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Organizational StructureResearch Paper

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Organizational structure refers to the hierarchy within an organization, including the divisional/department structure, and the chains of command and communication that define how resources are allocated. The structure is the framework for implementing strategy, so the structure can be very important in the context of strategic management, to the point where sometimes the structure needs to be changed just to allow for a specific strategy to be implemented (Friend, 2014).

This paper will examine the role of organizational structure in the context of the strategic management of healthcare organizations. Healthcare is a unique industry in some respects, especially where an organization operates as a not-for-profit entity, in that the strategic objectives are not strictly profit-oriented. So it is important to not only understand what organizational structure is but how it works in the healthcare context. This paper will examine the role that structure plays in implementing strategy, and what the building blocks of structure are, taking a look at recent literature on the subject.

Organizational Structure and Implementing Strategy

An organization's structure is what allows it to conduct business. Different structures align the resources and reporting responsibilities in different ways. Many healthcare organizations will operate a divisional structure, either based on specialties, or based on different facilities. More centralized structures concentrate decision-making power, while decentralized structures allow for more decisions to be made at the divisional level. There are pros and cons to differing degrees to autonomy in an organization.

There is no consensus among U.S. healthcare organizations as to the optimal organizational structure. Hyde and Shortell (2012) found that 28% of firms had a centralized power structure, 37% had decentralized structures and 35% had some combined form. A combined form would be where some decisions would be made at a centralized level while others are decentralized, an example being having a centralized policy and department with respect to malpractice suits or capital expenditures, but otherwise allowing for decentralized decision-making on operations.

Because organizational structure reflects some of the decision-making within the organization, it is important to understand that it plays a critical role in both strategy formulation and implementation. The level of centralization in gathering information is not necessary a big deal, but the level of centralization in decision-making usually is. Strategy formulation can be done at different levels, but for formulation to be effective, it needs to be informed by a high level of working knowledge, yet it also needs to legitimately reflect the overarching needs of the organization. In addition, strategy requires buy-in from the divisions, so there is risk in having decision-making be too centralized within an organization. Centralized decision-making, however, allows for greater efficiency in the allocation of organizational resources, as centralized authorities are in a better position than divisional authorities to understand the opportunity costs of the decisions at hand.

With respect to implementation, the organizational structure will affect the degree of buy-in, which is a critical component of implementation, but it will also affect the degree to which senior management lends its support. When decisions are made centrally, senior management may potentially lend more support to these decisions. There is also greater risk, however, that communication will be challenged by centralized decision-making. The decision-maker still must rely on divisional leaders to guide the implementation process, and this is not likely to be as effective when said leaders have had minimal input into the strategy (Chaudoir, Dugan & Barr, 2013). This may explain the increasing popularity of hybrid decision-making structures within the organization.

Research has shown that organizational structure can have an impact on health care outcomes. For example, Frankel and Moss (2014) found that organizations with a higher degree of decentralization were able to deliver superior mortality outcomes in emergency, a result of the workers with immediate knowledge of a situation being empowered to make the right decisions with respect to patient care. Where this level of empowerment does not exist, decision-making is slower, which can have a different operationally in time-critical situations.

Building Blocks

There are several building blocks of organizational structure. The organizational hierarchy, or reporting relationships, are an essential building block of structure. The organizational chart shows these relationships, and decision-making flows through this chain of command. Who decides what, when and where are critical factors in determining the caliber of decision-making within the organization.

Other structural elements are divisions within the company. Divisions will often define communication and most certainly are correlated with reporting relationships. In some companies, the divisional structure is geography-based, at other times by functional division. Often, individual physical facilities with have their own management structure. A division is more often than not a psychological barrier within an organization, limiting the communication between the division and its peers. The organization can overcome this, but there is little doubt that the division remains a central building block of organizational culture (Lacoma, 2014). In addition to divisions, there are temporary structures within organizations that alter the structure. These would include multi-disciplinary teams that serve as a bridge between divisions and may operate outside the auspices of their constituent divisions.

Communication architecture is another building block of organizational structure. Structure determines to a large extent how information moves throughout an organization, but information can move beyond normal structural boundaries when the architecture allows this. In the information age, information flows fairly freely, at least in theory, within organizations. Who communicates with whom in the organization remains influenced by the structure, and by reporting relationships, but the fact that information can allow for knowledge transfer throughout the organization around and through the normal channels makes it a powerful element of the organizational structure (Matthews & Thakkar, 2012).

Advantages/Disadvantages

The different building blocks cannot, by definition, have advantages and disadvantages. They exist, and are integral to all organizations. What they do have, are characteristics. For example, divisions within organization will typically consist of a power structure and a set of resources. The degree of autonomy that each division has will different between different companies. A structure that emphasizes the division - that is to say a decentralized structure -- allows for faster decision-making, and the decision-makers, being closer to the situation, should have a higher level of knowledge. There is also likely to be a higher level of managerial buy-in, because these are the same people who set the strategy in the first place. Yet a disadvantage of decentralized decision-making is that the effects of division-level strategy on the organization as a whole may not be taken into account. Conversely, a centralized structure allows management to set strategy based on an overarching division, therefore allowing for more efficient allocation of resources within the company. But a centralized structure also creates a barrier in terms of structure and information between those with the highest knowledge level and those who are actually making the decisions. Further, this same barrier exists between the decision-maker and the people most responsible for the implementation of strategy.

Communication as a building block is valuable because of the importance of knowledge transfer within an organization. When the organization has a higher level of information flow, this can make it more difficult for management to exert command, thereby challenging the ability of the organization to implement strategy. However, better information flows should also be correlated with better decision-making. It is logical, however, that organizations with higher information flow should have a more decentralized decision-making structure.

The use of temporary structures with an organization is not mandatory. Thus, there are specific advantages and disadvantages to this building block, because the existence of temporary teams is discretionary. A temporary team allows for more direct communication between units, and can create a unit that is free from managerial oversight. It can also, however, create a unit that has a high level of managerial oversight.

Conclusions

Organizational structure is a critical element to the strategic management of health care organizations. The way that an organization is structured will determine the flows of information within the organization, and the pathway by which decisions are made and strategies implemented. Therefore, it is important for the organization to be structured in a manner that is closely aligned with the organization's strategic objectives. For example, a healthcare facility that competes as an innovation leader should have a structure that is decentralized, with freer flow of information throughout. An organization that seeks to have transaction excellence, such as performing a large number of procedures with a high degree of accuracy, may prefer a more centralized command structure that allows management to ensure efficient resource allocation to keep costs down and minimize risk.

References

Chaudoir, S., Dugan, A. & Barr, C. (2013). Measuring factors affecting implementation of health innovations: a systematic review of structural, organizational, provider, patient, and innovation level measures. Implementation Science. Vol. 8 (1) 22-42.

Frankel, S. & Moss, M. (2014). The Effect of Organizational Structure and Processes of Care on ICU Mortality as Revealed by the United States Critical Illness and Injury Trials Group Critical Illness Outcomes Study. Critical Care Medicine. Vol. 42 (2)… [END OF PREVIEW]

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