Organization Structure

Organization Structure

Structure refers to the relations between the components of an organization as a whole. The organization structure can be considered mostly of two types namely (i) physical, and (ii) social. Physical structure refers to the relations between physical elements of organizations as buildings and geographical places in which the works are carried out. In organization theory, social structure refers to the relations between social elements as people, positions and organizational units (e.g. departments and sectors). It is the social structure which is normally referred to as ‘organizational structure’.

Organizational structure refers to the model of internal relations in the organization. Through it are clarified the (i) power, relations and reporting, (ii) formal communication channels, and (iii) responsibility and decision making delegation. Organizational structure is the framework of the relations on jobs, systems, operating process, people and groups making efforts to achieve the goals. It is a set of methods dividing the task to determine the duties and coordinates them. Through the organizational structure, the organizational activities are divided, organized and coordinated. The organization creates the structure to coordinate the activities of work factors and control the employees’ actions.

The organizational structure determines the way the job tasks are formally divided, grouped, and coordinated within the organization. When the organizational management develops or changes the structure, it is engaged in organizational design, a process which involves decisions about six key elements namely (i) work specialization, (ii) departmentalization, (iii) chain of command, (iv) span of control, (v) centralization and decentralization, and (vi) formalization.

Bloisi defines organizational structure as a grouping of people and tasks into different units to boost coordination of communication, decisions, and actions. Organization structure is normally defined as the framework of the relations on jobs, systems, operating process, people and groups making efforts to achieve the organizational goals. It is a set of methods dividing the task to determine the duties and coordinates them. It facilitates decision making, proper reaction to environment and conflict resolution between the units / departments. It is the relationship between main principles of the  organization and coordination between its activities and internal organizational relations in terms of reporting and getting report which are duties of the organization structure. It is not a coordination mechanism and it affects all the organizational processes. Helping the information flow is one of the facilities provided by the structure for the organization.

According to business management dictionary, organizational structure is the body of policies and rules which allows the organization to arrange its chain of command and communication while allocating rights and responsibilities. Based on the work to be performed, the size of the organization, technology used, leadership, organizational culture, environment, and life cycle of the product organizations structure can be of various forms ranging from simple structure to virtual structure.

Organizational structure is a powerful determinant of organizational behaviour.  In fact, many people believe decisions about organizational structure are the central determinant of the organizational behaviour.  Managements are constantly debating with the subject whether or not to centralize or decentralize. Despite what most management seems to think, there is much more to organizational design than just rearranging its structure.

Organization does not mean organizing. There are major principles which influence the effectiveness of an organizational structure. Organizational structure aligns and relates parts of the organization, so that it can achieve its maximum performance. The structure chosen affects the organization’s success in carrying out its strategy and objectives.

Organizational structure is the framework of reporting relationships in the organization.  These relationships can usually be diagramed in the form of an organization chart.  The organization chart does not necessarily reflect actual reporting or decision-making relationships in the organization, so it is important to make a distinction between the formal and the informal structure.

Organizational structure is the method by which work flows through an organization. It allows groups to work together within their individual functions to manage the tasks. Traditional organizational structures tend to be more formalized, with employees grouped by function (such as marketing, finance, or operations), region or product line. Less traditional structures are more loosely woven and flexible, with the ability to respond quickly to changing environments.

In the ‘Industrial Revolution’, individuals were organized to add parts to the manufacture of the product moving down the assembly line. Frederick Taylor’s scientific management theory optimized the way tasks were performed, so workers performed only one task in the most efficient way. In the 20th century, General Motors pioneered a revolutionary organizational design in which each major division made its own cars. Today, organizational structures are changing swiftly, from virtual organizations to other flexible structures.

Organizational structures have evolved since the 1800s. First organization chart in USA was made in 1855 by the New York and Erie Railroad. Until the early 1950s, most organizations were functionally organized. Late 1950s – 1960s the economic and product growth has led to complexities divisional / product structures sought to control. 1970s brought globalization and increased regulations which led to matrix structures. Late 1970s until today the organizations have sought to be more flexible and creative in the organization structure.

The future is likely to bring functional, product and matrix organizational structures. However, as organizations continue to evolve and increase their global presence, future organizations can embody a fluid, free-forming organization, member ownership and an entrepreneurial approach among all members.

The realization of the close connection between the processes taking place inside the organization makes it is easier to understand the intricate task of directing the organization efficiently. To put it in the simplest terms possible, the organizational structure describes how an organization, division, department, or team is built and how all of its various components fit together.

More specifically, it is a framework which organizes all of the formal relationships within the organization, establishing lines of accountability and authority, and clarifying how all of the jobs or tasks within the organization are grouped together and arranged. Ideally, the type of structure the organization, division, or team implements is to be tailored to the specific organizational goal and objectives which it is trying to accomplish. Since ultimately, even if the organization is filled with efficient employees, it can fall apart (or fail to operate efficiently), if the structure of the organization is weak.

Poor organizational design and structure results in a bewildering mess of contradictions, confusion within roles, a lack of co-ordination among functions, failure to share ideas, and slow decision-making which brings unnecessary complexity, stress, and conflict in the organization.

Structure is the characteristic feature of the organization. It is what brings about or makes possible that quality of atmosphere which sustains and gives the purposive behaviour that distinguishes the work in the organization from the activities of a group. Basically, organizational structure is a way to organize employees into some kind of functional system whereby an environment is created to meet goals, minimize confusion and conflicts and most important coordinate activities by clearly identifying which individuals are responsible for which tasks.

Conceptualization of organizational structure

Conceptualization of organizational structure is the expression of the systematic thinking. Organization consists of elements, relations between elements, and structure of relations as a generality composing a unit. Structure is high combination of the relations between organizational elements forming existence philosophy of organizational activity. Systematic view of organization to structure shows that structure is composed of hard elements on one side and soft elements on the other side. At the end of the hard dimension, there are physical elements as groups and hierarchy of the organizational units. The relations between these units and groups show soft element in organization structure. At the end of soft dimension, judgment of organization employees to structure can be observed.

Structural relations are viewed from various aspects. There is identification of three dimensions namely (i) hierarchy, (ii) functional, and (iii) inclusion. The hierarchy dimension shows relative ranks of organizational units by a method of the organizational chart. The functional dimension shows different works performed in the organization. The inclusion dimension indicates the close or far distance of each employee in the organization to the top management of the organization. The proper combination of these three dimensions shows the formal structure of the organization as shown in the organizational charts. However, the reality is that there are many organizational forms which cannot be easily explained by an organizational chart.

Dimensions of organizational structures

Organizational structure is generally shown in the organizational chart. In planning organizational structure, there are three principles namely (i) it determines formal relations and reporting in organization and it shows the number of levels in the hierarchy and it defines the span of the control of the executives, (ii) it determines the position of employees as working in a group in a unit and it divides the units in the entire organization, and (iii) it includes the design of systems by which all units are coordinated and effective relations in the organization is ensured.

Organizational structure can be affected by goals, strategy, environment, technology, and the organization size. These variables are key and content-based and indicate the entire organization and its position between the organization and environment. Content variables can be important as they show organization and the environment in which there are structural variables. Structural variables indicate internal features of the organization and present a basis by which the organizations can be measured and their structure features can be compared with each other. The content variables affect structural variables. Complexity, formality and centralization are important examples of content variables. Content variables affect structural variables and by their combination, different types of structural designs are created.

Organizational structure affects the behaviour of the organization through at least two channels. First, structure can have an effect on the organization wide measures of performance, such as profitability or speed in adopting productivity enhancing innovations. These performance characteristics in turn influence behaviour either because they enter the plans and calculations of the management, or because competitive selection pressures act differentially on the organization according to its performance. Second, the structure of the organization can have consequences for the individuals or operating units which comprise the organization. Also, changes in external environment such as the economic or social environment can produce dynamic adjustments in the organization’s internal patterns of communication and connectedness.

Different types of organizational structures

Organizational structures can be of several types as described below.

Simple structure – It is a set of flexible relations and due to limited separation, it has low complexity. It represents the oldest form of organization. It is that structure which has low degree of departmentalization and a wide span of control. It is normally owner managed and restricted to a single product or limited line of products. The owner manager makes all the decisions and attempts to monitor all the activities. The organization here is typically informal and but the decision making is highly centralized. There are few rules and regulations and a conspicuous absence of information systems. The authority is largely centralized with a single person with very little formalization. In such organization, the organization structure has a design with the organization focusing on the leader and there is no need to formality. Consideration of the duties or management order is done by mutual agreement and coordination and supervision are direct and informal.

It usually has two or three vertical levels, a flexible set of employees and generally one person in whom the power of decision making is vested.

Simple organizational structure is more responsive, fast, accountable and easy to maintain. However it becomes grossly inadequate as and when the organization grows in size. Such a simple structure is popular because of its flexibility, responsiveness and high degree of adaptability to change. The advantages of such structure are (i) the organization has considerable amount of flexibility, (ii) by virtue of the simple structure, it moves quickly to take advantage of the market opportunities, and (iii) its flat structure makes communication fast and direct. The disadvantages are (i) lack of rules and regulations in the organization which brings problems and conflicts among organizational employees, and (ii) flat structure does not provide scope for upward mobility making employee retention difficult.

Functional structure – The organization with increased complexity is difficult to be managed based on simple structure. Normally, functional structure is used as a tool to fulfill the increasing needs of separation in such organization. This is called function as in this structure the activities are classified based on logical similarity of work functions. The functions are created based on dependent duties and shared goals. In functional structure, re-work of activities is limited and this structure is efficient. The aim of this structure is maximizing saving of specialization scale.

Functional structure is the traditional way of organizing employees by their functions. Some of the common functions within an organization are production, human resources, marketing, and finance and accounting etc. As opposed to simple structure, functional structure is useful for relatively big organizations. Employees within this framework are differentiated to perform a specified set of tasks. This specialization leads to operational efficiency where employees become specialist within their own realm of expertise. As an example, the marketing department is to be manned with only marketing personnel responsible for marketing the organizational products. Functional structures are characterized by greater degree of formalization making each function reliant on standardized way of operations. Decision power is often centralized at the top of the hierarchy. Fig 1 gives a typical functional structure of an organization.

Fig 1 Typical functional structure of an organization

Functional structure is very effective for the organization which is operating rather in a stable environment with low rate of change and dynamism or do not require rapid change of strategy or in relatively small organizations which provide few services or products. The advantages of functional organization are (i) the lines of command are clear, (ii) employees specialize and departments tend to develop common knowledge across the group, and (iii) employees have clear career path and have the potential to grow within their department in the organization. The disadvantages of functional organizations are (i) communication across the groups becomes difficult because all of them are distinct from each other, (ii) slow response to changes in the environment, (iii) too much work is referred upward due to lack of decision making authority and serious problems can ensue when group develops a narrow perspective, and (iv) evaluation and control become difficult since each functional area’s contribution overlaps with other area’s contribution.

Multi-divisional structure – In organizational development path, if functional structure is developed, it is turned into multi-divisional structure as a tool to reduce the decisions responsibility by the top management. Multi-divisional structure is a set of separate functional structures reporting a central management. Each functional structure is responsible for management of daily operation. The central management is responsible for supervision and management of the organization relation with environment and strategy. Fig 2 gives a typical multi-divisional structure of an organization.

Fig 2 Typical multi-divisional structure

Matrix structure – This structure is created with the aim of creating a type of structure composed of functional and multi-divisional structures. The aim of matrix structure is combining the efficiency of functional structure with flexibility and sensitivity of multi-divisional structure not only based on product logic, customer, or geographical region, but also based on functional logic in multi-divisional structure. In matrix organization, teams are formed and the functional specialized employees work in one or more operation teams. This delegation of activities to employees is done through negotiation between functional and operation managers and sometimes with the presence of people of teams or potential members.

Matrix structure is a highly flexible form of structure which is readily adaptable to changing circumstances. This form of organizational structure relies heavily on the team authority. Matrix organizational structure is intended to facilitate the horizontal flow of skills and information. In matrix organization, each team manager reports directly to the director. The power and authority used by the team manager comes directly from the director. Information sharing is mandatory in such structure.

The team manager has the total responsibility and accountability for the success of the assigned work. However, on the other hand functional departments have the functional responsibility to provide and maintain technical excellence of the assigned work. The basis for this type of structure is an endeavour to create synergy through shared responsibility between team and functional management. This kind of structure is applicable in diverse settings. Fig 3 gives typical matrix organizational structure.

Fig 3 Typical matrix organizational structure

The advantages of matrix organizational structure are (i) better cooperation across functions, (ii) improved decision making, (iii) increased flexibility, (iv) better customer service, (v) better performance accountability, and (vi) improved strategic management. The disadvantages of this kind of structure are (i) disagreement over functional and team leader over shared resources can lead to power struggle, (ii) dual authority if not explicitly documented can leave employees uncertain about their accountability to various supervisors, (iii) team meeting in matrix structure are time consuming, and (iv) dual command structure a characteristic of matrix structure leads to excessive number of managers thus increasing the cost burden to the organization.

Hybrid structure – A hybrid structure is one in which more than one organizational design is used. This allows the organization more flexibility in distributing work and assigning job roles. It can be especially beneficial in small organizations, where there are fewer employees to manage daily operations. It is generally used in organizations which face considerable environmental uncertainty that can be met through a divisional structure and that also required functional expertise or efficiency’

This type of structure is used by multinational organizations operating in the global environment. This kind of structure depends on factors such as degree of international orientation and commitment. While the focus is on international geographic structures, organizations can also choose functional or process or product departments in addition to the geographic pattern while at the head quarter’s the departments can be based on function.

In hybrid structure, one part is dedicated to the type of structure and another part to another type of structure. The reason of formation of hybrid structures is combination of advantages of two structures by designers or the organization is changing. As in hybrid structure, by moving from one section of structure to another structure, the relations basis is changed and hybrid forms can be unclear. On the other hand, hybrid structure enables the organization in which the best and flexible structure is used.

The advantages of hybrid structures are (i) alignment of organizational and divisional goals, (ii) functional expertise and efficiency, and (iii) adaptability and flexibility in divisions. The disadvantages are (i) conflicts between organizational departments and units, (ii) excessive administration overhead, and (iii) slow response to exceptional situations.

Network structure – The networks are formed when the organizations are faced with rapid changes of technology, short life cycles of product and dispersed and specialized markets. In a network, required assets are distributed among some network partners as there is no unified organization in a network to generate the products or services and the network is producer or supplier. In a network structure, the partners are associated through customer supplier relations and a type of free market system is created. It means that the goods are traded among network partners as in a free market, they are traded.

In network structures common features are shared. These common features include (i) considerable autonomy among its functional and programming units, (ii) a small core infrastructure which provides certain services needed by all, (iii) highly responsive and fluid approaches, (iv) flexible coordination approaches among component organizations as needed, and (v) decision-making occurs within the context of the strategic alliance among the partners.

Network structure is relatively new. It is the result of outsourcing or collaboration. It makes the organization a virtual organization. It replaces vertical communication and control with lateral relationships. This structure appears when there are rapid technological changes, shortened product life cycle and fragmented market.  The advantages of this structure include (i) allows rapid growth, (ii) flexible, (iii) efficient if properly controlled, and (iv) feasibility of common branding. The disadvantages are (i) can cause rapid decline, (ii) danger if there is a loss of control, and (iii) common image may be difficult to share. Fig 4 gives some types of network structures.

Fig 4 Some types of network structures

Bureaucratic and flat structure – Normally, determining criterion, forming, unifying the work methods as called standardization is key concept or foundation of the bureaucratic structure. The organization following this structure relies on standardization of methods and work methods for coordination and good supervision. The features of the bureaucratic structure includes (i) tall structure associated with specialization, (ii) high volume of uniform and continuous executive works, (iii) dealing with regular and formal regulations, (iv) presence of separated units with definite classified duties, (v) centralization of power and taking decisions through commanding hierarchy, (vi) having complete administrative structure by defining the boundary between the employee and queue activities, (vii) knowledge exists at the top of the pyramid, and (viii) employees are procedure oriented.

Organization with bureaucratic structure normally has many levels with small span of management control. In this case, power is centralized on the top levels and there is more employee control. On the other hand, the organization which does not have bureaucratic structure is a flat organization. The flat organization has a small number of levels and a broad span of management control at each level. The organization has decentralized decision -making. In such organization, knowledge locates everywhere and people are goal oriented. This calls for a good deal of delegation on the part of the management. Employees have more power within the flat organization. Some advantages of a flat structure include (i) greater job satisfaction, (ii) more delegation, and (iii) increased communication between levels of management. Some advantages of a bureaucratic structure are (i) greater control, and (ii) better performance. Fig 5 shows bureaucratic and flat structure of the organization.

Fig 5 Bureaucratic and flat structure of the organization

Structural forms

Structural forms are divided into theoretical and practical. Theoretical forms are generic and abstract divided into mechanistic and organic. Mechanistic organization is an organizational design which is having rigid and tight controls, while in the organic organization, the organizational design is highly adaptive and flexible.

Content variables (goals and strategy, environment, technology and size) determine the type of mechanistic and organic structure. The mechanistic or the organic form is created by the combination of structural variables. In mechanistic structure, the features are (i) the units are differentiated at horizontal level, (ii) the relations are exact and inflexible, (iii) communication channel is formal, and (iv) decision making system is centralized. In organic structure the features are (i) less horizontal differentiation, (ii) high collaboration and participation (both horizontal and vertical), (iii) flexible tasks, (iv) the works and the communications are informal, and (v) decision making system is not centralized.

Mechanistic organization has rigid and tightly controlled structure and combines traditional aspects of all six elements or organizational structure namely (i) high specialization, (ii) rigid departmentalization, (iii) clear chain of command, (iv) narrow spans of control leading to taller structure, (v) centralization, and (vi) high formalization. Organic organization has (i) highly adaptive and flexible structure, (ii) collaboration (both vertical and horizontal), (iii) adaptable duties, (iv) few rules, (v) informal communication, (vi) decentralized decision authority, and (vii) wider spans of control leading to flatter structure. Loose structure allows for rapid adjustment to change.

Different types of practical organizational structures are mechanistic and organic structures in a range and include partial and practical structures. The practical structures are divided into two groups namely (i) different types of practical structures based on five sections of organization, and (ii) different types of practical structures based on grouping the activities of organization.

Different types of practical structures based on five sections of organization are based on the (i) the operative core is the workers who actually carry out the organization’s tasks (goods or services), (ii) the strategic apex is top management and its support staff, (iii) the middle line is the managers between operating core and top management of organization, (iv) the techno structure is analysts, with the duties of standards in organization, and (v) the support employees are the people who have support duty and help in linking with organization activities. Each of five principles can control the organization. Based on the principle controlling the organization, the organization structure is designed specifically (based on this principle). Thus, there are five types of organization structures and each of them belongs to the principle in organization.

In recent times, managements of many great organizations are trying to adopt new structures and increase effectiveness of organization.  These structures are (i) team structure, (ii) virtual organization, and (ii) boundary less organization.

Team structure – In this structure, the barriers are eliminated, the decisions are not centralized and the team takes the required decisions.

Virtual organization – It is a small and central organization providing its main resources form other organizations. A virtual organization is centralized in terms of structure and rarely has it specialized units.

Boundary less organization – In this type of organization, commanding chain is eliminated and there is no control and the teams with high autonomy are replaced by centres.

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