Organizational structure plays crucial role in a number of organizational decisions and activities. As Daft suggests, the definition of organizational structure has three components:
- The organizational structure designates the formal reporting relationships. It prescribes the levels of hierarchy that the organization would have and the span of control for each level.
- The organizational structure prescribes the grouping of organizational members into departments and departments into an organization.
- The organizational structure identifies the systems for coordination, communication and integration of efforts made by organizational members across the organization.
Thus, the organizational structure lays out the whole foundation of the organization. Organizational structure identifies how many divisions will work there in the organization and who will report to whom. It also identifies the systems through which the work of various divisions will be coordinated to accomplish the common organizational objective. (Daft, 2010)
Organizational structure is important to study ethics
Though the primary objective of any business is profit-maximization but making profits only adds to a business’ financial resources. The profits earned unethically would lead the business nowhere in today’s scenario. The customers are aware today and the laws are strict. If the business is found to be engaged in unethical behavior of any sorts, it can ruin its goodwill forever. Various experts have provided that the organizational structure of a firm has lot of influence on the ethical behavior shown by the firm. As Ferrell has said, “An organization’s structure is important to the study of business ethics because the various roles and job descriptions that comprise that structure may create opportunities for unethical behavior.”
Advantage and disadvantage of organizational structure
Though there are many kinds of organizational structures, broadly there are centralized and decentralized organizational structures. Both these have their own advantages and disadvantages to business ethics. Centralized organizations are characterized by concentration of power at the top and there is little scope for delegation of authority. Such structures are said to promote unethical behavior in the organization because there is no interaction between the decision makers at the top and the employees at the lowest level of organization. Also, there is hardly any upward communication due to which the people at the top never come to know of unethical activities going on at lower levels. Such a structure also promotes blame shifting as employees may try to transfer the blame for their wrong actions on others (Ferrell et al, 2008).
Decentralized organization structure focuses on delegation of authority and individual responsibility. Such structure also promotes unethical behavior among organizational members because there are independent profit centers which make their own decisions and sometimes these units deviate from organizational objectives and serve their individual interests. Decentralized structures run on employee empowerment but if the employees misinterpret their power; this may lead to immoral acts by employees. There are also chances that middle-level managers when get pressure from the top may exert unnecessary pressure on lower level employees and this may again lead to unethical behavior in the organization. (Weiss, 2009)
- Daft, R.L. 10th Edition. (2010). Organization Theory and Design. South-Western CENGAGE Learning.
- Weiss, J.W. (2009). Business Ethics: A Stakeholder & Issues Management Approach. South-Western CENGAGE Learning.
- Ferrell, O.C., Ferrell, L. & Fraedrich, J. 8th Edition. (2008). Business Ethics: Ethical Decision Making and Cases. South-Western CENGAGE Learning.