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Lecture – 08

Dimensions of Organization Structure – I

Welcome to this course Organization Theory/Structure and Design. Now, we will start
with module-8. As you can see from this slide, module 8, 9 and 10 are dedicated to
understanding of dimensions of Organization Structure. So, let us start with module-8.
And we will talk about describing the three components comprising, complexity and then
compare functional with social specialization. So these are the two things that we will
cover in this module.
(Refer Slide Time: 01:05)

Now, let us look at this example of restructuring of corporate world. The article’s
headline reads, IBM Unveils a Sweeping Restructuring in Bid to Decentralize Decision
Making, but IBM is not alone. In the last couple of years the name of firms that have
restructured their organization read like who is who of corporate world, and that include
AT and T, Apple Computers, General Electric, General Motors, Philip Morris, and Walt
Disney Productions.
In fact, it is difficult nowadays to find a well-managed organization that has not recently
restructured. These organizations are restructuring to cut cost, become more responsive

to customers and competitors or achieve some similar aim. So, all these organizations, or
any organization that are going for restructuring, are looking at cutting cost, becoming
more responsive to customers as well as competitors and some other similar aim.
But what is it that these organizations are restructuring? Our answer to this question is
complexity, formalization, and centralization. So, these are the three things that
organizations look for or change when they are restructuring. Acceptance of these three
components are the core dimensions of organization structure, while generally
widespread today, is not universal.
(Refer Slide Time: 02:52)

Before we begin to discuss these three core dimensions, it is worthwhile to list a dozen or
so of the more popular variables used to define structural dimensions. One such variable
is the administrative component, that is, the number of line supervisors, managers, and
staff personnel relative to the total number of employees. The second is autonomy, the
extent to which top management has to refer typical decisions to a higher level of

(Refer Slide Time: 03:55)

Centralization is the proportion of jobs whose occupants participate in decision making
and the number of areas in which they participate, or concentration of power
arrangements, or an index reflecting the locus of decision making with respect to major
and specific policies; or the degree of information sharing between levels, and the degree
of participation in the long-range planning.
(Refer Slide Time: 04:03)

Complexity – the number of occupational specialities, the professional activity, and the
professional training of employees. Delegation of authority – the ratio on the number of

specific management decisions, the chief executive has delegated to the number he or
she has the authority to make. Differentiation – the number of specialty functions
represented in a firm or the difference in cognitive and emotional orientation among
managers in different departments.
(Refer Slide Time: 04:44)

Formalization – the extent to which an employee’s role is defined by formal
documentation. Integration – the quality of the state of collaboration that exists among
departments that are required to achieve unity of effort or plans or feedback used for
coordination between organizational units. Professionalization – the degree to which
employees use a professional organization as a major reference, belief in service to the
public, belief in self-regulation, dedication to one’s field, and autonomy.

(Refer Slide Time: 05:19)

The span of control – the number of subordinates that an individual manager can and
should supervise. Specialization – the number of occupational specialities and the length
of training required by each or the degree to which highly specialized requirements are
spelled out in formal job description for various functions. Standardization – the range of
variation that is tolerated within the rules defining the jobs. Vertical span – the number
of levels in the authority hierarchy from the bottom to the top.
(Refer Slide Time: 05:58)

Now, let us continue with the discussion on restructuring of corporate world. The listing
is meant to indicate that there is by no means complete agreement among theorists as to
what makes up the term organization structure. As we will proceed further, you will find
that almost all the dimensions cited are considered directly or indirectly.
So, a more accurate conclusion may be that theorists generally agree on the dimensions
of organization structure. But disagree on operational definitions and whether a
dimension is primary or subsumed under some larger definition.
(Refer Slide Time: 06:50)

With acknowledgement made to the divergent labels and definitions given to a structure,
let us proceed to construct an in-depth understanding of the term by looking at the first of
our dimensions that is complexity.

(Refer Slide Time: 06:58)

Let us start with complexity. What do we mean by the term complexity, and why is
complexity important for our discussion? What is the definition of complexity?
Complexity refers to the degree of differentiation that exists within an organization.
Horizontal differentiation considers the degree of horizontal separation between units,
and vertical differentiation refers to the depth of the organizational hierarchy.
(Refer Slide Time: 07:25)

Spatial differentiation encompasses the degree to which the location of an organization’s
facilities and personnel are dispersed geographically. An increase in any one of these
three factors will increase an organization’s complexity.
(Refer Slide Time: 07:55)

So, what is this horizontal differentiation? Horizontal differentiation refers to the degree
of differentiation between units based on the orientation of members, the nature of the
task they perform, and their education and training. We can state that the larger number
of different occupations within an organization that require specialized knowledge and
skills, the more complex that organization is.

(Refer Slide Time: 08:11)

Why? Because diverse orientations make it more difficult for organization’s members to
communicate and more difficult for management to coordinate their activities. For
instance, when organizations create specialized groups or expand departmental
designations, they differentiate groups from each other, making interactions between
those groups more complex.
(Refer Slide Time: 08:40)

If the organization is staffed by people who have similar backgrounds, skills and
training, they are likely to see the world in more similar terms. Conversely, diversity,

increases the likelihood that they will have different goal emphases, time orientations,
and even a different work vocabulary. Job specialization reinforces differences – the
chemical engineer’s job is clearly different from that of the personnel recruitment
(Refer Slide Time: 09:17)

Their training is different. The language that they use on their respective jobs is different.
They are typically assigned to different departments, which further reinforces their
divergent orientations. The most visible evidence in organizations of horizontal
differentiation is specialization and departmentation. As we will show, the two are
interrelated. But let us begin by looking at specialization.

(Refer Slide Time: 10:16)

So, now we are talking about specialization. Specialization refers to the particular
grouping of activities performed by an individual. It can be achieved in one of the two
So, the most well-known form of specialization is through functional specialization - in
which jobs are broken down into simple and repetitive tasks. Also known as division of
labour, functional specialization creates high substitutability among employees and
facilitate their easy replacement by management.
(Refer Slide Time: 11:08)

If individuals are specialized, rather than their work, we have social specialization.
Social specialization is achieved by hiring professionals who hold skills that cannot be
readily routinized. The work typically done by civil engineers, nuclear physicists and
registered nurses is specialized, but the activities they perform vary by situation. An
increase in either form of the specialization result in increased complexity within the
(Refer Slide Time: 11:10)

Why? Because an increase in specialization requires more sophisticated and expensive
methods of coordination and control. Moving ahead – in our discussion of formalization
– we will analyze social specialization. However, because most organizations rely so
heavily on functional specialization, we should elaborate on the efficiencies inherent in
division of labor.

(Refer Slide Time: 11:39)

In previous modules, we briefly mentioned Adam Smith’s discourse in his ‘Wealth of
Nations’ on how functional specialization worked in the manufacturing of straight pins.
Even though Adam Smith wrote more than two hundred years ago, most organizations
still rely heavily on the division of labor today. But why does division of labor still
work? First, in highly sophisticated and complex jobs no one person can perform all the
tasks, owing to physical limitations.
(Refer Slide Time: 12:36)

If one person had to build a complete Chevrolet motor car alone, even possessing the
hundreds of skills necessary, it would take months of full-time efforts. Second,
limitations of knowledge act as a constraint. Some tasks require highly developed skills;
others can be performed by untrained. If many of the tasks require a large amount of a
skill, it may be impossible to find people capable of performing all the tasks involved.
(Refer Slide Time: 12:52)

Further, if all employees are engaged in the each step of, say, an organization’s
manufacturing process, all must have the skills necessary to perform both the most
demanding and the least demanding tasks. The result would be that except when
performing the most skilled or highly sophisticated task employees would be working
below their skill levels.

(Refer Slide Time: 13:31)

Since the skilled workers are paid more than unskilled, and their wages should reflect
their highest level of a skill, it represents poor usage of resources to pay individuals for
their ability to do complex and difficult tasks while requiring them to do easy ones.
Another element in favour of division of labor is efficiency. One’s skill at performing a
task increases through repetition. Efficiency is also exhibited in reducing time spent in
changing tasks.
(Refer Slide Time: 14:00)

The time spent in putting away one’s tools and equipment from a prior step in the work
process and getting ready for another are eliminated through functional specialization.
Additionally, training for functional specialization is more efficient from the
organization’s perspective.
It is easier and less costly to train workers to do a specific and repetitive task than to train
them for difficult and complex activities. Finally, division of labor increases efficiency
and productivity by encouraging the creation of special inventions and machineries.
(Refer Slide Time: 14:55)

Let us look at another dimension of horizontal differentiation that is departmentation.
Division of labor creates groups of specialists. The way in which we group these
specialists is called departmentation. Departmentation is therefore, the way in which
organizations typically coordinate activities that have been horizontally differentiated.
Departments can be created on the basis of simple numbers, function, products, product
or service, client, geography or process. Most large corporation will use all six.

(Refer Slide Time: 15:23)

For instance, the basic segmentation may be by function, for example, finance,
manufacturing, sales, and personnel. Sales, in turn, may be segmented by geography,
manufacturing by product, individual production plants by process, and so forth. On the
other hand, in a very small organization, simple numbers represent an informal and
highly effective method by which people can be grouped.
(Refer Slide Time: 15:53)

Another dimension of complexity is vertical differentiation. Vertical differentiation
refers to the depth in the structure. Differentiation increases, and hence complexity as the

number of hierarchical levels in the organization increases. The more levels that exist
between top management and operatives, the greater the potential of communication
distortion the more difficult it is to coordinate the decisions of managerial personnel.
And the more difficult it is for the top management to oversee the actions of operatives.
(Refer Slide Time: 16:31)

Vertical and horizontal differentiation should not be construed as independent of each
other. Vertical differentiation may be understood best as a response to an increase in
horizontal differentiation. As specialization expands, it becomes increasingly necessary
to coordinate tasks. Since high horizontal differentiation means that members will have
diverse training and background, it may be difficult for the individual units to see how
their tasks fit into the greater whole.
A company specializing in road construction will employee surveyors, grading
architects, bridge designers, clerical personnel, asphalt tenders, cement mason, truck
drivers and heavy duty equipment operators, but someone must supervise each of these
occupational groups to ensure that the work is done according to plan and on time.
The result is a need for increased coordination which shows itself in the development of
vertical differentiation. Organizations with the same number of employees need not have
the same degrees of vertical differentiation.

(Refer Slide Time: 18:11)

Organizations can be tall, with many layers of hierarchy, or flat, with few levels. The
determining factor is the span of control. The span of control defines the number of
subordinates that a manager can direct effectively. If this span is wide, managers will
have a number of subordinates reporting to them. If it is narrow, managers will have few
All things being equal, the smaller the span, the taller the organization. This point is
important and it requires elaboration. Smaller the span, the taller the organization,
because that will require more people in the supervisory role.

(Refer Slide Time: 19:10)

Simple arithmetic will show that the difference between an average management span of,
say, four, and one of eight in a company of four thousand nonmanagerial employees can
make a difference of two entire levels of management and of nearly eight hundred
managers. This statement is illustrated in figure 8.1. We will note that each of the
operatives (lowest) levels contains 4096 employees.
(Refer Slide Time: 19:24)

So, this is that figure 8.1 that contrasts span of control. So, on the left hand side, we have
organizational levels from 1 that is highest to 7. Then in between we have assuming span

of 4. And to the extreme right, we have assuming span of 8. This is members at each
level. So, now you can see when we are talking about span of 4, operatives may be 4096
and manager level 1 to 6 are 1365. When we are talking about span of 8, then the
manager level 1 to 4, it comes down to 585.
(Refer Slide Time: 20:36)

All the other levels represent management positions, 1365 managers – level 1 to 6 and
with the span of 4; and 585 managers – levels 1 to 4 within a span of 8. The narrower
span creates high vertical differentiation and a tall organization. The wider spread creates
a flatter organization. The evidence is clouded on whether the tall or flat organization is
more effective; which one whether should it be tall or should it be flat which is more

(Refer Slide Time: 20:48)

Tall structures provide closer supervision and tighter boss-oriented controls.
Coordination and communication become complicated because of the increased number
of layers through which directives must go. Flat structures have a shorter and simpler
communication chain, less opportunity for supervision since each manager has more
people reporting to him or her, and reduced promotion opportunities as result of fewer
levels of management.
(Refer Slide Time: 21:26)

An early study at Sears and Roebuck, that is American departmental store chain support
for the flat organization, or low vertical-differentiation case. Two groups of Sears’ stores,
having between 150 and 175 employees were the subject of the investigation. One group
had only two levels of management, the store manager and approximately thirty different
managers. The second group, in contrast, had three levels – a store manager, group
managers, and merchandise managers.
(Refer Slide Time: 22:06)

The conclusion drawn from this investigation were that among the stores studied, the
two-level organizations outperformed the three-level stores on sales volumes, profit, and
morale criteria. It would be simplistic to conclude that wider spans lead to a higher
organizational performance. A more recent study for instance found no support for the
general thesis that flat organizations are preferable. The evidence suggested that the
larger the organization, the less effective the flat organization.

(Refer Slide Time: 22:47)

Increased size brings with it complexity and more demands on each manager’s time. Tall
structures, with their narrow spans, reduce the manager’s day-to-day supervisory
responsibilities and give more time for involvement with the manager’s own boss.
Further evidence indicates that, in addition to the size of the organization, type of job and
individual characteristics of the job holders will moderate the span-organizational
effectiveness relationship.
(Refer Slide Time: 23:40)

Certain job requires more direction whereas, other requires less, and individuals,
depending on their education, skills, and personal characteristics, vary in the degree of
freedom or control they prefer. So, people - this is control, educational level, skills, and
personal characteristics. Another dimension of complexity is spatial differentiation. So,
we have talked about horizontal differentiation, vertical differentiation, and now we will
talk about spatial differentiation.
(Refer Slide Time: 23:43)

An organization can perform same activities with the same degree of horizontal
differentiation and hierarchical arrangement in multiple locations. Yet this existence of
multiple locations increases complexity. Therefore, the third element in complexity is
spatial differentiation which refers to the degree to which the location of an
organization’s offices, plants, and personnel are dispersed geographically.

(Refer Slide Time: 24:28)

Spatial differentiation can be thought of as an extended dimension to horizontal or
vertical differentiation. So, these are the three dimensions of differentiation that is it is
possible to separate tasks and power centers geographically. This separation includes
dispersion by both number and distance. Several examples may make this clearer.
(Refer Slide Time: 25:05)

A manufacturing company differentiates horizontally when it separates marketing
functions from production. Yet if essentially identical marketing activities are carried on
in six geographically dispersed sales offices like Delhi, Mumbai, Kolkata, Bangalore,

and Hyderabad, while all production is done in a large factory in Manesar, which is in
Haryana. This organization is more complex than if both the marketing and production
activities were performed at the same facility in Manesar.
(Refer Slide Time: 25:45)

It is only logical that communication, coordination, and control are made easier for
management in Manesar where spatial differentiation is low. The spatial concept also
applies with vertical differentiation. While tall structures are more complex than flat
ones, a tall organization in which different levels of authority are dispersed
geographically is more complex then is its counterpart whose management is physically

(Refer Slide Time: 26:18)

If senior executives reside in one city, middle managers in half a dozen cities, and lower-
level managers in a hundred different company offices around the world, complexity is

increased. Even though computer technology has dramatically improved the ability for
these separated decision makers to retrieve information and communicate with each
other, complexity has still increased.
(Refer Slide Time: 26:53)

Finally, the spatial differentiation element considers distance as well as numbers. If the
state of Uttarakhand has two regional of welfare offices – one in Dehradun and another

in Haridwar – they will be approximately 54 Kilometers apart. Even though the state of
Uttar Pradesh also has only two comparably sized offices – in Lucknow and Meerut, they
are separated by 575 kilometers – the Uttarakhand welfare organization is less complex.
(Refer Slide Time: 27:21)

In summary, spatial differentiation is the third element in defining complexity. It tells us
that even if horizontal and vertical differentiation were to remain the same across
spatially separated units, the physical separation itself would increase complexity.
(Refer Slide Time: 27:43)

Now, how do the three come as a package? What, if any, relationship is there among the
three elements of horizontal, vertical, and spatial differentiation? At the extreme ranges
of organization size, we would expect a high intercorrelation. BSNL, NTPC, The India
Post, and most of the diversified industrial or government organizations with which you
are familiar rate high on all three elements. Moe’s Dry Cleaning, a small shop made up
of only Moe and his wife, is low on all three.
(Refer Slide Time: 28:49)

Can we generalize, however, beyond that extreme cases? The answer is no. The three
elements do not have to come as a package. It has been noted, for instance, that colleges
usually have a low degree of vertical differentiation and little or no spatial
differentiation, but a high degree of horizontal differentiation. On the other hand, an
army battalion is categorized by high vertical differentiation and little horizontal

(Refer Slide Time: 29:04)

A closer look at organizations tells us that the various elements may differ significantly
within a given organization. This is particularly evident with horizontal differentiation.
The work that employees have to do is most repetitive at the lowest levels in the
organization, particularly at the operating core. This would include production and
clerical activities.
(Refer Slide Time: 29:33)

We would expect these types of jobs to have high horizontal differentiation. The
manager’s job because of its varied activities, is not likely to be heavily horizontally
(Refer Slide Time: 29:52)

So, to conclude, in this module, we discussed the three components comprising
complexity, and they are horizontal, vertical and spatial. We discussed complexity in
detail and covered topics like differentiation and specialization. We also did a
comparative study of functional with social specialization, with the help of examples.
(Refer Slide Time: 30:18)

And these are the four books from which the material for this module was used.
Thank you.