Organization is always an efficient way to achieve the goals since ancient time, high productivity with lowest input which is an important characteristic of it. Well-organized is a common ambition for every administrator. Therefore it is a primary task for managers to find out a most suitable structure for the company which can maximize the organization performance. Currently, many researchers are seeking for the relationships between an organizational structure and performance in order to adopt a best structure. However, base on contingency theory, a large number of researches proves that the optimal organizational structure depends on the strategy and among other factors (Pertusa-Ortega et al, 2010). The purpose of this essay is to explain that organizational structures are variable, which can be influenced by the scale, strategy and the operation technology of the business.
Firstly, the size of a business is an important factor which could determine how an organization is structured; there are many different ways to manage a company according to the disparate capacity, number of personnel, and output of the business. Base on the studies from the Aston and National, both of them support this argument by finding there is a strong relationship between the size of the company and its structure variables (Cited in John Child, 1973). Thus, different structures are needed to administrate companies with different size. According to John Child (1973), specialization, documentation, standardized behavior, hierarchy, and a decentralization of decision making, are the core characteristics of the large companies, which could support the companies to make a decision accurately and efficiently as the power of decision-making are dispersive, the employers in big companies such as Telstra, Woolworth, could not supervise every employees simultaneously and could not make every decision for the company either.
Therefore, tall structure is accepted widely in large businesses as everyone could be supervised. However, small business like local cafeteria and franchisee of McDonald, are more likely to use a flat structure to achieve well-organized, the employers could make every decision for the business as the centralization of making decisions and could supervise every workers as well due to a small number of employees. However, the correlation between two companies with disparate size are not linear, when the business has grown and achieved a certain size, the influence from size to structure is gradually reduced as large businesses are already mechanistic enough. Thus, size has a noticeable influence on the organizational structure; managers should determine an optimal framework which most fit the company to increase the efficiency and effectiveness of the outcomes.
Furthermore, strategy of the company is an essential factor for choosing an appropriate way to structure an organization. Strategic management which relates the future performance of a company, mangers should imply an appropriate strategy to gain the competitive advantages, to help themselves to compete against other competitors and to increase their market share. Different companies need different strategies to survive themselves to be profitable businesses. Chandler and other researchers state that the alteration of a strategy will leads to a change in organizational structure so that the development of strategy could be sufficient and a better profitability reached (Cited in Pertusa-Ortega et al, 2010).
For example, for a manufacture, its strategy is to improve productivity with lower resource, therefore the structure of mechanistic is most suitable, which is high specialization, low cost and more efficiency, products can be produced with minimum time when this structure is implie. In contract, Pertusa-Ortega and other researchers claim that an organic structure is an optimal choice for firms which facing the dynamic context, thus, it needs to constantly change the productions and this flexible structure could make it easier to improve the products (2010), such as Google.
The Cubic Contingency Model which consists of three strategies: local responsiveness, global integration and foreign product diversification and across other nine structures, 27 strategy-structure fits are turned out. This model is a comprehensive tool to provide useful information to managers to imply the best fitting structure base on their strategic choice (Qiu & Donaldson, 2010). Approximately 85% of these strategy-structure fits are supported by a German Multinational Corporations study, which could prove that strategy is an element to push structure to change to improve the performance.
Additionally, economic environment has a strong relationship to the variables of organizational structure. The research to measure the relation between the perceived environmental uncertainty and the various organizational structures by Gordon and Narayanan (1984), they claims that the fluctuation of the economic environment has a dramatically correlation between how an organization be structured. When there is a high uncertain of environment, managers should imply a structure which could minimize the threatens of the uncertainty, and also should be flexible and adoptive enough to allow the products to change as required by the market, organic structure which is a most fitting framework for business to face the unstable environment as it could rapidly respond to the market uncertainty, it could reduce or increase the quantity of the products in a short time.
On the other hand, when facing a lower environment uncertainty, mechanistic form is more tend to be effective and efficient, because the requirements of changing the products are less, this structure could help to improve the productivity. Stinchcombe suggests that environmental conditions are not only determine the particular goods or service that company should produced, moreover, it also determine the features of organization should be created to follow the market requirements (cited in Miles et al, 1974). Organizational structure should change in accordance with the various environments, so that the companies can produce the quantity and quality of the goods or services that the market required.
In conclusion, this essay explains that organizational structure is contingent and it is very sensitive that could be affected by size, environment, and strategy. Forms of organization should be altered to improve performance and meet the requirements of external. Managers should choose an appreciate way to administrate the company by considering these elements. However, it is a challenge for decision makers to design an organization; managers should make sure that the new structure is sustainable and the employees are well-connected with each other.
Child, J. (1973). Administrative Science Quarterly. Predicting and understanding of organization structure. Vol.18(2): 168-185.
Pertusa-Ortega, E.M., Molian-Azorin, J.F,;Claver-Cortes,E.(2010). Competitive strategy, structure and firm performance. A comparison of the resource
–based view and the contingency approach. Management Decision. Vol.48(7-8):1282-1303.
Qiu,J. & Donaldson, L. (2010). “The Cubic Contingency Model: Towards a more comprehensive international strategy-structure model.” Journal of General Management, 36(1): 81-100.
Miles, R.E., Sown, C.C. and Pfeffer, F. (1974), Organizational –Environment: Concepts and issues. Industrial relations, Vol.13(3):244-264.
Gordon, L.A. and Narayanan, V.K. (1984), management accounting systems, perceived environmental uncertainty and organizational structure: an empirical investigation, Accounting, Organizational and Society. Vol.9, No.1, pp33-47.