Definition of Organizational structure

The typically hierarchical arrangement of lines of authority, communications, rights and duties of an organization. Organizational structure determines how the roles, power and responsibilities are assigned, controlled, and coordinated, and how information flows between the different levels of management. A structure depends on the organization's objectives and strategy. In a centralized structure, the top layer of management has most of the decision-making power and has tight control over departments and divisions. In a decentralized structure, the decision-making power is distributed and the departments and divisions may have different degrees of independence. A company such as Proctor & Gamble that sells multiple products may organize their structure so that groups are divided according to each product and depending on geographical area as well. An organizational chart illustrates the organizational structure.

When should you develop a structure for your organization?

It is important to deal with structure early in the organization's development. Structural development can occur in proportion to other work the organization is doing, so that it does not crowd out that work. And it can occur in parallel with, at the same time as, your organization's growing accomplishments, so they take place in tandem, side by side.

This means that you should think about structure from the beginning of your organization's life. As your group grows and changes, so should you’re be thinking on the group's structure.

Organizational Structure Types 

Following are the types of organizational structures that can be observed in the modern business organizations.

1. Bureaucratic Structures - Bureaucratic structures maintain strict hierarchies when it comes to people management. There are three types of bureaucratic structures:

• Pre-bureaucratic structures - This type of organizations lacks the standards. Usually, this type of structure can be observed in small scale, start-up companies. Usually, the structure is centralized and there is only one key decision maker. The communication is done in one-on-one conversations. This type of structures is quite helpful for small organizations due to the fact that the founder has the full control over all the decisions and operations.
• Bureaucratic structures - These structures have a certain degree of standardization. When the organizations grow complex and large, bureaucratic structures are required for management. These structures are quite suitable for tall organizations.
• Post-bureaucratic Structures - The organizations that follow post-bureaucratic structures still inherit the strict hierarchies, but open to more modern ideas and methodologies. They follow techniques such as total quality management (TQM), culture management, etc.

2. Functional Structure - The organization is divided into segments based on the functions when managing. This allows the organization to enhance the efficiencies of these functional groups. As an example, take a software company. Software engineers will only staff the entire software development department. This way, management of this functional group becomes easy and effective. Functional structures appear to be successful in large organization that produces high volumes of products at low costs. The low cost can be achieved by such companies due to the efficiencies within functional groups. In addition to such advantages, there can be disadvantage from an organizational perspective if the communication between the functional groups is not effective. In this case, organization may find it difficult to achieve some organizational objectives at the end.

Functional Structure

3. Divisional Structure - These types of organizations divide the functional areas of the organization to divisions. Each division is equipped with its own resources in order to function independently. There can be many bases to define divisions. Divisions can be defined based on the geographical basis, products/services basis, or any other measurement. As an example, take a company such as General Electric’s. It can have microwave division, turbine division, etc., and these divisions have their own marketing teams, finance teams, etc. In that sense, each division can be considered as a micro-company with the main organization.

Divisional Structure

4. Matrix Structure - When it comes to matrix structure, the organization places the employees based on the function and the product. The matrix structure gives the best of the both worlds of functional and divisional structures. In this type of an organization, the company uses teams to complete tasks. The teams are formed based on the functions they belong to (ex: software engineers) and product they are involved in (ex: Project A). This way, there are many teams in this organization such as software engineers of project A, software engineers of project B, QA engineers of project A, etc.

Matrix Structure

Conclusion