Organizational structure

From Wikipedia, the free encyclopedia

An organizational structure defines how activities such as task allocation, coordination and
supervision are directed towards the achievement of organizational aims. [1] It can also be considered
as the viewing glass or perspective through which individuals see their organization and its
environment.[2]
Organizations are a variant of clustered entities.[citation needed]
An organization can be structured in many different ways, depending on their objectives. The
structure of an organization will determine the modes in which it operates and performs.
Organizational structure allows the expressed allocation of responsibilities for different functions and
processes to different entities such as the branch, department, workgroup and individual.
Organizational structure affects organizational action in two big ways :

 First, it provides the foundation on which standard operating procedures and routines rest.
 Second, it determines which individuals get to participate in which decision-making
processes, and thus to what extent their views shape the organization’s actions. [2]

Contents
  [hide] 

 1 History
 2 Operational organizations and informal organizations
 3 Types
o 3.1 Pre-bureaucratic structures
o 3.2 Bureaucratic structures
o 3.3 Post-bureaucratic
o 3.4 Functional structure
o 3.5 Divisional structure
o 3.6 Matrix structure
o 3.7 Organizational circle: moving back to flat
o 3.8 Team
o 3.9 Network
o 3.10 Virtual
o 3.11 Hierarchy-Community Phenotype Model of Organizational Structure
 4 Bibliography
 5 See also
 6 References

History[edit]
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.In ancient Indian mythology it reflects everywhere that the King being
selected from the merits and he further selected his ministers or darbari,they all participated in their
respective specialized field in delivering judgement and making policies for the welfare of the state.
As pointed out by Lawrence B. Mohr,[3] the early theorists of organizational structure, Taylor, Fayol,
and Weber "saw the importance of structure for effectiveness and efficiency and assumed without
the slightest question that whatever structure was needed, people could fashion accordingly.
Organizational structure was considered a matter of choice... When in the 1930s, the rebellion
began that came to be known as human relations theory, there was still not a denial of the idea of
structure as an artifact, but rather an advocacy of the creation of a different sort of structure, one in
which the needs, knowledge, and opinions of employees might be given greater recognition."
However, a different view arose in the 1960s, suggesting that the organizational structure is "an
externally caused phenomenon, an outcome rather than an artifact." [4]
In the 21st century, organizational theorists such as Lim, Griffiths, and Sambrook (2010) are once
again proposing that organizational structure development is very much dependent on the
expression of the strategies and behavior of the management and the workers as constrained by the
power distribution between them, and influenced by their environment and the outcome. [5]

Operational organizations and informal organizations[edit]

See also: Informal organization and Formal organization
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.

Types[edit]
See also: Hierarchical organization and Flat organization
Pre-bureaucratic structures[edit]
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[edit]
Weber (1948, p. 214) gives the analogy that “the fully developed bureaucratic mechanism compares
with other organizations exactly as does the machine compare with the non-mechanical modes of
production. Precision, speed, unambiguity, … strict subordination, reduction of friction and of
material and personal costs- these are raised to the optimum point in the strictly bureaucratic
administration.”[6] Bureaucratic structures have a certain degree of standardization. They are better
suited for more complex or larger scale organizations, usually adopting a tall structure. The tension
between bureaucratic structures and non-bureaucratic is echoed in Burns and Stalker's [7] distinction
between mechanistic and organic structures.
The Weberian characteristics of bureaucracy are:

 Clear defined roles and responsibilities

 A hierarchical structure
 Respect for merit
Bureaucratic Structures have many levels of management ranging from senior executives to regional
managers, all the way to department store managers. Since there are many levels, decision-making
authority has to pass through more layers than flatter organizations. Bureaucratic organization has
rigid and tight procedures, policies and constraints. These kind of structure is reluctant to adapt or
change what they have been doing since the company started. Organizational charts exist for every
department, and everyone understands who is in charge and what their responsibilities are for every
situation. Decisions are made through an organized process, and a strict command and control
structure is present at all times.In bureaucratic structures, the authority is at the top and information
is then flowed from top to bottom. This causes for more rules and standards for the company which
operational process is watched with close supervision. Some advantages for bureaucratic structures
for top-level managers are they have a tremendous control over organizational structure decisions.
This works best for managers who have a command and control style of managing. Strategic-
decision making is also faster because there are fewer people it has to go through to approve. Some
disadvantages in bureaucratic structures are it can discourage creativity and innovation in the
organization. This can make it hard for a company to adapt to changing conditions in the
marketplace.
Post-bureaucratic[edit]
The team of post bureaucratic is used in two senses in the organizational literature: one generic and
one much more specific.[8] 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 matrix
management, 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 organization
is still rule bound. Heckscher, arguing along these lines, describes them as cleaned up
bureaucracies,[9] 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.,[9] provide a detailed discussion which attempts to describe an organization that is
fundamentally not bureaucratic. Charles Heckscher has developed an ideal type, the 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 empowerpeople 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 et al. (2000) studied how simple structures could be used to generate
improvisational outcomes in product development. Their study makes links to simple structures and
improviser learning. Other scholars such as Jan Rivkin and Sigglekow, [10] and Nelson
Repenning [11]revive an older interest in how structure and strategy relate in dynamic environments.
Functional structure[edit]
A functional organizational structure is a structure that consists of activities such as coordination,
supervision and task allocation. The organizational structure determines how the organization
performs or operates. The term organizational structure refers to how the people in an organization
are grouped and to whom they report. One traditional way of organizing people is by function. Some
common functions within an organization include production, marketing, human resources, and
accounting.
This organizing of specialization leads to operational efficiency where employees become specialists
within their own realm of expertise. The most typical problem with a functional organizational
structure is however that communication within the company can be rather rigid, making the
organization slow and inflexible. Therefore, lateral communication between functions become very
important, so that information is disseminated, not only vertically, but also horizontally within the
organization. Communication in organizations with functional organizational structures can be rigid
because of the standardized ways of operation and the high degree of formalization.
As a whole, a functional organization is best suited as a producer of standardized goods and
services at large volume and low cost. Coordination and specialization of tasks are centralized in a
functional structure, which makes producing a limited amount of products or services efficient and
predictable. Moreover, efficiencies can further be realized as functional organizations integrate their
activities vertically so that products are sold and distributed quickly and at low cost. [12] For instance, a
small business could make components used in production of its products instead of buying them.
Even though functional units often perform with a high level of efficiency, their level of cooperation
with each other is sometimes compromised. Such groups may have difficulty working well with each
other as they may be territorial and unwilling to cooperate. The occurrence of infighting among units
may cause delays, reduced commitment due to competing interests, and wasted time, making
projects fall behind schedule. This ultimately can bring down production levels overall, and the
company-wide employee commitment toward meeting organizational goals.
Divisional structure[edit]
The divisional structure or product structure consists of self-contained divisions. A division is a
collection of functions which produce a product. It also utilizes a plan to compete and operate as a
separate business or profit center. According to Zainbooks.com, divisional structure in America is
seen as the second most common structure for organization today. [citation needed]
Employees who are responsible for certain market services or types of products are placed in
divisional structure in order to increase their flexibility. Examples of divisions include regional (a U.S
Division and an EU division), consumer type (a division for companies and one for households), and
product type (a division for trucks, another for SUVS, and another for cars). The divisions may also
have their own departments such as marketing, sales, and engineering.
The advantage of divisional structure is that it uses delegated authority so the performance can be
directly measured with each group. This results in managers performing better and high employee
morale.[citation needed] Another advantage of using divisional structure is that it is more efficient in
coordinating work between different divisions, and there is more flexibility to respond when there is a
change in the market. Also, a company will have a simpler process if they need to change the size of
the business by either adding or removing divisions. When divisional structure is utilized more
specialization can occur within the groups. When divisional structure is organized by product, the
customer has their own advantages especially when only a few services or products are offered
which differ greatly. When using divisional structures that are organized by either markets or
geographic areas they generally have similar function and are located in different regions or
markets. This allows business decisions and activities coordinated locally.
The disadvantages of the divisional structure is that it can support unhealthy rivalries among
divisions. This type of structure may increase costs by requiring more qualified managers for each
division. Also, there is usually an over-emphasis on divisional more than organizational goals which
results in duplication of resources and efforts like staff services, facilities, and personnel.
Matrix structure[edit]
The 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 amongst the purest of
organizational structures, a simple lattice emulating order and regularity demonstrated in nature.

 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 of power is a delicate proposition.
 Strong/Project Matrix: A project manager is primarily responsible for the project. Functional
managers provide technical expertise and assign resources as needed.
Matrix structure is only one of the three major structures. The other two are Functional and Project
structure. Matrix management is more dynamic than functional management in that it is a
combination of all the other structures and allows team members to share information more readily
across task boundaries. It also allows for specialization that can increase depth of knowledge in a
specific sector or segment.
There are both advantages and disadvantages of the matrix structure; some of the disadvantages
are an increase in the complexity of the chain of command. This occurs because of the
differentiation between functional managers and project managers, which can be confusing for
employees to understand who is next in the chain of command. An additional disadvantage of the
matrix structure is higher manager to worker ratio that results in conflicting loyalties of employees.
However the matrix structure also has significant advantages that make it valuable for companies to
use. The matrix structure improves upon the “silo” critique of functional management in that it
diminishes the vertical structure of functional and creates a more horizontal structure which allows
the spread of information across task boundaries to happen much quicker. Moreover matrix structure
allows for specialization that can increase depth of knowledge & allows individuals to be chosen
according to project needs. This correlation between individuals and project needs is what produces
the concept of maximizing strengths and minimizing weaknesses.
Organizational circle: moving back to flat[edit]
The flat structure is common in small companies (entrepreneurial start-ups, university spin offs). As
companies grow they tend to become more complex and hierarchical, which leads to an expanded
structure, with more levels and departments.
However, in rare cases, such as the examples of Valve Corporation, GitHub, Inc. and 37signals, the
organization remains very flat as it grows, eschewing middle managers.[13] All of the aforementioned
organizations operate in the field of technology, which may be significant, as software developers
are highly skilled professionals, much like lawyers. Senior lawyers also enjoy a relatively high degree
of autonomy within a typical law firm, which is typically structured as apartnership rather than a
hierarchical bureaucracy. Some other types of professional organisations are also commonly
structured as partnerships, such as accountancy companies and GP surgeries.
Often, growth would result in bureaucracy, the most prevalent structure in the past. It is still,
however, relevant in former Soviet Republics, China, and 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, [14] 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.[15]Creating a team spirit, the company empowers
employees to make their own decisions and trains them to develop both hard and soft skills.
Some experts also mention the multinational design,[16] common in global companies, such
as Procter & Gamble, Toyotaand Unilever. This structure can be seen as a complex form of the
matrix, as it maintains coordination among products, functions and geographic areas.
With the growth of the internet, and the associated access that gives all levels of an organization to
information and communication via digital means, power structures have begun to align more as
a wirearchy, enabling the flow of power and authority to be based not on hierarchical levels, but on
information, trust, credibility, and a focus on results.
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. [17]
Team[edit]
One of the newest organizational structures developed in the 20th century is team and the related
concept of team development or team building. In small businesses, the team structure can define
the entire organization.[16] Teams can be both horizontal and vertical.[18] While an organization is
constituted as a set of people who synergize individual competencies to achieve newer dimensions,
the quality of organizational structure revolves around the competencies of teams in totality. [19] For
example, every one of the 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 organizations 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[edit]
Another modern structure is network. While business giants risk becoming too clumsy to proact
(such as), act and react efficiently,[20] the new network organizations 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 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. [21] The potential
management opportunities offered by recent advances in complex networks theory have been
demonstrated [22] including applications to product design and development, [23] and innovation
problem in markets and industries. [24]
Virtual[edit]
Virtual organization is defined as being closely coupled upstream with its suppliers and downstream
with its customers such that where one begins and the other ends means little to those who manage
the business processes within the entire organization. A special form of boundaryless
organization is virtual. Hedberg, Dahlgren, Hansson, and Olve (1999) consider the virtual
organization as not physically existing as such, but enabled by software to exist. [25] The virtual
organization exists within a network of alliances, using the Internet. This means while the core of the
organization 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.[26]
Hierarchy-Community Phenotype Model of Organizational Structure [edit]
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Hierarchy-Community Phenotype Model of Organizational Structure

In the 21st century, even though most, if not all, organizations are not of a pure hierarchical
structure, many managers are still blind to the existence of the flat community structure within their
organizations.[27]
The business is no longer just a place where people come to work. For most of the employees, the
firm confers on them that sense of belonging and identity –– the firm has become their “village”, their
community.[28] The firm of the 21st century is not just a hierarchy which ensures maximum efficiency
and profit; it is also the community where people belong to and grow together, where their affective
and innovative needs are met.[5]
Lim, Griffiths, and Sambrook (2010) developed the Hierarchy-Community Phenotype Model of
Organizational Structure borrowing from the concept of Phenotype from genetics. "A phenotype
refers to the observable characteristics of an organism. It results from the expression of an
organism’s genes and the influence of the environment. The expression of an organism’s genes is
usually determined by pairs of alleles. Alleles are different forms of a gene. In our model, each
employee’s formal, hierarchical participation and informal, community participation within the
organization, as influenced by his or her environment, contributes to the overall observable
characteristics (phenotype) of the organization. In other words, just as all the pair of alleles within the
genetic material of an organism determines the physical characteristics of the organism, the
combined expressions of all the employees’ formal hierarchical and informal community participation
within an organization give rise to the organizational structure. Due to the vast potentially different
combination of the employees’ formal hierarchical and informal community participation, each
organization is therefore a unique phenotype along a spectrum between a pure hierarchy and a pure
community (flat) organizational structure." [5]