The Organizational Structures Guide

What is an Organizational Structure?

The foundation on which an organization’s operations are built is known as its organizational structure. It is commonly referred to as an organization’s or company’s “manual of operations,” as it explains how it was founded and how it works or performs. This includes a variety of procedures such as recruitment, conflict resolution, and other decision-making procedures, among others. It explains how work is done, who does what, and who is responsible for what, all while keeping the organization’s goals in mind.

Importance of Organizational Structure

Without structure or order, an organization cannot thrive or even exist. Irrespective of the type of organization or the purpose for its existence, it requires a framework. Its development could occur at the start of the organization, while it is still being established, or later in the organization’s life, when it is already functional. Most of the time, the evolution of a structure inside an organization is a continuous or ongoing process, with adjustments made to adapt to various conditions that directly (or indirectly) affect the members or the organization as a whole.

Why is it critical to have an organizational structure? Here are some concrete reasons:

• The members of an organization gain “organizational” identity as a result of the structure. Members will have an instinctual sense of belonging to something substantial or a cohesive unit. It depicts the working relationships that are in existence in the organization’s work flow, so employees know exactly where they are intended to be and what their responsibilities are. As a result, any ambiguities about responsibilities and accountability are resolved.
• Clear guidelines are provided by an organizational structure. In essence, it establishes the boundaries of acceptable behaviour for members of an organization. Members consult the structure to gain a better understanding of how things work or what rules should apply in specific scenarios. This ensures that the employees’ and the company’s or organization’s operational efficiency improves.
• Decision-making is aided by an organizational structure. After all, it is regarded as a guidebook or operations manual. Decisions are easier to make when they have a firm foundation – the structure.
• The growth of an organization is aided by an organizational structure. It provides direction on how specific topics or difficulties must be dealt precisely because it serves as the company’s guide.

Elements of Organizational Structure

A well-designed organizational structure not only specifies functions, hierarchy, roles, and duties, but it also ensures that staff/teams are working toward the same organizational goals. Poor organizational design or structure can lead to major problems in the workplace, such as ambiguous positions, a lack of trust in the team and superiors, a rigid work environment, delayed and ineffective decision-making, and so on. Low productivity and turnover are also caused by the aforementioned issues.

As a result, it’s critical to look for organizational design and structure that meet a company’s needs. In addition, certain aspects of organizational design are referred to as important factors. The following are the six main elements of organizational design and structure:

1. Work Specialization 

The first element of organizational structure is work specialization. Business executives must think about the job functions and procedures that come with each position. The role of work specialization elements is to divide work duties among distinct jobs and allocate them to definite levels.  

For example, giving the first person on the assembly line the task of putting the first three components together and the decals would be applied by the second person on the assembly line, and the item would be placed in the box by the third. 

In addition to this, below are some tools that will help in designing better work specialization: 

• Job characteristics model (JCM) 

Job characteristics model (JCM) is another useful tool for job design, as it takes into account both the employees’ preferences and the required work structure. Job design should be based on five key dimensions: skill diversity, task identity, task significance, autonomy, and feedback. 

• Work teams 

Work teams are extremely effective for completing complex and time-consuming tasks that involve expertise from several departments, personnel, or the company as a whole. 

• Job rotation 

Job rotation is the process of transferring personnel from one task to another in a structured way. 

However, in practice, job rotation caused more difficulties than it solved, such as a decrease in employee satisfaction and motivation. Therefore, it’s currently being used as a training tool. 

• Job enlargement 

Job enlargement entails expanding the total amount of tasks given to and completed by employees. It also motivates employees by giving them more opportunities to engage in the organization’s operations. It also has some drawbacks: more tasks require more wage payments, which means more cost; overdoing it may result in employee discomfort. 

• Job enrichment 

It’s similar to job enlargement, but it’s a broader strategy. Job enrichment increase the quantity of tasks and the amount of control you have over them. 

Managers must delegate power as well as work responsibilities in this situation. 

2. Departmentalization 

Once the work specialization procedure is completed, the tasks have to be grouped into common tasks. For effective collaboration, departments with common activities will be established. There are five types of departmentalization that are commonly used: 

• Functional departmentalization 

It is one of the most popular types of departmentalization, in which comparable responsibilities are placed together in a single department, such as marketing, finance, and human resources. The efficiencies gained from bringing together persons with identical expertise and knowledge could be helpful, and also cooperation with functional areas will be enhanced. However, cross-departmental collaboration can be difficult, and perspectives on organizational goals will be constrained. 

• Product departmentalization 

It’s divided into categories based on product lines. Depending on his or her specialization, each manager will be in charge of a specific region inside the firm. Managers who concentrate in a specific area will have a broader perspective and will find it easier to access work-unit performance. The decision-making process will be much quicker here than it would be in a functional department. The redundancy of functions, on the other hand, may increase the cost. Coordination across departments will be difficult, and there will be restricted views of corporate goals. 

• Geographical departmentalization 

This type of departmentalization is beneficial to large enterprises because it allows all activities conducted in a region to be managed collectively. The various regions are divided into segments. Managers will be more effective and efficient in dealing with unique regional concerns as they arise. It could better respond to and serve the needs of various markets. However, there may be duplication of functions and resources, raising costs. 

• Matrix departmentalization 

It’s a system that combines two or more types of departmentalization; the most typical variants combine functional and product, with employees reporting to both functional and product managers. It will boost cross-functional collaboration. It will be helpful to manage vast and complex jobs effectively and efficiently. It will necessitate a high level of management expertise as well as a high level of coordination. It may also lead to a rise in the number of disputes. 

• Customer departmentalization 

This type of departmentalization divides an organization’s activities into categories based on its customers. It is advantageous for a company to structure itself according to the potential customers it serves. It will be beneficial to concentrate on and meet the needs of the clients. However, there will be duplication of resources, and they may have difficulty achieving cross-departmental coordination. 

3. Chain of command 

Another significant element of an organization structure is the order in which authority and power are used and delegated from top management to lower management. It also guarantees that each employee’s functions and responsibilities are clearly assigned at all levels.  

Formal organizations are often linked with authority. The other bases of power, on the other hand, work and become effective in non-formal contexts as well. Power may or may not have reasonable legal implications, whereas authority has such implications. 

Organizations have a more structured approach to authority, which is guided by a number of various forces, procedures, and restrictions. It flows downhill and can only be used in a functional, well-defined manner. Some forms of power, on the other hand, are more amorphous. They’re more adaptable and open in their approach. They flow not only downwards, but also above and sideways, as seen by subordinates’ ability to decline to cooperate with superiors. There are no set superiors and subordinates in power interactions founded on sources other than authority. 

4. Span of control 

The term “span of management” is also known as “span of control” “span of supervision” “span of responsibility” and “span of authority”. The number of employees reporting directly to one supervisor/manager is known as the span of control in a company. According to popular belief, the larger the span, the more effective the organization. It establishes the maximum number of employees a manager can manage effectively and efficiently. 

According to modern organizational experts, the ideal number of subordinates per supervisor or manager in a company is 15 to 20. Some specialists with a more traditional perspective, on the other hand, say that 5-6 subordinates per supervisor or manager is the appropriate number. In general, however, the optimal span of control is determined by a number of factors, including: 

• Organization size: The size of a company has a significant impact. The span of control of larger organizations are often wider than those of smaller ones. 
• Nature of the organization: An organization’s culture will have an impact; a more relaxed, flexible culture is associated with a wider scope, whereas a hierarchical culture is associated with a confined scope. When deciding, it’s crucial to think about the organization’s current and desired culture. 
• Nature of job: Activities/tasks that are routine and low in complexity require less supervision than jobs that are intrinsically complex, poorly defined, and require frequent decision making. Consider making it larger for occupations that require less monitoring and smaller for ones that are more demanding. 
• Managerial skills and competencies: More experienced supervisors or managers have a larger range of skills and competencies than less experienced supervisors. It’s also a good idea to think about how much technical work supervisors and managers are accountable for (non-managerial duties). 
• Employees’ competencies and skills: Less experienced personnel require more training, direction, and delegation (narrower supervision); more experienced employees require less training, direction, and delegation (less/wider supervision). 

• Employee and supervisor communication: A narrower span of control is consisting of more frequent interaction/supervision. A broader span of control is characterized by less interaction, such as managers simply addressing concerns and assisting employees with the problems. The style of engagement you want your supervisors and managers to have with their employees should match the level of authority they have. 

In addition, direct reporting at the executive and senior management levels should be given special attention. These employees often have fewer direct reports than supervisors and managers, as having too many direct reports at these levels can complicate communication and lengthen response times for critical decisions. 

5. Centralization and Decentralization 

Centralization is defined as a process in which decision-making power resides in a few hands. All major decisions and activities at the lower level, as well as all subjects and actions at the lower level, are subject to senior management approval. “Centralization,” according to Allen, is the systematic and consistent reservation of authority at central points in the organization. The following are some of the implications of centralization:  

• Reservation of decision-making power at the top level. 

• Operating authority is reserved for middle-level managers. 
• Reservation of lower-level operations based on top-level directives. 

The top management makes the critical and key decisions in a centralized system, and the lower levels carry out the top management’s directives. 

Decentralization, on the other hand, is the systematic delegation of authority at all levels of management and throughout the company. In a decentralized company, senior management retains responsibility over critical decisions and policy formulation for the entire company. The rest of the authority could be allocated to middle and lower management. 

The amount of authority granted to the lowest level will determine the degree of centralization and decentralization. According to Allen, “Decentralization refers to a systematic effort to delegate authority to the lowest level, except that which can be controlled and exercised at central points,”. 

Delegation is not the same as decentralization. Decentralization is, in fact, an extension of delegation. The extent of decentralization grows broader, and authority is distributed to the lowest level of administration. 

Delegation of authority is a comprehensive procedure that occurs when one person transfers authority to another. While decentralization is complete only when the maximum amount of delegation has occurred. For example, a company’s general manager is in charge of receiving leave applications for the entire organization.

The general manager delegated this task to the personnel manager, who is now in charge of receiving applications for leave. Delegation of authority has occurred in this case. On the other hand, if the general manager delegated this ability to all departmental heads at all levels at the request of the people manager, decentralization has occurred. 

6. Formalization 

Larger companies define functions more specifically, whereas smaller organizations have more informal components. Because individuals in smaller firms may fill various roles as needed, less formal requirements are used. To ensure that the appropriate things are done on schedule and accurately, larger organizations must formalize elements. 

Specific work responsibilities can also be considered as a form of formalization. For example, payroll may be done in a very specific method to guarantee that everyone is paid on time and with the proper withholding. The sales department may be less organized, allowing each representative to develop his own organic method in order to succeed. 

Evolution of Organizational Structures  

Ever since people began to engage in commerce or business, establishing businesses of various sizes, he has instinctively established structures, even if he was not aware of it at the time. Even in ancient times, when hunters went out in teams, there was a specific order in which they completed their hunting duties. Unbeknownst to them, an “organizational structure” has already been established. 

Thinkers and industry leaders explored ways to boost output while preserving efficiency throughout the production process during the 1900s, when the concept of mass production was beginning to acquire traction. 

Fayol introduced the concepts of command and control, work specialization, job separation, power, and authority. This bolstered the argument made by another thinker, Max Weber, who popularised the term of bureaucracy. This time, independent of the identity of the person or individual in those positions, it is the positions or roles that are given special powers or authority. 

The Transition from a Centralized to a Bureaucratic Structure: 

Task specialisation and standardisation were not applied prior to the application of bureaucracy to organisational structures, implying that everything was centralised. When applied to mid-sized to large enterprises, this structure no longer works as well. As the workforce – and operations – expands, task delegation becomes increasingly important. 

The classical or traditional perspective of organisational structures is said to be bureaucratic. Standardization has been implemented in this type of structure.  

The Characteristics of Traditional Bureaucratic Structures: 

• There is a degree of standardisation present. 
• There are several levels of management and stages of decision-making. Many levels of administration are formed in the spirit of delegation. In the case of a huge retail chain, for example: 
• Managers of specific stores or branches are known as store or branch managers. 
• Area managers are in charge of all stores in a single city, while regional managers are in charge of all stores in a certain state or area. 
• Senior executive managers are the highest-ranking members of a company’s management team. 
• There are clearly established policies and processes in place. 
• Top management holds the reins of power. 

Pros and Cons of Traditional Bureaucratic Structures: 

Here are the benefits of this structure: 

• Clearly defined roles and responsibilities: Everyone learns who makes the decisions and who has the last say, as well as their own duties. 
• A methodical approach to making decisions:  Because of the clear line of responsibility, management and other business choices are made in a more structured manner. Making choices is also faster because top management has the authority. 
• Top management will have more control. Top-level managers have complete authority over all topics pertaining to the organisation, giving them complete command and control over everything that occurs. 

Cons of the structure: 

• The environment is restrictive: This type of structure’s rules, procedures, and policies are sometimes overly restrictive and severe. All movements should follow the norms, leaving no opportunity for originality and making it difficult for members of the organisation to express themselves. 
• Resistance to change:  The rules that were in place in the start tend to last a long time. They have a tendency to cling to what they have “already begun.” When the organisation faces unexpected setbacks, this inflexibility is likely to produce problems. 

Types of Organizational Structure 

Organizations have changed and decided to move beyond traditional structures in order to meet difficulties that these traditional ideas were unable to address. Organizational architectures are divided into two categories: centralised and decentralised. Using just these two classes for every feasible team structure, on the other hand, maybe excessively wide. As a result, specialists have devised seven different organisational models, each of which can be either centralised or decentralised: 

Hierarchical Structure 

The most common sort of organisational structure is a hierarchical one. Its chain of command is the one that most people think of when they consider of a corporate entity: power runs from the board of directors down to the CEO, and then through the rest of the organisation from top to bottom. The hierarchical structure becomes a centralised organisational structure as a result of this. Below are the few critical factors that should be considered while building a hierarchical organizational structure: 

Function – Employees are divided into groups based on the functions they perform. A functional org chart containing finance, technical, HR, and admin groups is shown in the below image. 

Geography – Employees are divided into groups based on their geographic location. Employees in India, for example, may be classified by state. If the company is global, the grouping could be done by country. 

Product – If a company produces many goods or provides multiple services, it can be divided into categories based on the product or the service. 

Some benefits of a hierarchical structure: 

• It defines reporting lines, project organisation, and authority division. 
• It explains the business hierarchy and promotion framework, fostering high-quality work. 
• It aids in the specialisation of each employee’s work. 
• It helps employees within a team form stronger bonds with one another. 

Drawbacks of a hierarchical structure: 

• Bureaucratic roadblocks may cause project completion to be delayed, as well as prevent staff from taking risks. 
• It may encourage employees to put their department and direct supervisors first, rather than the organisation as a whole. 
• It can make employees feel as if they have no say in how their tasks are managed. 

Matrix Structure 

In a matrix organisational structure, the reporting lines are set up as a grid, or matrix, rather than a typical hierarchy. It is a style of organisational management in which employees with similar skills are grouped together for work assignments, resulting in several managers to report to, by the same individual. As the horizontal lines in this matrix organisation image below show, this centralised organisation style allows employees to migrate from one department to another as needed. 

Benefits of a matrix organization: 

• Supervisors have the opportunity to explore the most competent employees for a project. 
• It enables for a dynamic org structure with varying job responsibilities. 
• Employees will learn and develop talents outside of their core responsibilities. 

Drawbacks of a matrix organization structure: 

• It’s possible that the goals for project organisation and department organisation will be at odds. 
• The organisational chart is subject to change on a regular basis. 

Horizontal/Flat Structure 

This is a form of organisational structure that is commonly used by small businesses and start-ups. This concept is nearly tough to apply to larger firms with numerous projects and personnel. 

The most essential aspect of this structure is that it eliminates multiple tiers of middle management. Employees are able to make judgments rapidly and autonomously as a result of this. As a result, a well-trained workforce can be more productive by directly participating in decision-making. 

This works effectively for small businesses because work and effort are relatively transparent in a small company. This isn’t to say that employees don’t have bosses or individuals to report to. The only difference is that decision-making authority is shared and employees are held accountable for their choices. 

To summarise, it is critical to understand your company’s current organisational structure before deciding on the most suitable one. 

Divisional Structure 

A divisional organisation, that falls under a centralised structure, is more prominent for enterprise firms with several departments, markets, or territories. Each division in a divisional organisational structure corresponds to either products or geography. Each division is equipped with the resources and functions required to support the product line and geographic area. 

The multi-divisional organizational structure is another type of divisional organizational layout, also referred to as M-form. It’s a legal structure in which one parent business owns a number of subsidiaries, each of which utilises the parent company’s brand and identity. 

The pros of a divisional structure are: 

• Various departments have some autonomy in how they operate in relation to the rest of the firm. 
• It is more adaptive to the needs of the customer. 
• Individual departments now have more authority and scope to experiment. 

Some drawbacks of a divisional structure are: 

• It runs the risk of resource duplication by accident. 
• It promotes lack of communication and engagement across departments. 
• Rather than uniting the organisation against external competitors, it may result in stimulating internal competition between departments. 

Network Structure 

In the modern scenario, a network structure is particularly well suited to a large, multi-city, or even multinational company. It not only coordinates relationships between departments in a single office location, but also between multiple locations and their teams of freelancers, third-party organisations to whom specific activities are outsourced, and more. They are not only less hierarchical than other structures, but they are also more decentralised and flexible. 

The network structure’s concept is based on social networks. Its structure relies on open communication and credible internal and external partners. Because it has fewer levels, more control, and a bottom-up decision-making flow, the network structure is considered more agile than other topologies. 

Owing to its intricacy, using a network organisational structure can be a disadvantage at times. The network organizational structure below illustrates the quick communication between entities: 

Line Organizational Structure 

One of the most rudimentary types of organisational structures is the line structure. Its authority is delegated from the top to the bottom. Unlike other structures, these groups do not provide specialised or supported services. 

Each department head and the chain of command have control over their respective departments. Its most distinguishing feature is its self-contained department structure. Because of the cohesive structure, line officers can make independent decisions. 

The fundamental benefit of a line organisational structure can be characterised as excellent communication, which provides organisational stability. 

Team-based Organizational Structure 

Teams working toward a common goal while completing their respective jobs make up team-based organisational structures. They are less hierarchical, and their structures are more flexible, promoting problem-solving, decision-making, and teamwork. 

Many sectors have altered as a result of team organisation frameworks. Globalization has enabled people in all industries around the world to work together and to produce goods and services. Manufacturing businesses, in particular, must collaborate with suppliers all around the world to keep costs low while delivering high-quality products. 

Is there a best Organizational Structure?  

Not all businesses are created equal. Organizations have a variety of strategic needs, and an organisational structure that supports business activities is necessary to meet those needs. We’ve already heard about many organisational structures, ranging from tight bureaucratic organisations to lose and free cross-functional systems. What works for one company may not work for another, and in many circumstances, companies will use many structures to accomplish their goals. Hence, there is no best structure as such.  

We’ve spent some time learning about the elements of an organisational structure and the different types of structures that companies can use to organise their work and the workforce. Some of the structures, such as the bureaucratic model, are quite tight and authoritarian, while others, such as the flatter organisational models, are very loose and free-wheeling. They all have their own set of benefits and drawbacks. 

When managers mix the fundamental components and features of an organisational structure, the result has particular characteristics that are best understood through the lens of  organic and operational organisations. 

Formality, specialisation, and standardisation are low in organic organisations. Their activities are well-integrated and their decision-making is decentralised. The organic model is often flat, with cross-hierarchical and cross-functional teams, as well as a comprehensive information network that includes lateral and upward communication along with  downward communication. 

A consulting firm is a good example of an organisation with an organic structure. A consulting firm answers to customer concerns as they arise, and those concerns alter as the business environment changes. Consulting organisations seek to respond fast to change, so they use an organic structure to be nimble and respond to their clients’ needs. 

Operational organisations feature formal, standardised control mechanisms and centralised decision-making. They are, in fact, bureaucracies. 

In stable, simple conditions, operational organisations thrive. Managers use formal channels and formal meetings to integrate the functions of clearly defined departments. Many hierarchical layers and a focus on reporting relationships are common features. 

A company’s strategy, size, technology, and environment should all be reviewed on a regular basis to see if the organization’s structure still supports the business. If anything needs to be changed, it should be altered. 

Alignment of Organizational Structure with Business Strategy  

The flexibility to adapt and realign as needed is a hallmark of a well-aligned organisation. An organization’s structure must be adjusted to reflect new economic realities while maintaining core strengths and competitive distinction to ensure long-term existence. Closing structural gaps that impede organisational efficacy is part of the organisational realignment. 

The degree to which four business aspects are aligned is the key to profitable performance: 

Leadership: Individuals in charge of planning, implementing, and tracking the strategy’s progress. 

Organization: The structure, processes, and operations that are used to implement the strategy. 

Jobs: The duties and tasks that are required. 

People: The knowledge, skills, and abilities required to accomplish the plan. 

Understanding the interdependencies of these business pieces, as well as the necessity for them to respond to change rapidly and strategically, is critical for high-performance success. Outstanding performance is more likely when these four aspects are in sync. 

Time and critical thinking are required to achieve alignment and maintain organisational capacity. Organizations must determine the outcomes that the new structure or process will create. Typically, this necessitates recalibrating the following: 

• Which functions are mission-critical and can be reduced or eliminated? 

• Existing role requirements, as well as new or changed roles that are required. 

• Accountabilities and key metrics 

• Constant flow of vital information. 

• Organizational decision-making authority. 

Growth Stages: The Impact on Organizational Structure  

Organizations usually mature in a predictable and constant way. They must deal with a variety of issues as they progress through various stages of development. Different structures, management skills, and priorities are required as a result of this process. 

The following are the four stages of development in the life cycle of an organisation: 

• Start-up 

An inconsistent growth rate, a basic structure, and informal processes characterise the early stages of development. The organisation is often highly centralised at this point. Start-up companies such as “dotcom” enterprises are a great example. 

• Expansion 

Rapid, positive growth and the emergence of formal systems characterise the expansion stage. At this level, organisations tend to focus on centralization with limited delegation. 

• Consolidation 

Slower expansion, departmentalization, defined processes, and mild centralization characterise the consolidation stage. 

• Diversification  

When older, larger companies undergo a major expansion, bureaucracy, and decentralisation, they enter the diversification stage. 

To enhance success, an organization’s practises and strategies may need to be well planned and well-conceived as it expands or moves from one stage of development to another. It is impossible to predict whether or not a company will progress from one stage to the next. In fact, discovering cues that an organisation is in a risky or unhealthy stage and making appropriate structural improvements is a key opportunity for leadership. 

Organizational Structures FAQs 

• What is an organizational design? 

  Organizational design, also known as the organizational structure is a strategy that analyses and realigns dysfunctional components of the workflow, procedures, structures, and systems to meet contemporary company requirements and goals. 

• Organizational structure should follow a pre-defined strategy? 

  Not any longer! Competitive challenges, new business possibilities, a turbulent economy, new legislation, technology advancements, changes in your customers’ businesses, and other factors can (and should) cause strategies to evolve constantly. 

• Can the organizational structure be considered academic or is much more significant? 

  This isn’t an academic exercise! The importance of structure cannot be undermined. The organisational structure used has an impact on how the firm presents itself, serves clients, and offers career aspirations for its employees, among other things. 

• What is an organizational structure chart? 

  Organizational structures are typically depicted in the form of a pyramid chart or diagram, with the most powerful members of the company at the top and the least powerful people at the bottom. 

• What are the key elements of an organizational structure? 

  The specific activities directed in order to achieve an organization’s goals, such as rules, roles, and duties, and how information flows across levels within the corporation, are all key parts of an organisational structure.