Organizational design in system perspective

When society changes in many areas, the shape of the organization quite naturally also changes. But like other phenomena in our world, new and old organizational design also exist side by side. We therefore can see old bureaucracies in the best of health as well as new matrix organizations existing simultaneously. A continuum of organizational forms from mechanistic to extremely flexible is an integrated part of our society. During the development of an organization, its age, size and growth of the line of business are determinative for choice of its design. Another designing parameter is environmental uncertainty. If this is high, the organization will be designed along flexible lines to adapt to rapid changes.

In the attempt to find a general definition, the majority of organizational researchers agree that the most characteristic for an organization is the division of labour, managed by an administrative apparatus. Such an apparatus tries to secure coordination, continuity and goal-fulfillment by use of certain rules and by a certain structure. What is done in practice is to execute processes of planning, command, coordination, control and communication.

A general problem to be solved in organizational design is the balance between centralization and decentralization. Centralization exists when the decisions are taken in higher levels of the organization. Decentralization presumes that decision-making is transferred to lower level employees. Normally centralization is associated with certain large-scale production advantages while decentralization implies better motivation, initiatives and accommodation among the personnel. It must, however, be emphasized that no perfect and normative solutions exist when it comes to organizational design. Organizational structures which have proved to be excellent for one company have been complete failures when transferred to others.

No matter how the structure is arranged, an organization can be defined as a partially self-organized system with the following qualities:

  1. Some of its components are living variables (human beings).
  2. The responsibility for choice between possible alternatives of action in a specific situation are shared by one or more individuals and/or groups.
  3. Decisions can be related after
    1. function
    2. geographical position
    3. time
  4. Functionally distinguished groups are conscious about each other’s actions by communication or by observation.
  5. Certain freedom of choice exists regarding means as well as goals.

An informal organization always accompanies the formal one. By informal organization, it means the aggregate of personal contacts, interactions and associated groupings of people, which do not have any conscious common or joint purposes. As a phenomenon, it is indefinite and structureless and has no definite subdivision. It creates certain attitudes, understandings, social norms and ideals. As a hidden source of power, it may sometimes influence the formal organization in an unpredictable way. A good example is the informal organization of the White House (in the US) during President Reagan’s time. There, the real boss very often was his wife Nancy with her own influential personal network. Thus, the classical organizational chart on the wall behind the managing director seldom tells the real truth.

The most basic form of organizational design is the simple, hierarchical structure with its pyramidal shape. It is often exemplified by the classical organizational chart. This tells us who is the boss’s boss. See Figure 8.1.

This chart quite naturally tells nothing about the ever-existing informal relations in the organization. The most significant example is the military unit from which the concepts of line/staff originate. The “line” can be described as an orderline or a chief system. An organizational chart is often completed by job descriptions for the different employees.

The size of the hierarchy depends of the size of the organization. Spontaneous cooperation in small enterprises vanishes when an increased number of people should work together. A vertical division of  labour arise, especially when distinct leaders emerge who want to distribute assignments, coordinate, reward and punish. Another reason for a growing hierarchy is a growing complexity with a need for experts, better planning and control.

The need for hierarchy can also be related to internal and/or external conflicts and the need to resolve them. Here, a construction is necessary which can come to a decision and implement it for example when a collision  regarding choice  of  ends  and  means  exists.

Figure 8.1 The classical organizational chart.

Strong leaders give rise to strong hierarchies.

In the functional organization, which has some clear advantages, the organizational tasks are divided in a number of main areas like production, sales, economy etc. See Figure 8.2.

The main value is specialization in procedures  for problem-solving and a homogenous background with the same terminology and description models. Among the disadvantages are inclination toward self- isolation of the various functional departments and a tendency to get into conflict with each other. It is also difficult to localize where the final responsibility lies when something goes wrong. The various departments can easily blame each other. This kind of organization is split-up which gives the boss the possibility to divide and rule. Generally, power, coordination and critical information is concentrated to the highest boss who normally has a superior overview of what is going on.

Figure 8.2 A functional organization.

The product or division organization is a design which is particularly useful when there are clearly separated groups of products or services. This gives the possibility of rapid response to a changing, competitive market. The specialists of a certain company sector can concentrate the effort on the product in question and take rapid decisions. A structure of this kind is organized in independent result units (divisions), each of which have their own product, market or business idea. (See Fig. 8.3).

The central management or concern management nominates and dismisses the bosses of each division, stipulate expected results, approve the budget and so on. The concern management also reserves the right to make decisions which are considered common for more divisions. All other problems are managed by the divisions themselves in a decentralized manner.

A relatively new kind of basic organizational structure is the matrix- design. This organizational form has a double profit responsibility where no particular person has a total, individual responsibility for what is going on. Instead a joint obligation of results in two ways, both horizontal and vertical, exists. A matrix-organization rests on a general model which can be implemented in different ways. One solution can be a double-acting structure where two or more basic organizational forms are combined. Two divisions or one functional subunit and one division are possible parts of the matrix-organization. It is often stated that such an organization gives the possibilities both to protect desirable dissimilarities between different business areas and take advantage of existing dependencies.

Figure 8.3 A division organization.

If a manufacturing company produces a number of different articles to be sold in between themselves in very different areas, a matrix- structure seems natural. See Figure 8.4.

The organization must be adapted to the various local conditions but on the same time it is natural to maintain an overarching responsibility for the different products, regardless of where they are sold. Here the product directors answer for the sales result for each product in all areas while the area director is responsible for the result within each area for all groups of products. Of course the matrix-principle can be used within one of a companies subfunctions, and not in the company as a whole. It can also be used to build a matrix within a matrix (multiple-dimensional matrix).

According to Davis and Lawrence (1977), the matrix-organizational principles tend to generate some common problems. Among the most obvious are:

  • decision agony (the demand for joint resolution);
  • struggle for power (to give up the thought of personal decision- power);

companies, however, use the project-organization as their basic form. It is employed to solve project of the following character:

  • it is a non-recurrent phenomenon;
  • it is a complex and far-reaching task of sufficient dimensions;
  • prerequisites and condition are uncertain;
  • it will mobilize parts of most existing organizational subunits;
  • it has relatively well-defined start and terminal points.

Concrete project with such character can be the development of new administrative computer systems, rationalization of factory production, big investment programs etc.

Project-organization has been very popular in both private and official enterprises as a deliverer of new advantages. Among these the most important are:

  • freedom to act in a better way
  • more solid and well thought out solutions
  • instructive and inspiring for the participators
  • creates new pattern of cooperation
  • creates influence on the organizational development
  • more easy to implement solutions

All projects normally pass through the following 6 phases:

  1. project formulation (interpretation and specification of the task);
  2. planning (formulation of subtasks and time schedule);
  3. execution (working and work coordination);
  4. coordination (of subtask to the complete project);
  5. documentation (reporting the final result);
  6. implementation (converting into action of the final result).

A configuration demonstrating the relation between a temporary project group and the basic organization is presented in Figure 8.5. Note the similarity with a matrix-organization.

The figure shows that the two project groups are made up of persons from the basic organization which subsequently are released from a corresponding amount of work there. The coordinating or reference group work close to the high-level management. The leaders of the department/functions are also often represented there. The project leader is a mandatory member of the coordination group.

Figure 8.5 A project organization.

Project-organizations have their problems. One of a basic kind is if the project leader should be appointed by the top management or be chosen by the dedicated group. The assignment of personnel for the project task implies that somebody is missing in the basic unit — something which must be solved. The return to the basic unit after a finished project can pose problems. The former group member has accustomed to new and better working procedures and when he returns he is only a co-worker in a traditional hierarchical system. In general terms, the three main threats to project success are cost escalation, delay and client dissatisfaction with the outcome.

If critical success factors in project management should be defined, the following are the most important


Project goals are clearly defined


Resources are sufficient

Control mechanisms are in place and used

Project has support of top management

Communication channels are adequate

Feedback exists

Contractors are responsive to clients


Project manager is competent

Project team is competent

With the establishment of modern communication technology, a new kind of organizational structure has emerged. This is called the virtual organization — a kind of flat and  boundaryless arrangement. It is made up of representatives from different organizations in differing physical locations and with differing organizational cultures.

Its fundamental idea is to take advantage of an entrepreneurial situation in which organizations (or pieces of them) exploit opportunities and take advantage of shared expertise, market access and the sharing of costs and risks. Depending on the specific situation, it is possible to define permanent virtual organizations, virtual teams, temporary virtual organizations and virtual projects.

To provide control and support to virtual structures, the primary solution consists of information technology. Here, Internet and fax are main tools used together with local area networks (LANs), wide area networks (WANs), Intranets, electronic document interchange systems (EDIs) etc. The four different kinds of virtual forms may work in different ways and therefore have different IT needs. Also, the number of personnel involved, range of involvement, time spent in virtual work change considerable between them. The character of the different virtual configurations is shown in Table 8.1.

Figure 8.4 A matrix-organization.

  • unclear responsibility (who should really take the decision);
  • multiple-matrix generation (in order to avoid individual responsibility);
  • increased costs (the demand for more bosses, double roles, ).

Sometimes companies must handle problems which overstep the borders between various internal functions and divisions. A demanding research and development project can, for example, initiate such a process. Quite naturally, for certain problems, a certain organizational design suits better. An example of such a transverse organizational form is the project or ad hoc organization. Appropriate for complex and uncertain tasks in turbulent environments, it is set up and used until the task is solved and the goals achieved. Then it is dismounted.

The project director normally has total command over the participating specialists (pure project-organization). If he shares the specialist with the function bosses, a matrix-project organization exists. A project is often fortified with resources from outside as an alternative to an expansion of the companies own resources.

The project-organization is most often a complement to an already existing basic organization. Certain contractor and consulting

Source: Skyttner Lars (2006), General Systems Theory: Problems, Perspectives, Practice, Wspc, 2nd Edition.

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