In theory, the design of your purchasing department or any other part of your organization should be the one that best serves the needs of its customers, shareholders, employees and community.
For the most part, it should be structured so that the workers can best accomplish all the goals of the organization, using the lowest consumption of resources (including time).
In reality, the organizational design of most organizations has little rational basis. Generally, the design – if it can be so called -will have come about haphazardly over a period of years.
Even when an actual plan has been followed, all too often little rhyme or reason underlies it. To optimize performance the organizational design must be brought into at least general conformity with the plans and operations of the organization.
While such structure change is a long-term project, it is one that should never be ignored for without proper attention to it there is a serious risk of wastage of resources.
The critical questions to address in deciding upon organizational design are the following:
- What is the function of each job. How does it relate directly to the business and affairs of the organization?
- Is there any overlap of responsibility (and redundancy)?
- Are there conflicting responsibilities?
- Can the process of the organization be improved; if so how?
- Why is it necessary to exercise control over each particular aspect of organizational operations?
- Where should the control reside?
- How is that control best maintained (e.g. by the direct exercise of authority or by supervision)?
- How does one best integrate the operations of the organization?
- How does one best respond to problems facing the organization?
- How do information and decisions flow within the organization?
- How easy is it to marshal and divert the resources of the organization to deal with critical need?
- What aspect of the organization compromises its flexibility?
Traditionally, most organizations have employed a hierarchical form of organization, if for no other reason than that it serves well as a control mechanism.
The use of a hierarchy means there is one person at the top and successive levels of more junior managers ranging out below, each reporting to the layer above.
In principle, the chain of command goes from the top down, reporting and command will be reinforced by rules and regulations. The overall organization will be sub-divided into compartmentalized departments, generally organized by function.
Communication among departments is minimal and the typical career move will be upwards within a defined function area. Much has been written as to the advisability of the type of approach.
Sociologist Max Weber argued bureaucracy serves specialization of function, and thus enhances organizational performance. This is certainly a theoretical possibility, but it is far from a universally true proposition.
As often as not, the growth of bureaucracy is a reflection of an underlying principle-agent problem of any organization. Specifically, the creation of a network of subordinates increases the appearance of importance of the supervising manager’s position.
The more subordinates who are given a nominal managerial title, the more effective the appearance of the supervisor’s importance. Since that appearance will influence the manager’s remuneration, the manager has an incentive to build an empire.
Worst yet, each supervisory level above that manager has an incentive to join in the plot because by so doing each successive supervisor also enhances the prestige of his or her position.
Problems of this sort are encountered from time to time in private business. However, they are most frequently encountered in government administration, where frequent shifts of policy and competing (and often unclear) objectives create the ideal environment in which they can thrive.
In the words of Donald Rumsfeld, “Reduce the layers of management. They put distance between the top of an organization and the customers.”
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