INTERNAL FACTORS OF ORGANIZATIONAL STRUCTURE
INTERNAL FACTORS OF ORGANIZATIONAL STRUCTURE
Mr.Elida Cirikovic
c_elida@hotmail.com
Abstract
In order to realize the mission of business organization, which is the reason of its existence, it requires certain organization of elements in
a way to result with the achievement of outlined mission. All these elements, the parameters are organized into a single organizational
structure. Such a structure shows in which way are the given elements connected to each other, parts of the organization and the
hierarchy of authority and commanding. It can be freely stated that the organizational structure is a mean through which managers
achieve the outlined aims. Organizational structure once defined, is not unchangeable or given once forever. It is influenced by numerous
factors which can be, more or less, influenced by the company. Initial factors for changing the organizational structure can come from the
organization itself, and the management can influence them, as opposed to factors coming from the environment, outside, in which the
impact is very small or impossible. The aim of this work is precisely to illustrate the internal factors of organizational structure, and
interdependence of these factors and the organization. Each business entity exists to realize its mission. Its aim will be achieved by a
defined strategy and aims for achieving the intended strategy. In order to accomplish this aim, the management must involve the
technology in its implementation phase as well as the human factor, as the most relevant one, without which all this would just remain as
a piece of paper. This work will illustrate the internal factors of organizational structure, but will also point out how changes in these
factors concomitantly cause the changing of the organizational structure, which leads to the fact that the organizational structure is a
flexible category and that the degree of its successful realization is reflected in that flexibility.
Key words: organization, structure, management, factors, mission, strategy, goals, technology, hierarchy, employees.
Introduction
The meaning for the existence of a business entity is the
realization of mission and its vision, for what it was
established. The company realizes its task by using and
combining all the elements of business activity. Managers
are the ones who organize the people and define the ways
of their connection and operation. The managers realize
their mission by defining and setting organizational
structure. Only, the well defined organizational structure is
a guarantee for the realization of organizational goals. It is
not once and forever given, but is subject to changes,
which are coming from the organization itself and can be
influenced, it can also come from external environment,
which can not be influenced.
The company will accomplish its mission by defining its
aims, which must fulfil certain conditions in order to be
efficiently realizable, and consequently the organizational
structure will depend on their characteristics. The aims will
be implemented by defining strategies, the ways how the
accomplishment is planned. Depending whether the chosen
strategy is the leadership cost one or differentiation
strategy, it will also depend on which strategy will be
chosen. Defined goals and strategies we use to get them
implemented can be accomplished by using appropriate
technology. In a word, technology is the knowledge to do
something. Depending on whether the traditional or modern
technology is used, the choice of organizational structure
will depend.
The organizational structure is directly related to the size of
organization. It is quite clear that a young company will not
be organized as a large developed one. From the human
potential, as a factor, will depend if the defined
organizational structure will be implemented and to what
extent the success will be shown. Characteristics, types of
products greatly influence the mode of its production, and if
the production will be organized as a single, serial or mass
production. In this way the product appears as a factor that
largely determines how the company will be organized for
its production, the way how the organizational structure will
be shaped. What the organizational structure will be
depends on the location of the company, videlicet whether
all the sections, business units of the company are at the
same or different locations. The aim of this document is to
present what are those internal factors of organizational
structure and what kind of impact they have on the
organization structure.
The concept, definition and factors of business
organization
The objectives and purposes of the former, the original
and present organizations are almost identical and all are
based on a primary need that the realization of a planned
activity to be implemented in a most optimal way (the
realization of the objectives at minimum cost). As society
evolved, so has the organization developed as well. With
the development of society and with the raising of living
standards, sprout new needs that ought to be met, and on
the other hand, we are faced with restrictions in terms of
availability of raw materials. If we add to this the constant
and increasable fast changes in surrounding, one can
clearly see the importance of organization and importance
of the organization’s response to all challenges, which are
in front of it.
M. Novak gives a very detailed definition of the
organization: “The organizational structure includes the
entirety of connections and relationships between all factors
of production, and the entirety of connections and relations
within each individual factor of production or business
operations.” Taylor however gives a different definition, in
which the organizational structure, “beforehand designed
form of relation, where the leadership thinks, and workers
only carry out orders.”1
Babić, believes that it is “organically connected and
mutually consistent group of people who through adequate
material resources achieves placed goals.”2
Also, Šunje provides a comprehensive definition, by which
the organization is “a managerial function of a strategic
character through which organizational top management
creates assumptions for the realization of designed
1 Zećir H.,Senad S.,Dženan K.,
Organisation, Faculty of Economics in
Sarajevo,2008.god.p.32
2 Ibid,p.34
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business strategy.”3 The very notion of organizational
structure means the composition, skeleton, the structure of
the organization. It is a specific characteristic of the
organization and therefore two organizations with the same
organizational structure do not exist. If the structure
presents the substance of the organization, in so much the
organization is a set of components, whose activity and
function in sum, allows for the realization of set goals, in the
most optimal way. The organizational structure defines the
task assignment to individuals in the company, how the
responsibilities are shared for the accomplishment of the
tasks, but also presents the way how the individuals are
designated in the groups of company’s business units. “The
organization is a chart (network) of connections and
relationships through which people, based on the
managers’ instructions, achieve common goals.”4 The
advantage of business organization is in fact all that, which
the reason of its foundation is. It leads to a synergy effect,
reduces time and cost to implement the tasks, it has a clear
system of information and communication, but has also led
to the division of labour and specialization. There where the
advantage is visible, based on some rules it have
shortcomings, which in this case can be reflected in the fact
that the organizational structure inhibits individual initiative,
which comply with organizational procedures and may
impose duties and values that are inconsistent with the
objectives and values of individuals in company.
Every business entity performs its mission in terms of
business, affected by many factors. They all, do not have
the same impact and the same intensity of impact on the
company. On some of them, the company can have more
or less impact, whilst in some of them not at all. The
success of the company’s business operation depends on
the degree of success, the organization’s response to the
demands and influence. All the factors which affect the
organization and the organizational structure can be divided
into two main categories:
Internal factors are those, as the title itself says, which have
an internal impact on the organization, inside the
organization, and the organization can influence them
mostly. This group of factors includes: goal, strategy,
technology, size, human resources, product and location.
External factors of organizational structures come from
outside, outside the organization and the company can not
influence them. These include: institutional environment,
integration processes, market and application of scientific
achievements. The basic characteristics of listed factors are
their variability and flexibility over time, and their
intertwined, interdependent relationship and impact on
organizational structure.
Internal factors of organizational structure
This group includes all those factors contained in the
organization, as a commercial entity, within it, internally.
The organization can influence this group of factors. The
changes in any of these factors will inevitably lead to
changes in the organizational structure.
Objectives and strategy
3 Ibid,p.35
4 Stoner Dž.,Freman E.,Gilbert D., Management ,Želind, Belgrade,p.290
Each company is founded with a precisely defined mission,
which, by its existence wants to accomplish. Mission as
such describes the reasons why the organization was
founded, its common values and belief. Hence, the mission
of the company is what the company does, while the vision
may be defined as what the company could achieve if it
successfully achieves its mission. The vision presents a
picture of us- as a company- you would like to have in the
future. From the mission and vision, the strategic goals are
driven, as a desired state that a company wants to achieve
in future. Good formulated strategic goals should be: clear,
acceptable, flexible, and achievable and should encourage
the activity.
Objectives must be clear to all members of the
organization, in order to avoid confusion and inefficiency.
The only measurable goals are clear goals, because
without these characteristics we can never know at what
stage and in which percentage are the achieved. The
defined goals should have the exact time limit in which
must be realized, otherwise we risk their achievement, and
control. The degree for realization of the objectives will
depend on the degree of their acceptance by those that
determine their realisation. They must be accepted by all
employees, who simultaneously feel also responsible for
their implementation. Business of the organization is done
in conditions that are not given once for ever, but these
conditions are a flexible category, subject to constant
changes. In that way, the internal and external
environments influence the flexibility of defined objectives,
since it is just that adaptability the condition for realizing
padded goals in a dynamic internal and external
environment.
Defined goals must be realistic, be achievable in concrete
business conditions. Unrealistically high placed goals can
demoralize those who are tasked to implement them and
can give up from the same goals. On the other hand,
unrealistically low placed goals can omit the motivation of
managers and workers. The hierarchy is important for the
realization of goals, starting from the vision of what the
organization should be, through closer defined goals that
describe what is the organization's mission, up to the
concretely and detailed described goals. The strategic
goals belong to the higher rank which provides tactical ones
that are implemented by defining operational goals.The
placed goals are realized by using corresponding strategy,
which can be defined as planning decisions to which the
company's goals are determined and the way how they will
be implemented.By its nature, it has a formal character and
the product is a strategic planning one. It is in deed the
strategic plan of the enterprise. It is brought up for the
period which must not be less than a year, and usually is
brought up for the period of three to five years. The strategy
may refer to corporation as a whole, the business unit and
business function, therefore they also differ: developmental,
competitive and functional strategies.There are two basic
strategies which can be achievable in order to gain the
competitive advantage of enterprises: cost leadership and
differentiation. Cost leadership as a strategy is based on
the demand of the enterprise to produce its products at a
lower cost and thus be in front of its competitors. Here, it is
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expected from the enterprise to realize high productivity
and efficiency, thus having lower costs. Differentiation
strategy implies that the enterprise with its offered products
on the market is distinguished from its competitors. In this
case, the enterprise should be flexible, innovative (what is,
after all, the essence of differentiation). These two
strategies can be used on the entire market or only to a
certain segment, when the two original strategies are
known as focusing strategies. Based on the choice of
strategy, the appropriate organisational structure will be set
up, whose characteristics are given in the following table:
Table1. Characteristics of structures in the two competing strategies
Characteristics of structure Strategy of leadership in costs Differentiation strategy
Specialization High Medium to low
Decentralisation Low High
The number of hierarchical levels High Low
Span of control Low High
Grouping units Functional Market, team, Matrix
The use of lateral connections Low High
Interaction structure Low High
Formalization High Low
Coordination Process standardisation Interaction in the teams
Overall structure Mechanical Organic
Source: M.Petković, N.Janjićijević, B.Bogičević-Milikić, Organizaicja, Faculty of Economics, Belgrade, 2005.p.144
Technology as a factor of organisational structure
Defined goals and strategies we use to get them implemented, we can accomplish them by using appropriate technology. In
one word, technology is knowledge to have something done. The transformation of raw materials (inputs) into products and
services (outputs) is done with the help of technology. The Technology can be defined as a combination of relevant
knowledge, skills, and technical equipment and machinery necessary for people to transform raw materials into useful
products and services1.
Technology has experienced the most significant and greatest changes in recent years, which have influenced the way in
which technology as a factor affects the organizational structure. Technology is increasingly replacing the workers, leading
to changes in organizational structure. The expressiveness of working teams is apparent. Information technology has played
a key role in the lower levels of middle management presence which was a link in the operational level of communication
and top management. In this way, also the costs are greatly reduced, and a number of levels decreased. The differences
between traditional and modern technology are presented in the following table.
Table 2. Differences in the organizational structure of the traditional and modern technology
Traditional technology Modern technology
Specialisation High Low
Decentralisation Low High
The number of hierarchical levels Big Small
Grouping units Functional Production teams
Coordination Hierarchy control, standardisation of process Interaction
Overall structure Bureaucratic Organic
Resource: M.Petković, N.Janjićijević, B.Bogičević-Milikić, Organizacija, Faculty of Economics, Belgrade, 2005, page.137.
Size as a factor of organizational structure
The organizational structure is directly related to the size of organisation. It is quite clear that a young enterprise will not be
organized as a large developed enterprise. Increase of the organization size leads to an increase in work processes, and
therefore comes to the high specialization of labour as well as the standardization and formalization, and thus to increased
number of hierarchical level. On the other hand, it leads to increased span of control, subject to specialization and
standardisation. In this way, the organization becomes more bureaucratic, mechanic. The characteristics of small and large
enterprises are given in the following table.
Table 3. The relationship of organizational structure and the size of organization
Characteristics SMALL ORGANISATION LARGE ORGANISATION
Production Production in small quantities Scope Economy
Trade orientation Orientation on the local market
(regional)
Orientation on the world market
(globally)
Organisational structure Organic Structure Mechanical structure
Flexibility of the organisational
structure
Flexible organisational structure Inflexible organizational structure
1 Jones G. Organizational Theory,Design and Change,NY:Addison Wesley,2004.
240
Complexity of the organisational
structure
Simple organisational structure Complex organizational structure
Priorities in work A major role of the organization owner Teamwork, professional workers and
managers
Formalisation level Low level of the organization
formalization
The high level of formalization of the
organization
Centralisation level Centralized organization Decentralized organization
A priority for each organisation should be that along with
the advantages offered by large organizations, retain the
advantages of small organisation as well .This could be
achieved by organising parts of the enterprise into divisions
and strategic business unit.
Human resources (personnel) as a factor of
organizational structure
Each factor of organizational structure, in its way has the
same influence, but nevertheless, the human potential has
a crucial meaning, as the most important, crucial factor. It is
the most important factor in building a formal organizational
structure and whether the defined organizational structure
will be implemented and how much it will show success
depends from this factor. Broadness and the depth of the
hierarchical pyramid does influence on the employee
satisfaction in their work. The employees affect the
organizational structure through its composition and its
organizational culture, through their attitudes, values and
beliefs. Also, managers influence the effectiveness of
selected organizational culture, as they appear as the ones
who run specific businesses, but these are the persons who
mediate between one or more owners and workers and in
the end, they control the implementation. It is of crucial
importance that the creators of the organizational structure
take into account the knowledge and skills that the
employees of the company have.
As much as the professional background of employee is
favourable, the control is less needed, and thus the
autonomy and decentralization is larger. On the other side,
it leads to the complexity of the organizational structure,
which may be based on teamwork, with a high degree of
formalisation. From the employees’ satisfaction, the
awarding and rewarding system, motivation, much depends
whether the chosen organizational structure will be efficient,
because in the end, each structure is realized by the
people, employees. All other factors could be well
formulated, but still a key factor is the human one with its
organizational culture. The human potential with its
expertise, conditions the organizational structure.
Production program and the location as factors of
organizational structure
Each company can have one or more types of
production, which again depends on its size, mission, and
financial, material and technological possibilities.
Characteristics, type of products greatly influence the mode
of its production, and if the production will be organized as
a single, serial, mass. The following table shows the
relationship type of production and some characteristics of
the organizational structure.
Table 4. Relationship between the type of production and organizational structure
Type of
production
Formulisation and
standardisation
Technology
complexity
Production
costs
Flexibility Type of organisational
structure
Individual
production
Low Low High High Organic
Mass
Production
Medium Medium Medium Medium Bureaucratic(mechanic)
Processing
production
High High Low Low Organic
In this way the product appears as a factor that largely
determines how the enterprise will be arranged for its
production, the way in which the organizational structure
will be shaped. The product will affect the organizational
structure through its diversity, quantity, method of its
production, as well as the fact whether it is related to known
or unknown buyer.
The greater range of products is, the enterprise will use the
article/objective organizational structure, while in the
production of one or more similar products that require the
same technology, the functional organizational structure will
be used (which is the case in small enterprises).
The product can be designed to precisely defined, a single
buyer, but can be designed to an anonymous buyer, when
it comes to mass and processing production.
A wider range of products requires decentralized, flexible
organizational structure which would, as such, be able to be
effective, in which the organizational units have a high
degree of autonomy, since in that case it will have the
opportunity to make independent decisions, because the
reaction speed in modern business conditions is big. Only
in this case, the taken decision would have effect (due to
less reaction time). In this case the control is decentralised
as well, and therefore it is more effective and expedite. For
this kind of production the decentralized organizational
structure is immanent.
In contrast to the wide range production, with companies
that produce one or a group of similar products, there is a
high degree of specialization, so the centralized
organizational structure is present, characterized by
centralized decision making and centralized volition. Here,
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there is much less organizational levels, causing the
simpler communicate, and thus more efficient.
Location as a factor of organizational structure appears
immediately at the beginning of project documentation,
which defines location, location of the enterprise. The
success and the enterprise operation economy will depend
just from the location selection, because the location has a
direct impact on the cost of production, and consequently
the selling price, living standard and level of citizens’
employment. When it comes to location, above all, the
micro and macro location must be taken into consideration.
The choice of macro-location is very important for every
enterprise, because once chosen, it can hardly be changed.
As the word itself says, micro-location refers to the
operation location or internal parts of the company.
The choice of macro location is largely influenced by the
near transport links, proximity of the raw materials market
and labour force, as well as the customer market. The
importance of the good choice of macro location is reflected
in the fact that, wrongly or badly chosen macro location, it
will permanently, and throughout entire life of the company,
have a negative impact on the business performance of the
company. The importance of its definition lies in the fact
that it permanently affects the organizational structure of
the company (as much as the company’s location is less
favourable compared to the sources of the labour force
and urban centres, as much as the supporting
infrastructure is less favourable, the sensitivity of the
company on weaknesses is larger). In such located
companies, it is much more difficult to retain staff, who will
seek companies with better location. This, on the other
hand, leads to a certain degree of instability and uncertainty
of company’s business performance, which will affect also
the changes in the organizational structure of the company
(when the key people are leaving it, managers, who are
mainly responsible for the successful operation of the
company). When talking about the location impact on the
personnel employment, proper professional structure, it can
be said that as far as the company is far from the city
centres and as much as the infrastructure is unfavourable,
the respective company becomes less attractive.
Contrariwise to such companies, companies that are
located in urban centres have much favourable professional
staff structure. In such companies, there is a large
percentage of the labour force with different specialties,
causing higher specialisation of the organisational units, so
the organisational structure is differential.
Companies that need, based on the nature of the work they
do, to dislocate, relocate or start building operations in
several locations, will have a different organizational
structure (i.e. they will have the territorial organizational
structure), compared to the company which business is
concentrated in one place/location, were it will be a greater
degree of centralization of decision making process,
control, and much simpler communication. Modern
multinational companies, whose business performance is
conducted in several countries, can for example have a
virtual organizational structure.
Conclusion
The aim of this study was to point out which are those
internal factors that influence the organizational structure of
a company. The defend objectives of the company,
influence the organizational structure by its reality, set time
period, clarity. The motivation of workers and managers is
very important for their achievement. The objectives are
realised by implementing appropriate strategy. Leadership
strategy in costs will evoke high number of levels, with high
specialization and formalization, but under low
decentralization and low span of control, and all of it
conditions the use of the mechanical organizational
structure. The differentiation strategy, on the other hand
conditions the use of organic organizational structure, with
a low degree of formalization and small number of
hierarchical levels based on team grouping. The technology
type also affects the organizational structures. The
traditional technology conditions the bureaucratic
organizational structure with high specialization and a large
number of hierarchical levels, and modern organic
organizational structure with a low degree of specialization,
high decentralization and a small number of levels. By size,
small organizations will in general have a flexible organic
structure, with a low level of formalization and a high level
of centralization, while the large company will have a
mechanical, inflexible organizational structure with a high
degree of decentralization. Human potential, through its
professionalism, education and organizational culture, will
influence the organizational structure. Highly professional
managers will know to establish the most optimal structure
on the right time. The lack of such personnel will greatly
hamper the definition and implementation of the real
structure, leading to greater decision-making centralisation
and control, lower degree of specialization and flexibility.
Production program will affect the organisational structure
with its assortment. The wider program will lead to greater
decentralization of decision-making process and control, as
well as higher level of flexibility. Opposite effects will cause
a narrower products’ assortment, which requires a high
degree of specialization, and centralized organizational
structure. If a firm has its organizational units in multiple
locations, a decentralized organizational structure will
prevail, with same way of decision making and control, but
the communication is more complex. It in the interest of
each company, by influencing the internal factors of
organizational structure, influence the creation and
definition of most optimal organizational structure, since in
this way, it will realize the tasks and goals with minimum
costs.
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