Organizational Structure

What is Organizational Structure ?

Different activities such as allotment of work, establishing harmony, and directing are the parts of an organisational structure, which collectively aim at the attainment of organisational objectives. The structure of an organisation gives the outlook about the organisation to the people. The coordination between an organisation's various works takes a formal approach. The structure of an organisation helps in assigning the official reporting relationships. The workflow of an organisation takes place at various levels on a chain of command.

Implementing strategy through structure requires designing the structure and interconnecting the organisational units with each other. The organisation structure depicts the fashion in which various parts an organisation are interlinked. Hence, the issues like division and allotment of the work in an organisation, among different departments, groups; teams, positions, etc., along with the coordination needed to attain the objectives of the organisation are part of an organisation structure.

Hence, integration and differentiation are the two important features of organisational design on which the focus of the organisation should be based. This means that the organisation should design its structure and should aid in establishing relationships and harmony among its different elements and components.

Importance of Organizational Structure 

Following are the benefits of organisational structure :

1) Specialization : 
The division and sub-division of the work into tiny, handy and suitable tasks help in the creation of an organisation structure. The allotment of tasks to different people in the organisation is carried depending upon the qualification and experience of the people and such a division helps in enhancing the operational efficiency of the organisation. 

2) Clearly Designed Tasks : 
There is a clear description and differentiation regarding the tasks assigned to different people in the organisation. This helps in finding and choosing the right person for the right job.

3) Well-Defined Power and Accountability : 
This clarification regarding power assigned and accountability of the manager facilitates in minimizing chances of chaos and argument which might emerge regarding the authority and rights assigned to various people.

4) Helps in Avoiding Replication of Job :
Organisation structure helps in proper allotment of particular tasks. It prevents replication and overlapping of the responsibilities by allocating the jobs among different personnel and teams.

5) Source of Support and Security : 
The structure of an organisation helps in giving security, and supports the managers and personnel for the accomplishment of the allotted tasks. It helps in recognizing and comparing the roles of the managers and personnel towards attainment of organisational objectives. This also helps in further allotment of assets and efforts on the basis of contributions made by the respective departments.

6) Basis of Coordination : 
It helps in uniting and coordinating the work done by the personnel. The managers in authority coordinate the tasks of those under them by exercising authority over them.

7) Growth and Diversification : 
An organisation can evolve and develop under an effective organisational structure. Directing the prevalent functions help the managers in assuming more responsibilities. Moreover, the structure of the organisation aids in transformation of jobs coming out of changing technical, economic, political and external scenario.

Types of Organizational Structure 

The 10 forms or types of organisational structure are as follows :

Types of Organisation Structure

Line Organisation/Military Organisation

The kind of organisation in which the managers have direct control over their relevant junior through line of hierarchy is known as line organisation or military organisation. The flow of authority starts from the top-level management and reaches to the bottom-level of the organisation. passing through various management positions. Here, the employees are fully aware about their seniors and who are authorized to give commands to them. A line organisation is depicted through figure.

Line and Staff Organisation

An improved and more complicated version of line organisation is line and staff organisation. In this case, the staff specialist and staff supervisors are appointed in the ladder of hierarchy for the purpose of accomplishment of supportive and specialized activities.

The role of the staff supervisors is confined to directing, advising and guiding the line executives and the authority of command is vested with the line executives. For example, Executive assistant to the managing director is staff personnel. Line and staff organisation is shown in the figure.

Functional Organisation

The kind of organisation in which line authority, staff authority and functional authority co-exists is known as functional organisation. To be more specific, the functional organisation is the one in which there is limited scope of line authority as the functional experts have control over some specific activities which are normally. managed by the managers of other units.

Functional Organisation

Entrepreneurial Structure

One of the most fundamental forms of organisation structure is the entrepreneurial structure, as shown in figure. It is most suitable for the organisations which are managed by a single person.

Entrepreneurial Structure

The entrepreneurial structure can be characterized mainly by a small-scale scale organisation, a small private firm, a small retail shop, etc. Generally, these small firms deal with a single service, single product or single business in the local market. All the decisions regarding the everyday operations and strategy implementation are carried-out by the owner or manager.

Following are the advantages of the entrepreneurial structure : 
  • Decisions are taken readily due to the centralization of authority,
  • Responses are given immediately to the changes in the environment,
  • The organisation structure is simple and informal.

Following are the disadvantages emerging out of the entrepreneurial structure :
  • As it greatly depends upon owner or manager, hence all of these can prove to be a challenging job for him, 
  • It might distract the attention of the owner/manager from strategic decisions to everyday operations, 
  • It can prove to be insufficient in case of expansion of the business.

Divisional Structure 

The other fundamental structure of the organisation is the divisional structure. It is also known as profit decentralization and is established around different divisions of the business. In this structure, the organisation is divided into independent business divisions, each one of which has the capability and assets to carry out independent operations.

Divisional Structure

The divisional structure of an organisation is shown in figure. In this organisation, few departments are established to take care of the matters which do not fall within the range of any unit. They are required to assist the divisional management with their services on an on-going basis.

Strategic Business Unit Structure

The SBU (Strategic Business Unit) structure is most suitable in the case of the organisation where the structure of the company calls for a change due to the limited ability of the chief executive officer in processing complicated strategic information, problems emerging out of segregation of functional area managers, and expansion of the business.

The SBU structure contains a number of operational units. Each business unit is supposed to carry-out a different task and are managed by top-level administration, which hand over the responsibility to the managers related to everyday operations and strategy implementation. This way the highest level management becomes responsible for the formulation and implementation of strategy, and is able to manage SBUs by employing checks such as those related to finance and strategy. This further helps in making the control easier by helping the organisation to supervise each of the business units. It further helps to compare different units, which helps in enhancing the allotment of assets. It can also be a way to motivate the managers belonging to under performing units by helping them in finding-out the measures to enhance their performance.

Strategic Business Unit Structure

There are minimum three levels of a Strategic Business Unit (SBU) structure viz. the topmost being corporate headquarters, the middle one being SBU groups; and at the third level are groups related through SBU It indicates that within every SBU groups, the units are interrelated, though SBU groups are not related with one another. Hence, it is possible to organise the units which produce similar products and the one which use similar technologies to combine their efforts. Each of the SBUs is considered to be profit centers. They are managed by the headquarters of the organisation which can focus on strategic planning instead of operational control for the purpose of helping each of the division to react rapidly to the changes in the environment.

Project Organisation

A project organisational structure aims at overcoming the limitations of a firm. The limitations can be in the form of lack of harmony in order, absence of coordination, slow decision-making, etc. Although the project organisation is quite similar to matrix organisation, yet there is a difference between them in terms of material. A project organisation is apt for carrying out a few large projects, whereas the matrix organisation is suitable for carrying out many small projects.

Project Organisation

Matrix Organisation 

Matrix design is the most recent organisational design. It focuses on building a flexible structure to attain a wide range of project objectives. It is also called grid. It emerged to meet the needs coming out of the increasing size and rising complexity of organisational structure. It is somewhat more dynamic and technically directed as compared to the functional or traditional line and staff structure. The matrix organisational structure is shown in figure.

Matrix Organisation

Network Structure

New and to some extent fundamental organisational design, is the network structure which can be considered as an example of "non-structure". due to the absence of in-house activities. It outsources several functions. Such an organisation is generally known as a virtual organisation as it consists of a wide range of collaborations or project group which are interrelated by ever changing network, which is free from the ladder of commands. Such kind of the network structure is most beneficial in case the environment of the organisation is expected to remain unstable. Such a condition calls for creativity and readiness in response. It may appoint contractual staff for a particular project or for a time-period instead of regular staff. Instead of having prolonged contracts with those supplying raw material and distributing goods, the company can have the top-down amalgamation. There is reduction in costs of business transaction due to the development of online market and refined information system. It thus justifies the act of outsourcing instead of manufacturing everything in house.

Such an organisation moves out of the four walls of the area and is extended all over the world. In this way, the organisation acts as a miniature: headquarters playing the role of the broker; and is connected through electronic media with a number of self-owned units, few autonomous organisations and a partly-owned supplementary service. This way, the network organisation in its final structure can be considered as a number of autonomous organisation or self-sufficient organisational divisions which are e interrelated through information technology used for the purpose of deciding, manufacturing and marketing goods or services. A number of companies like Reebok, Nike, and Benetton avail the benefits of the network structure while operating their functions. They give the contract of manufacturing to other firms in places with low cost of manufacturing. across the world. With an objective to keep a check over the functional operation of other manufacturing units, the organisation like Benetton use a method like "umbilical cord". It gives them assurance regarding the maintenance of quality at par with their standards and for this purpose they plan out assets; and give them bills of raw material and manufacturing cost along with the technical assistance.

Network Structure

The organisations become more flexible and adaptable by adopting a network organisation structure as it helps them in dealing with changing technology and the changing manner of competition and international trade. It helps the organisation to focus on its distinctive competencies along with availing the benefits of the organisations which are working diligently towards enhancing their expertise. Yet, there are also some disadvantages of the network organisation structure. The accessibility to a number of prospective partners can be a problem themselves. It can create difficulty to synergies the efforts of many suppliers or distributors. In some cases, the organisation may become overspecialize only is some functional areas, for the rest of the task in case it selects the incompetent people, there are chances that it may lose in competition.

Cellular/Modular Organisation 

According to few people, the structure of organisation evolves from the matrix to network, followed by cellular (or modular form) organisational form. In the words of Miles and Snow et al., "A cellular organisation is composed of cells (self managing teams, autonomous business units, etc.). Which can operate alone but which can interact with other cells to produce a more potent and competent business mechanism".

With the help of fusion of interdependence and independence, the cellular or modular organisation is able to produce and contribute knowledge and expertise necessary for establishing creativity and innovation on an ongoing basis. It consists of the discrete entrepreneurship, existing in a division, the response of the customers towards the matrix, knowledge regarding the self-organisation and sharing of the resources within the network.

For example, as in case of Bombardier. The organization divided its Continental business jet into twelve divisions consisting external contractors and internal divisions. The manufacturing of the center, cockpit and forward fuselage was done in-house, whereas the other chief parts were outsourced from the companies across the globe. Such type of structure is most suitable when the product can be broken down into independent parts or modules; and where it is quite feasible to provide an interface to specify that the modules or cells would work when they are combined. The force which drives for novelty in the structure emerges from stress for constant innovation in all the business. Every module/cell is responsible towards the whole organisation.

In addition to the creation and sharing of knowledge the modular/cellular form is also valuable as it helps to make most of the knowledge assets of the firm as compared to other types of structure. Its value is mostly recognized in those organisations which are dealing with speedy product and novelty in service and they provide it by introducing distinct or high tech products like bicycle manufacturing, automobile production, electronic goods, computer produce household appliances, software and power tools.

Designing Organizational Structure

Organisational design can be defined as the design of the organisational structure. The term structure in used here in the broadest sense. Organisational structure can be regarded as emerging out of the order of functions and positions in the firm Organisational structure and designing of organisational processes, especially decision-making. are the two constituents of organisational design. Although the organisations are not similar to each other due to variation in their individual fields and types, yet there are some fundamental aspects which have to be taken into account while formulating or changing organisation structure.

It can be regarded as the procedure that facilitates the managers to select the dimensions of organisation structure and culture. Organisational designing seeks to control the activities that are needed to accomplish organisational goals. Organisational design helps to know how and why different means are selected. The design and principles lying behind the operation of the organisation result in organisation's behavior.

It is a job which calls for maintaining a balance by the managers between the internal pressures coming out of chosen technology and the external pressure from the organisational environment. Attaining a fine balance between the two, help sustainability in the organisation. Thus, organisational designs can be related with allotment and structuring of assets and employees to attain particular goals or objectives.

Objectives of Organizational Design Structure 

Following are the objectives of organisation design :

1) To Remain Adaptable to Organisational Changes : 
In order to remain competitive, it is essential that the organisation should have the ability to respond to environmental changes coming in the form of technology, competition, globalization and changing needs of the consumers well as difficulties in embracing change due to internal environment of the company. An example of the company which become competitive is Hewlett-Packard. In some cases embracing the change might affect the employers as well.

2) To Incorporate new Aspects : 
An organisation never remains static, it keeps on progressing. evolving, responding to change and keep on adding new positions and departments, in order to address the strategic needs and to deal with the factors in external environment. While doing so, the organisations are expected to smooth transition, i.e., incorporating the new aspects in the structure of the organisation, without any obstruction. This may call for adding or the restructuring of departments of the organisation. In such cases there arises the strategic needs for providing high quality customer service, which calls for breaking down the functional departments into sub-departments, creation of teams and re-allotment of authority.

3) To Ensure Collaboration with the Components : 
It is not sufficient to simply introduce a new department as it should be well by the integrated with all the departments managers, in order to ensure departmental collaboration and coordination. In absence of this objective, t the departments may fail to coordinate. In order to meet the customers' needs and for the purpose of avoiding problems and conflicts, the departments has to collaborate anyhow, which might be through teams, reporting relationship or task forces.

4) To Promote Flexibility : 
Flexibility is another objective of the organisational design. What designers want to establish in the organisation is flexibility in decision-making power, for the purpose of giving response and redirection of energies and for the purpose of highlighting the talents of the people, with respect to its system of authority, command chain and on the base of departmentalization. Flexibility in terms of decision-making power varies from that of the objectives of giving response to change.

5) To Supply Required Information : 
Organisation design makes it easy to collect the information needed by the managers for decision-making.

Organizational Design for Stable Vs Turbulent Environment

The environment of an organisation can be regarded as a universe where the organisation is operational and which includes the conditions influencing the organisation like socio-cultural, economic, technological, legal-political, and the natural conditions of the environment. Generally the organisational environment is described as either stable or turbulent : 

1) Stable Environment : 
Stable environment are likely to remain static for a comparatively long time, and there is proper understanding about what the customers' desire. For example, the organisations which have stable environment consist of manufacturers dealing with producing stable products like cleansing agents, detergents and paper products. Usually, mechanics structure is beneficial in case of the organisations operating in stable external environment. Such a system helps in improving proficiency level that helps in enhancement of the long-term performance of the firm having comparatively stable operational environment.

Generally, stable organisation has comparatively low level of change or the change has lower effect on the organisation. Such cases are marked with long and sustaining life cycles of the products, static market strategy and low effect of economic and political factors on strategic or operational features of the firm. It is quite easy to operand manage the competitive pressure as there is little change in the needs of the consumers. Most of the things follow a conventional pattern in such a scenario. Though very few organisations are apt to this description, yet some firms operate in comparatively stable environment. For example, those people dealing with manufacturing of stable products such as cleansing agents. detergents and paper products have a comparatively stable environment. Usually, it is a popular belief that centralization of authority is more beneficial in case of the firms operating in stable and conventional environment. The reasons for efficiency of this approach are slow and predictable change in the things.

2) Turbulent or Dynamic Environment : 
This type of environment is contrary to the stable environment and it involves constant change in the desires of the customers. Generally such type of condition is considered to be turbulent. Moreover, such an environment calls for continuous enhancement and updating in terms of its technology. Electronics industry is an example of such type of industry. In electronic industry change in technology leads to creation of competitive pressure, as it is mainly responsible for changing desires of the consumers. Contrary to the stable organisation, the organic structure is found to be more useful for the organisations operating in turbulent and repeatedly changing environment. This type of structure helps the organisation to give instant response to changes in the environment.

Unlike stable organisations, turbulent environments are marked with frequent and crucial change. A firm having turbulent decisions, environment have to deal with changing needs of the customers, short term fragmentation of the market, bigger threats in terms of assets, loss of product utility or value. and absence of enduring control. Such conditions are likely to be less conventional and deeply force the organisation to proficiently respond the change. 

For example, majority of the organisations dealing with computers (such as Unisys, Microsoft, Cisco and Dell) and those dealing with electronic and Motorola) has products (like Samsung turbulent of the comparatively environment where all the organisations of industry have to face competitive pressure emerging out of change in the technology. Moreover, In addition, these industries are likely to compete with each other. In such a scenario, factor ensuring success is development of an organisation design which helps the managers to recognize and immediately respond to the opportunities and threats faced by the company.

Decentralization of authority tends to be more apt in case of the organisations having volatile and rapidly changing environment, as there is a need to allow proactive response to environmental changes. But to materialize this, capability of the decision making personnel at different levels is essential. They should have information and should be able to coordinate with the different parts of the firm that are affected or are necessary to be involved in one way or another.

Generally, advancements in technology are mostly responsible for bringing about rapid change in the organisation as they help to attain high efficiency level along with the lowering the cost of organisation. Technology acts as the means to help the work done with the use of equipment, tools, techniques and personnel expertise.

Matching Structure to Strategy 

The terms, 'strategy' and 'organisational structure' are inter-related to each other. For implementing at strategy, it is quite essential to understand this relationship, as the structure of organisation is designed as per the requirements of the strategy.

Since, organisational structure helps in the implementation of strategy, hence, the structure can be considered as a method, and should not be mistaken with the organisational goals. The ultimate end of an organisation is the objective for which it exists, and that is clearly shown by its strategy. In the absence of harmony between the structure and strategy, the organisation can face the consequences such as uncertainty, disorderliness, lack of direction and failures.

The organisation structure is likely to follow the path of the growth strategy; but only when the inefficient system and internal problems calls for structural adjustment. Hence, the sequence of the organisation action starts with the creation of new strategies, followed by existence of new problems leading to lowering of profitability and performance. This leads to a more apt organisational structure, which is followed by finding enhanced execution of the strategy creating improvement in gains and performances.

It is necessary on part of the strategic managers to make an effort for ensuring simplicity of the structures (along with the processes) to the maximum possible extent. To make an efficient organisational structure, it should be simple, which can be made through the elimination of additional levels of management which adds to the complexities of existing structure. Basically, the priority of standardization and flexibility over the choice of the fundamental structure that helps in attaining the needed priority is structural decision. Hence, it is needed on the part of the managers to assess the merits and demerits of every structural building block, and to match them with the needs of the strategy.

For example, there is a need for a different structure for accomplishing a defender/cost leadership. competitive strategy and a prospector/differentiation strategy. Defender strategies need a high level of standardization in structure for the purpose of ensuring cost efficiencies, whereas the prospector strategies need a high level of structural flexibility for the purpose of development of new technologies and innovation in goods and services.

Maintaining the Organizational Structure

The current fundamental structure has to be maintained in case its features match with the needs of the strategy. Though, it may need an extra coordinating mechanism Generally, the competitive advantage on a long term basis is not established solely on the basis of the organisation structure.

Yet, the major implementation area of an organisation has been its structure (particularly, when it is combined with cultural efficiency). When an effective organisation structure is maintained, it acts as the strength for an organisation, irrelevant of its rarity among competitors. For the purpose of maintaining the structure of the organisation, management should perform the following activities : 
  • Assess the current structure to make certain that they are chance for innovation wherever suitable.
  • Examine the administration team to make certain that they have the appropriate leadership skills needed for their positions.
  • Keep the record of current skills to make sure that they are in coordination with the structure and strategy.

Changing the Organizational Structure

The administration should be ready to develop a plan for changing the organisational structure and should carefully move towards attaining it, in case, a comparative analysis between current structure and needs of the strategy calls for it. Inefficiency or unsuitability in the organisational structure can weaken the strategy of the organisation, which will result in delayed decision making due to a lot of administration layers, but usually the structure of the organisation is not regarded as its competitive disadvantage on a long-term basis.

Yet, if it is found to be a weakness for the organisation, it should be immediately changed. Re-organisation means a major change from the employees perspective and can be considered to be alarming. The re-engineering approach can be adopted to help the managers in handling the situation of re-organisation. It helps in reconsidering and changing the connection between the tasks in order to ensure proficiency in the entire system.

Steps for Changing Structure of Organization

Thus, the management should follow these steps, while changing the structure of the organisation : 
  1. They should prepare a proper flowchart for the entire process, which also consists of its interfaces along with the different value chain activities. 
  2. They should first simplify the task, by removing additional tasks and steps wherever feasible and should be able to analyse alignment of the remaining tasks. 
  3. They should find the parts which can be automated if feasible (mostly where the work is repetitive, prolonged, and do not require a lot of thinking or decision making).
  4. They should bring latest technologies which can help in up-gradation for attaining the advanced ability and helps in ensuring sumptuous gains in the coming years.
  5. They should assess every activity in order to find-out if it is strategically critical (strategy critical activities help in setting up the standards for the purpose of attaining excellence within the industry). 
  6. They should evaluate the merits and demerits of outsourcing the activities which are not crucial or which don't provide much to the abilities of the organisational core competencies.
  7. They should carry-out a comparative analysis of the merits and demerits regarding the organisational building-blocks with respect to standardization and adaptability.
  8. They should be able to plan out the structure for the performance of the remaining activities, followed by allotting the task to the suitable employees and teams as per the needs of the new structure.

Difficulties in Matching Organizational Structure with Strategy 

The two questions evolve while assessing if the designing of the structure is as per the requirements of the strategy :
  • What are the activities and functions which have to be accomplished in order to ensure a successful strategy?
  • Is the structure flexible enough to cope up with the stress coming from the external environment?
These two questions should be able to draw answers which exactly highlight required functions for implementing a successful strategy. Yet, while testing consistency of the strategy, strategists usually face following problems :

1) Vagueness in Strategy : 
While the strategist is trying to match the structure with strategy he might find, strategy to be ambiguous and evolving. Hence, prior to diagnosing the adequacy of the structure, the question which has to be answered is regarding precision of the strategy. In case of lack of clarity regarding this question it is futile to assess the adequacy of the structure of the organisation. Hence, an exact, accurate and lucid strategy helps in testing the adequacy of the structure of the organisation.

2) Hidden Strategy : 
Unlike the material objects, the causes of malfunctioning of the strategy are not open at all times. It might need an interpretation of the things based on the different qualitative factors, which could turn out to be subjective. The human nature always tries to hide the ugly face of the things and the structure of the organisation is also a part of it. Hence, the establishment of the information system should be done in a way which allows keeping a check over the adequacy of the organisation.

3) Manifold Reasons : 
While applying the test of the adequacy it is found that there are many reasons for erroneous outcomes other than the organisational structure, such as emerging trends in external environment. Hence, strategists should keep a check on other factors too.