Organizational design is the decision making process by which managers choose an organizational structure appropriate to the strategy for the organization and the environment in which members of the organization carry out that strategy. Organizational design thus has managers looking in two directions simultaneously: inside their organization and outside their organization. Knowledge about organizational design has evolved over the past century. Initially, organizational design processes were concentrated on the internal workings of an organization. The four building blocks of organizational design – division of labor, departmentalization, hierarchy, and coordination – all have rich traditions in the history of management practice. This should not be surprising. In the era that we call the Industrial Revolution, it was no small task just to arrange large-scale organizations that had no precedents.
Gradually, the ‘outside world’ part of the organizational design equation has been given more and more managerial attention. In this article, we will take you on a brief tour of the historical development of organizational design. Keep two things in mind here. First, because both strategies and environments change over time, organizational design is an ongoing process. Second, changes in structure usually involve trial and error.
The Classical Approach:
Early managers and management writers sought the ‘one best way’ – a set of principles for creating an organizational structure that would work well in all situations. Max Weber, Frederick Taylor, and Henri Fayol were major contributors to the so called classical approach to organizational design. They believed that the most efficient and effective organizations had a hierarchical structure in which members of the organization were guided in their actions by a sense of duty to the organization and by a set of rational rules and regulations. When fully developed, according to Weber, such organizations were characterized by specialization of tasks, appointment by merit, provision if career opportunities for members, routinization of activities and a rational, impersonal organizational climate.
Bureaucracy was praise by some experts for its establishment of rules for decision making, its clear chain of command, and its promotion of people on the basis of ability and experience rather than favoritism or whim. The bureaucracy’s clear specification of authority and responsibility is also admired, which was believed that it made easier to evaluate and reward performance. This approach to organizational design had precedent in government civil services. The term bureaucracy has not always carried the modern negative connotation – a framework for slow, inefficient, unimaginative organizational activity.
The Task Technology Approach:
A different set of variables internal to the organization are prominent in the task technology approach to organizational design that emerged in the 1960s. Task technology refers to the different kinds of production technology involved in making different kinds of products. Classical studies conducted in the mid 1960s by Joan Woodward and her colleagues found that an organization’s task technology affected both its structure and its structure and its success. Woodward’s team divided about 100 British manufacturing forms into three groups according to their respective task technologies: (1) Unit and small batch production, (2) large batch and mass production and (3) process production.
Unit production refers to the production of individual items tailored to a customer’s specifications – custom made clothes, for example. The technology used in unit production is the least complex because the items are produced largely by individual craftspeople. Small batch production refers to products made in small quantities in separate stages, such as machine parts that are later assembled. Large batch and mass production refer to the manufacture of large quantities of products, sometimes on an assembly line (such as computer chips). Process production refers to the production of materials that are sold by weight or volume, such as chemicals or drugs. These materials are usually produced with highly complex equipment that operates in a continuous flow.
Second, the span of management for first level managers increase as we move from unit to mass production, but deceases when we move from mass to process production. Because lower level employees in both unit and process production firms usually do highly skilled work, they tend to form small work groups, making a narrow span inevitable. In contrast, a large number of assembly-line workers who perform similar tasks can be supervised by one manager.
Third, as a firm’s technological complexity increase, its clerical and administrative staffs become larger because managers need help with paperwork and non-production related work so they can concentrate on specialized tasks. Also, complex equipment requires more maintenance and scheduling, both of which generate additional paperwork.