Types of Organizational Structures

An organizational structure defines how jobs and tasks are formally divided, grouped and coordinated. The type of organizational structure would depend upon the type of organization itself and its philosophy of operations. Basically the structure can be mechanistic or organic in nature or a combination of thereof. However, most organizational structures are still designed along mechanistic or classical lines.

Key Elements for Proper Organizational Structure

  • Work Specialization: To what degree are articles subdivided into separate jobs?
  • Departmentalization: On what basis jobs will be grouped?
  • Chain of Command: To whom will individuals and groups report?
  • Span of Control: Up to how many individuals can a manager efficiently direct?
  • Centralization vs Decentralization: Who will be the sole maker of decisions?
  • Formalization: To what degree will there be rules and regulations to direct employees and managers?

Some of the most common organization structures are:

Line Organization

Line organization is the simplest form of organization and is most common among small companies. The authority is embedded in the hierarchical structure and it flows in a direct line from the top of the managerial hierarchy down to different levels of managers and subordinates and further down to the operative levels of workers. It clearly identifies authority, responsibility and accountability at each level.

These relationships in the hierarchy connect the position and tasks of each level with those above and below it. There is clear unity of command so that the person at each level is reasonably independent of any other person at the same level and is responsible only to the person above him. The line personnel are directly involved in achieving the objectives of the company.

Because of the small size of the company, the line structure is simple and the authority and responsibility are clear-cut, easily assignable and traceable. It is easy to develop a sense of belonging to the organization, communication is fast and easy and feedback from the employees can be acted upon faster.

The discipline among employees can be maintained easily and effective control can be easily exercised. If the president and other superiors are benevolent in nature, then the employees tend to consider the organization as a family and tend to be closer to each other that is highly beneficial to the organization.

On the other hand, it is a rigid form of organization and there is a tendency for line authority  to become dictatorial that may be resented by the employees. Also, there is no provision for specialists and specialization that is essential for growth and optimization and hence for growing companies, pure line type of structure becomes ineffective.

The line organization can be a pure line type or departmental line type. In the pure line type set-up, all similar activities are performed at any one level. Each group of activities is self contained and is independent of other units and is able to perform the assigned duties without the assistance of others. In a departmental line type of organization, also known as functional structure, the respective workers and supervisors are grouped on a functional basis such as finance, production and marketing, and so on.

Line and Staff Organization

In this type of organization, the functional specialists are added to the line, thus giving the line the advantages of specialists. This type of organization is most common in our business economy and especially among large enterprises. Staff is basically advisory in nature and usually does not possess and command authority over line mangers. The staff consists of two types:

General Staff: This group has a general background that is usually similar to executives and serves as assistants to top management. They are not specialists and generally have no authority or responsibility of their own. They may be known as special assistants, assistant managers or in a college setting as deputy chairpersons.

Specialized Staff: Unlike the general staff who generally assist only one line executive, the specialized staff provides expert staff advice and service to all employees on a company wide basis. This group has a specialized background in some functional area and it could serve in any of the following capacities:

(a) Advisory Capacity: The primary purpose of this group is to render specialized advice and assistance to management when needed. Some typical areas covered by advisory staff are legal, public relations and economic development.

(b) Service Capacity: This group provides a service that is useful to the organization as a whole and not just to any specific division or function. An example would be the personnel department serving the enterprise by procuring the needed personnel for all departments. Other areas of service include research and development, purchasing, statistical analysis, insurance problems and so on.

(c) Control Capacity: This group includes quality control staff who may have the authority to control the quality and enforce standards.

The line and staff type of organization uses the expertise of specialists without diluting the unity of command. With the advice of these specialists, the line managers also become more scientific and tend to develop a sense of objective analysis of business problems. According to Soltonstoff, a staff member may serve as a coach, diagnostician, policy planner, coordinator, trainer, strategist, and so on.

The line and staff type of organization is widely used and is advantageous to the extent that the specialized advice improves the quality of decisions resulting in operational economics. Also, since line managers are generally occupied with their day-to-day current operations, they do not have the time or the background for future planning and policy formulation. Staff specialists are conceptually oriented towards looking ahead and have the time to do strategic planning and analyze the possible effects of expected future events.

Its main disadvantages are the confusion and conflict that arises between line and staff, the high cost that is associated with hiring specialists and the tendency of staff personnel to build their own image and worth, that is sometimes at the cost of undermining the authority and responsibility of line executives.

Functional Organization

One of the disadvantages of the line organization is that the line executives lack specialization. Additionally, a line manager cannot be a specialist in all areas. In the line and staff type of organization, the staff specialist does not have the authority to enforce his recommendations. The functional organizational concept, originated with Fredrick W. Taylor and it permits a specialist in a given area to enforce his directive within the clearly defined scope of his authority.

Functional_organization

A functional manager can make decisions and issue orders to the persons in divisions other than his own, with a right to enforce his advice. Some good examples of specialists who have been given functional authority in some organizations are in the areas of quality control, safety and labor relations.

The functional organization features separate hierarchies for each function creating a larger scale version of functional departments. Functional departmentalization is the basis for grouping together jobs that relate to a single organizational function or specialized skill such as marketing, finance, production, and so on. The chain of command in each function leads to a functional head who in turn reports to the top manager.

The functional design enhances operational efficiency as well as improvement in the quality of the product because of specialists being involved in each functional area and also because resources are allocated by function rather than being duplicated or diffused throughout the organization .

One of the main disadvantages of the functional design is that it encourages narrow specialization rather than general management skills so that the functional managers are not well prepared for top executive positions. Also, functional units may be so concerned with their own areas that they may be less responsive to overall organizational needs.

Divisional Organization

The divisional or departmental organization involves grouping of people or activities with similar characteristics into a single department or unit. Also known as self-contained structures, these departments operate as if these were small organizations under a large organizational umbrella, meeting divisional goals as prescribed by organizational policies and plans.

The decisions are generally decentralized so that the departments guide their own activities. This facilitates communication, coordination and control, thus contributing to the organizational success. Also, because the units are independent and semi-autonomous, it provides satisfaction to the managers that in turn improves efficiency and effectiveness.

This division and concentration of related activities into integrated units is categorized on the following basis:

Departmentalization by Product. In this case, the units are formed according to the type of product and it is more useful in multi-line corporations where product expansion and diversification, and manufacturing and marketing characteristics of the product are of primary concern. The general policies are decided upon by the top management within the philosophical guidelines of the organization.

Departmentalization by Customers. This type of departmentalization is used by those organizations that deal differently with different types of customers. Thus, the customers are the key to the way the activities are grouped. Many banks have priority services for customers who deposit a given amount of money with the bank for a given period of time. Similarly, business customers get better attention in the banks than other individuals.

Departmentalization by Area. If an organization serves different geographical areas, the division may be based upon geographical basis. Such divisions are specially useful for large scale enterprises that are geographically spread out such as banking, insurance, chain department stores or a product that is nationally distributed.

Departmentalization by Time. Hospitals and other public utility companies such as telephone company that work around the clock are generally departmentalized on the basis of time shifts. For example, the telephone company may have a day shift, on evening shift and a night shift, and for each shift a different department may exist, even though they are all alike in terms of objectives.

Project Organization

These are temporary organizational structures formed for specific projects for a specific period of time and once the goal is achieved, these are dismantled. For example, the goal of an organization may be to develop a new automobile. For this project, the specialists from different functional departments will be drawn to work together.

These functional departments are production, engineering, quality control marketing research, etc. When the project is completed, these specialists go back to their respective duties. These specialists are basically selected on the basis of task related skills and technical expertise rather than decision-making experience or planning ability.

These structures are very useful when:

1. The project is clearly defined in terms of objectives to be achieved and the target date for the completion of the project is set. An example would be the project of building a new airport.

2. The project is separate and unique and not a part of the daily work routine of the organization.

3. There must be different types of activities that require skills and specialization and these must be coordinated to achieve the desired goal.

4. The project must be temporary in nature and not extend into other related projects.

Matrix Organization

A matrix structure is, in a sense, a combination and interaction of project and functional structures and is suggested to overcome the problems associated with project and functional structures individually. The key features of a matrix structure are that the functional and project lines of authority are super-imposed with each other and are shared by both functional and project managers.

Matrix_organization

The project managers are generally responsible for overall direction and integration of activities and resources related to the project. They are responsible for accomplishing work on schedule and within the prescribed budget. They are also responsible for integrating the efforts of all functional managers to accomplish the project and directing and evaluating project activity. The functional managers are concerned with the operational aspects of the project. The functional structure is primarily responsible for:

1. Providing technical guidance for the project.

2. Providing functional staff that is highly skilled and specialized.

3. Completing the project within prescribed technical specifications.

Greiner sees matrix organization, in which cross-functional teams are used, as a response to growing complexity associated with the organizational growth. These complexities, both internal(size, technology) as well as external (markets, competitors), create problems of information processing and communication that are best dealt by matrix type of organization.

Matrix organizational design is most useful when there is pressure for shared resources. For example, a company may need eight product groups, yet have the resources only to hire four marketing specialists. The matrix provides a convenient way for the eight groups to share the skills of the four specialists .

Each matrix contains three unique sets of role relationships: (1) the top manager or Chief Executive Officer who is the head and balances the dual chains of command; (2) the managers of functional and project (or product) departments who share subordinates; and (3) the specialists who report to both the respective functional manager and project manager.

An important aspect of the matrix structure is that each person working on the project has two supervisors – the project manager and the functional manager.

Photo by: pmexamsmartnotes.com , RouteMark

References

http://smallbusiness.chron.com/different-types-organizational-structure-723.html

https://www.boundless.com/finance/introduction-to-the-field-and-goals-of-financial-management/business-organization-types/overview-of-organizational-structure/

Sonia Kukreja

I am a mother of a lovely kid, and an avid fan technology, computing and management related topics. I hold a degree in MBA from well known management college in India. After completing my post graduation I thought to start a website where I can share management related concepts with rest of the people.
Sonia Kukreja

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