What is Organizational Structure?
Organizational Structure: The specification of the jobs to be done within a business and
how those jobs relate to one another.
Determinants of Organizational Structure
1. Organization’s Purpose
2. Organization’s Mission
3. Organization’s Strategy
4. Organization’s Size
5. Organization’s Technology
6. Changes in Environmental Circumstances
Chain of Command
Organization Charts: Illustrates the company’s structure and show employees
where they fit into the firm’s operations.
Solid lines show the Chain of Command: The reporting relationships within the
company. The Building Blocks of Organizational Structure
Specialization: Determining who will do what
Departmentalization: Determining how people performing certain tasks can best be
Job specialization: The process of identifying the specific jobs that need to be done
and designating the people who will perform them.
As an organization grows, job specialization may need to occur. At the early stages of
a small business, an individual may perform all jobs. However, as the business
expands, more people need to be hired and given specific jobs to perform.
If job specialization is carried too far, jobs become boring and people get bored.
Departmentalization: The process of grouping jobs into logical units.
Control and coordination are narrowed and top managers are able to see how various
units are performing.
Firms can treat a department as a Profit center: a separate company unit responsible
for its own costs and profits.
1. Functional Departmentalization:
Departmentalize according to functions or activities.
E.g. Production, marketing, sales, HR, etc.
2. Customer Departmentalization
Departmentalize according to types of customers likely to buy a given product.
3. Product Departmentalization
Dividing an organization according to the specific product or service being
4. Geographic Departmentalization
Departmentalize according to the area of the country or world supplied.
5. Process Departmentalization
Departmentalize according to the production process used to create the good or
service. Establishing the Decision-Making Hierarchy
A three step process is required for the development of this hierarchy.
1. Assigning Tasks
Determining who makes decisions and specifying how they should be made. Who is
SUPPOSED to do what and who is ENTITLED to do what.
Responsibility: The duty to perform an assigned task.
Authority: The power to make the decisions necessary to complete the task.
2. Performing Tasks
Implementing the decisions.
Delegation: Assignment of a task, responsibility or authority by a manager to a
Accountability: Liability of subordinates for accomplishing tasks assigned by
1. Fear of Delegating
Managers fear that the subordinate will never do it as well as the manager can,
that the subordinates will be better than the manager, that they want to control
everything, that they fail to do long-term planning because of their day-to-day
operating style, that they do not know enough about the industry trends and
that they are too involved in day-to-day operations.
a. Decide on the nature of the work to be done
b. Match the job with the skills of subordinates
c. Make sure the person chosen understands the objectives he or she is