CHALLENGES OF ORGANIZATIONAL DESIGN

The basic challenges of organizational design are:

• Balancing Differentiation and Integration• Balancing Centralization and

Decentralization• Balancing Standardization and Mutual

adjustment

Balancing Differentiation and Integration

1. Differentiation:

Differentiation is the process by which an organization allocates people and resources to organizational tasks and establishes the tasks and authority relationships that allow the organization to achieve its goals.

Forms of differentiation:

• Horizontal differentiation• Vertical differentiation

Horizontal differentiation

The way an organization groups organizational tasks into roles and roles into subunits(functions and divisions).

Differentiation by specialization, often referred to as departmentalization. People with similar abilities working together on specialized tasks.

Vertical differentiation

The way an organization designs its hierarchy of authority and creates reporting relationships to link organizational roles and subunits.

2. Integration

The process of coordinating various tasks, functions, and divisions so that they work together and not at cross-purposes.

There are seven integrating mechanisms or techniques that managers can use as their organization’s level of differentiation increases.

Hierarchy of authority

This differentiates people by the amount of authority they possess. Because the hierarchy dictates who reports to whom, it coordinates various organizational roles.

Direct contact

Direct contact among managers creates a context within which managers from different functions or divisions can work together to solve mutual problems. However several problems with establishing this contact. Because managers from different functions may have different views about what must be done to achieve organisational goals.

Liaison roles

Managers can increase coordination among functions and divisions by establishing liaison roles. When the volume of contacts between two functions increases, one way to give one manager in each function or division the responsibility for coordinating with the other. These managers meet daily, weekly, monthly, or as needed to solve handoff issues and transfer problems.

Task forces

A temporary committee setup to handle a specific problem.

As an organization increases its size and complexity, more than two subunits may need to work together to solve common problems. For example, may require input from production, marketing, engineering and R&D.

Team

A team is a permanent task force or committee. Most companies today, for example, have product development and customer-contact teams to monitor and respond to the ongoing challenges of increased competition in a global market.

At Amgen, one of the most successful global biotechnology companies, for example, the team system has proved to be a vital contributor to the company’s success.

Integrating roles or departments

A full time position established specifically to improve communication between divisions.

Balancing differentiation and integration

The design issue facing managers is to establish a level of integration that matches the organization's level of differentiation.

Balancing centralization and decentralization

Centralization:

Organizational setup whereby the authority to make important decisions is retained by managers at the top of the hierarchy.

Advantages of centralization:• Standardization of procedures and systems:• Facilitates evaluation: • Economies:• Co-ordination of activities:

Disadvantages of centralization:• Destroys individual initiative:• Overburden a few:• Slows down the operations:• Distance from customers:• No scope for specialization:

Decentralization:

An organizational setup whereby the authority to make important decisions about organizational resources and to initiate new projects is delegated to managers at all levels in the hierarchy.

Advantages of decentralization:• Increase number of potential innovators:• Relieving the burden:• Preparing for emergencies:• More efficient decision making:

Disadvantages of decentralization:• Make coordination more difficult:• Causes conflict with ongoing operations: