This article describes the various ways an organization’s roles and relationships can be arranged to best suit its goals and needs. We discuss the different types of organizational structures and the advantages each may provide. Look for links to illustrative flow-charts for visual explanation.
About Organizations and Structures
Before we begin discussing types of organizational structures, I’d like you to look closely at the terminology. The words “organization” and “structure” are almost synonymous and the term “organizational structure” seems a bit of an over-kill.
When I deconstruct the term, however, it makes more sense. When you organize something, you order or arrange it in a certain way for a specific purpose. A structure is a construction of various parts that are put together or “built” in a pre-determined manner. If an organization is an order or arrangement, its structure is the way it is ordered: the thought, the logic, the mode that is used in the arrangement.
An organizational structure regulates the activities of a business and sets the hierarchy within which the employees of the company must function. Different types of structure in an organization affects the procedures and schedules of a business in different ways.
Everyday roles employees need to fulfill and the tasks allocated to each role, necessary actions that must be committed to achieve the business mission, the coordination of the relationship between job profiles, the standard operating, reporting and supervisory mechanisms–these are all determined by the organizational structure of a company.
Broadly speaking, there are three types of major organizational structures, and it is vital for any company to choose carefully and adopt the structure–or combination of structures–that best suits their needs and goals in the longer term.
The Functional Structure
This type of organizational structure is founded on the functions or jobs an employee performs for the business. The best example I can think of is the “secretarial pool” that used to be a common phenomenon in older firms. All the secretaries of the company who were not assigned “personal” or “private” roles, would sit in a common area and the shorthand, typing and correspondence jobs of the entire company would be allocated to individuals in this pool by their supervisor.
In this type of structure, departments are based on what employees do. Let’s take the example of a traditional advertising agency: the client servicing department comprises of those who bring in the work; the creative department consists of art directors and copywriters; the studio department includes the visualizers who execute the vision of the creative department; the print and production department packages the finished product; the media department plans the optimum means of the “release” of the final product; the accounts department contains the profit checkers and the administrative department performs the facilitator’s role.
The major advantage of such a structure is that the efficiency of specific functions can be optimized. When a pool of secretaries or a group of engineers or accountants sit together and form a department, they can share the work, support and help each other with their loads or problems. People doing the same job have the opportunity to bond closely with each other and In the long run, the company saves capital, because it has experience, expertise and numbers working and cooperating in close quarters.
The biggest disadvantage of the functional structure is the isolation of roles, which makes coordination between departments a nightmare. Clannishness, inter-departmental complaints, one-upmanship and competitiveness might lead to low employee morale and hinder the realization of the business’ goals. Intra-department competition and infighting may also cause problems and unhealthy ego-clashes that hamper the smooth operation of the business.
The Divisional Structure
The divisional segmentation of employees may be decided by the product, the geographical location, or the target market.
Say a multinational company manufactures detergents, shampoos and toothpastes. Each product would have its own “division” and would function like a mini-company within the larger corporation. Each division would have individual resources without reference to other divisions.
Divisions may also be created for different regions (Asia-pacific, Europe, South America etc) or markets (rural, urban, Japanese, Indian), served by a company.
One obvious advantage of the divisional structure, is the fact that each division is also a profit-center. Also, the decentralized allocation of resources and the lack of dependence between divisions, makes the company more flexible and able to react faster to changes. It also encourages innovation and allows divisions to follow different strategies and policies within the overall company guidelines.
On the other hand, the divisional structure results in unnecessary waste, as many otherwise common resources and roles need to be separately procured and allocated to different divisions. Also, the divisions do not cooperate with each other or interact with each other on a daily basis, and this leads to a false sense of competition and self-sufficiency, where the larger structure of the company is not taken into consideration.
The Matrix Structure
This type of organizational structure combines both the functional and the divisional and is ideal for corporations that operate out of various parts of the world, and produce multiple goods or services.
Let us assume you head a construction company that builds mega-structures in various parts of the world. Your company employs civil engineers who work from India. Your accounts are handled from an office in Germany. You procure raw materials from offices stationed in South America and service your clients from the U.S.
It would make sense if you created divisions based on particular projects, and these divisions would be temporarily created by your employees from various functional departments in different parts of the globe. Each project would have a manager, to whom the group of employees assigned from across the functions, would answer. However, these employees would also answer to the heads of their functional departments.
The matrix structure works wonderfully for large corporations, because it allows the mixing and matching of employees according to need. It would not be so suitable for smaller organizations and is difficult to execute efficiently because essentially, employees would have to answer to two centers of authority.
The Final Analysis
You should consider the different types of organizational structures available to you, before you decide on the one that fits your company’s needs. Whatever structure you employ should give you the results that you desire.
You will know you’ve made the right choice if your decision-making is flexible and smooth, your operative and problem-solving reactions are quick and appropriate to the situation, your company is capable of producing innovations in answer to market requirements, and your employees are motivated and productive.
References and Credits:
- Stewart Ranson, Bob Hinings and Royston Greenwood, “The Structuring of Organizational Structures”: Administrative Science Quarterly Vol. 25, No. 1 (Mar., 1980), pp. 1-17; Johnson Graduate School of Management, Cornell University
- Clemmer, Jim, “Decentralized Organization Structures Empower and Energize”: managerwise.com/article.phtml?id=227
- Owens, Jim, “Matrix Organizations, What Are They?”: managerwise.com/article.phtml?id=522
Article by Dr. Ranee Kaur Banerjee
Edited & published by Wendy Finn