8.1 Organisation design
The introduction to this chapter noted that Hill's (2005) text gives little attention to basic organisation design. If you have not previously studied organisation structure, this section is intended to make the textbook chapter easier to understand than it might otherwise be.
The structural design of an organisation is reflected in its organisation chart . The organisation chart is the visible representation for a set of underlying activities and processes. The three key components of organisation structure are:
- the formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers
- the grouping together of individuals into departments and the grouping of departments into the total organisation; and
- the design of systems to ensure effective communication, coordination and integration of effort across departments
These three elements of structure pertain to both the vertical and horizontal aspects or organising. The first two elements are the structural framework , which is the vertical hierarchy drawn on the organisation chart. The third element concerns the pattern of interactions , which provide horizontal information and coordination where and when it is needed.
The term vertical differentiation refers to the depth in the structure. Differentiation increases as the number of hierarchical levels in the organisation increases. The more levels that exist between top management and operatives, the greater the potential for communication distortion and the more difficult it is to coordinate decisions of managers and for top management to exercise control of subordinates. We examine this further in the next section.
The term horizontal differentiation refers to the degree of differentiation between units based on the nature of the tasks they perform, the orientation of members and their education and training. We examine this further in the following section on 'Organisation design options'.
It is important to realise that vertical and horizontal differentiation are not independent of each other. In your textbook, Hill (2005) condenses vertical differentiation to an argument between centralisation and decentralisation and then uses horizontal differentiation to explain how an organisation creates its sub-units. This is an over-simplification: vertical and horizontal differentiation are interdependent. You can assess the truth of that assertion by looking at organisations in a particular industry. Some will be 'tall' with many layers of hierarchy; others will be 'flat' with few layers in the hierarchy.
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