What Determines Organizational Structures - Article Example

ORGANIZATIONAL STRUCTURE Introduction Organizations structures refers to organized systems and frameworks set up by organizations based on the functions of the organizations, duties of various employees, various organization’s segments in order to achieve the objectives, goals and visions of the organizations (Chritensen, 2007). Different organizations have different organization structures relative to objectives, thus influencing the processes under which organizations functions and operate (Siddiqui & S.D.M.P., 2005). Departments are the basic outlines for organizations. They are created depending on the functions a department does, departments formed to serve and eliminate geographical barriers, departments that specialize in part or section of product and service production, and departments that are formed based on the types of customers the organization serves(Robbins, 1990). What determines organizational structures? Modern organizations are finding it hard to remain afloat by use of traditional vertical hierarchy organizational structures due organizational and business complexities due to rapid global changes in environmental, social, political, economical, legal and technological dynamic (Robbins, 1990). Factors that determine what type of an organizational structure a firm should use as presented by theorists, can be as a result of contingency theories and principles and configuration perspectives and approaches (Hitt, et al 2009). Contingency- based determinant of organizational structures; Nature of business Contingency- based determinant of organizational structures is the nature of business. This entails what type of business a firm deals with since different types of business have different objectives and satisfy different markets (Siddiqui & S.D.M.P., 2005). For example, an IT firm, a consultancy firm, an agricultural inputs firm, an assembling firm, a beverage firm, all serves different customers and have different objectives thus they have different organization structures. The type of business and marketing strategies The type of business and marketing strategies that an organization decides to adapt influences organization structures it has (Hitt, et al 2009). Business and marketing strategies may either be consumer oriented, profit oriented, or an organization may decide to rely on one or two of the marketing strategies to achieve their anticipated outcomes, which necessitates a change in its structures (Robbins, 1990). Marketing strategies include price, promotions, products, place and people. Absorption of technological tools and relationship of the organization with its environments The rates at which an organization integrates and absorbs technological processes, products and effectively deals with its internal and external environments sometimes dictate their structure (Chritensen, 2007). As organizations increasingly use technology, the structures becomes diverse due to increased capacity of production of goods and services caused by technology. Technologies more often than not simplify structural complexities especially when used in communication networks such as the internet, video and teleconferencing, storage and retrieval of data (Graubner, 2006). Technology has bridged geographical gaps that traditional were barriers to effective organizational structures for firms that operated overseas. Organization structures based on internal environments ensures that employees are motivated, appreciated, are equipped with skills and understand which direction the firm is moving towards and work harder to ensure goals are achieved (Robbins, 1990). On the other hand, stakeholders agree on decisions and plans made. Structures based on external environments ensure that organization efficiently satisfy the market by understanding their needs, tastes and preferences, choices and behavior (Siddiqui & S.D.M.P., 2005). Moreover, an organization is able to procure labor, deliver products and services promptly and effectively compete with other competitors to increase its market share. The size of an organization Small and medium organizations have simplified and basic organization structures. This is because, the top management is able to effectively communicate with stakeholders and employees on a day to day basis, they are able to communicate face to face and they can quickly make decisions, solve problems and adapt to changes as fast since no intense deliberation and consultation is needed (Malloch & O’Grady, 2009). Large organizations however, require extensive and detailed organization structures to ensure work flow, application of standards of practice in different departments, have extensive number of employees and they can afford large organization structures (Chritensen, 2007). The span of organization operations geographically Organizations that transact business and supplies to markets abroad need different organization structures than organizations whose operation are within a small geographical location (Malloch & O’Grady, 2009). Organizations with large geographical scope need organization structures that will effectively deliver, procure, transact and relate with the market as it would if the scope was smaller (Graubner, 2006). Firms with proper structures that transact overseas have increased market shares, develop new markets easily; they can build their brand name with ease since more people are aware about their products and services and are accessible to technology transfer (Robbins, 1990). Configuration based factors that influence organization structures; Role allocations According to configuration theorist, organization structures and design is dictated by division of labor among various levels of the organization, job specifics which entails having department and segments that have specialized personnel and duties and roles that are logically allocated (Maguire, 2003). Behavior based work processes Organization structures are influenced by the behavior culture that a firm has, which values they hold special and standardizing the work processes (Malloch & O’Grady, 2009). Ineffective work processes and disorganized structures lead to increased employee turnover especially for the skilled, knowledgeable and experienced workers, and reduced quality and capacity of production. Moreover, the markets increasingly complain and shift to competitors and firms experience reduced market shares and profitability. Organization structures and work processes change is associated with re-engineering and quality improvement (Chritensen, 2007). Structures made to serve units Different organization structures are implemented to cater for the varied units in an organization (Graubner, 2006). Structures are designed depending on the functions of each unit relevant to the consumer to be served, making sure they do not conflict or overshadow each other (Robbins, 1990). Moreover, the unit size based on the number of positions in a particular unit, suggests what type of organization structure to be effected. Forms of governance and leadership styles Different governance and leadership in an organization influences the value that is placed on organization structures and which type is best suited. Different firms have different leadership and forms of doing business (Maguire, 2003). This includes use of centralized, decentralized mechanism, and planning and control systems. Other structural parameters are integration of work place learning, indoctrination and liaising and integration of task forces (Malloch & O’Grady, 2009). Types of organization structures 1. Entrepreneurial organization structures This type does not allow roles and duties to be standardized and is best suited in start-up and small firms (Graubner, 2006). The management is centralized where the top leader makes all integral decisions, controls the firm’s growth and face to face form of communication is commonly used. 2. Bureaucratic organizational structures This form of organization structures are applied in large organizations, are vertical and tasks are a bit standardized (Graubner, 2006). 3. Functional organization structure In this type of structures, workers are grouped into functional units and divisions depending on which area they are specialized in (Malloch & O’Grady, 2009). For example, an IT department comprises of IT specialists. Although an organization may suffer inflexibility due to breakdown of communication between various functional units, it is bound to experience efficiency and effectiveness operation-wise. 4. Product/ divisional organization structure This entails categorizing each functional unit into divisions. Every division has all the needed tools and resources and functions independently (Maguire, 2003). This categorization can be done based on type of goods and service and geographical locations (Malloch & O’Grady, 2009). 5. Matrix organization structures Matrix organization structures consolidate workers by basis of product and function or roles that they do (Malloch & O’Grady, 2009). ORGANIZATION STRUCTURES IN DELL INC. Dell Inc.’s Profile Dell Inc. is a global brand in information and technology, which create, manufactures and market IT and related products and services (Holzner, 2006). The corporation’s headquarters is in Texas, United States. The company headed by its founder, chairman and CEO Michael Dell has an annual revenue of more than 50 billion dollars, net income amounting to more than a billion dollars, total equity of more than 5 billion dollars, total equity totaling to more than 5.6 billion dollars as at the year 2010. Moreover, the corporation has more than 95,000 employees globally with total assets amounting to more than 33 billion dollars (Kuballa, 2007). The corporation products include servers, net books, smart phones, storage, televisions sets, peripherals, notebooks, printers, desktops, ink, toners, software and accessories (Kalakota & Robinson, 2001). Organizational structure adopted by Dell Through the years, the company has implemented organizational structures, work processes and business strategies that have enabled it to achieve its goals and objectives. It has adopted a global matrix structure that interlocks well with its organization behavior, culture and development trends (Holzner, 2006). Dell’s organization structures has not been static but have gradually changed to accommodate changes in strategies, innovations and counter competition. The firm’s structures has transformed from horizontal and vertical hierarchies to universally networked structures whose ability to counter stiff competition is in innovation and intellectual capital leverage rather than controlling assets financially and physically (Kalakota & Robinson, 2001). Dell’ s organization structures are implemented to help bridge the gap between stakeholders and customers seamlessly, allow streamlining of work processes and establish the firm as powerhouse in value chain configuration (Kuballa, 2007). Moreover, the firm has reputed itself as a company that value market intimacy which aids in acquiring new markets and retaining the current ones (Kalakota & Robinson, 2001). Dell’s structural success Factors a). Build to order strategies Dell’s success in the information and technology industry has been attributed to implementation of structures, strategies and functional processes that are consumer- oriented (Kuballa, 2007). Initially, the firm had a build to order strategy, where customers procured computers and other accessories directly to the company; custom made goods were manufactured and delivered to customers within seven days (Holzner, 2006). This lowered costs since it eliminated costs incurred due to having middlemen, produced products based on what customers wanted and not on inventory and investing in instant manufacturing (Kalakota & Robinson, 2001). The structure used consolidates clients into personal consumers, large-scale clients and middle and small-scale clients, where small and medium clients are allocated sales people who deal with them separately from the large clients while individual consumers access products and services through phones and internet (Maguire, 2003). b). Direct order Due to the fact that the firm is multinational, the direct order and instant manufacture has been enhanced by use of technology, thus e-commerce (Kuballa, 2007). Customers can access information, order, purchase any product and service they need, and the structure of the firm in a particular country ensures that delivery is efficiently done (Hitt, et al 2009). More so, the firm has direct sales people who eliminate middlemen middle men. This results in low cost in inventory and eliminates dealer costs. The structure used aligns all employees with business units (Kalakota & Robinson, 2001). c). Supply chain management The company’s structure is such that it supports supply chain management, by streamlining planning, manufacturing, working in process inventory and delivery of produced products from the producers to consumers (Holzner, 2006). By designing their structure this way, they have been able to improve its distribution networks, ease storage and retrieval of information regarding changes in demands, potential opportunities and forecasts (Kuballa, 2007). Moreover, Dell Inc has been able to effectively manage inventory and its cash flows (Kalakota & Robinson, 2001). Benefits realized by Dell for use of global matrix structure The corporation has realized benefits for using the global matrix structures. By combining divisions on the basis of product and geographical scope, the firm has not only been able to co-ordinate their global business but has achieved national responsiveness (Kuballa, 2007). They have been able to remain accountable, provide low cost quality product and services and deliver on time. Furthermore, Dell has been effective in delegating authority to make decisions to various functional units and levels globally, has de-layered various levels of its organizational levels, has been able to win over competition because of reduction of bureaucracy in its procedures and has initiated work, authority and role differentiation to its subsidiaries (Kalakota & Robinson, 2001). The structure used is focused on customers, ease business transactions and allow balance of supply and demand by Dell Inc (Holzner, 2006). Limitations faced by Dell for use of global matrix structure Among areas that Dell Inc has not succeeded in is that it has not been slow in adapting to market and demand changes due to complex procedures that are involved when making integral decisions (Kuballa, 2007). This is because; subsidiaries have to wait for confirmation from parent company before effecting any plans or changes. There are increased administrative overhead costs owing to the large number of employees who serve in the parent company and other divisions globally (Holzner, 2006). The firm has experienced multiple reporting, accountabilities and communication protocols owing to the structures in place. Areas of organization structures that need to be improved on Although Dell has been in the forefront in innovations, it need to be more flexible in its delivery systems, invest in customer care services to learn consumer behavior, align work processes, business strategies and structures with areas where it has succeeded and change its organizational structures when need be (Kuballa, 2007). Dell inc. comprises of board of directors elected by shareholders. The board of directors forms committees to oversee various functions (Holzner, 2006). There is the governance and nominating committee, the audit committee, the compensation committee and the finance committee. Dell has senior vice presidents for countries around the world where they operate Conclusions Organizations structures refers to organized systems and frameworks set up by organizations based on the functions of the organizations, duties of various employees, various organization’s segments in order to achieve the objectives, goals and visions of the organizations. Different organizations have different organization structures relative to objectives, thus influencing the processes under which organizations functions and operate. There are different organization structures namely; entrepreneurial organization structures, bureaucratic organizational structures, functional organization structures, product/ divisional organization structure and matrix organization structures. Modern organizations are finding it hard to remain afloat by use of traditional vertical hierarchy organizational structures due organizational and business complexities due to rapid global changes in environmental, social, political, economical, legal and technological dynamics. Dell Inc a global brand in information and technology, which create, manufactures and market IT and related products and services, has adopted global matrix structure. The firm’s structures has transformed from horizontal and vertical hierarchies to universally networked structures whose ability to counter stiff competition is in innovation, initiating consumer intimacy and intellectual capital leverage rather than controlling assets financially and physically. By combining divisions on the basis of product and geographical scope, the firm has not only been able to co-ordinate their global business but has achieved national responsiveness. They have been able to remain accountable, provide low cost quality product and services and deliver on time. Other benefits achieved for use of global matrix structure by Dell includes being effective in delegating authority to make decisions to various functional units and levels globally, has de-layered various levels of its organizational levels, has been able to win over competition because it has been able to reduce bureaucracy in its procedures and has done work, authority and role differentiation to its subsidiaries. Among areas that Dell Inc has not succeeded in is that it has not been slow in adapting to market and demand changes due to complex procedures that are involved when making integral decisions. This is because; subsidiaries have to wait for confirmation from parent company before effecting any plans or changes. Ineffective work processes and disorganized structures lead to increased employee turnover especially for the skilled, knowledgeable and experienced workers, and reduced quality and capacity of production. Moreover, the markets increasingly complain and shift to competitors and firms experience reduced market shares and profitability. Organization structures and work processes change is associated with re-engineering and quality improvement. References Chritensen, T. (2007). Organization theory and the public sector: instrument, culture and myth. Sidney: Routledge. Graubner, M. (2006). Task, firm size, and organizational structure in management consulting: an empirical analysis from a contingency perspective. Berlin: DUV. Hitt, M.A., Ireland, R.D., Hoskisson, R.E. (2009). Strategic management: competitiveness and globalization: concepts & cases. London: Cengage Learning. Holzner, S. (2006). How Dell does it. New York: McGraw-Hill Professional. Kalakota, R., Robinson, M. (2001). E-business 2.0: roadmap for success. Addison-Wesley. Kuballa, J. (2007). Key Factors of Successful E-commerce - what HP Can Learn from Dell. Munich: GRIN Verlag. Maguire, E.R. (2003). Organizational structure in American police agencies: context, complexity, and control. London: SUNY Press. Malloch, K., O’Grady, T.M. (2009). The Quantum Leader: Applications for the New World of Work. Melbourne: Jones & Bartlett Learning. Robbins, S.P. (1990). Organization theory: structure, design, and applications. New Jersey: Prentice Hall. Siddiqui, T., S.D.M.P. (2005). Organizational structure: management techniques and lessons learned in aligning technical and program management resources in engineering-intensive organizations. Massachusetts: Massachusetts Institute of Technology, System Design & Management Program. Read More