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Determinants of Organizational Structure

management, business, organizational, organizational structure, determinants of organizational structure

A number of factors determine how organizations are structured. These include the organization's goals, social customs and mores, the beliefs and values of the founders or managers, environmental constraints, and available technology. As mentioned earlier, size, though an element of structure, is also a determinant because it influences all the other elements.

Organizational goals clearly influence the way an organization is designed. The high value placed on productivity and quality as well as shareholder value had a major influence on the redesign of Westinghouse as a more diversified and decentralized firm. Indeed, goals are the prime determinants of structure. If one is in the business of producing hamburgers, the goal of delivering a gourmet product at a moderate price leads to different structuring arrangements than does the goal of delivering a reliable product quickly at a low price.

Social customs at the time of an organization's birth also determine how it is structured. This has been very important in the history of business. For example, the organizational forms adopted by the first companies in the automobile industry are not the same as the structures being adopted now. Historically production was structured around the assembly line. Some workers always built chassis, which were then sent down the assembly line to other workers, who did such jobs as putting axles and engines onto those chassis. Currently, many automakers are adopting the work-group or team concept in which a group of workers is responsible for more than just one portion of the car. At the time the auto industry began, no one thought about using a group approach to building cars, given that it was not consistent with the existing values about manufacturing.

Once structures become common in an industry, they tend not to change. Certain social structures remain long after they are no longer suited to situations. For example, the railroad industry in the United States developed a structure that became dysfunctional as the engineering technology in the industry advanced. The tendency to stick with industry-specific structures may be changing with the proliferation of mergers and acquisitions and ever more rapid developments in engineering technologies. These developments may lead to the increased homogenization of structure as companies struggle to handle common problems of size. Alternatively, the need for structural change may become apparent more quickly due to technological advancement.
Another determinant of structure is comprised of the beliefs and values of the people forming the organization. Many firms in the computer industry, formed by young entrepreneurs who favor informal life-styles, have loose, informal, and collegial structures that reflect those values. Alfred P. Sloan put his personal stamp on the organization of General Motors in the 1920s, and it was not until the turbulent days of the 1970s that significant changes were made. Interestingly, these changes were brought about primarily as a response to the environment.

Environmental constraints include legislation, government regulation, court orders, market characteristics, social issues, and societal norms. For example, major incursions by Japanese auto manufacturers into the U.S. market have forced American firms to change their production methods as well as the underlying structures of their organizations. Laws concerning entry into or exclusion from certain businesses, the imposition or removal of regulations, and such court-ordered actions as the breakup of American Telephone and Telegraph Company affect the structure of organizations. The birth of People Express and other air carriers was the direct result of the Airline Deregulations Act of 1978, which enabled new carriers to enter the airline business for the first time in decades.

Technology is another determining factor that will affect the new forms organizations will take. One example concerns organizations that were once a part of AT&T. Rapidly changing telecommunications technology and the removal of certain regulations are opening new market niches in which the regional telephone companies can compete. Another example is robotics and other modern production methods. As these technologies have developed, they have changed the American automobile industry as significantly as did foreign competition. Some research demonstrates that technological change offers occasions for restructuring.

Technology has received an extensive amount of study over the years. The research has produced the following typology of technology:

- Long-linked technology, in which many operations are interdependent, such as an assembly line
- Mediating technology, in which otherwise independent units are linked by following procedures, such as bank tellers who all serve customers in an isolated way but do so according to the bank's rules
- Intensive technology, in which the task sequence is unique and depends on feedback from the object being acted upon. Hospitals exhibit this technology in that patients are acted upon differentially and each action depends on their response (improvement or deterioration of their condition) to prior actions.

As organizations move from one type of technology to another, the demand for rigid rules or flexibility changes. While cooperation is significant in all three technologies—later stages of an assembly line cannot function smoothly if earlier stages falter, just as the surgical team requires intense cooperation to succeed—more flexibility and communication is needed in intensive technology than in the other two forms.
Published: 2007-04-17
Author: Martin Hahn

About the author or the publisher
Martin Hahn PhD has received his education and degrees in Europe in organizational/industrial sociology. He grew up in South-East Asia and moved to Europe to get his tertiary education and gain experience in the fields of scientific research, radio journalism, and management consulting.

After living in Europe for 12 years, he moved to South-East again and has worked for the last 12 years as a management consultant, university lecturer, corporate trainer, and international school administrator

www.martin-hahn.net

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