Factors Affecting Organizational Design

The choice of an appropriate organization design is dependent on a number of factors. These factors can be internal or external. However the main factors affecting organizational design are : size, environment, strategy, and technology. Organizational design is the process of deciding on and executing a business’ structure.

This consists of establishing a chain of command, determining organizational elements and assigning resources. An organization’s structure amounts to its strategy for deploying talent in the company. Whether that deployment achieves a business’ goal depends partly on the strength of the organizational design.

Key Factors Affecting Organizational Design

Following are the primary factors to consider when designing an organizational structure:

Strategy and Organization Design

Organizational strategy means the way the business positions itself in its setting in relation to its stakeholders, given the organization’s resources, capabilities, and mission. Of course structure follows strategy due to the fact that organisational structures are designed to accomplish objectives by implementing the strategies. When strategy changes, structures must change. All strategy attempts to fulfill the vision, and the organizational structure needs to support that effort.

Size and Organization Design

Size is one of the primary contingency factors that affect organizational design. The size contingency means the total number of workers who are to be organized. The size and operational scale of a business is crucial to take into consideration when determining the ideal organization structure. It is noticed that giant companies differ structurally from small ones when it comes to division of labour, rules and regulations, performance appraisal and budgeting procedures. The bigger the organization, the higher the requirement for greater complexity and divisions to attain synergy. The organizational structure needs to be created in ways that specifically optimize the effort and input in comparison to output. Bigger organizations with a broad range of operational initiatives need mindful structural considerations to accomplish this optimization.

Environment Affects Organizational Design

Organizations are open systems so they have to receive different inputs from the environment and to sell a variety of outputs to their environment. As a result, it is crucial to comprehend what the external environment is and which elements are likely to be significant. Factors of the external environment – such as uncertainty, level of competition, and resources – are important in figuring out organizational design. The environment of an organization could possibly be described as general or specific. The general environment consists of cultural, economic, legal-political, and societal conditions within the areas where the business functions. The specific environment comprises its owners, company’s market, industry standards, competition, suppliers, distributors and government agencies with which an organization will have to interact to grow and survive. A company usually is a lot more worried over the composition of its specific environment than of its general environment.

Technology Influences Organization Design

Technology affects organizational structure and productivity by improving the efficiency of communication and resource flow. It is a major contingency factor. Two essential technological contingencies which affect the type of organizational structure are the variety and analyzability of work activities. Variety indicates the number of exceptions to standard procedure but can occur in the team or work unit. Analyzability means to the extent that the transformation of input resources to outputs could be decreased to a number of standardized steps. Businesses can make use of technological tools to boost productivity and to initiate new and more efficient structural designs for the business, thus adding potential sources of economic value and competitive advantage. Technology consists of the knowledge, machinery, work procedures, and materials which transform the inputs to outputs.

Customers and Markets

The organization structure is also influenced by the type of market and customers it serves, and in a customer-responsive environment this will be one of the primary determining factors of structure. If the organization provides services to a wide variety of clients at numerous locations, it will need to have several branch officers, as do Banks, the Post Office and so on.

Age of the organisation

At the outset of a company’s life, its small size enables the organic structural qualities which promote flexibility and responsiveness. As it ages and grows, a business starts to mechanize, adding rules, procedures and policies; closely defined tasks; extensive internal systems of control and command chains. In a nutshell, maturity brings about bureaucracy. In the maturity stage, rules, regulations, budgets, a refined division of labour and control systems have established.

Products and Services

The structure could possibly be based on the specific services and products offered. Large and diverse businesses have independent divisions since they are working with very different products and services. In the same way, the Post Office has separate organizations for the different services it offers like mail delivery, parcel delivery and counter services.

Figure: Factors Determining Organizational Structure

Geography

The geographical spreading of a business influences its structure primarily due to the need to be close to raw materials or consumers. Where there is a considerable degree of geographical distribution, there is likely to be more need for careful co-ordination and control compared to a single site location. If you have a strong need to offer services or products in a specific geographical area, the organization could be split into regions or areas, with each becoming a fully self-contained, small form of the parent organization.

People

This is an internal factor. Individuals within the company affect the design in many ways. Structures don’t simply appear, they are the result of people’s views and beliefs as well as their way of managing the organization. The structure is also influenced by the kinds of jobs and individuals in the company.

Structures having a large number of professionals are more inclined to involve team working, and for that reason to be relatively flat in contrast to an organization which has to accommodate a variety of jobs from the production line operative to the chairman.