"Every company has two organizational structures: The formal one is written on the charts; the other is the everyday relationship of the men and women in the organization." - Harold S. Geneen
Every organization, to be effective, must have a structure. Let us first understand what an organization structure is. It is the setup that determines the hierarchy and reporting structure in an organization.
It is represented by a drawing known as an organizational chart. There are different types of organizational structures that companies follow, depending on a variety of factors like leadership style, type of organization, geographical regions, work flow and hierarchy.
To put it simply, an organizational structure is the plan of the hierarchy and arrangement of work. Here is a list of the different types of organizational structures.
These structures are based on functional division and departments. They are the kind of structures that follow the organization's rules and procedures to the T. They are characterized by having precise authority lines for all levels in the management. The various types of structures that fall under traditional structures are:
This is the kind of structure that has a specific line of command. The approvals and orders in this kind of structure come from top to bottom in a line. Hence it is known as a line structure. This kind of structure is suitable for smaller organizations like small accounting firms and law offices. This structure allows easy decision-making and is informal in nature.
✔ It is the simplest kind of organizational structure.
✔ Strict authority results in a stronger discipline.
✔ Prompt decisions result in quick and effective actions.
✔ There is clarity in the structures of authority and responsibility.
✔ As the control rests with one superior, it accords him the flexibility to adjust the department.
✔ There are good career advancement prospects for individuals who deliver quality work.
✗ There are chances of the department head being biased.
✗ Lack of specialization is a persistent problem.
✗ The department head may be burdened with lots of work.
✗ Communication only happens from top to bottom.
✗ Superiors with authority can misuse it for their benefit.
✗ Decisions are taken by a single person and can go wrong.
Line and Staff Structure
Though a line structure is suitable for most organizations, especially the small ones, it is not effective for larger companies. This is where the line and staff organizational structure comes into play. Line and staff structure combines the line structure where information and approvals come from top to bottom, with staff departments for support and specialization. Line and staff organizational structures are more centralized. Managers of line and staff have authority over their subordinates, but staff managers have no authority over line managers and their subordinates. The decision-making process becomes slower in this type of organizational structure because of several layers and guidelines. Also, there is formality involved.
✔ It enables the employees to perform at a faster rate.
✔ It helps employees to accept responsible jobs and specialize in a particular area.
✔ It helps line managers to concentrate on the task at hand.
✔ Little or no resistance is met when organizational changes take place.
✔ It results in less operational wastage and increases productivity.
✔ Employees feel that they are given the due credit for their contribution.
✗ Confusion may be created among employees.
✗ Employees lack operational knowledge to give result-oriented suggestions.
✗ There are too many levels of hierarchy.
✗ Employees may have differences of opinions and this may slow down the work.
✗ As staff specialists exist, it is costlier than a simple line organization.
✗ Decision-making may be time-consuming.
This kind of organizational structure classifies people according to the function they perform in their professional life or according to the functions performed by them in the organization. The organization chart for a functional organization consists of a Vice President, a Sales Department, a Customer Service Department, an Engineering or Production Department, an Accounting Department, an Administration Department, etc.
✔ It has high degrees of specialization.
✔ It has clear lines of authority.
✔ It facilitates easy accountability for the work.
✔ It accords a high level of speed and efficiency.
✔ The need for duplication of work is eliminated.
✔ All the functions command equal importance.
✗ Communication has several barriers which makes coordination difficult.
✗ More focus is laid on individuals rather than the organization.
✗ The decisions taken by a single person may not always work in favor of the organization.
✗ As the organization expands, it gets difficult to exercise control on its operations.
✗ There may be lack of teamwork between different departments or units.
✗ As all the functions are separated, employees may not gain knowledge about other specializations.
These are the kinds of structures that are based on different divisions in the organization. They group together employees based on the products, markets and geographical locations covered. Here is a detailed description of a divisional structure.
A product structure is based on organizing employees and work on the basis of the different products. If the company produces three different products, they will have three different divisions for these products. This type of structure can be best utilized for retail stores with a number of products.
✔ Units which are not working can be closed down easily.
✔ Each unit can be operated and treated as a separate profit center.
✔ It accords rapid and easy decision-making.
✔ It also gives a lot of independence to the decision makers.
✔ Individual products get separate attention as per the problems they face.
✔ It enables the organization to have a high productivity and efficiency quotient.
✗ As each unit operates on its own, organizational goals may not be achieved.
✗ Unhealthy competition may exist among internal business units.
✗ As it has too many managerial levels, it may hamper the business.
✗ Accounting work and taxes may increase considerably.
✗ All the units may not be considered as equal.
✗ Marketing individual products may add up to the cost significantly.
Market structure is used to group employees on the basis of the specific market the company sells in. A company could have five different markets they use and according to this structure, each would be a separate division.
✔ Employees can communicate with customers in the local language.
✔ They are available for the customers, if need is felt.
✔ The problems in a particular market can be isolated and dealt with separately.
✔ As individuals are responsible for a particular market, tasks are completed on time.
✔ Employees are specialized in catering to a particular market.
✔ New products for niche markets can be introduced.
✗ There can be intense competition among the employees.
✗ Decision-making can cause conflicts.
✗ It is difficult to determine the productivity and efficiency.
✗ All the markets may not be considered as equal.
✗ There may be lack of communication between the superiors and the employees.
✗ Employees may misuse their authority.
Large organizations have offices at different places, for example, there could be a north zone, south zone, west zone and east zone. The organizational structure, in such a case, follows a zonal structure.
✔ There is better communication among the employees at the same location.
✔ Locals are familiar with the local business environment and can cater to geographical and cultural differences.
✔ Customers feel a better connection with local managers who can speak their language.
✔ A record of the work of individual markets and groups can be maintained.
✔ Decisions are taken thoughtfully and work when implemented.
✔ New products or product modifications catering to a specific area can be introduced.
✗ It may give rise to a feeling of division among the employees of the organization.
✗ There may be unhealthy competition among different zones.
✗ Core company ethics, beliefs and practices may differ from location to location.
✗ Tracing the performance and profits of each region may be time-consuming and tedious.
✗ There may be poor communication among the employees at different locations.
✗ Collaboration and cooperation between employees at different locations may not work out.
This structure is a combination of function and product structures. It combines the best of both worlds to make an efficient organizational structure. This structure is the most complex structure. It uses teams of employees to accomplish work by capitalizing on their strengths while creating weaknesses which are of functional form. The different types of matrix structures are:
In this type of matrix structure, a project manager is assigned to look over the cross-functional aspects of the project. However, he has a very limited authority and it is the functional manager who actually controls the inventory, resources and the project.
✔ Employees are not attached to temporary staff or temporary work.
✔ The functional manager controls the project.
✔ The functional manager is responsible in case anything goes wrong.
✔ The more the project manager communicates with the employees, the better are the results.
✔ The project manager can make things happen without being in control.
✔ The decision-making rests in the hands of the functional manager.
✗ The project manager may face strong apathy from his workers.
✗ The project manager does not have complete authority.
✗ If not supervised, workers can reduce the productivity of the entire unit.
✗ The project manager is a weak authority who has no control over the employees.
✗ He has no control over workload management and task prioritization.
✗ He cannot even give a performance review.
There are two more structures namely balanced/functional matrix and strong/project matrix. In the balanced/functional matrix, the responsibility and power is shared equally by both the project manager and the functional head. This may create a power struggle between them. In the strong/project matrix, the project manager is primarily responsible for the work while the functional head gives technical advice and allocates resources.
This kind of structure can be seen in tall organizations where tasks, processes and procedures are all standardized. This type of structure is suitable for huge enterprises that involve complex operations and require smooth administration of the same. It is highly recommended for industries like food, beverage, etc. as they have to adhere to stringent rules and regulations.
✔ As the complete control rests in the hands of one person, it is easy to achieve organizational goals.
✔ Strict hierarchies ensure timely completion of tasks and quality.
✔ It helps in easy cooperation and coordination among the employees.
✔ Standardization and the best practices can be implemented easily.
✔ Employees have to adhere to policies and procedures.
✔ Production takes place efficiently and effectively.
✗ A centralized authority can discourage employees.
✗ It does not encourage innovative ideas.
✗ It can lead to employee dissatisfaction and attrition.
✗ It cannot adapt to changes in the business environment.
✗ One person cannot be responsible for coming up with creative ideas every time.
✗ It can trigger a power struggle in the organization.
This structural form is best-exemplified in organizations where administration and control are centralized, and there is very little, if any, standardization of tasks. This structure is highly recommended for small-scale industries and start-ups.
✔ It has a centralized structure with only one decision maker.
✔ The founder has complete control on decisions and their implementation.
✔ Communication mostly happens on a one-on-one basis.
✔ Decisions are made and implemented quickly.
✔ Productivity and profits are closely monitored.
✔ If an employee works hard, he gets noticed.
✗ Decisions taken by one person stand the risk of going wrong.
✗ It is only applicable to small businesses and cannot sustain once they expand.
✗ Lack of standardization can lead to inconsistencies.
✗ Employees are not part of the decision-making process and this can demoralize them.
✗ Effective communication may not take place as people do not open up in front of the authority.
✗ Due to lack of flexibility, employees may feel frustrated.
In this structure, organization managers are required to maintain and coordinate business/professional relations with third parties such as clients, vendors and associates in order to achieve a collective goal of profitability and growth. Most of the time, these relations are maintained and tasks are coordinated via telecommunication and electronic media and, hence this structure is also known as a virtual structure.
✔ The employees can be closer to the location of the customer.
✔ It helps in optimizing the knowledge potential of the organization.
✔ Even if something like a natural disaster occurs, the work of network employees can continue.
✔ It can be dynamic and easily adaptive to changes in the business environment.
✔ There is a certain level of flexibility for the employees.
✔ There can be a collaborative relationship between the supervisor and the employee.
✗ An employee may have to report to too many supervisors and this may affect his work.
✗ As a formal hierarchy is missing, it can lead to conflicts.
✗ Too much dependence on technologies like the Internet, phone, etc. can cause problems.
✗ As there is no physical place for employees, it affects communication.
✗ It can lead to increased work stress among the employees.
✗ An intense competition exists among the supervisors, to get a high-performing employee.
Organizations with team structures can have both vertical as well as horizontal process flows. The most distinct feature of such an organizational structure is that different tasks and processes are allotted to specialized teams of personnel in such a way that a harmonious coordination is struck among the various teams.
✔ It facilitates practical decision-making and implementation.
✔ Decisions are taken unanimously and not by an individual.
✔ It eliminates traditional scalar chains of command for getting approvals.
✔ The relationships and communication between employees improve.
✔ If one employee in the team fails to work, the other can take his place.
✔ It enables the heads to staff resources which complement each other.
✗ There is very less contact with teams of other functions.
✗ If teams undergo constant changes and alterations, it can affect work.
✗ Each team contributes on its own and may not be in alignment with the organizational goals.
✗ Team members need to be proactive and incorporate better project management.
✗ The need for an effective leader can be felt.
✗ As decisions are given by many people, they may take a long time.
The authority of such organizations oftentimes is heavily centralized and lies with one person. It only comprises two to three vertical levels and the duties of the employees overlap. It is suitable for small or new organizations where the decision of one person matters the most. It also exhibits easy responsiveness and adaptability to change in the business environment.
Horizontal Organization Structure
It is also known as a flat structure. In this type, there is absolutely nil or very less interference from the senior management which allows the employees to conduct their tasks smoothly. Employees are also involved in the decision-making process. As it eliminates the need for middle management, it contributes towards giving a quick response to customer feedback. However, it may not be applicable and practical for big organizations.
Vertical Organization Structure
It relies on the middle management to monitor and control the work of the employees. These structures have well-defined roles and responsibilities for the employees. Hence, delegating tasks to the employees becomes easier. It requires a strong leader at the top of the hierarchy as he is the one to take all the decisions. As a hierarchy exists, it ensures that the work is done in a disciplined manner.
This is the most formal and the strictest kind of structure with a clear distinction in the hierarchy and roles. Hence, these structures are vertically oriented. The hierarchy of the authority is well-defined. Decision-making rests in the hands of the senior management. As a lot of bureaucracy is involved in these structures, the leaders find it difficult to deal with competition. Also, innovation oftentimes is hampered due to red-tapeism. Employees work separately and are specialists of a task.
It is the exact opposite of a mechanistic organizational structure. In an organization following the organic structure, the authority is delegated and is decentralized. Hence, communication takes place laterally. There is a lot of flexibility in this type of an organization. Employees generally work together and coordinate different tasks. They are highly flexible to adapt to the changes in the external business environment.
This is a structure that is not bureaucratic in nature. While bureaucratic organizations are too controlled, post-bureaucratic ones offer more freedom to the employees. Though there is hierarchy, the leaders are open to new ideas. The decisions are taken after discussion and consensus is not dependent on hierarchy. This encourages employee participation, trust, personal treatment, responsibility and empowerment. This type of structure is often used in housing cooperatives and non-profit organizations. It also incorporates techniques like total quality management (TQM) and culture management.
Now that you know about the various organizational structures, implement the right one based on its applicability, advantages and disadvantages. It is important to find an organizational structure that works best for the organization as a wrong setup can hamper functioning and be detrimental to organizational success.