Organization Architecture

Meaning of Organizational Architecture

The framework and design that an organization uses to function are referred to as its architecture. Management must create an organizational architecture that makes the best use of resources in order to generate the goods and services that customers want and need in order to organize and control. Thus, the entirety of an organization, including its organizational structure, control system, process, culture, and people, may be referred to as its organizational architecture. It is a web of connections between various organizational parts.

Differentiation (assigning tasks to individuals) and integration are the two foundational elements of organizational design (co-ordination between people or functions or divisions). These two essential ideas form the basis of how organizations are set up. Vertical differentiation refers to height, horizontal differentiation refers to width, and spatial differentiation refers to the geographic distribution of a company's offices, assets, and personnel.

Vertical Differentiation

The distribution of decision-making is connected to vertical differentiation (levels). Thus, a hierarchical system with vertical tiers of segregated levels of power and responsibility is known as vertical differentiation. In essence, it is a distinction based on levels of authority. It establishes where the concentration of decision-making is. Vertical differentiation has been a feature of business models since before industrialization began. With a longer chain of command extending from the upper position of the organization down to the lower position of the organization, vertical structures have several levels of administration and oversight.

The first responsibility of managers is to make sure that divisions and functions are sufficiently integrated or coordinated to make effective and efficient use of organizational resources. Managers create the hierarchy of authority to coordinate activities and divisions in order for them to collaborate effectively and achieve company goals. Vertical differentiation establishes how linkages and the type of structure are reported (flat or tall).

Tall structure versus Flat structure

Tall Structure:

An organization's hierarchy of power typically grows as it gets bigger (usually determined by the number of managers and employees), heightening the organizational structure. There are several levels of authority in a tall organization. Large businesses typically have a lofty organizational structure. The tall company has a sizable middle management that is focused on information processing. It takes instructions and information from the top and clarifies it for lower levels of the hierarchy while taking detailed information from the bottom and summarizing and interpreting it for the top executives. The tall structure's advantages and disadvantages are listed below.

Benefits:

• Centralization of power in decision-making
• Division of tasks into departments
• Established lines of authority
• Certain reporting arrangements
• Limited range of control
• The close monitoring of personnel

Drawbacks:

• Increase administrative costs
• Hinder coordination and communication
• Alter commands, orders, and information
• Lower motivation
• There are too many middle managers, which raises wage costs.

Flat Structure:

A towering structure is the antithesis of a flat structure. It describes a hierarchical organizational system where there are few or no layers of managerial intervention between staff and managers. As a result, its range of control is greater. The management respects the workers, and power is distributed. The more democratic organizational structure is that of flat structures. The vertical and horizontal levels of differentiation in the flat firm are both substantial. There aren't many middle managers to act as a liaison between the organization's CEOs and lower levels. These middle managers typically don't pay attention to minute details that require a lot of time and effort. Instead, they concentrate on distributing resources, general policy, and finances.

Benefits:

• The flat structure is highly helpful in entirely getting rid of intermediaries and bureaucracy.
• The higher level supervisors are directly responsible to the workforce. The majority of employees participate in the decision-making process, which is swift.
• There will be excellent communication, teamwork, and understanding between employees and managers as a result of the structure's regular interactions between them.
• Flatter structures are more adaptable and more able to adjust with their surrounding environment, both inside and out.
• The need for formal procedures is reduced thanks to the structure's promotion of task interdependence.

Drawbacks:

• Sometimes there is confusion about positions due to the significant managerial workload and the number of people reporting to each boss.
• Employees frequently worry that others will use their boss's information to manipulate the system behind their backs. There is higher levels of power and mistrust among employees in a flat company.
• When a manager is responsible for a large number of employees, his work is become impossible.
• There is minimal chance of communication between employees and departments because departments are so specialized.
• Because there are few levels of management, there are fewer opportunities for employees to be promoted.

Horizontal Differentiation

The number of various units at the same level is referred to as horizontal differentiation. This implies that the organization will tend to be more complex if there are more tasks that call for more specialized knowledge. Horizontal differentiation begins when a corporation distributes certain job duties to specific individuals rather than having a smaller number of individuals do all necessary activities. The business can organize by function, process, product, service, location, or client as it continues to distinguish horizontally. For instance, managers adopt a product structure when they arrange departments according to the categories of products or services. Managers might set up departments based on the region of the nation in which they operate. We'll refer to this as a geographic structure. Managers adjust a market structure when they set up departments in accordance with the types of clients they prioritize. These differentiation methods can all be referred to as horizontal because they are all on the same plane.

Functional Structure

A functional structure is established when activities are divided into units and subunits within an organization based on functions. The most common and widely used type of departmentation is this one. The advantages of specialization are attempted to be incorporated into a functional structure. Jobs and departments are specialized and organized into groups based on business functions in a functional organization. Having distinct departments of specialists allows management to develop the most effective department possible. The important features of this structure are as follows:

• Specialization by function
• Focus on unit goals
• Line-staff division
• Functional relationship
• Limited span of management

The advantages and disadvantages of this structure are mentioned below:

Advantages::

• This structure makes it possible to staff each department with qualified individuals.
• This kind of grouping makes it easier for employees to specialize in and develop their skills in a single function, which improves their productivity and output.
• Since the tasks performed by each department are comparable, it is simpler to oversee, coordinate, and assess such operations.
• Determining the appropriate allocation of tools and other resources to various departments is also made simpler.
• Communication channels and decision-making processes are straightforward and well-understood.

Disadvantages:

• Managers frequently focus more on the activities within their own departments. Sometimes they have a bias toward their own functions and fail to recognize how crucial other functions are to achieving organizational objectives.
• This structure's lack of unity of command is a significant issue as well because subordinates receive several commands from various supervisors, confusing them about which orders to follow.
• Due to the significant maintenance and administrative costs associated with this structure, it is inappropriate for small and medium-sized businesses.
• It could be a problem if supervisory personnel in the same position and rank disagree on different matters. As a result, disagreements between different departments are a possibility.
• Quick decisions cannot be made because they must be made after consulting with top executives and specialists and after receiving their approval.

Multidivisional Structure

Nearly all the managers of extensive and huge firms adopt a divisional structure and establish substantial business units, each of which provides a certain sort of product for a specific kind of customer as the challenges related to expansion and diversification worsen with time. Product structure, geographic structure, and matrix structure are the three types of divisional structure:

Product or Market structures: This structure is adhered to in order to accommodate the demands of various customers or the unique specifications of various product lines. Jobs are grouped in this type of organization according to markets or products. All departments that support a certain product or market are grouped under one management in a product or market organization. As a result, each of the company's product lines or markets has an own, independent department. These are given permissions and duties for manufacturing or marketing. The following diagram illustrates how a product or market structure might be organized:

Figure: Product Structure

Figure: Market Structure

(source: http://www.referenceforbusiness.com/management/images/eom_0005_0001_0_img0136.jpg)

This kind of departmentalization is appropriate for businesses with a wide variety of products or services. It is also appropriate when there are significant differences between the product lines' consumer bases, production methods, and marketing know-how. Similar to a separate company, each product area is crucial. The majority of multi-product businesses have a market or product division.

The merits and demerits of this type of departmentation or structure are listed below:

Merits:

• It makes interaction and communication amongst workers who create the same good or service easier.
• People devote their entire time to a specific product or market segment. They feel as though they belong.
• Task obligations are obvious.
• Additionally, this style of organization encourages specialization and ups accountability for market or product performance.
• There is an appropriate division of labor because it enables a team to concentrate on a specific good or service and has leadership qualities that aid in meeting deadlines.

Demerits:

• The duplication of product specialists that each of these departments may need is one of the key drawbacks of product or market departmentation.
• Coordinating efforts across divisions or product lines is challenging.
• Customers who purchase goods from several product groupings may become perplexed as a result.
• The company's overarching goals and the goals of its specific product groups and markets may conflict.

Geographic Structure: Territorial or geographic structures are used by organizations with a bigger market and distribution network. organizations where geographic regions are used as the main basis for division. They assign the chief executive officer, who oversees all activities, the role of area manager. The work of managing activities across regions is made easier by this type of departmentation. One manager clearly has authority over each region. A multinational company's management frequently uses this structure. Organizations in the service, financial, educational, and other non-manufacturing sectors frequently adopt departmentation by region.

Below are this structure's benefits and drawbacks:

Pros:

• It offers new managers a training ground. Managers can obtain practical experience and learn crucial information about the local market's acceptance of the company's goods and services.
• It enables corporate growth and expansion across several geographical areas.
• Effective coordination is ensured within a territorial area.
• It gives the territorial manager just enough discretion to handle decisions.
• It aids in cutting back on overall administrative expenses.

Cons:

• Due to the requirement for each region to have its own functional and product specialists, there is a problem of duplication.
• There could be anarchy and disputes among territorial managers.
• There are communication issues between the various territorial regions.
• It calls for highly skilled labor, which might not always be available.

Matrix Structure: Project organization, grid organization, and various command systems are other names for matrix organization. It is a hybrid organizational structure where departmental and functional forms overlap. This means that with a matrix structure, managers can concurrently group employees and tasks by function and by product or project. In order for employees to learn from one another and improve their skills and productivity, they are divided into functions. Employees are also divided into project teams, which are groups where people from various functions collaborated to build a particular product. 

Thus, the matrix organization has two levels of command rather than one. The outcome is an intricate web of reporting connections between product teams and departments. Team members are referred regarded as "two-boss employees" as a result of the fact that they answer to two distinct bosses. The unity-of-command concept, which argues that a person should have just one boss, is broken by the matrix organization.

Advantages:

• The matrix structure is a productive way to combine the many and specialized talents needed to tackle a particular challenge.
• The coordination issue, which affects the majority of organizations, is downplayed. Such issues rarely occur since the majority of staff collaborate as a team.
• While collaborating, employees get more familiar with one another's roles and recognize how crucial they are to achieving the company's goals. They have a sincere attitude toward one another.
• It provides the organization with flexibility. The resources of the organization can be used more creatively and effectively.
• It provides the company with significant cost savings. In the organization, it prevents pointless repetition.

Disadvantages:

• Employees find it challenging to adapt to and fit into the matrix culture.
• Employee morale may be impacted as they join the team, split up after the project is complete, and then regroup when a new one begins.
• The employees may experience a situation of inconsistent instructions and challenging interpersonal situations as a result of the breach of unity of command.
• This structure involves a lot of professional and trained labor, as well as a lot of information collection work and paperwork, which adds to the organization's overhead costs and management costs.
• Maintaining equilibrium and collaboration between many experts from the functional and project departments may be problematic.

Reference

(Pant, P.R. (2013) Principles of Management. Kathmandu: Buddha Academic Publishers and Distributors Pvt. Ltd.)