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Effect of Organizational Design on Firm Capabilities

Organizational design is a detail set up that clearly defines the workflow of an organization, its structure, systems according to organization goals and making plans to apply new changes for improvements. This methodology focus on improvement of business techniques and employees of business. This helps to improve profitability, internal and external operations, customer services, and become beneficial for employees of business. This design process touches all parts of organization and helpful in many aspects such as reduce costs, increase profitability, developing suitable environment for employees and make a reasonable strategy for growing business.

By design means interaction of people with the process of business, technologies and techniques, and developing systems. A well designed organization fulfill its goals, implement properly their strategies, faced all business challenges successfully. As companies grows, its faces more challenges from external environment having more complex process, structure and systems that effect efficiency, customer services, profitability and employees moral. Organizations have to update yourself to avoid different types of problems.

A proper methodology is adopted to prepare organization design. This methodology includes charter the design process, assess the current state of the business, Design the new organization, Implement the design.

Charter the process means we discuss the current business situation, organizational behavior, health and environmental demands. Charter is prepared for design process which includes required outcomes, scope, and allocation of resources, deadlines, different strategies and parameters.

Assess the current state of business means for making any change you have to understand all the business situations. It means what is working performance, its weaknesses, its strengths, what decisions are in favor and what are not; all the assessment of current situation you have to do.

Design the new organization means you have to prepare a fully prepared design for making a new organization and remove old one. In this, you have to prepare new principles, new processes, give information to core people, define tasks, functions and skills, identify layout, properly allocate resources and equipment, make different strategies and clearly defines management structure.

In last, you have to make such type of strategies that easily implement this new design. People are organized and trained to work in new designed environment with team skills and trained with new working criteria.

Organization design is a process of arranging organization structure with its goals. It clearly defines the complex relationship between tasks, workflow, responsibilities and authorities which support organizational goals and mission.

Organization structure can be classified according to hierarchy or organic way; we can classify according to complexity, formality, participation and communication. Functional structure and divisional structure are part of hierarchical structure. Simple, Flat, Matrix and network structure part of Organic structure.

While making design, we have to consider what type of designs we have to develop for what sort of business. The important is to align organization design according to business strategy and market environment. Control, flexibility, incentives, people and resources are bitterly utilized and appoint for better business designed structure. We have to consider some important points while making design; Strategy: the organization designs must support strategy of business. If your strategy based on low cost and comfortable environment then it is best to use.

  • Size: the design must also consider the size of organization; a small organization has less complicated structure and design whereas the large organizations have complex structure which effects its design.
  • Environment: if the market environment are less or more flexible it depends on structure and working performance.
  • Control: what sort of control you have on what activities for better performance of organization.
  • Incentives: Advantages, incentives and rewards are aligning with goals and missions of business.

Organization design is very important for the betterment of organizational structure. The design of organization depends on its goals, its missions, its productivity, decisions, working strategies, employees compatibility, customer attention, and long term future planning. Growth and innovation of business is also very compulsory for making its design. Large companies have complex and complicated structure which affects its working performance, profitability, employee’s satisfaction etc.

If we talk about functional structure, functional structure means developing structure according to function and performance of organization.it includes coordination, supervision and task allocation. It refers how people in an organization worked and to whom they report.it effect operational efficiency of employs which support their efficiency, interact with organization policies and motivate them to work harder. Communication in such type of organizations is rigid and difficult. Coordination and task specialization are very important in functional structure.  Which make product predictable and efficient? Functional units mostly perform high level of efficiency and performance. Interaction of units may cause delay, reduce commitments and waste time.

Divisional structure refers collection of functions which produce a product. Employees are responsible for market services and product distribution in divisional structure. This can use delegate authority to perform and measured in each group. Its result is to manage better performance and making high moral of employees. Between different divisions coordinating work is more efficient. When divisional structure organized by product, customer get more benefits and get product according to their taste and requirements. By using divisional structure, all sectors of markets are performing similar tasks and same technology which helps to improve their performance.

The matrix structures are used as both employees and products simultaneously. A matrix utilizes different team of employees to accomplish work by getting maximum advantages and reduce their weaknesses in decentralization system.

In weak matrix, manager has limited authority to fulfill its task and achieve its goals. On balance matrix, authority equally distributed between project and functional manager. In strong matrix, all responsibility related to project manager.

One of the newest organizational structures is team. Team describes a complete group of members who work as a team work to fulfill organizational goals and targets.

Another organizational structure is network. When organization is facing huge problems in market then network structure made to utilize all these problems by making a network which deals all the product issues, customer services and profitability criteria.

Another structure is virtual structure where employees connected to upward and downward stream. It means they connect with suppliers and customers as well. While the company is small, employees can globally communicate to all levels efficiently.

In simple words, we can say that organizational designs are very important for any organization. it improves its work efficiency, its procedures, processes, its strategies , profitability targets, customer relation, employees moral, their benefits, their abilities, their compatibilities according to market demand and gather maximum profit to gain maximum market share. Basically, organization design and structure are most important for every type of organization, its profitability approach and market share…Better structure goes to better strategies and better profitability.

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