Mullins L.J. Management and organisational behaviour, Seventh edition

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The design of jobs and work structures should not

only take into account the nature of the work and

the characteristics of the personnel; it also has to

be consistent with the philosophy of management

that is being followed. The structuring of jobs

needs to be matched by an appropriate design of

organizational systems and an appropriate

managerial style.

John Child

Organization: A Guide to Problems and Practice, Harper & Row (1984)

In order to achieve its goals and objectives the

work of an organisation has to be divided

among its members. Some structure is

necessary to make possible the effective

performance of key activities and to support

the efforts of staff. Structure provides the

framework of an organisation and its pattern of

management. It is by means of structure that

the purpose and work of the organisation is

carried out. The manager needs to understand

the importance and effects of organisation

structure and design.

LEARNING OUTCOMES

After completing this chapter you should be able to:

 explain the meaning and nature of organisation

structure;

 identify levels of organisation and debate the

importance of the hierarchy;

 evaluate main factors to be considered in the design

of organisation structure and different methods for the

division of work;

 review the relevance and applications of principles of

organisation and organisational relationships;

 explain the importance of good structure and the

consequences of a deficient structure;

 assess the importance of structure in influencing the

behaviour of people and organisational performance;

 debate the nature of the relationship between the

management and structure of an organisation and the

people who work within it.

ORGANISATION STRUCTURE

AND DESIGN

Photo: Kim Sayer/Dorling Kindersley Media Library

The purpose of structure is the division of work among members of the organisation,

and the co-ordination of their activities so they are directed towards the goals and

objectives of the organisation.

Structure is the pattern of relationships among positions in the organisation

and among members of the organisation. Structure makes possible the application

of the process of management and creates a framework of order and command

through which the activities of the organisation can be planned, organised,

directed and controlled. The structure defines tasks and responsibilities, work roles

and relationships, and channels of communication.

Structure is clearly important for any organisation, whatever its size. However, in the

smaller organisations there are likely to be fewer problems of structure. The distribu-

tion of tasks, the definition of authority and responsibility, and the relationship

between members of the organisation can be established on a personal and informal

basis. With increasing size, however, there is greater need for a carefully designed and

purposeful form of organisation. There is need for a formal organisational structure.

There is also need for a continual review of structure to ensure that it is the most

appropriate form for the particular organisation, and in keeping with its growth and

development. This is likely to be of particular importance for the very large companies

such as, for example, British Gas.

Birkinshaw discusses the structures behind global companies and the problem for inter-

national companies of balancing bureaucracy with the benefits of size.

There are many ways of addressing this balancing act. One way is to work on culture, to get people

to think entrepreneurially. Another way is through systems – reward systems, career management

and so on. A third way is through structure – the basic lines of reporting and accountability that are

typically drawn on an organization chart. The structure is never the whole story, it is just a way of

dividing responsibilities among executives. It is meaningless unless supported by appropriate sys-

tems and a consistent culture. However, structure is still surprisingly informative about strategic

priorities and the work going on, so it is as good a place to start as any.

The objectives of structure may be summarised as to provide for:

■ the economic and efficient performance of the organisation and the level of

resource utilisation;

■ monitoring the activities of the organisation;

■ accountability for areas of work undertaken by groups and individual members of

the organisation;

PART 6 ORGANISATIONAL STRUCTURES

THE MEANING AND NATURE OF ORGANISATION STRUCTURE

596

The Government’s decision to introduce competition to the entire gas market in Great

Britain has stimulated rapid and profound change in the structure and regulation of the gas

industry. Change on this scale, without precedent elsewhere, was bound to require major

change within British Gas. New systems and business practices had to be designed and

implemented throughout our organisation and the cultures and values, which served the

company well in the past, had to adapt to the new competitive environment. By far the most

significant change was the completion of the demerger ... Two independent companies, BG

plc and Centrica Plc, are now launched. Both are endowed with the assets and capabilities

to shape their very different roles in the era of competitive gas markets, and each can now

focus more sharply on its respective challenges and opportunities, benefiting customers,

employees and shareholders.

Richard V. Giordano, Chairman BG plc

Objectives of

structure

■ co-ordination of different parts of the organisation and different areas of work;

■ flexibility in order to respond to future demands and developments, and to adapt to

changing environmental influences; and

■ the social satisfaction of members working in the organisation.

These objectives provide the criteria for structural effectiveness. Structure, though, is

not an end in itself but a means of improving organisational performance. For ex-

ample, as Heller points out:

No amount of reorganising and reshuffling will increase the long-term capability of a business

unless you suit the organisation to the people and to a genuinely shared purpose.

According to Drucker it is the correct design of structure which is of most significance

in determining organisational performance.

Good organization structure does not by itself produce good performance. But a poor organization

structure makes good performance impossible, no matterhow good the individual managers may

be. To improve organization structure … will therefore always improve performance.

The importance of good structure is also emphasised by Child.

The allocation of responsibilities, the grouping of functions, decision-making, co-ordination,

control and reward – all these are fundamental requirements for the continued operation of an

organization. The quality of an organization’s structure will affect how well these requirements

are met.

The structure of an organisation affects not only productivity and economic efficiency

but also the morale and job satisfaction of the workforce. Getting the structure right is

the first step in organisational change.

Structure should be designed, therefore, so as

to encourage the willing participation of members of the organisation and effective

organisational performance. For example, a major report on the quality of working life

refers to organisations in the 1990s as in a state of constant change. Sixty-one per cent

of managers say their organisations have carried out restructuring in the past year.

Managers in these organisations say this has led to job insecurity (65 per cent), lower

morale (65 per cent) and the erosion of motivation and loyalty (49 per cent).

Structure is also an essential feature of the learning organisation and empowerment,

and must be responsive to the changing environment.

The functions of the formal structure, and the activities and defined relationships

within it, exist independently of the members of the organisation who carry out the

work. However, personalities are an important part of the working of the organisation.

In practice, the actual operation of the organisation and success in meeting its objec-

tives will depend upon the behaviour of people who work within the structure and

who give shape and personality to the framework. Lord Forte, for example, has drawn

attention to the importance of the human element in organisation structure:

the human aspect in a business is vital: you can keep drawing squares and lines, but within

these squares you must have people and they must be deeply involved with the business. If this

does not happen, then the lines and squares and the diagrams mean nothing.

In an IMD survey, the commitment and involvement of employees ranked second only

to top management as a key success factor for restructuring. Yet the survey also showed

that almost 40 per cent of restructuring obstacles related to the failure to achieve

employee commitment.

According to Hannagan, softer corporate values are being

CHAPTER 15 ORGANISATION STRUCTURE AND DESIGN

597

THE IMPORTANCE OF GOOD STRUCTURE

The human

element

emphasised now compared to the harder values by concentrating more on staff train-

ing, developing skills and ensuring that all employees understand the organisation’s

values. There is a shift from the harder values of strategy, structure and systems to the

softer ones of staff, skills and style.

The human relations writers are critical of the emphasis on the formal organisation.

They favour a structure in which there is increased participation from people at all

levels of the organisation, greater freedom for the individual, and more meaningful

work organisation and relationships. One of the strongest critics of the formal organi-

sation is Argyris.

He claims that the formal, bureaucratic organisation restricts

individual growth and self-fulfilment and, in the psychologically healthy person,

causes a feeling of failure, frustration and conflict. Argyris argues that the organisation

should provide a more ‘authentic’ relationship for its members.

The view of the human relations writers represents more of an attitude towards

organisation than specific proposals, but it reminds us of the importance of the human

element in the design of structure. Managers need to consider how structural design

and methods of work organisation influence the behaviour and performance of mem-

bers of the organisation.

The overall effectiveness of the organisation will be affected both by sound structural

design and by the individuals filling the various positions within the structure.

Management will need to acknowledge the existence of the informal organisation (dis-

cussed in Chapter 4) which arises from the interactions of people working in

the organisation. The operation of the organisation and actual working arrangements

will be influenced by the style of management, the personalities of members and the

informal organisation. These factors may lead to differences between the formal struc-

ture of the organisation and what happens in practice. Stewart, for example, found the

relationship between people and organisation to be reciprocal.

People modify the working of the formal organization, but their behaviour is also influenced by it.

It may make demands on them which they find an undue strain, so that they seek ways of modify-

ing these pressures. The method of work organization can determine how people relate to one

another, which may affect both their productivity and their morale. Managers, therefore, need to

be conscious of the ways in which methods of work organization may influence people’s attitudes

and actions. Before behaviour is put down to individual or group cussedness, managers should

look for its possible organizational causes.

Building an organisation involves more than concern for structure, methods of work and

technical efficiency. The hallmark of many successful business organisations is the atten-

tion given to the human element; to the development of a culture which helps to create

a feeling of belonging, commitment and satisfaction.

Structure must be designed, there-

fore, so as to maintain the balance of the socio-technical system and the effectiveness of

the organisation as a whole. Attention must be given to the interactions between both

the structural and technological requirements of the organisation; and social factors and

the needs and demands of the human part of the organisation.

Organisations are layered. The determination of policy and decision-making, the exe-

cution of work, and the exercise of authority and responsibility are carried out by

different people at varying levels of seniority throughout the organisation structure. It

is possible to look at organisations in terms of three broad interrelated levels in

the hierarchical structure: the technical level, the managerial level and the com-

munity level.

These last two levels are often referred to as middle management and

senior management.

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PART 6 ORGANISATIONAL STRUCTURES

Relationship

between

people and

organisation

LEVELS OF ORGANISATION

The technical level is concerned with specific operations and discrete tasks, with the

actual job or tasks to be done, and with performance of the technical function.

Examples are: the physical production of goods in a manufacturing firm; administra-

tive processes giving direct service to the public in government departments; the actual

process of teaching in an educational establishment.

The technical level interrelates with the managerial level, or organisational level, which

is concerned with the co-ordination and integration of work at the technical level.

Decisions at the managerial level relate to the resources necessary for performance of the

technical function, and to the beneficiaries of the products or services provided.

Decisions will be concerned with: (i) mediating between the organisation and its external

environment, such as the users of the organisation’s products or services, and the pro-

curement of resources; and (ii) the ‘administration’ of the internal affairs of the

organisation including the control of the operations of the technical function.

In turn, the managerial level interrelates with the community level or institutional

level, concerned with broad objectives and the work of the organisation as a whole.

Decisions at the community level will be concerned with the selection of operations,

and the development of the organisation in relation to external agencies and the wider

social environment. Examples of the community level within organisations are: the

board of directors of joint stock companies; governing bodies of educational establish-

ments which include external representatives; and trustees of non-profit organisations.

Such bodies provide a mediating link between the managerial organisation and co-

ordination of work of the technical organisation, and the wider community interests.

Interrelationship of levels

In practice, there is not a clear division between determination of policy and decision-

making, co-ordination of activities and the actual execution of work (see Figure 15.1).

Most decisions are taken with reference to the execution of wider decisions, and most

execution of work involves decision. Decisions taken at the institutional level determine

objectives for the managerial level, and decisions at the managerial level set objectives for

the technical level. Therefore, if the organisation as a whole is to perform effectively

there must be clear objectives; a soundly designed structure; and good communica-

tions, both upwards and downwards, among the different levels of the organisation.

CHAPTER 15 ORGANISATION STRUCTURE AND DESIGN

599

Figure 15.1 Interrelated levels of organisation

The managerial level, for example, would be unable to plan and supervise the execu-

tion of work of the technical function without the knowledge, expertise, practical

know-how and enthusiasm of people who are closest to the actual tasks to be under-

taken. People operating at the technical level should, therefore, make known to higher

levels the practical difficulties and operational problems concerning their work. It is

the duty of the managerial level to take appropriate action on this information, and to

consult with people at the community or institutional level.

Not all activities concerned with the management of an organisation can be consid-

ered, necessarily, in terms of these three levels of work. There will be certain activities

which are analysed more meaningfully in terms of a greater, or possibly a smaller,

number of levels. However, the three broad levels provide a basis for an analysis of the

interrelated activities of the organisation.

An example of the interrelationship between the different levels of an organisation can

be seen from the comments in the Bains Report on management in local government.

The report recognises that elected members remain responsible for ultimate direction

and control of the authority, key decisions on objectives and plans to attain them, and

reviewing progress and performance of services. However, the report also refers to the

dual nature of management and to the changing relationship between permanent offi-

cers and elected members at the different stages of the management process.

The report concludes:

We doubt whether it is possible to divide the total management process into two separate halves,

one for members and the other for officers … That process itself can be seen as a scale, with the set-

ting of objectives and allocation of major resources atone end, moving through the designing of

programmes and plans, to the execution of those plans at the other end. As one moves through that

management scale, the balance between the two elements changes from member control with offi-

cer advice at the ‘objective’ end to officer control with member advice at the ‘execution’ end.

More recently, The Audit Commission has referred to the harmful gaps caused in local

government and the National Health Service by the de-layering and the stripping out

of middle managers which have been carried out without a full understanding of the

impact on the council’s management structures as a whole.

Rawson draws attention to the increasing absence of mutuality between senior and

middle managers in both the public and private sector.

Traditionally, senior managers have been concerned with setting the strategic direction and

objectives for the organisation; middle managers with making it happen – resourcing and man-

aging the changes. The corollary is that senior managers are concerned with results and middle

managers with how these are achieved. The divide appears as middle levels complain that their

seniors are solely concerned with short-term financial results and as seniors reply that the

middle strata devote more effort to voicing problems than to finding solutions. In both sectors

the delayering of organisations has dramatically reduced the resources available to middle man-

agers. The divide deepens as each accuses the other of pursuing their own personal rather than

organisational ends. Middle accuse senior of being concerned with their own career advance-

ment: senior accuse middle of directing their efforts to protecting their positions.

We have referred previously to the significance of the changing nature of the work

organisation. Early writers on management, for example Weber (discussed in Chapter

3), drew attention to the importance of the hierarchy of authority. However, the

increasing use of group or team approaches, the growth of flexible employment,

increasing use of subcontracting, an emphasis on participation and empowerment,

and many workers involved in decision-making have all led to changes in the tradi-

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PART 6 ORGANISATIONAL STRUCTURES

Divide

between

senior and

middle

management

The

management

process in

local

government

THE IMPORTANCE OF THE HIERARCHY

tional boss–subordinate relationship. This has lead to a

discussion on the role of the hierarchy in modern

organisations and the extent to which managers can

rely solely on their perceived formal authority within

the structure of the organisation.

For example, as we mentioned in Chapter 7, Stewart

maintains that: ‘Authority is, and is likely to continue to

be, less acceptable than in the past. This reflects a major

change in society: what has been termed the end of the

grateful society. Better educated and more independent

people expect to be consulted rather than to be told what

to do.’

However, according to Jebb, ‘The hierarchy is not

dead. It has merely changed its form. The trappings of

power in the modern workplace may have been toned

down but the boss is still the boss.’ Jebb refers to Hampden

Turner who maintains that to confuse informality with the

end of the organisational pecking order is a mistake.

There is a lot of muddled thinking about hierarchies and the whole

issue of how equally we treat people within companies. But treating

someone as an equal does not mean they are equal. Any smart

person wanting the best out of a person treats them as an equal.

However informal the environment, you can’t escape from a func-

tional hierarchy although the more skilled the company’s work, the

fewer tiers of management and the fewer individual managers

should be required.

The importance of the hierarchy is also strongly emphasised by Drucker who asserts

that: ‘One hears a great deal today about “the end of the hierarchy”. This is blatant

nonsense. In any institution there has to be a final authority, that is, a “boss”– some-

one who can make the final decisions and who can expect them to be obeyed.’

However, contrary to the views of writers such as Jebb and Drucker, Butcher, for

example, maintains that hierarchy is in principle obsolete in the knowledge economy.

Intellectual capital possessed by knowledge workers implies management based on fragile

coalition rather than control. The arguments for de-emphasizing hierarchical control are now

well rehearsed. Hierarchical assignment of tasks worked well when central planning worked

well, but those days are gone. Local autonomy and accountability are essential for creating

organizational ability.

A similar point is made by Cloke and Goldsmith who question whether we are accus-

tomed to and have accepted that hierarchy, rules and managers as an essential part of

organisational life? Have managers been seduced by the apparent power over others

that a hierarchical organisation offers and by the disproportionate rewards it can pro-

vide to those at the top? If so, this is depriving individuals of the chance to develop

themselves to their full potential and cluttering organisations with wasteful and

counter-productive processes.

It is important to bear in mind that there are many variables which influence the most

appropriate organisation structure and system of management, including situational

factors and the contingency approach. Changing patterns of work organisation, the

demand for greater flexibility and the multi-skilling challenge, and managerial

processes such as delegation and empowerment also have a major interrelationship

with structure and influence decisions on structural design, as discussed in Chapter 16.

CHAPTER 15 ORGANISATION STRUCTURE AND DESIGN

601

Hierarchy is a vital element in the Ministry of

Defence

THE DESIGN OF ORGANISATION STRUCTURE

As Drucker reminds us, although the search for one right organisation has continued

and continues today, by now, however, it should be clear that there is no such thing as

the one right organisation. ‘There are only organisations, each of which has distinct

strengths, distinct limitations and specific applications. It has become clear that organ-

isation is not an absolute. It is a tool for making people productive in working

together. As such, a given organisation structure fits certain tasks in certain conditions

and at certain times.’

Lynch points out: ‘Every organisation is unique in size, products or services, people,

leadership and culture’ and provides helpful examples of some of the possible implica-

tions for organisation design.

(See Figure 15.2.)

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PART 6 ORGANISATIONAL STRUCTURES

Neat structural organisation and good management are not synonymous. The contrary view

gained credibility from the early work at McKinsey of Robert Waterman, Tom Peters and

others. Waterman, however, quickly saw that the true organisation wasn’t about structure,

but about increasing the long-term capability of the business. That hinges fundamentally on

people and relationships between them.

Robert Heller

Purpose Implications for organisation design

‘Ideas factory’ such as an

advertising or promotions agency

Loose, fluid structure with limited formalised

relationships. As it grows in size, however, more formal

structures are usually inevitable

Multinational company in

branded goods

Major linkage and resource issues that need carefully

co-ordinated structures, e.g. on common suppliers

or common supermarket customers for separate

product ranges

Goverment civil service Strict controls on procedures and authorisations. Strong

formal structures to handle major policy directions and

legal issues

Non-profit-making charity with

a strong sense of mission

Reliance on voluntary members and their voluntary

contributions may require a flexible organisation with

responsibility devolved to individuals

Major service company such as

a retail bank or electricity

generating company

Formal structures but supported by some flexibility

so that variations in demand can be met quickly

Small business attempting to

survive and grow

Informal, willingness to undertake several business

functions such as selling or production, depending on

the short-term circumstances

Health service with strong

professional service ethics,

standards and quality

Formalised structure that reflects the seniority and

professional status of those involved while delivering

the crucial complex service provisions

Holding company with subsidiaries

involved in diverse markets

Small centralised headquaters acting largely as a

banker, with the main strategic management being

undertaken in individual companies

Figure 15.2 Examples of purpose and implicationsfor organisation design

Reprinted with permission from Richard Lynch, Corporate Strategy, Third edition, Financial Times Prentice Hall (2003), p. 667, with

permission from Pearson Education Ltd.

While recognising that there is clearly no one right organisation, there is nevertheless,

in the final analysis, an underlying need to establish a framework of order and system

of command by which the work to be undertaken is accomplished successfully. This

demands that attention be given to certain basic principles and considerations in the

design of organisation structure, or in reviewing the effectiveness of an existing struc-

ture. (See Figure 15.3.)

These principles and considerations may perhaps appear prescriptive for the

study of the organisational behaviour, but they still present management with a

series of important decision points.

Organisations are collections of people brought together for a purpose. To achieve this purpose

successfully, people need to be organised within the best possible structure. Decisions on struc-

ture are primary strategic decisions. Structure can make or break an organisation.

Structure provides the framework for the activities of the organisation and must har-

monise with its goals and objectives. The first step, therefore, is to examine the

objectives of the organisation. Only when objectives have been clearly defined, can

alternative forms of structure be analysed and compared.

A clear definition of objectives is necessary in order to provide a basis for the division

of work and grouping of duties into sub-units. The objectives for these sub-units must

be related to the objectives of the organisation as a whole in order that an appropriate

CHAPTER 15 ORGANISATION STRUCTURE AND DESIGN

603

Basic principles

and

considerations

Figure 15.3 Basicconsiderations in the design of organisation structure

CLARIFICATION OF OBJECTIVES

pattern of structure can be established. Clearly stated and agreed objectives (as dis-

cussed in Chapter 5) will provide a framework for the design of structure, and a

suitable pattern of organisation to achieve those objectives. The nature of the organisa-

tion and its strategy will indicate the most appropriate organisational levels for

different functions and activities, and the formal relationships between them. Clearly

defined objectives will help facilitate systems of communication between different

parts of the organisation and the extent of decentralisation and delegation. The formal

structure should help make possible the attainment of objectives. It should assist in the

performance of the essential functions of the organisation and the major activities

which it needs to undertake.

In order to produce some good, or provide some service, there are four essential func-

tions that the organisation must perform.

1 The good or service must be developed.

2 Something of value must be created. In the case of the business organisation this

might be the production or manufacture of a product; in the case of the public

sector organisation the provision of a service.

3 The product or services must be marketed. They must be distributed or made avail-

able to those who are to use them.

4Finance is needed in order to make available the resources used in the development,

creation and distribution of the products or services provided.

These essential functions of developing the good or service, manufacturing the good or

providing the service, marketing them, and financing the organisation, are what

Woodward refers to as the ‘task’ functions. These are the basic activities of the organisation

which are related to the actual completion of the productive process and directed

towards specific and definable end-results. To ensure the efficient achievement of overall

objectives of the organisation, the results of the task functions must be co-ordinated.

Other activities of the organisation are not directed towards specific and definable

ends but are supportive of the task functions and an intrinsic part of the management

process. These are referred to as ‘element’ functions and include, for example, personnel,

planning, management services, public relations, quality control and maintenance. In

other organisations, noticeably in service industries involving direct customer contact,

personnel can be seen as closely associated with a task function.

In the majority of

organisations, however, the personnel function does not normally have any direct

accountability for the performance of a specific end-task.

The two kinds of functions, task and element, differ in a number of ways and these dif-

ferences have important implications for organisation. Failure to distinguish between

the two types of functions can lead to confusion in the planning of structure and in

the relationship between members of the organisation. For example, in her study of

the management organisation of firms in this country, Woodward comments on the

bad relationships between accountants and other managers referred to during the

study. One reason for this hostility was the bringing together of two quite separate

financial functions essential to the efficient operation of a business.

People concerned with works accounting tended to assume responsibility for end results that

was not properly theirs; they saw their role as a controlling and sanctioning one rather than as a

servicing and supportive one. Line managers resented this attitude and retaliated by becoming

aggressive and obstructive.

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PART 6 ORGANISATIONAL STRUCTURES

TASK AND ELEMENT FUNCTIONS

Implications

for

organisation

structure