Factors That Affect Organizational Structure The organizational structure of your business provides a foundation for lines of communication, responsibility and tasks. As the framework for your business, the organizational structure you select dictates the number of management layers, how your business is functionally divided and the overall reporting structure. Multiple organizational designs can be used to enhance your business’s strategy including simple, functional, matrix, hybrid or a self-designed structure.
Size: Larger business size often equates to a more elaborate or complex organizational structure. As your business expands, additional layers of management, business units and a formal chain of command are generally needed. While a small business may function on an informal structure with limited management oversight, a large business generally needs managerial control to help assign tasks, ensure quality and maintain a focus on business goals. A company can start out by using one of several organizational structures.
However, companies can sometimes increase their effectiveness using multiple organizational structures. Other companies may switch from one type of organizational structure to nother to be more effective. The decision for organizational structure usually lies with top management. The size of a company is sometimes the determining factor as to organizational structure effectiveness. Contingency Theory: In contrast to the classical scholars, most theorists today believe that there is no one best way to organize.
What is important is that there be a fit between the organization’s structure, its size, its technology, and the requirements of its environment. This perspective is known as “contingency theory” and contrasts with the perspective of lassical theorists like Weber, Taylor, Fayol, etc. who thought that there probably was one way to run organizations that was the best. Size: Size is many times the driving factor for a company’s organizational structure. Smaller or home-based businesses do not usually have a vast structure because the business owner is usually responsible for all tasks.
Larger business organizations usually require a more intense framework for their organizational structure. Companies with more employees usually require more managers for supervising these individuals. Highly pecialized business operations can also require a more formal organizational structure. Size This refers to capacity, number of personnel, outputs (customers, sales), resources (wealth). Blau’s studies show that differentiation (# of levels, departments, Job titles) increases with size, but at a decreasing rate.
In contrast, the % of the organization that is involved in administrative overhead declines with size, leading to economies of scale. Increasing size is also related to increased structuring of organizations activities but decreased concentration of power. Managerial practices, such as lexibility in personnel assignments, extent of delegation of authority, and emphasis on results rather than procedures, are related to the size of the unit managed. Advocates of Size Imperative: Given by Peter Blau based on studies of govt. agencies, condition affecting the structure of organization. Increasing size promotes structural differentiation but at a decreasing rate. Another research done by Aston group concluded that “an increased scale of operation increases the frequency of recurrent events and the repetition of decisions” Meyer’s concluded that “one cannot nderestimate the impact of size on other characteristics of organization” Size affects structure only in organizations that have professional managers not among those that are owner controlled. Argyris concluded that size is related to structure but you cannot say it causes it.
Mayhew and his associates challenged blau’s finding on mathematical basis that relationship of size and complexity is relevant only till they were assigned equal probabilities to possible structural combinations. Aldrich reanalyzed the Aston data and proposed several alternative and equally plausible nterpretation. Hall and his associates concluded from their study that neither complexity nor formalization can be implied from organizational size. Size and Complexity: Impact of size on complexity was at a decreasing rate Government organizations: where managers have greater discretion, structure causes size.
Consequently, they may choose to make their structures more complex as more activities and personnel are added. There is also a possibility of circular size- structure relationship. Size generates differentiation and increasing differentiation lso generates increasing size. When size increases there is more vertical differentiation, while larger the organization, more pronounced is the division of labor within it which is also true for functional differentiation. There is no evidence for size-spatial differentiation.
Size and Formalization: A recent comprehensive review of 27 studies covering more than 1000 organization concluded that relationship between size and formalization was high, positive and statistically significant. This can be concluded from given situations: As size increases direct upervision becomes difficult so efficient functioning through number of supervisors more of rules and regulation exerting controls are introduced. As organization become large the behaviors repeat themselves and hence mgt is motivated to handle them more efficiently through standardization.
It also depends on whether organization is independent or is subsidiary of a larger organization. Size and Centralization: It is obvious that it is not possible to control large organization from top. Thus we can say conclude that size leads to decentralization. But the counter rgument to this is relationship between size and centralization is almost zero this may happen because in owner based firm owner are not ready to lose their control. How big is big? Small organization: 1500-2000 employees.
When organizations grow more than 2000 employees it becomes increasing difficult to coordinate without differentiating units, creating formalized rules and regulations or delegating decision making downwards. Some findings: 1 . Adding employees to an organization once it has approximately 2000 members should have minimal impact on its structure 2. A change in size will have its greatest impact on structure when the organization is small. The correlation show that positive relationship occurs between organizational size and the administrative component.
As the size increases the administrative component increases disproportionately. Negative relationship argument: the proportion of the supporting personnel would decline as the size increases. This managed organizations and partnerships were less likely to add administrators as this would mean losing personal power. The Correlation Argument: The Curvilinear Argument: The administrative component is greater for smaller and larger organizations than for those of moderate size. As organizations move out of the small category, they enjoy the benefits from economies of scale.
But, as they become large, they lose these benefits and become so complex as to require significant increases in the administrative component to facilitate coordination and control Organization Theory and Small Business Is OT useful for small businesses? Issues of reduced importance: The range of variation in small businesses is limited so all the tructural variables are of less importance. They have minimal degree of horizontal, vertical, and spatial differentiation, have low formalization and high centralization.
When specialized expertise is needed, it is purchased from outside. Eg. Accountant or a lawyer. Organization Theory and Small Business: Vertical differentiation is low as the structure tends to be flat, spatial differentiation is low business. Small businesses don’t spread their activities widely. The control is achieved by holding on to the decision making machinery – centralized decision making. Less conflict as the small size facilitates communication allows the members to have a clear sense of the organization’s mission and reduced the likelihood of goal incompatibility.
Less of cultural problems as the cultures are young and less entrenched and when it is required, they can be changed. Organization Theory and Small Business Issues of reduced importance: Some issues of greater importance for small businesses include control and accountability, efficiency and environmental dependence Control: Small business managers are strong advocates of “management by walking around” So they re often willing to settle for lesser monetary reward in return for personal control and accountability.
Resources: Efficiency is more important in small businesses due to slack resources Environment: Small business have less control on environmental factors such as suppliers, competitors and financial resources. – This increases the importance of environmental monitoring system which requires the right structure Conclusion: Small businesses are different from their larger counterparts. They have different concerns and priorities. Also they have limited set of structural options.