Principles and practice of management question and answer

Kirkland Ltd. is a multi-national company that has recently launched its operations in your country. The company wants to immediately conduct research in order to devise the most suitable organizational structure for its operations.
Discuss the various options available to the company indicating the advantages and disadvantages of each option.

The study of organization structures is still a developing field. It has been a major source of interest for classical theorists; Max Weber was in fact one of the first scholars to describe how organizations should be designed.

Henry Mintzberg defines organization structure as “the sum total of the ways in which it divides its labour into distinct tasks and then achieves co-ordination between them.

The organization structure is therefore the overall configuration of positions and interrelationships among positions within the organization.

Factors affecting organization structure:-

a. Size
Size may be the number of employees, assets, sales etc.

Small firms tend to have fewer rules for how things should be done and more flexibility in how employees can confront problems. As the firm grows, the tendency to create more rules and reduce flexibility increases and alterations in its design become inevitable.

b. Technology
This refers to the conversion process used an organization to transform inputs into outputs. Organizations that have mass production will adopt a different structure from those with batch or unit technology.

c. Environment
Environmental uncertainty can be captured environmental change and environmental complexity. Highly dynamic environments will favour complex structures such as matrix.


1. Functional Organization Structure
This is a structure based on groupings of all the major business functions e.g. production, marketing, finance, personnel. In a functional structure, tasks are linked together on the basis of common functions e.g. all production activities are linked together in a single function which undertakes all the tasks required of that function.

• By placing people together on basis of technical expertise, the organization can facilitate both their utilization and the coordination in the service of the whole enterprise.
• Better opportunities for promotion and career development.
• Growth of sectional interest that may conflict with the needs of the organization as a whole.
• Difficulty in adopting this structure to meet issues such as diversification or geographical dispersion.

2. Divisionalized Organization Structure
The organization is divided into divisions on the basis of products and / or geography and each division is operated in a functional form but with certain key functions retained at the company headquarters (e.g. finance, planning and personnel policy).

a) Product – based Divisionalization
This is usually based on individual products or product ranges. Each group carries its own functional specialisms e.g. in the Health Sector, the key group of employees – medical, nursing, paramedical and hotel services – are dispersed according to the services they provide.

• It allows diversification to take place
• It can cope better with problems of technological change because it groups people with expertise and their specialized equipment in one manor unit.
• Products that are loss making can be easily identified.
• The General Manager may promote their own product group to the detriment of other parts of the company.

b) Geographical Divisionalization
This is centered around appropriate geographical features e.g. regions, nations, subcontinents.

Decision-making and control are made easier.

The managers are familiar with the environment and can easily adopt to changes if required.

Decentralization may cause additional control problems for senior management.

3. Matrix Organization Structure
This is based on a combination of functional organization with project-based structures therecombining vertical and lateral lines of communication and authority. Within these structures, there is a dual chain of command as those involved report to their own line managers as well as to one or more functional managers.

• It helps to clarify who is responsible for the success of the project
• Better control of project
• Lower program costs
• Aids in development of managers as they are given more responsibilities
• Conflicts concerning allocation of resources
• Dual chain of command is confusing, can cause divided loyalty and power struggles
• Dilution of functional management throughout the organization

These are the available options. The functional structure is best suited to stable environments while divisionalization is popular in large organizations offering wide ranges of services. With increasing complexity and size, many firms are opting for a mixed structure, which may combine the benefits of two or more forms of organization.

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