ORGANIZATIONAL STRUCTURE

INTRODUCTION

It will necessary to know what the basis of organizational structure is by for looking
into what is an organization.

An organization is a body built for a collection of individuals who join together to

achieve some common goals and objectives bounded by legal entities.
Organizations are often referred to as a company, institution, association,
government body, etc.

"Organization is the process of identifying and grouping work to be performed,

defining and delegating responsibility and authority and establishing relationships
for the purpose of enabling people to work most effectively together in
accomplishing objectives."– (Louis Allen)

So we can say an organization is a system that arranges human and capital

resources alongside authority and responsibility that creates an environment that
make goals achievable.

ORGANIZATIONAL STRUCTURE

Organizational structure is the framework within which an organization operates. It

defines how different parts of the organization are connected and how they work
together to achieve common goals. Think of it as the skeleton of a company,
providing support and shape to its various functions.

The Elements of Organizational Structure:

When we look into any organization what are the common things that we can see
that gave it it's image to qualify as organization?

1. Hierarchy:- The chain of command, showing who reports to whom indicating

position of seniority and subordinate in order they occur.
2. Authority:- This is right to issue instructions and the power to lead and
expecting due compliance, authority within an organization is the legitimate
type of authority comes from the office occupied also known as institutional
power, other sources of authority can come from; Tradition, customs,
charisma, Knowledge and the law. The authority within an organization
should not be by force or coercion.
3. Responsibilities:- These are duties assigned to individuals within the
organization it also show the role that individuals play in the performance of
the organizational tasks.
4. Communication channels: How information flows between different parts of
the organization.
 5. Departments:- These are special functional units or Divisions created within
the organization for specialized functions, such as marketing, sales, or
finance etc.
6. Teams:- Groups of individuals working together towards specific goals.

These elements are what constitute an organization and can be found in any form
of formal organization whether public or private.

TYPES OF ORGANIZATIONAL STRUCTURE

What are common types of organizational structures?

1. Hierarchical structure
2. Functional structure
3. Divisional structure
4. Flat organization structure
5. Matrix structure
6. Team structure
7. Network structure

Hierarchical structure

A hierarchical structure is the most common type of organizational structure. This

pyramid-shaped structure follows a direct chain of command from the top (the CEO)
and flows down the organizational chart through individual teams and entry-level
employees.

The chain of command goes from the C-suite to senior management to team
leaders to lower-level employees. The highest-level executive (typically the CEO)
has the most power and authority on the decision-making process.

On one hand, this structure enables organizations to streamline business processes,

develop clear career paths, and reduce conflicts. A company hierarchy leaves no
place for challenging managers’ authority, which can sometimes be a good thing.

On the other hand, a hierarchical structure slows down decision-making and may
hurt employee morale. Poor leadership – or even a bad CEO – can lead to the
downfall of an organization with a hierarchal structure.
More common with traditional, stable organizations with clear authority lines and a
need for uniformity and control. Examples include government agencies, large
corporations, or military organizations etc.

Advantages of a hierarchal structure:

1. Obvious chain-of-command which show clear authority and responsibilities.

2. Clearly defined reporting structure and individual responsibilities.

3. Sets clear career path growth and development.

4. Builds niche skills and specialties.

5. Departments and teams create a sense of Espirit de cop.

Disadvantages of a hierarchal structure:

1. Bureaucracy, processes, and red-tape slow down innovation.

2. More resistant to change.

3. Employees focus on department goals and KPIs over what’s most important
for the company.

4. Employees at the bottom of the org structure feel like they don’t have an
impact.

5. Feeling that there is no place to challenge authority makes it more rigid.

Functional structure

A functional organizational structure is divided into various departments covering

different business aspects. Each department is a functional team that has a leader
or department manager. Functional organizational structure allowed grouping
employees into different departments by work specialization. Each department has
a designated leader highly experienced in the job functions of each employee
supervised by them.

Most often, it implements a top-down (centralized) decision-making process where

department managers report to upper management. Ideally, leaders of different
teams communicate regularly and coordinate their strategies while lower-level
employees have little idea of the processes taking place outside their department.

The main challenge companies with a functional structure face are the lack of
coordination between departments. Employees may lose the larger company
context when focusing on specific tasks and failing to interact with members of
other departments. Though it more suitable for Companies that require a high
degree of specialization and efficiency within each department, like manufacturing
firms.

Advantages of functional organizational structure

1. Scalable to a desired size to fit the level of operation

2. Operational efficiency a goal oriented

3. Encourages employees to specialize their skillsets.

 4. Empower employees to focus on their specific roles and responsibilities.

5. Empowers teams and departments with clear, specific goals that they can
work towards.

Disadvantages of functional organizational structure:

1. It can leads to poor cross-department communication gap.

2. Builds silos, thus creating islands of workforce within the organization

3. Creates obscure roles, processes, and workflows that are company or

industry-specific.

Divisional structure

In a divisional organizational structure, the company is divided into different

business units that have complete control of their budget, resources, and strategy –
essentially acting as an independent company. Each division can have its own
dedicated marketing, sales, product, and IT teams.

It is often work well for companies and enterprises with many different product lines
that adopt centralized divisional organization structures. Take electronics company,
for example. The company creates televisions, kitchen appliances, phones and
more, but each department is operated as its own division or business and has its
own team-based structure.

Each division of the electronics conglomerate will have a president who runs that
segment of the business. Under the president will be senior and mid-level
managers, and then various teams and individuals who design and create the
products that report to the division leader. Each division head then reports back to
the company CEO or chairperson.

These smaller groups are relatively independent and mainly follow a decentralized
framework. Still, the leaders of each department are likely to operate under
centralized corporate management. This means that the company culture is
dictated by top management, but operational decisions can be made independently
by each division.

Divisional organizational structures can be divided according to a few different

factors, including:

Market-based divisional organizational structure: Divisional organizational

structures can be divided by market or customer type. For example, ShopRite could
separate its internal business units by department and have separate entities that
own children’s toys, clothing, electronics, food and beverage, etc.

Industry-based divisional organizational structure: Business units can by

divided by the industry or use case they target. Consider Salesforce. It packages it
Sales Cloud product to verticals based on sector, like Education Cloud, Nonprofit
Cloud, Health Cloud, etc.

Product-based divisional organizational structure: Enterprise companies

often have a multi-product offering and divide its organization up by product line.
For example, Google has entire organizations that focus only on AdSense, YouTube,
YouTube TV, Google Search, Google Maps, and so forth. Salesforce has entire
division dedicated to Sales Cloud, Slack, Salesforce CPQ, etc.

Territory-based divisional organizational structure: Business units are divided

up by geographical regions, enabling companies to localize their efforts based on
the needs, values, characteristics, and demographics of each area. This can be
divided into regions (like north, west, south, mid-west, etc.), a country’s states, by
country, or by continent.

This structure is suitable for large enterprises that operate in multiple markets, such
as multinational companies or conglomerates, as it allows each division to focus on
its specific market or product line.

Flat organization structure

Due to its simple nature, a flat organization structure, also called a “flatarchy” or a
horizontal structure is typically used by small businesses and startups.
Organizations often start with a flat structure and then transition to a different type
of organization structure as they develop to maturity.

In a flat organizational structure, there are few middle managers between

employees and top managers. The structure requires less supervision, increases
employee involvement, and boosts trust in the workplace. Smaller companies and
startups that require faster decision-making and a collaborative culture,
accelerating innovation and flexibility usually favor this.

Advantages of flat structure:

1. More responsibility for employees.

2. Open communication with less formality.

3. Clear path of approval and quick decision making

4. Change and improvement implementation happen fast.

5. Rewards adaptability, flexibility, and innovation.

Disadvantages of flat structure:

1. Not scalable, the size, scale and shape seems to be fixed.

2. Often leads to confusion, as employees lack a clear supervisor or manager.

3. Relies on one person to be the decision-maker.

4. Leads to employees with generalized skills with a lack of specializations (jack

of all trade).

5. Difficult to maintain when organizations start to scale.

Matrix structure

A Matrix organizational structure is a little more complex than the other methods
we have covered. In matrix structures, teams report to two managers instead of
one. For example, a creative team would report to a functional marketing manager
and a project manager who oversees projects.

Within a matrix organizational structure, team members report to several managers

at once, which may be against the principle of unity of command?

Having multiple supervisors allows for company-wide interaction and faster project
delivery. For instance, when answering to functional managers and project
managers, employees have a chance to collect experience outside their team. While
functional managers can help to solve job-specific issues, project managers can
bring in knowledge or talents from other departments.

If you go after a matrix organizational structure, you’ll need to find a way to avoid
authority confusion and prevent conflicts between managers.

Advantages of matrix organizational structure:

1. Flexibility to pull employees into more important projects at will.

2. Empower employees to build and test skillsets outside of their pre-

determined roles.

3. Faster project deliverables.

4. Provides a more dynamic view of the organization.

Disadvantages of matrix structure:

1. This often leads to conflicts among leaders and project managers.

2. It can lead to confusion on authority.

3. Frequency of change leads to fatigue and resistance.

Team-based structure

A team-based organizational structure creates small teams focusing on delivering

one product or service – often via Scrum or tiger teams. These teams can solve
problems and make decisions without bringing in third parties.

Team members are responsible for managing their workload and have full control
over the project. Team-based organizations are distinguished by little formalization
and high flexibility. This structure works well for global organizations and
manufacturers. Companies prioritizing flexibility, innovation and quick response to
market changes, likes tech startups or creative agencies, where collaboration and
teamwork are essential.

Advantages of team-based organizational structure:

1. Drives growth and innovation.

 2. Promotes lateral career moves.

3. Provides experiences across departments and teams.

4. Experience and skills are valued over seniority.

5. Less emphasis on management.

6. Encourages lateral moves.

7. Is more agile and fits well with Scrum models.

Advantages of team-based structure:

1. Lack of clear path of authority.

2. Career path growth is not clear.

3. Not formalized, operation is based on mutual understanding

Network structure

A network structure goes far beyond your internal company structure. It’s the act of
joining the efforts of two or more organizations to deliver one product or service.
Typically, a network organization outsources independent contractors or vendors to
complete the work.

In a network organization, teams are built from full-time employees as well as

freelance specialists – this way; in-house workers can spend most of their time
focusing on the work they specialize in. Such an approach allows companies to
adapt to market changes and obtain the skills they need quickly.

Working with individuals not integrated into your company culture results in lower
formalization and higher agility.
The networking organizational structure is more suited companies that outsource
business functions and rely on external partners, like businesses with extensive
supply chains and franchises, or companies that focus on core competencies while
leveraging partnerships for other operations.

Advantages of network structure:

1. Promotes organizational agility and flexibility.

2. Fosters collaboration across employees.

3. Breaks down silos and isolation thus promoting integration and synergy

4. Cultivates better understanding of industry, products, and customers.

5. Creates a web of work-related relationships.

6. Creates highly specialized skills in employees.

Disadvantage of network structure:

1. Extremely complex and convoluted.

2. Lower formalization.

3. High turnover which can lead to low workforce and de-motivation.

4. There is a feeling of inequality between full-time employees and

contractors/freelancers.
5. It’s difficult to know who has final approval.