Organizational Structure



Organizational Structure

In simplest terms, an organization is the grouping together of individuals in order to accomplish a given task. Once the demands of completing the task are such that the work must be divided between two or more groups (subgroups/units), interdependence between groups is created. Once interdependence is created, coordination is needed to see that the tasks of different groups are completed in manner consistent with organizational goals. Structure can be described as the way in which the organization: divides its labor into distinct task; and then achieves coordination among them (Mintzberg, 1979).

An organizational structure is a formal framework by which job tasks are divided, grouped and coordinated (Robbins & Coulter, 2007). When managers change or develop the organization structure they are involved in organizational design. This process involves six key elements: work specialization, departmentalization, chain of command, span of control, centralization and decentralization, and formalization. The right organizational structure would allow their employees to accomplish organizational goals effectively and efficiently.

The environment in which an organization operates holds significant bearing on its structure. Keep in mind that organizational structure only provides a fundamental framework. Consequently, organizational structure cannot guarantee the achievement of corporate objectives. However, it is essential to understand that a poorly structured organization could seriously hinder the achievement of the set goals of that organization (Badawy, 1995, p.108). As firms face a changing and competitive environment, organization design is of critical importance. A firm cannot ignore the need to make adjustments/changes in organization if it hopes to survive and grow. These changes generally mean a redesign of an existing organization.

Objective

This paper is based on the simple idea that formal organizations with bureaucratic organizational structure may benefit by adopting a more flexible organizational structure.

The organization to be examined is Caterpillar Inc., the world's largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. It is a U.S. based competitor with more than $30 billion in assets. Ranking 50 of Fortune 500 this year, Caterpillar recently reported revenues exceeding 44.9 billion dollars (CNN Money, 2008). The company has a workforce of over 90,000 people worldwide. Though Caterpillar has traditionally been considered a cyclical business, it maintains strong revenue and profit growth despite a major downturn in the US construction industry.

Background

After enjoying a fifty-year period of uninterrupted profits and market leadership since 1930, Caterpillar was caught off guard by an unanticipated surge of competition. The company was hit hard by the recession in 1982 and posted the first annual loss in half a century (Answers.com). In a highly turbulent and competitive marketplace, Caterpillar found itself lagging behind its competitors in the cost of doing business and in speed to market. The worldwide recession of the early 1980s forced Caterpillar to look at long-term changes to lessen the adverse impact of future economic downturns. It needed a significant redesign and culture change in order to compete on price, speed and customer satisfaction. In 1990, Caterpillar reorganized into business units with each accountable for its own ...