In the contingency theory of organizations, the relationship is between some characteristic of the organization and effectiveness. Thus the contingency factor determines which characteristic produces high levels of effectiveness of the organization (or some part of it, such as a department of individual member). As much of the contingency theory research has studied organizational structure this tradition is referred to as structural contingency theory. Structural contingency theory contains three core elements that together form its core archetype. First, there is an association between contingency and the organizational structure. Second, contingency determines the organizational structure, because an organization that changes its contingency then, in consequence, changes its structure. Third, there is a fit of some level of the organizational structural variable to each level of the contingency, which leads to higher performance, whereas misfit leads to lower performance. This fit-performance relationship is the heart of the contingency theory paradigm. It provides the theoretical explanation of the first two points.

2.6 KEY FACTORS AFFECTING ORGANIZATION DESIGN

The selection of an appropriate design is reliant upon several factors. However the primary factors that often affect organization design are : size, environment, strategy, and technology. Table 1 identifies some indicators for each of the four primary factors.

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Table 1: Factors in Organization Design Decisions Factors Size Environment Strategy and Goals Indicators Large Small Degree of complexity Degree of dynamism Low cost Differentiation Focused Task interdependence

Factors Affecting Organization Design

Technology

I. Size and Organization Design

Size is a main contingency factor that affects several aspects of structure. The size contingency refers to the total number of employees who are to be organized. Size as a key structural variable is subject to two schools of thought. The first approach, often called the bigger is better model, presupposes that the perunit cost of production decreases as the organization grows. In effect, bigger is said to be more efficient. The second approach i.e. small is beautiful revolves on the law of diminishing returns. This approach asserts that oversized organizations and subunits tend to be beleaguered by costly behavioral problems. Large and impersonal organizations are said to trigger apathy and alienation, with resulting problems such as turnover and absenteeism. Two strong promoters of this second approach are Peters and Waterman, the authors of the best-selling In Search of Excellence Recent research hints that when designing their organizations, managers should stick to a middle ground between bigger is better and small is beautiful because both models have been oversold. In reality, a newer viewpoint says complexity, not size, is the central issue. A meta-analysis of 31 studies (Gooding and Wagner III, 1985) conducted between 1931 and 1985 that related organizational size to performance found: Larger organizations (in terms of assets) tended to be more productive (in terms of sales and profits). There was no positive relationship between organizational size and efficiency, suggesting the absence of net economy of scale effects. There was zero to slightly negative relationship between subunit size and productivity and efficiency. A more recent study examined the relationship between organizational size and employee turnover over a period of 65 months. Turnover was unrelated to organizational size. Striving for Small Units in Big Organizations : In summary, bigger is not essentially better and small is not essentially beautiful. Hard-and-fast numbers regarding precisely how big is too big or how small is too small are hard to obtain. The best that managers can do is check the productivity, quality, and efficiency of divisions, departments, and profit centers.

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Activity A In your opinion, whether a small or big organization is more effective? Give reason for your stand. .......................................................................................................................... .......................................................................................................................... .......................................................................................................................... .......................................................................................................................... .......................................................................................................................... ..........................................................................................................................

II. Environment and Organizational Design

Organizations, as open systems, need to receive various inputs from the environment and to sell various outputs to their environment. Therefore, it is important to comprehend what the environment is and what elements are likely to be important. The environment of an organization may be defined as general or specific. The general environment is the set of cultural, economic, legal-political, and societal conditions within the areas in which the organization operates. The specific environment constitutes its owners, suppliers, distributors, government agencies, and competitors with which an organization must interact to grow and survive. A firm, typically, much more concerned over the composition of its specific environment than of its general environment.

Environmental Complexity
Environmental complexity is an estimate of the magnitude of the problem and opportunities in the organizations environment. This is identified by three main factors: the degree of richness, the degree of interdependence, and the degree of uncertainty stemming from both the general and the specific environment.

a) Environmental Richness
For business, a richer environment means the economic conditions are improving, customers are spending more money, and suppliers (such as banks) are willing to invest in the future of the organization. A richer environment is also filled with more opportunities and dynamism, i.e., the capability for change. The organizational design must enable the company to be proverbial with these opportunities and capitalize on them. The opposite of richness is decline.

b) Environmental Interdependence
The link between external interdependence and organizational design is often restrained and indirect. The organization may choose powerful outsiders by including them. For instance, many large corporations have financial representatives from banks and insurance companies on their boards of directors. The organization may also adjust its overall design strategy to absorb or safeguard the demands of a more powerful external element.

c) Uncertainty and Volatility

Environmental uncertainty and unpredictable volatility can be particularly damaging to large bureaucracies. The obvious organizational design response to uncertainty and volatility is to go for a more organic form. However at the extremes, that ensures flexibility and is more adaptive to environment movement toward an adhocracy may be important. 24

Using Alliances Where Environmental Factors Dominate

In high-tech areas, such as robotics, semiconductors, and advanced materials (ceramics and carbon fibers), a single company often lacks all the knowledge essential to bring new products to the market. In this case, the organizational design must go beyond the boundaries of the organization and enter into an inter-firm alliances, which means announcing cooperative agreements or joint ventures between two independent firms. In Japan, alliance amount well established firms in many industries are quit common. The network of relationship is called a Keiretsu. Keiretsu is a Japanese word which, translated literally, means headless combine. It is the name given to a form of corporate structure in which a number of organizations link together, usually by taking small stakes in each other and usually as a result of having a close business relationship, often as suppliers to each other. The structure, frequently likened to a spiders web was very much admired in the 1990s. Activity B In recent years strategic emphasis is laid upon joint ventures or corporate alliances. Write the rationale behind it. .......................................................................................................................... .......................................................................................................................... .......................................................................................................................... .......................................................................................................................... ..........................................................................................................................

Factors Affecting Organization Design

Differentiation and Integration: The Lawrence and Lorsch Study

In their classic text, Organization and Environment, Harvard researchers Paul Lawrence and Jay Lorsch explained how two structural forces simultaneously disintegrate the organization and combine it together. They cautioned that an imbalance between these two forces could hold back organizational effectiveness. Differentiation occurs through division of labor and technical specialization. Integration occurs when specialists cooperate to achieve a common goal. In the Lawrence and Lorsch model, integration can be achieved through various combinations of the following six mechanisms: (1) a formal hierarchy; (2) standardized policies, rules, and procedures; (3) departmentalization; (4) committees and cross-functional teams; (5) human relations training, and (6) individuals and groups acting as liaisons between specialists. When Lawrence and Lorsch studied successful and unsuccessful companies in three industries, they concluded that: As environment complexity increased, successful organizations exhibited higher degree of both differentiation and integration. Activity C Do you find any evidence of integration in your current (or last) place of employment ?. .......................................................................................................................... .......................................................................................................................... .......................................................................................................................... .......................................................................................................................... .......................................................................................................................... 25

Understanding Organizations

Dynamism
Dynamism relates to the stability or instability of the environment. Several authors have identified dynamism as one of the major environmental contingencies of organizations (Child 1975; Duncan 1972; Thompson 1967). Dess and Beard (1984) emphasize that dynamism is not simply the rate of change, which itself could be constant, thereby rendering the environment predictable, but rather the degree of unpredictability. As they state, Dynamism should be restricted to change that is hard to predict and that heightens uncertainty for key organizational members. This corroborates the significance of uncertainty as a strategic element of dynamism. It is presumed that when the task and environmental uncertainty contingency is low, the mechanical structure and when the task and environmental uncertainty contingency is high, an organic structure produces high effectiveness. Mechanistic versus Organic Organizations A landmark organization design study was reported by a pair of British behavioral scientists, Tom Burns and G M Stalker. In the course of their research, they drew a very instructive distinction between what they called mechanistic and organic organizations. Mechanistic organizations are rigid bureaucracies with strict rules, narrowly defined tasks, and top-down communication. Organic organizations are flexible networks of multitalented individuals who perform a variety of tasks. Importantly as illustrated in Table 2, each of the mechanistic-organic characteristics is a matter of degree. Organizations tend to be relatively mechanistic or relatively organic.
Table 2: Characteristics of Mechanistic and Organic Organization Characteristic Task definition and knowledge required Linkage between individuals contribution and organizations purpose Task flexibility Specification of techniques, obligations, and rights Degree of hierarchical control Primary communication pattern Primary decision-making style Emphasis on obedience and loyalty Source: Burns and Stalker (1961) Mechanistic Organization Narrow; technical Vague or indirect Rigid; routine Specific High Top-down Authoritarian High Organic Organization Broad; general Clear or direct Flexible; varied General Low (self-control emphasized) Lateral (between peers) Democratic; participative Low

Types of Environment
Figure 1 illustrates the basic classification of task environments. The four pure types of task environments are : uniform-stable, varied-stable, uniformunstable, and varied-unstable. The simplest organization design can be effective in a uniform-stable environment (box 1). Although the environment is relatively stable, these firms do face some uncertainties because of competitors actions, customers changing preferences, and potential substitutes for their products and services.

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Low Uncertainty
Stable

Moderate Uncertainty

Factors Affecting Organization Design

Degree of Dynamism

* Few environmental factors exist. * Many environment factors exist. * Factors are similar to each other * Factors are not similar to each other. * Factors remain basically the same * Factors remain basically the same Example: Salt manufacturers, Printing Example : Registrars offices in firms universities Gasoline refining/ distribution firms Moderately High Uncertainty High Uncertainty

* Few Environment factors exist. * Many environmental factors exist. * Factors are similar to each other * Factors are not similar to each other. * Factors are continually changing. * Factors are continually changing. Example: Fast-food firms consumer Example: Telecommunications firms products firms Biotechnology firms. Uniform Degree of Complexity Figure 1. Basic Types of Task Environments Varied

The varied-stable environment (box 2) poses some risks for managers and employees, but the environment and the alternatives are fairly well understood. The environment is relatively stable, but employees may need considerable training and experience to understand it and make it work. The uniform-unstable environment (box 3) requires managers, employees, and organization designs to be flexible. Rapid response to sudden changes in market demand or technologies means that companies need organization designs that allow for considerable flexibility and speed in allocating resources to new product. The varied-unstable environment (box 4) represents the most challenging situation for an organization because the environment presents numerous uncertainties. This environment requires the most managerial and employee sophistication, insight, and problem-solving abilities.

Unstable

Differentiation Strategy
Strategic Target

Cost Leadership Strategy

Focused Strategy

Narrow Uniqueness Low Cost

Figure 2: Porters Strategic Model

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III. Strategy and Organization Design

Organizational strategy refers to the way the organization positions itself in its setting in relation to its stakeholders, given the organizations resources, capabilities, and mission. Basically two types of strategies are popular at present: Generic and Competence- based strategies.

Generic Strategies
These are in terms of cost focus and product focus. According to Michael Porter, companies need to differentiate and place themselves differently from their competitors in order to build and sustain a competitive advantage. Organizations have attempted to build competitive advantages in various ways, but three underlying strategies appear to be essential in doing so: low cost, differentiation, and focused. These strategies are shown in Figure 2.

Low Cost
A low-cost strategy is based on an organizations ability to provide a product or service at a lower cost than its rivals. The organizations design is functional, with accountability and responsibility clearly assigned to various departments.

Differentiation
A differentiation strategy is based on providing customers with something that is unique and makes the organizations product or service distinctive from its competition. An organization that chooses a differentiation strategy typically uses a product organization design whereby each product has its own manufacturing, marketing, and research and development (R&D) departments

Focused
A focused strategy is designed to help an organization target a specific niche within an industry, unlike both the low-cost and the differentiation strategies, which are designed to target industry-wide markets. An organization that chooses a focused strategy may utilize any of a variety of organization designs, ranging from functional to product to matrix to network, to satisfy their customers preference

Competency-Based Strategies
Although the list of generic strategies provides a quick general guide for many senior managers, it is apparent that a firm needs the skills and abilities to get the most out of the intended generic strategy. Eventually, the firm may develop specific administrative and technical competencies to achieve the purpose. As middle and lower-level managers bring about minor modifications and adjustments to solve specific problems and capitalize on specific opportunities, they and their firms may learn new skills. These skills may be recognized by senior management and give them the opportunity to adjust, modify, and build upon a generic strategy to develop a so-called competency strategy. In the process of building upon its capabilities, the firm may actually move generic strategies and/or combine elements of two generic strategies. Strategic choice refers to the idea that an organization interacts with its environment instead of being totally determined by it. In other words, organizational leaders should take steps to define and manipulate their environments, rather than let the organizations fate be entirely determined by external influences. The notion of strategic choice can be traced back to the work of Alfred Chandler in the early 1960s. Chandlers proposal was that structure follows strategy. He observed that organizational structures should follow the growth

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Organizational Objectives

Factors Affecting Organization Design

Environmental constraints

Strategic decisions made by dominant coalition

Organizational Structure Target markets Capital sources/uses Human resources Technology Total quality management

Organizational effectiveness

Decision makers personal beliefs, attitudes, values, and ethics

Corrective action Source: Kreitner, Robert and Kinicki, Angelo (1998), Organizational Behavior, Irwin McGraw-Hill, USA Figure 3: The Relationship Between Strategic Choice And Organizational Structure

strategy developed by the organizations decision makers. But the Model gained popularity only in 1972, when British sociologist John Child rejected the environmental imperative approach to organizational structure and proposed strategic choice model based on behavioral rather than rational economic principles. According to the strategic choice model , an organizations structure is determined largely by a dominant coalition of top-management strategists. As Figure 3 illustrates, specific strategic choices or decisions reflect how the dominant coalition perceives environment constraints and the organizations objectives. These strategic choices are tempered by the decision minor modifications and adjustments to solve specific problems and capitalize on specific opportunities, they and their firms may learn new skills. These skills may be recognized by senior management and give them the opportunity to adjust, modify, and build upon a generic strategy to develop a so-called competency strategy. In the process of building upon its capabilities, the firm may actually move generic strategies and/or combine elements of two generic strategies. In summary, strategy influences structure and structure influences strategy. Strategic choice theory and research teaches managers at least two practical lessons. First, the environment is just one of many co determinants of structure. Second, like any other administrative process, organization design is subject to the byplays of interpersonal power and politics.

IV. Technology and Organization Design

Two important technological contingencies that influence the type of organizational structure are the variety and analyzability of work activities. Variety refers to the number of exceptions to standard procedure but can occur in the team or work unit. Analyzability refers to the extent that the transformation of input resources to outputs can be reduced to a series of standardized steps.

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Understanding Organizations

Some jobs are routine, meaning that employees perform the same tasks all of the time and rely on set rules (standard operating procedures) when exceptions do occur. Almost everything is predictable. These situations, such as automobile assembly lines, have high formalization and centralization as well as standardization of work processes. When employees perform tasks with high variety and low analyzability, they apply their skills to unique situations with little opportunity for repetition. Research project teams operate under these conditions. These situations call for an organic structure, one with low formalization, highly decentralized decision-making authority, and coordination mainly through informal communication among team members. High-variety and high-analyzability tasks have many exceptions to routines, but these exceptions can usually be resolved through standard procedures. Maintenance groups and engineering design teams experience these conditions. Work units that fall into this category should use an organic structure, but it is possible to have somewhat greater formalization and centralization due to the analyzability of problems.

Thompsons view on the Impact of Technology

Thompson (1967) argues that task and technology are major contingency factors of organizational structure. He offers a typology of types of technology and their respective organizational structures. Three different types of technologies are distinguished: mediating, long-linked, and intensive. These correspond to three types of task interdependence between organizational subunits: pooled, sequential, and reciprocal. Mediating technology refers to the linking of customers, such as a bank linking lenders and borrowers, and involves pooled interdependence. Pooled independence means that two organizational subunits (e.g., branches of a bank) have not direct connection, so that their interdependence is indirect, residing in their both drawing resources from some central pool. Long-linked technology refers to sequential interdependence where task A is the input to task B. Sequential interdependence means that the subunits have a direct connection, so that the output of one subunit is an input to the other subunit. Intensive technologies use varying techniques according to feedback from the object worked upon .For example, a hospital using various diagnostic and treatment techniques according to the condition of the patient, and involve reciprocal interdependence. Reciprocal independence means that the subunits have a two-way connection, in which the output of each subunit is an input to the other subunit, so that they transact back and forth in an unpredictable manner. The three types of interdependence (pooled, sequential, and reciprocal) are each fitted by varying degrees of mechanistic or organic structures. Thus task interdependence can be considered to be a contingency of organic structures.

Woodwards view on the Impact of Technology

Joan Woodward proposed a technological imperative in 1965 after studying 100 small manufacturing firms in southern England. She found distinctly different structural patterns for effective and ineffective companies based on technologies of low, medium, or high complexity. Effective organizations with either low or high-complexity technology tended to have an organic structure. Effective organizations based on a technology of medium complexity tended to have a mechanistic structure. Woodward concluded that technology was the overriding determinant of organizational structure.

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Since Woodwards landmark work, many studies of the relationship between technology and structure have been conducted. Unfortunately, disagreement and confusion have prevailed. A statistical analysis of those studies bring about the following conclusions. The more the technology requires interdependence between individuals and/or groups, the greater the need for integration (coordination). As technology moves from routine to non-routine, subunits adopt less formalized and [less] centralized structures.

Factors Affecting Organization Design

2.7 OTHER FACTORS

History
The organizations present structure may have developed over a number of years, as functions have been added, changed or deleted. Obviously, the older the organization, the more significant history is likely to be. It is also more likely to have determined the current structure if there have been relatively little pressures on the organization to adapt to changing circumstance, either because it has monopolistic power or because the industry in which it operates is relatively slow-moving.

Customers and Markets

The organization structure is also affected by the type of market and customers it serves, and in a customer-responsive environment this should be one of the main determinants of structure. If the organization is providing services to a broad range of customers in a large number of locations, it may need to have many branch officers, as do Banks, the Post Office and so on. The advantages of a customer-based structure are as follows. meeting customers requirements is more likely to lead to long-term success for the organization; it gives a clear focus to the organization; and it enables an emphasis to be put on the requirements of different customers groups, thereby improving overall service quality. The main disadvantages are as follows: there is a need to keep a close eye on market requirements which could require a lot of research; to be responsive to customer requirements the organization needs to be very adaptable so that it can respond quickly to change; in many cases the provision of different services for different customer types may not allow for the most effective use of resources or for economies of scale; it may not always be economical or profitable for the organization to provide some of the services required by customers, yet failure to do so will result in loss of goodwill; and in some environment, the need to provide services outside normal working hours or around the clock will mean that shift working, stand-by and call-out arrangements will need to be introduced which will affect the way the organization is structured

Processes
The processes used within the organization also affect the structure. A production line process consists of a number of distinct tasks carried out by 31

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people specializing in those tasks at different stages of the process. The underlying principle behind this approach is that specialization means people can develop high skills and speed, resulting in high output at low cost. There are of course disadvantages to this approach, primarily in terms of maintaining the motivation and morale of production line operatives. The advantages of organization of the basis of process or technology are that: it allows for task specialization which means that people can develop a high degree of skill: the emphasis on the outputs from a particular process can result in high productivity; the structure is easy to understand and manage and there is likely to be little ambiguity in the outputs to be achieved; a structure that is driven by the organizations processes is likely to require less supervisory input; and processes that are particularly dirty, noisy or hazardous can be grouped together. The main disadvantages are that: there is a risk that by concentrating on processes the organization could lose sight of the inputs required; there is a greater need for the companys various processes to be integrated to ensure that they work towards the companys overall objectives; and there is less focus on the customer.

People
People in the organization affect the structure in a number of ways. Structures do not just appear, they are the result of peoples views and beliefs and their approach to managing the organization. The structure is also be affected by the types of jobs and people within the organization. Structures with a large number of professionals are more likely to involve team working, and therefore to be relatively flat compared with an organization that has to accommodate a range of jobs from the production line operative to the chairman.

Geography
The geographical spreading of an organization affects its structure mainly because of its need to be near raw materials or customers,. Where there is a significant degree of geographical distribution, there is likely to be more need for careful co-ordination and control than with a single site location. When there is a strong need to provide products or services within a particular geographical area, the organization may be divided into regions or areas, with each being a fully self-contained, miniature version of the parent organization. In many cases, understanding the particular needs and requirements of the local area is of sufficiently fundamental importance for location to be the most significant factor in organization design. The advantages of a geographically based structure are: Responsiveness to local needs; It makes firm able to provide a complete service at one location; A degree of autonomy can provide for more efficient decision-making and increase job satisfaction; and The organization can recruit locally based staff; it can facilitate the training and development of managers who can quickly gain varied experience in smaller branch offices before moving to larger jobs.

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Products and Services

The structure may be determined by the particular products and services provided. Large and diverse organizations have separate divisions because they are dealing with very different products and services. Similarly, the Post Office has separate organizations for the various services it provides such as mail delivery (Royal Mail), parcel delivery (Parcel force) and counter services (Post Office Counters Limited). The advantages of product specialization are that: it provides a focus on a specific area and encourages the development of expertise in the provision of that product or service; and it is likely to provide a service that is more responsive to customer requirements. The disadvantages are that: too much focus on the product may overlook customers real needs; and it may not make the best use of the organizations resources.

Factors Affecting Organization Design

2.8 ORGANIZATIONAL EFFECTIVENESS

Organizations are constructed to be the most effective and efficient social units. The actual effectiveness of a specific organization is determined by the degree to which it realizes its goals. The efficiency of an organization is measured by the amount of resources used to produce a unit of output. Output is usually closely related to, but not identical with, the organizational goals. For instance, Ford produces automobiles (its output), but its goal seems to be profit-making. The unit of output is a measurable quantity of whatever the organization may be producing. Organizational effectiveness can have a broad meaning that includes efficiency, profitability (Child 1975), employee satisfaction (Dewar and Werbel 1979), innovation rate (Hage and Dewar 1973), or patient well-being (Alexander and Randolph 1985). Organization effectiveness can be defined as the ability of the organization to attain the goals set by itself (Parsons 1961), or by its ability to function well as a system (Yuchtman and Seashore 1967), or by its ability to satisfy its stakeholders (Pfeffer and Salancik 1978; Pickle and Frieddlander 1967). In its annual Most Admired Corporations survey, Fortune Magazine applies the following eight effectiveness criteria: quality of management. quality of products/services. innovativeness. long-term investment value. financial soundness. ability to attract, develop, and keep talented people. responsibility to the community and the environment. wise use of corporate assets. For a better understanding of this complex subject, four generic approaches to assessing an organizations effectiveness may be considered. These effectiveness criteria employ equally well to large or small and profit or not-forprofit organizations. Moreover, the four effectiveness criteria can be used in various combinations (Refer Figure 3).

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Goal Accomplishment: Goal accomplishment is the most widely used effectiveness criterion for organizations. Key organizational results or outputs are compared with previously stated goals or objectives. Productivity improvement, involving the relationship between inputs and outputs, is a common organization-level goal. Resource Acquisition: This second criterion related to inputs rather than outputs. An organization is deemed effective in this regard if it acquires necessary factors of production such as raw materials, labor, capital, and managerial and technical expertise. Internal Processes: Some refer to this third effectiveness criterion as the healthy systems approach. An organization is said to be a healthy system if information flows smoothly and if employee loyalty, commitment, job satisfaction, and trust prevails. Goals may be set for any of these internal processes. Healthy systems, form a behavioral standpoint, tend to have a minimum of dysfunctional conflict and destructive political maneuvering. Strategic Constituencies Satisfaction: Organizations both depend on people and affect the lives of people. Consequently, many consider the satisfaction of key interested parties to be an important criterion of organizational effectiveness. A strategic constituency is any group of individuals who have some stake in the organization-for example, resource providers, users of the organizations products or services, producers of the organizations output, groups whose cooperation is essential for the organizations survival, or those whose lives are significantly affected by the organization (Cameron. 1980). Strategic constituents or stakeholders can be identified systematically through a stake holders audit. A stakeholder audit enables management to identify all parties significantly impacted by the organizations performance. Managers need to identify and seek input from strategic constituencies. This information, when merged with the organizations stated mission and philosophy, enables management to derive an appropriate combination of effectiveness criteria. The following guidelines are helpful in this regard: the goal accomplishment approach is appropriate when goals are clear, consensual, time-bounded, measurable (Cameron, 1986). the resource acquisition approach is appropriate when inputs have a traceable impact on results or output The internal processes approach is appropriate when organizational performance is strongly influenced by specific process (e.g., cross-functional teamwork). the strategic constituencies approach is appropriate when powerful stakeholders can significantly benefit or harm the organization. The key thing to remember is no single approach to the evaluation of effectiveness is appropriate in all circumstances or for all organization types.

2.9 SUMMARY
Organization design broadly includes how the organization is structured, the types and numbers of jobs , formal system of communication, division of labor, coordination, control, authority, and responsibility essential to attain an organizations goals. An organization is designed to realize a number of objectives. Mainly, there are two theories of organization design : universalistic & contingency theories. The universalistic theory assumes that there is one best way to organize. The contingency theory assumes that maximum performance results from the appropriate level of the structural variable that fits

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the contingency. The primary factors that often affect organization design are : size, environment, business strategy, and technology. However several other factors such as history of the organization, its products and services, processes, coverage of customers, people, geographical spreading etc. also affect the organization design. Organization effectiveness denotes the degree to which it realizes its actual goals. There are four generic organizational effectiveness criteria : goal accomplishment, resource acquisition, internal processes and strategic constituencies satisfaction. As no two organizations are alike, managers need to mix and match effectiveness criteria in a manner apposite to the situation.

Factors Affecting Organization Design

2.10 SELF ASSESSMENT QUESTIONS

1. Discuss the meaning and the theories of organisational design. 2. What are the key factors that affect organisation design. 3. Describe the concept of organisational effectiveness.

2.11 FURTHER READINGS

Alexander, Judith W., and W. Alan Randolph ( 1985), The Fit Between Technology and Structure as a Predictor of Performance in Nursing Subunits, Academy of Management of Journal, 28:844-859. Burns,Tom, and G.M.Stalker (1962),The Management of Innovation, London: Tavistock. Cameron, K. (1980), Critical Question in Assessing Organizational Effectiveness, Organizational Dynamics, Autumn, P.67. Cameron, K. L. (1986), Effectiveness as Paradox: Consensus and Conflict in Conceptions of Organizational Effectiveness, Management Science, May, P. 542. Child, John (1975), Managerial and Organisational Factors Associated with Company Performance, Part 2: A Contingency Analysis, Journal of Management Studies,12:12-17. Cushway, Barry and Lodge, Derek (2001), Organisational Behaviour and Design, Crest Publishing House, New Delhi. Dess, Gregory G., and Donald W. Beard (1984), Dimensions of Organisational Task Environments, Administrative Science Quarterly, 29:52-73. Dewar, Robert,and James Werbel (1979), Universalistic and Contingency Predictions of Employee Satisfaction and Conflict, , Administrative Science Quarterly, 24:426-448. Donaldson, Lex ( 2001), The Contingency Theory of Organizations, Foundation for Organizational Science, Sage Publications, New Delhi Duncan, Robert B. (1972), Characteristics of Organizational Environment and Perceived Environmental Uncertainty, Administrative Science Quarterly, 17:313-327. Galtung,Johan(1967),Theory and Methods of Social Research, Oslo,Norway:Universitetslaget.. Hage, Jerald, and Robert Dewar (1973), Elite Values Versus Organisational Strusture in Predicting Innovation, Administrative Science Quarterly,18:279-290. Hellriegel , Don, Jr., John W. Slocum, and Woodman, Richard W. (2001), Organization Behaviour, Thomson Asia ptv. Ltd., Singapore. 35