An organizational design is the process by which a company defines and manages elements of structure so that an organization can control the activities necessary to achieve its goals. Good organizational structure and design helps improve communication, increase productivity, and inspire innovation. Organizational structure is the formal system of task and activity relationships to clearly define how people coordinate their actions and use resources to achieve organizational goals.
An organizational design is the process by which a company defines and manages elements of structure so that an organization can control the activities necessary to achieve its goals. Good organizational structure and design helps improve communication, increase productivity, and inspire innovation. Organizational structure is the formal system of task and activity relationships to clearly define how people coordinate their actions and use resources to achieve organizational goals. It creates an environment where people can work effectively. Organizing ensures that objectives are achieved in the shortest possible time, in an orderly manner, with maximum utilization of the given resources.
The term ‘organizational design’ refers to how various parts of the organization and distinct organizational elements are brought together. It involves the creation of roles, processes and structures to ensure that the organization’s vision and objectives can be realized. Organization design includes defining arrangement of roles/positions and reporting lines on the organization chart. Decisions made with regard to formal structure, roles and processes directly impact the jobs and careers of employees – and the ability of the firm to realize its strategic objectives. Organization structure refers to the formal, established pattern of relationships amongst the various parts of a firm or any organization. The fact that these relationships are formal implies that they are deliberately specified and adopted and do not evolve on their own.
However, organization design is much more than just formal structures and includes:
Broadly an organization is designed to realize a number of objectives.
These could be:
Following factors play a key role in the organization design:
The organization’s present structure may have developed over a number of years, as functions have been added,
changed or deleted. Obviously, the older the organization, the more significant history is likely to be. Initially individuals used to perform the entire operations. With the concept of specialization and division of work, organizations, instead of being designed around individuals, were structured on the basis of different people doing only a specialized part of the entire process.
The second important factor affecting the structure of your organization is the technology that the company has adopted. Technology refined the traditional individual based processes with the introduction of automation and assembly lines. Now with the introduction of computerization and robots, new structural designs are once again emerging. Entire plants are managed by a single operator who controls the plant operations using computers. Major human inputs are needed in designing computer controls and software rather than in performing repetitive jobs.
Scalar principle and unity of command are two closely related principles. The scalar principle states that authority should flow in a straight line from the superior to the subordinate in a hierarchical manner. The principle of unity of command states that ideally each subordinate should have only one superior. These two principles establish the basic hierarchical nature of an organization.
The number of levels in the structure, sometimes referred to as the scalar chain, should be as few as possible.
As an organization adds on levels of management it becomes vertical and the span of control at each level becomes narrow. In a flat organization, the span of control is relatively wider and levels of management are few. The span of control, i.e., the number of subordinates directly managed, will vary according to the nature of the jobs and the organization, but it should not be so narrow that it results in a structure with too many levels, or too broad to allow effective management. There should be what has been described as unity of command. For this the reporting positions and authority need to be clearly defined. Every post in the structure should have a clear role and add value to the way the organization functions.
Centralization refers to the concentration of authority and decision-making in one single position in the organization. In a one-man enterprise, the entrepreneur makes all the decisions and all the authority and decision-making power is vested in him. With the expansion of business, it may no longer be possible for one man to control all the operations and may become necessary for him to delegate some responsibility and authority to another person. Delegation implies that you are acting on behalf of your boss by virtue of the power which he has given to you. The greater the delegation of power the greater is the extent of decentralization in the organization.
The extent to which the organization should be centralized or decentralized will need to be determined by reference to a number of factors. These include, the nature and type of industry, geographical dispersion, history, environment, resources available etc.
Some jobs are routine, meaning that employees perform the same tasks all of the time and rely on set rules (standard operating procedures) when exceptions do occur. Almost everything is predictable. These situations, such as automobile assembly lines, have high formalization and centralization as well as standardization of work processes. When employees perform tasks with high variety and low analyzability, they apply their skills to unique situations with little opportunity for repetition. Research project teams operate under these conditions. These situations call for an organic structure, one with low formalization, highly decentralized decision-making authority, and coordination mainly through informal communication among team members.
All organizations operate within an environment which comprises economic, social, cultural, political and legal subsystems. A change in any of these sub-systems may force you to change the design of your structure. Organizations, as open systems, need to receive various inputs from the environment and to sell various outputs to their environment. Therefore, it is important to comprehend what the environment is and what elements are likely to be important. To be effective, the overall organization design must be aligned with the business strategy and the market environment in which the business operates.
The organization structure is also affected by the type of market and customers it serves, and in a customer-responsive environment this should be one of the main determinants of structure. If the organization is providing services to a broad range of customers in a large number of locations, it may need to have many branch officers, as do Banks, the Post Office and so on.
The processes used within the organization also affect the structure. A production line process consists of a number of distinct tasks carried out by people specializing in those tasks at different stages of the process. The underlying principle behind this approach is that specialization means people can develop high skills and speed, resulting in high output at low cost. The various parts of the structure could be divided into specialist areas. These specialist areas need to be interlinked.
People in the organization affect the structure in a number of ways. Structures do not just appear, they are the result of people’s views and beliefs and their approach to managing the organization. The structure is also be affected by
the types of jobs and people within the organization. Structures with a large number of professionals are more likely to involve team working, and therefore to be relatively flat compared with an organization that has to accommodate a range of jobs from the production line operative to the chairman.
The geographical spreading of an organization affects its structure mainly because of its need to be near raw materials or customers,. Where there is a significant degree of geographical distribution, there is likely to be more need for careful co-ordination and control than with a single site location. When there is a strong need to provide products or services within a particular geographical area, the organization may be divided into regions or areas, with each being a fully self-contained, miniature version of the parent organization.
The structure may be determined by the particular products and services provided. Large and diverse organizations have separate divisions because they are dealing with very different products and services. Similarly, the Post Office has separate organizations for the various services it provides such as mail delivery (Royal Mail), parcel delivery (Parcel force) and counter services (Post Office Counters Limited).
Organization design broadly includes how the organization is structured, the types and numbers of jobs , formal system of communication, division of labor, coordination, control, authority, and responsibility essential to attain an organization’s goals. An organization is designed to realize a number of objectives.
The primary factors that often affect organization design are size, environment, business strategy, and technology. However several other factors such as history of the organization, its products and services, processes, coverage of customers, people, geographical spreading etc. also affect the organization design.
An organizational design is the process by which a company defines and manages elements of structure so that an organization can control the activities necessary to achieve its goals. Good organizational structure and design helps improve communication, increase productivity, and inspire innovation. Organizational structure is the formal system of task and activity relationships to clearly define how people coordinate their actions and use resources to achieve organizational goals. It creates an environment where people can work effectively. Organizing ensures that objectives are achieved in the shortest possible time, in an orderly manner, with maximum utilization of the given resources.
Driving Business Efficiency through Divisions and Departments
In case of a multi-divisional organizational structure, there is one parent company, or head-office. And that parent owns smaller departments, under the same brand name. Dividing the firm, into several self-contained, autonomous units, provides the optimal level of centralization, in a company.
In this article, we will explain the general Ledger journal processing flow from entering journals to running the final financial reports. Understand the generic general ledger process flow as it happens in automated ERP systems. The accounting cycle explains the flow of converting raw accounting data to financial information whereas general ledger process flow explains how journals flow in the system.
Hierarchical Organization Structures
Hierarchical structure is typical for larger businesses and organizations. It relies on having different levels of authority with a chain of command connecting multiple management levels within the organization. The decision-making process is typically formal and flows from the top down.
When the quantum of business is expected to be moderate and the entrepreneur desires that the risk involved in the operation be shared, he or she may prefer a partnership. A partnership comes into existence when two or more persons agree to share the profits of a business, which they run together.
GL - Accrued / Unbilled Revenue
Accrued revenues (also called accrued assets) are revenues already earned but not yet paid by the customer or posted to the general ledger. Understand what we mean by the terms accrued revenue, accrued assets, and unbilled revenue. Explore the business conditions that require recognition of accrued revenue in the books of accounts and some industries where this practice is prevalent.
Accrued expenses, sometimes referred to as accrued liabilities, are expenses that have been incurred but have not been recorded in the accounts. Discuss the need to record accrued liabilities and why they require an adjustment entry. Understand the treatment for these entries once the accounting period is closed and learn to differentiate when the commitments become liabilities.
A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. A joint venture takes place when two or more parties come together to take on one project.
Prepayments and Prepaid Expenses
Prepayments are the payment of a bill, operating expense, or non-operating expense that settle an account before it becomes due. Learn the concept of prepaid expenses. Understand the accounting treatment for prepaid expenses. Understand the concept by looking at some practical examples and finally learn the adjusting entry for these expenses.
GL - Understanding Chart of Accounts
A chart of accounts (COA) is a list of the accounts used by a business entity to record and categorize financial transactions. COA has transitioned from the legacy accounts, capturing just the natural account, to modern-day multidimensional COA structures capturing all accounting dimensions pertaining to underlying data enabling a granular level of reporting. Learn more about the role of COA in modern accounting systems.
GL - Different Accounting Methods
The accounting method refers to the rules a company follows in reporting revenues and expenses. Understand the two common systems of bookkeeping, single, and double-entry accounting systems. Learners will also understand the two most common accounting methods; cash and accrual methods of accounting and the advantages and disadvantages of using them.
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