TYPES OF ORGANIZATIONAL STRUCTURES

Organizational structure

refers to the way in which an organization’s activities are

divided, grouped, and coordinated into relationships between managers and employees,

managers and managers, and employees and employees. An organization’s

departments can be formally structured in three major ways: (1) by Function (2) by Product/Market
(3) or in Matrix Form (1)

FUNCTIONAL ORGANIZATION STRUCTURE

Organization by function brings together in one department everyone engaged in one activity or several
related activities that are called functions. For example, an organization divided by function might have
separate manufacturing, marketing, and sales departments. A sales manager in such an organization
would be responsible for the sale of all products manufactured by the firm. Advantages:

Functional organization

is perhaps the most logical and basic from of departmentalization (see attached figure A). It is used
mainly by smaller firms that offer a limited line of products because it (1) makes efficient use of
specialized resources. Another major advantage of a functional structure is that (2) it makes supervision
easier, since each manager must be expert in only a narrow range of skills. In addition, (3) a functional
structure makes it easier to mobilize specialize skills and bring them to bear where they are most
needed.

Disadvantqages:

As an organization grows, either by expanding geographically or by broadening its product line, some of
the disadvantages of the functional structure begin to surface. Because (1) functional managers have to
report to central headquarters, it can be difficult to get quick decisions. (2) It is often harder to
determine accountability and judge performance in a functional structure. If a new product fails, who is
to blame-research and development, production, or marketing? (3) Finally, coordinating the functions
of members of the entire organization may become a problem for top managers. Because members of
each department may feel isolated from (or superior to) those in other departments,(4) they may have
difficulty working with others in a unified way to achieve

the organization’s goals. For example, the manufacturing department may concentrate
on meeting cost standards and delivery dates and neglect quality control. As a result, the service
department may be flooded with complaints. In short, a functional structure

can be a difficult setting in which managers must coordinate employees’ activities.

(2)

PRODUCT/MARKET ORGANIZATION STRUCTURE Product

or

market organization,

often referred to as organization by division, brings together in one work unit all those involved in the
production and marketing of a product or a related group of products, all those in a certain geographic
area, or all those dealing with a certain type of customer. Most large, multi product companies, such as
General Motors, have a product or market organization structure. At some point in an

organization’s existence, sheer size and diversity of products make functional

departments too unwieldy.

When a company’s depart

mentalization becomes too

complex for coordinating the functional structure, top management will generally create

semiautonomous

division.

In each division, management and employees design,

produce, and market their own products.

Unlike a functional department a division resembles a separate business.

The division head focuses primarily on the operations of his or her division, is accountable for profit or
loss, and may even compete with other units of the same firm. But a division is unlike a separate
business in one crucial aspect: the division manager must still report to central headquarters.

A product/market organization can follow one of three patterns

. (1) Most obvious is division by product

, shown in attached figure B. (2) Division by geography

, the organization is divided according to the different ways customers use products see figure D).

Advantages:

Organization by division(Product/Market) has several advantages. (1) Because all the activities, skills,
and expertise requisites to produce and market particular products are grouped in one place under a
single head, a whole job can more easily be coordinated and (2) high work performance maintained. (3)
In addition, both the quality and the speed of decision making are enhanced because decisions made at
the divisional level are closer to the scene of the scene of action. At the same time, (4) the burden on
central management is eased because divisional managers have greater latitude to act. (5) Perhaps most
important, accountability is clear. (6) The performance of divisional

management can be measured in terms of the division’s profit or loss.

Disadvantages:

The divisional structure does have some disadvantages, however. (1) The interests of the division may
be placed ahead of the goals for the total organization. For example, because they are vulnerable to
profit and loss performance reviews, division heads may take short-term gains at the expense of long-
range profitability. (2) In addition, administrative expenses increase because each division has its own
staff members and specialists, leading to costly duplication of skills.

(3) MATRIX ORGANIZATION STRUCTURE/MULTIPLE COMMAND SYSTEM

The matrix structure,

sometime referred to as a “multiple command system,” is a

hybrid

that attempts to combine the benefits of both types of designs while avoiding their drawbacks. An
organization with a matrix structure has two types of structure existing simultaneously. Employees have
in effect two bosses-that is, they work in two chains of command. One

chain of command is functional or divisional, the type diagrammed vertically in the

divisions or functional department into a project or business team led by a project or group

manager who is an expert in the team’s assigned area of specialization (see figure E)

Advantages/Disadvantages

THE FORMAL AND INFORMAL ORGANIZATIONAL STRUCTURE

(1) Formal organisational Structure (2) Informal organisational Structure (1) Formal organisational
Structure Organization charts are useful for showing the formal organizational structure and who is
responsible for certain tasks. In reality, though, the organization chart cannot begin to

capture the interpersonal that make up the

informal organizational structure.

(2) Informal organisational Structure

Herbert A. Simon has described this as “the in interpersonal relationships in the

organization that affect decisions within it but either are omitted from the formal scheme or are not
consistent with it. For example, during a busy period, one employee may turn to another for help rather
than going through a manager. Or an employee in sales may establish a working relationship with an
employee in production, who can provide information about product availability faster than the formal
reporting system. And anyone who has worked in an organization knows the importance of secretaries
and executive assistants, which never shows on an organization chart. One of the first scholars to
recognize the importance of informal structures was Chester Barnard.

He noted that

informal relationships help organization members satisfy their social needs

and

get

things done.
(1) Vertical organisational structure (2) Horizontal organisational structure (1) Tall organisational
structure (2) Flat organisational structure