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Organizational structure

 
Business Dictionary: Organizational Structure
 
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Apportionment of responsibility and Authority among the members of an organization. Functional Organization, Matrix Organization, and Line Organization are three common types of organizational structure.

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Business Encyclopedia: Organizational Structure
 
Home > Library > Business & Finance > Business Encyclopedia

One of the most challenging tasks of a business may be organizing the people who perform its work. A business may begin with one person doing all the necessary tasks. As the business becomes successful and grows, however, there is generally more work, and more people are needed to perform various tasks. Through this division of work, individuals can become specialists at a specific job. Because there are several people—often in different locations—working toward a common objective, "there must be a plan showing how the work will be organized. The plan for the systematic arrangement of work is the organization structure. Organization structure is comprised of functions, relationships, responsibilities, authorities, and communications of individuals within each department" (Sexton, 1970, p. 23). The typical depiction of structure is the organizational chart. The formalized organizational chart has been around since 1854, when Daniel McCallum became general superintendent of the New York and Erie Railroad—one of the world's longest railroads. According to McCallum, since the railroad was one of the longest, the operating costs per mile should be less than those of shorter railroad lines. However, this was not the case. To remedy management inefficiencies, McCallum designed the first organizational chart in order to create a sense of structure. The organizational chart has been described as looking like a tree, with the roots representing the president and the board of directors, while the branches symbolize the various departments and the leaves depict the staff workers. The result of the organizational chart was a clear line of authority showing where subordinates were accountable to their immediate supervisors (Chandler, 1988, p. 156).

Traditional Structures

Traditional organizational structures focus on the functions, or departments, within an organization, closely following the organization's customs and bureaucratic procedures. These structures have clearly defined lines of authority for all levels of management. Two traditional structures are line and line-and-staff.

Line Structure

The line structure is defined by its clear chain of command, with final approval on decisions affecting the operations of the company still coming from the top down (Figure 1). Because the line structure is most often used in small organizations—such as small accounting offices and law firms, hair salons, and "mom-and-pop" stores—the president or CEO can easily provide information and direction to subordinates, thus allowing decisions to be made quickly (Boone and Kurtz, 1993, p. 259).

Line structures by nature are fairly informal and involve few departments, making the organizations highly decentralized. Employees are generally on a first-name basis with the president, who is often available throughout the day to answer questions and/or to respond to situations as they arise. It is common to see the president or CEO working alongside the subordinates. Because the president is often responsible for wearing many "hats" and being responsible for many activities, she or he cannot be an expert in all areas (Figure 1).

Line-And-Staff Structure

While the line structure would not be appropriate for larger companies, the line-and-staff structure is applicable because it helps to identify a set of guidelines for the people directly involved in completing the organization's work. This type of structure combines the flow of information from the line structure with the staff departments that service, advise, and support them (Boone and Kurtz, 1993, p. 259).

Line departments are involved in making decisions regarding the operation of the organization, while staff areas provide specialized support. The line-and-staff organizational structure "is necessary to provide specialized, functional assistance to all managers, to ensure adequate checks and balances, and to maintain accountability for end results" (Allen, 1970, p. 63).

An example of a line department might be the production department because it is directly responsible for producing the product. A staff department, on the other hand, has employees who advise and assist—making sure the product gets advertised or that the customer service representative's computer is working (Boone and Kurtz, 1993, p. 259).

Based on the company's general organization, line-and-staff structures generally have a centralized chain of command. The line-and-staff managers have direct authority over their subordinates, but staff managers have no authority over line managers and their subordinates. Because there are more layers and presumably more guidelines to follow in this type of organization, the decision-making process is slower than in a line organization. The line-and-staff organizational structure is generally more formal in nature and has many departments (Figure 2).

Matrix Structure

A variation of the line-and-staff organizational structure is the matrix structure. In today's workplace, employees are hired into a functional department (a department that performs a specific type of work, such as marketing, finance, accounting, and human resources) but may find themselves working on projects managed by members of another department. Organizations arranged according to project are referred to as matrix organizations. Matrix organizations combine both vertical authority relationships (where employees report to their functional manager) and horizontal, or diagonal, work relationships (where employees report to their project supervisor for the length of the project). "Workers are accountable to two supervisors—one functional manger in the department where the employee regularly works and one special project manager who uses the employee's services for a varying period of time" (Keeling and Kallaus, 1996,p. 43).

Since employees report to two separate managers, this type of organizational structure is difficult to manage—especially because of conflicting roles and shared authority. Employees' time is often split between departments and they can become easily frustrated if each manager requires extra efforts to complete projects on similar time-lines.

Because the matrix structure is often used in organizations using the line-and-staff setup, its also fairly centralized. However, the chain of command is different in that an employee can report to one or more managers, but one manager typically has more authority over the employee than the other manager(s). Within the project or team unit, decision making can occur faster than in a line-and-staff structure, but probably not as quickly as in a line structure. Typically, the matrix structure is more informal than line-and-staff structures but not as informal as line structures (Figure 3).

Centralization

Organizations with a centralized structure have several layers of management that control the company by maintaining a high level of authority, which is the power to make decisions concerning business activities. With a centralized structure, line-and-staff employees have limited authority to carry something out without prior approval. This organizational structure tends to focus on top-down management, whereby executives at the top communicate by telling middle managers, who then tell first-level managers, who then tell the staff what to do and how to do it. Since this organizational structure tends to be fairly bureaucratic, employees have little freedom. Centralized organizations are known for decreased span of control—a limited number of employees report to a manager, who then reports to the next management level, and so on up the ladder to the CEO (Figure 4).

Decentralization

Because individual creativity can be stifled and management costs can be greater in a centralized organization, many organizations continue to downsize into a more decentralized structure. Decentralization seeks to eliminate the unnecessary levels of management and to place authority in the hands of first-line managers and staff— thus increasing the span of control, with more employees reporting to one manager. Because more employees are reporting to a single manager than before, the managers are forced to delegate more work and to hold the employees more accountable. Downsizing has also helped to change the flow of communication, so that top management hears staff concerns and complaints in a more direct manner and management has a more hands-on approach. The hands-on approach involves less bureaucracy, which means there is a faster response to situations that demand immediate attention. This structure also takes advantage of bottom-up communication, with staff issues being addressed in a timely manner.

The restructuring generally takes place at the mid-management level. Because some middle managers have lost their jobs, been laid off, or simply taken advantage of early retirement and severance packages, their positions have been phased out, thus helping to reduce unnecessary costly salaries and increasing employee span of control. Many middle managers who stayed in their current "positions" found that their jobs have changed to being coaches, or team leaders, who allow their employees greater freedom in completing their work responsibilities (Csoka, 1995, p. 3).

The chain of command is the protocol used for communication within organizations. It provides a clear picture of who reports to whom. Quick decisions can be made in decentralized organizations because approval usually has to come only from the manager one level higher than the person making the decision. The chain of command involves line-and-staff employees, where the staff's job is completing the actual work and the line functions to oversee the staff (Figure 5).

Departmentalization

Organizations can be divided into various departments, or units, with individuals who specialize in a given area, such as marketing, finance, sales, and so forth. Having each unit perform specialized jobs is known as departmentalization. Departmentalization is done according to five major categories (Figure 6): (1) product, which requires each department to be responsible for the product being manufactured; (2) geographic, which divides the organization based on the location of stores and offices; (3) customer, which separates departments by customer type—for example, textbook companies that cater to both grade schools and community colleges; (4) functional, which breaks departments into specialty areas; and (5) process, which creates departments responsible for various steps in the production process (Boone and Kurtz, 1993).

Bibliography

Boone, Louis E., and Kurtz, David L. (1993). Contemporary Business, 7th ed. Fort Worth, TX: Dryden Press.

Chandler, Alfred D., Jr. (1988). "Origins of the Organization Chart," Harvard Business Review 88:2, (March/April):p. 156.

Csoka, Louis. (1995). "Redefining the Middle Manager," HR Executive Review, 2(2): 3-5.

Keeling, B. Lewis, and Kallaus, Norman F. (1996). Administrative Office Management, 11th ed., Cincinnati, OH: South-Western Educational Publishing.

Litterer, Joseph A. (1980). Organizations: Structure and Behavior. New York: Wiley.

Sexton, William P. (1970). "Organization Structure." In William P. Sexton, ed. Organization Theories. Columbus, OH: Charles E. Merrill.

[Article by: CHRISTINE JAHN]

 
Wikipedia: Organizational structure
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This article may require cleanup to meet Wikipedia's quality standards. Please improve this article if you can. (June 2008)

An organizational structure is a mostly hierarchical concept of subordination of entities that collaborate and contribute to serve one common aim.

Organizations are a variant of clustered entities. The structure of an organization is usually set up in many a styles, dependent on their objectives and ambience. The structure of an organization will determine the modes in which it shall operate and will perform.

Organizational structure allows the expressed allocation of responsibilities for different functions and processes to different entities. Ordinary description of such entities is as branch, site, department, work groups and single people. Contracting of individuals in an organizational structure normally is under timely limited work contracts or work orders or under timely unlimited employment contracts or program orders.

Contents

Operational organizations and Informal organizations

The set organizational structure may not coincide with facts, evolving in operational action. Such divergence decreases performance, when growing. E.g. a wrong organizational structure may hamper cooperation and thus hinder the completion of orders in due time and within limits of resources and budgets. Organizational structures shall be adaptive to process requirements, aiming to optimize the ratio of effort and input to output.

An effective organizational structure shall facilitate working relationships between various entities in the organization and may improve the working efficiency within the organizational units. Organization shall retain a set order and control to enable monitoring the processes. Organization shall support command for coping with a mix of orders and a change of conditions while performing work. Organization shall allow for application of individual skills to enable high flexibility and apply creativity. When a business expands, the chain of command will lengthen and the spans of control will widen. When an organization comes to age, the flexibility will decrease and the creativity will fatigue. Therefore organizational structures shall be altered from time to time to enable recovery. If such alteration is prevented internally, the final escape is to turn down the organization to prepare for a re-launch in an entirely new set up.

See Informal organization and Formal organization for more information.

Success factors

 This section does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (April 2009)

Common success criteria for organizational structures are:

  • Decentralized reporting
  • Flat hierarchy
  • High transient speed
  • High transparency
  • Low residual mass
  • Permanent monitoring
  • Rapid response
  • Shared reliability
  • Matrix hierarchy

etc.

History

Organizational structures developed from the ancient times of hunters and collectors in tribal organizations through highly royal and clerical power structures to industrial structures and today's post-industrial structures.

Organizational Structure Types

Pre-bureaucratic structures

Pre-bureaucratic (entrepreneurial) structures lack standardization of tasks. This structure is most common in smaller organizations and is best used to solve simple tasks. The structure is totally centralized. The strategic leader makes all key decisions and most communication is done by one on one conversations. It is particularly useful for new (entrepreneurial) business as it enables the founder to control growth and development.

They are usually based on traditional domination or charismatic domination in the sense of Max Weber's tripartite classification of authority.

Bureaucratic structures

Bureaucratic structures have a certain degree of standardization. They are better suited for more complex or larger scale organizations. They usually adopt a tall structure. Then tension between bureaucratic structures and non-bureaucratic is echoed in Burns and Stalker[1] distinction between mechanistic and organic structures.

Post-Bureaucratic

The term of post bureaucratic is used in two senses in the organizational literature: one generic and one much more specific [2]. In the generic sense the term post bureaucratic is often used to describe a range of ideas developed since the 1980s that specifically contrast themselves with Weber's ideal type Bureaucracy. This may include Total Quality Management, Culture Management and the Matrix Organization amongst others. None of these however has left behind the core tenets of Bureaucracy. Hierarchies still exist, authority is still Weber's rational, legal type, and the organisation is still rule bound. Heckscher, arguing along these lines, describes them as cleaned up bureaucracies [3], rather than a fundamental shift away from bureaucracy. Gideon Kunda, in his classic study of culture management at 'Tech' argued that 'the essence of bureaucratic control - the formalisation, codification and enforcement of rules and regulations - does not change in principle.....it shifts focus from organizational structure to the organization's culture'.

Another smaller group of theorists have developed the theory of the Post-Bureaucratic Organization. [4], provide a detailed discussion which attempts to describe an organization that is fundamentally not bureaucratic. Charles Heckscher has developed an ideal type Post-Bureaucratic Organization in which decisions are based on dialogue and consensus rather than authority and command, the organization is a network rather than a hierarchy, open at the boundaries (in direct contrast to culture management); there is an emphasis on meta-decision making rules rather than decision making rules. This sort of horizontal decision making by consensus model is often used in Housing cooperatives, other Cooperatives and when running a non-profit or Community organization. It is used in order to encourage participation and help to empower people who normally experience Oppression in groups.

Still other theorists are developing a resurgence of interest in Complexity Theory and Organizations, and have focused on how simple structures can be used to engender organizational adaptations. For instance, Miner and colleagues (2000) studied how simple structures could be used to generate improvisational outcomes in product development. Their study makes links to simple structures and improviseal learning. Other scholars such as Jan Rivkin and Sigglekow[5], and Nelson Repenning [6] revive an older interest in how structure and strategy relate in dynamic environments.

Functional Structures

The functional structure groups employees together based upon the functions of specific jobs within the organization. For example, a division of an internet service provider (ISP) with a functional organizational structure might be as follows:

Vice President

  • Sales Department (sales function)
  • Customer Service
  • Accounting Department (accounting function)
  • Administration Department (administration function)

Matrix Structure

Matrix structure groups employees by both function and product. This structure can combine the best of both separate structures. A matrix organization frequently uses teams of employees to accomplish work, in order to take advantage of the strengths, as well as make up for the weaknesses, of functional and decentralized forms. An example would be a company that produces two products, "product a" and "product b". Using the matrix structure, this company would organize functions within the company as follows: "product a" sales department, "product a" customer service department, "product a" accounting, "product b" sales department, "product b" customer service department, "product b" accounting department. Matrix structure is the most complex of the different organizational structures.

  • Weak/Functional Matrix: A project manager with only limited authority is assigned to oversee the cross- functional aspects of the project. The functional managers maintain control over their resources and project areas.
  • Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and the functional managers. It brings the best aspects of functional and projectized organizations. However, this is the most difficult system to maintain as the sharing power is delicate proposition.
  • Strong/Project Matrix: A project manager is primarily responsible for the project. Functional managers provide technical expertise and assign resources as needed.

Among these matrixes, there is no best format; implementation success always depends on organisation's purpose and function.

Organizational Circle: Moving back to flat

The flat structure is common in enterprenerial start-ups, university spin offs or small companies in general. As the company grow, however, it becomes more complex and hierarchical, which leads to an expanded structure, with more levels and departments.

Often, it would result in bureaucracy, the most prevalent structure in the past. It is still, however, relevant in former Soviet Republics and China, as well as in most governmental organizations all over the world. Shell Group used to represent the typical bureaucracy: top-heavy and hierarchical. It featured multiple levels of command and duplicate service companies existing in different regions. All this made Shell apprehensive to market changes [7], leading to its incapacity to grow and develop further. The failure of this structure became the main reason for the company restructuring into a matrix.

Starbucks is one of the numerous large organizations that successfully developed the matrix structure supporting their focused strategy. Its design combines functional and product based divisions, with employees reporting to two heads [8]. Creating a team spirit, the company empowers employees to make their own decisions and train them to develop both hard and soft skills. That makes Starbucks one of the best at customer service.

Some experts also mention the multinational design [9], common in global companies, such as Procter & Gamble, Toyota and Unilever. This structure can be seen as a complex form of the matrix, as it maintains coordination among products, functions and geographic areas.

In general, over the last decade, it has become increasingly clear that through the forces of globalization, competition and more demanding customers, the structure of many companies has become flatter, less hierarchical, more fluid and even virtual. [10]

Team

One of the newest organizational structures developed in the 20th century is team. In small businesses, the team structure can define the entire organization [11]. Every one of Whole Foods Market' stores, the largest natural-foods grocer in the US developing a focused strategy, is an autonomous profit centre composed of an average of 10 self-managed teams, while team leaders in each store and each region are also a team. Larger bureaucratic organisations can benefit from the flexibility of teams as well. Xerox, Motorola, and DaimlerChrysler are all among the companies that actively use teams to perform tasks.

Network

Another modern structure is network. While business giants risk becoming too clumsy to proact, act and react efficiently [12], the new network organisations contract out any business function, that can be done better or more cheaply. In essence, managers in network structures spend most of their time coordinating and controlling external relations, usually by electronic means. H&M's is outsourcing its clothing to a network of 700 suppliers, more than two-thirds of which are based in low-cost Asian countries. Not owning any factories, H&M can be more flexible than many other retailers in lowering its costs, which aligns with its low-cost strategy[13].

Boundaryless structure

The most radical concept in today's organisational design is the concept of 'boundarylessness', which seeks to overcome traditional boundaries between layers of management (vertical), functional areas (horizontal), as well as geographic boundaries. Some claim the boundaryless structure is a combination of team and network structures, with the addition of temporariness [14]. Ikea, the world's largest furniture manufacture, has been successful in implementing the boundaryless structure.The company works closely with suppliers by providing technical assistance, leasing them equipment, and giving advice. It also refined the role of the customer, putting responsibility on them to cart the furniture home and assemble it themselves. As a result, the company can offer lower prices [15], which supports its low-cost focused strategy.

Virtual

A special form of boundaryless organisation is virtual. It works in a network of external alliances, using the Internet. This means while the core of the organisation can be small but still the company can operate globally be a market leader in its niche. According to Anderson, because of the unlimited shelf space of the Web, the cost of reaching niche goods is falling dramatically. Although none sell in huge numbers, there are so many niche products that collectively they make a significant profit, and that is what made highly innovative Amazon.com so successful [16].

As we can see, organizations develop, modify and change their structures so that they align with their strategies. And the main trend for the last decades seems to be coming back to flatter structures. Although this structure seems suitable for small companies only, large organizations can take elements of it in harder times. Being at risk of losing profits or even going bankrupt due to the major financial downturn today, a lot of companies are moving to flatter structures [17]. Not only are they unable to maintain multiple management levels any more, they are also in need of a more flexible structure to cope with new threats.

See also

References

  1. ^ Burns, T. and G. Stalker. (1961) The Management of Innovation. London: Tavistock.
  2. ^ Grey C., Garsten C., 2001, Trust, Control and Post-Bureaucracy, Sage Publishing)
  3. ^ Heckscher C. (Editor), Donnellon A. (Editor), 1994, The Post-Bureaucratic Organization: New Perspectives on Organizational Change, Sage Publications
  4. ^ Heckscher C. (Editor), Donnellon A. (Editor), 1994, The Post-Bureaucratic Organization: New Perspectives on Organizational Change, Sage Publications
  5. ^ Nicolaj Sigglekow and Jan W. Rivkin, October 2003, Speed, Search and the Failure of Simple Contingency, No. 04-019
  6. ^ Repenning, N. (2002). A Simulation-Based Approach to Understanding the Dynamics of Innovation Implementation. Organization Science, 13, 2: 109-127.
  7. ^ Grant, R.M. (2008). History of the Royal Dutch/Shell Group. Available at: http://www.blackwellpublishing.com/grant/docs/07Shell.pdf (accessed 20/10/08)
  8. ^ (Starbucks.com (2008). Starbucks Coffee International. Available at: http://www.starbucks.com/aboutus/international.asp (accessed 20/10/08))
  9. ^ Robbins, S.F., Judge, T.A. (2007). Organizational Behaviour. 12th edition. Pearson Education Inc., p. 551-557.
  10. ^ Gratton, L. (2004). The Democratic Enterprise, Financial Times Prentice Hall, pp. xii-xiv.
  11. ^ Robbins, S.F., Judge, T.A. (2007). Organizational Behaviour. 12th edition. Pearson Education Inc., p. 551-557.
  12. ^ Gummesson, E. (2002). Total Marketing Control. Butterworth-Heinemann, p. 266.
  13. ^ Capell, K. H&M Defies Retail Gloom. Available at: http://www.businessweek.com/globalbiz/content/sep2008/gb2008093_150758.htm (accessed 20/10/08).
  14. ^ Pang, L. (2002). Flat and Boundaryless Structures. Available at: http://members.aol.com/lpang10473/ldc_flat.htm (accessed 20/10/08)).
  15. ^ Pang, L. (2002). Flat and Boundaryless Structures. Available at: http://members.aol.com/lpang10473/ldc_flat.htm (accessed 20/10/08)).
  16. ^ Anderson, C. (2007). The Long Tail. Random House Business Books, pp. 23, 53.
  17. ^ Ramienski, D. (2008). Looking For a Holistic Approach. Available at: http://www.federalnewsradio.com/?nid=169&sid=1377323 accessed 20/10/08)

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Business Dictionary. Dictionary of Business Terms. Copyright © 2000 by Barron's Educational Series, Inc. All rights reserved.  Read more
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