Definition of Organizational structure
The typically hierarchical arrangement of lines of authority, communications, rights and duties of an organization. Organizational structure determines how the roles, power and responsibilities are assigned, controlled, and coordinated, and how information flows between the different levels of management. A structure depends on the organization's objectives and strategy. In a centralized structure, the top layer of management has most of the decision-making power and has tight control over departments and divisions. In a decentralized structure, the decision-making power is distributed and the departments and divisions may have different degrees of independence. A company such as Proctor & Gamble that sells multiple products may organize their structure so that groups are divided according to each product and depending on geographical area as well. An organizational chart illustrates the organizational structure.
When should you develop a structure for your organization?
It is important to deal with structure early in the organization's development. Structural development can occur in proportion to other work the organization is doing, so that it does not crowd out that work. And it can occur in parallel with, at the same time as, your organization's growing accomplishments, so they take place in tandem, side by side. This means that you should think about structure from the beginning of your organization's life. As your group grows and changes, so should you’re be thinking on the group's structure.
Why should you develop a structure for your organization?
- Structure gives members clear guidelines for how to proceed. A clearly-established structure gives the group a means to maintain order and resolve disagreements.
- Structure binds members together. It gives meaning and identity to the people who join the group, as well as to the group itself.
- Structure in any organization is inevitable - an organization, by definition, implies a structure. Your group is going to have some structure whether it chooses to or not. It might as well be the structure which best matches up with what kind of organization you have, what kind of people are in it, and what you see yourself doing.
Four Basic Elements of Organizational Structure
- Functional Structure - People who do similar tasks, have similar skills and/or jobs in an organization are grouped into a functional structure. The advantages of this kind of structure include quick decision making because the group members are able to communicate easily with each other. People in functional structures can learn from each other easier because they already possess similar skill sets and interests.
- Divisional Structure - In a divisional structure, the company will coordinate inter-group relationships to create a work team that can readily meet the needs of a certain customer or group of customers. The division of labor in this kind of structure will ensure greater output of varieties of similar products. An example of a divisional structure is geographical, where divisions are set up in regions to work with each other to produce similar products that meet the needs of the individual regions.
- Matrix Structure - Matrix structures are more complex in that they group people in two different ways: by the function they perform and by the product team they are working with. In a matrix structure the team members are given more autonomy and expected to take more responsibility for their work. This increases the productivity of the team, fosters greater innovation and creativity, and allows managers to cooperatively solve decision-making problems through group interaction.
- Project Organization Structure - In a project-organizational structure, the teams are put together based on the number of members needed to produce the product or complete the project. The numbers of significantly different kinds of tasks are taken into account when structuring a project in this manner, assuring that the right members are chosen to participate in the project.
Organizational Structure Types
Following are the types of organizational structures that can be observed in the modern business organizations.
1. Bureaucratic Structures
Bureaucratic structures maintain strict hierarchies when it comes to people management. There are three types of bureaucratic structures:
- Pre-bureaucratic structures - This type of organizations lacks the standards. Usually, this type of structure can be observed in small scale, start-up companies. Usually, the structure is centralized and there is only one key decision maker. The communication is done in one-on-one conversations. This type of structures is quite helpful for small organizations due to the fact that the founder has the full control over all the decisions and operations.
- Bureaucratic structures - These structures have a certain degree of standardization. When the organizations grow complex and large, bureaucratic structures are required for management. These structures are quite suitable for tall organizations.
- Post-bureaucratic Structures - The organizations that follow post-bureaucratic structures still inherit the strict hierarchies, but open to more modern ideas and methodologies. They follow techniques such as total quality management (TQM), culture management, etc.
2. Functional Structure
The organization is divided into segments based on the functions when managing. This allows the organization to enhance the efficiencies of these functional groups. As an example, take a software company. Software engineers will only staff the entire software development department. This way, management of this functional group becomes easy and effective. Functional structures appear to be successful in large organization that produces high volumes of products at low costs. The low cost can be achieved by such companies due to the efficiencies within functional groups. In addition to such advantages, there can be disadvantage from an organizational perspective if the communication between the functional groups is not effective. In this case, organization may find it difficult to achieve some organizational objectives at the end.
3. Divisional Structure
These types of organizations divide the functional areas of the organization to divisions. Each division is equipped with its own resources in order to function independently. There can be many bases to define divisions. Divisions can be defined based on the geographical basis, products/services basis, or any other measurement. As an example, take a company such as General Electric’s. It can have microwave division, turbine division, etc., and these divisions have their own marketing teams, finance teams, etc. In that sense, each division can be considered as a micro-company with the main organization.
4. Matrix Structure
When it comes to matrix structure, the organization places the employees based on the function and the product. The matrix structure gives the best of the both worlds of functional and divisional structures. In this type of an organization, the company uses teams to complete tasks. The teams are formed based on the functions they belong to (ex: software engineers) and product they are involved in (ex: Project A). This way, there are many teams in this organization such as software engineers of project A, software engineers of project B, QA engineers of project A, etc.
Advantages of organization structure
- More easily control over the resources because with it resources can be rationed and allocated to different units to use them to their most productive uses at micro level.
- Clearly defined reporting lines make it easy for employees to know to whom to report.
- Reduce redundancies by eliminating extra and unproductive processes.
- Stream line processes by giving it more focus and adoptive nature.
- It helps to reduce costs because the controlling of various cost control centers is controlled at micro level.
- It gives focus and direction to an organization.
Conclusion
Every organization needs a structure in order to operate systematically. The organizational structures can be used by any organization if the structure fits into the nature and the maturity of the organization. In most cases, organizations evolve through structures when they progress through and enhance their processes and manpower. One company may start as a pre-bureaucratic company and may evolve up to a matrix organization.
FAQ’s
What is organizational structure?
By structure, we mean the framework around which the group is organized, the underpinnings which keep the coalition functioning. It's the operating manual that tells members how the organization is put together and how it works. More specifically, structure describes how members are accepted, how leadership is chosen, and how decisions are made.
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