ORGANIZATIONAL STRUCTURE

DR. CALVINCE ANINO

Types of organizational structures
• Organizational structure (OS) is the systematic arrangement of human resources in an
organization so as to achieve common business objectives. It outlines the roles and
responsibilities of every member of the organization so that work and information flow
seamlessly, ensuring the smooth functioning of an organization.
Major types of organizational structure
• Centralized organizational structure
• Decentralized organizational structure
Other types
• Hierarchical organizational structure
• Functional organizational structure
• Horizontal organizational flat org structure
• Divisional organizational structures (market-based, product-based, geographic)
• Matrix organizational structure
• Team-based organizational structure
• Network organizational structure
Introduction
• An organizational structure is the grouping of resources at different levels depending on their
responsibilities, power, and position. It helps various departments in a company exchange data,
coordinate, and work together to achieve business goals.
• A company devises an organizational structure to ensure that suitable employees with the right
set of skills occupy each position in the company. The OS reveals the accountability and
authority of each role. This removes any uncertainty with regard to task performance and
reporting and enhances employee productivity.
• A company must clearly define its objectives before creating an OS. Then, group similar
activities together to create departments, identify resources for each unit, and establish a
hierarchy of employees based on their duties.
Thus, an OS of a company:
• Forms the basis of employee reporting and relations
• Decides the post of employees in their administrative divisions
• Formulates a system of coordination and interdependence in an organization
• Establishes a well-defined workflow aimed at attaining organizational goals
Every OS contains the following six essential elements:
• Work design: It defines the nature and job description of a particular position
• Administrative division: It involves the grouping of jobs into departments to facilitate the
coordination of work.
• Deputation: It means the power conferred to each employee and department in the organization.
• Management ratio: It refers to the number of employees that are reporting to a supervisor.
• Hierarchy: It creates various levels of authority arranged in the order of delegated powers in the
organization.
• Centralization or decentralization: It presents the mode of operation followed in an
organization.
Centralized organizational structure
• In this system, all the powers of decision-
making rest at the topmost level of the
management. They take the shape of a
pyramid with the leader or executive team
at the top responsible for making all
decisions. Below them are departmental
managers overseeing supervisors. These
supervisors lead the workers at the lowest
level in the hierarchy.
• A centralized OS structure gives
uniformity of policy when the operational
units face a conflict of objectives and
strategic goals. Also, it speeds up the
decision-making process. This type of OS
is prevalent in the retail industry.
Decentralized organizational structure
• In this system of OS, an organization’s middle- and lower-level managers make decisions as per
the local culture or laws. This leaves the top management to direct its attention to major
decisions. This type of OS flattens the hierarchy and empowers employees. It is widely
prevalent in the hotel sector.
• The hotel sector has to comply with local laws to function properly in areas of food and
beverages, human resources (HR), and operations. Therefore, decentralization is required
because handling the guests, food, staff, and processes with a centralized structure is impossible.
Hierarchical organization structure
The pyramid-shaped organizational chart is the most common type of organizational structure—
the chain of command goes from the top (e.g., the CEO/manager) down (e.g., entry-level/low-
level employees), and each employee has a supervisor.
Pros
• Better defines levels of authority and responsibility
• Shows who each person reports to or who to talk to about specific projects
• Motivates employees with clear career paths and chances for promotion
• Gives each employee a specialty
• Creates camaraderie between employees within the same department
Cons
• Can slow down innovation or important changes due to increased bureaucracy
• Can cause employees to act in interest of the department instead of the company as a whole
• Can make lower-level employees feel like they have less ownership and can’t express their
hierarchical org chart
Functional organizational structure
Similar to a hierarchical organizational structure, a functional org structure starts with positions
with the highest levels of responsibility at the top and goes down from there. Primarily, though,
employees are organized according to their specific skills and their corresponding function in the
company. Each separate department is managed independently.
Pros
• Allows employees to focus on their role
• Encourages specialization
• Help teams and departments feel self-determined
• Is easily scalable in any sized company
Cons
• Can create silos within an organization
• Hampers interdepartmental communication
• Obscures processes and strategies for different markets or products in a company
functional org chart
Horizontal or flat organizational structure
It fits companies with few levels between upper management and staff-level employees. Many
start-up businesses use a horizontal org structure before they grow large enough to build out
different departments, but some organizations maintain this structure since it encourages less
supervision and more involvement from all employees.
Pros
• Gives employees more responsibility
• Fosters more open communication
• Improves coordination and speed of implementing new ideas
Cons
• Can create confusion since employees do not have a clear supervisor to report to
• Can produce employees with more generalized skills and knowledge
• Can be difficult to maintain once the company grows beyond start-up status
horizontal org chart
Divisional organization structure
• In divisional organizational structures, a company’s divisions have control over their own
resources, essentially operating like their own company within the larger organization. Each
division can have its own marketing team, sales team, IT team, etc. This structure works well
for large companies as it empowers the various divisions to make decisions without everyone
having to report to just a few executives.

• Depending on your organization’s focus, there are a few variations to consider.

Market-based divisional org structure

• Divisions are separated by market, industry, or customer type. A large consumer goods
company, like Target or Walmart, might separate its durable goods (clothing, electronics,
furniture, etc.) from its food or logistics divisions.
Market-based divisional org structure
 Product based divisional organization structure
• Divisions are separated by product line. For example, a tech company might have a division
dedicated to its cloud offerings, while the rest of the divisions focus on the different software
offerings—e.g., Adobe and its creative suite of Illustrator, Photoshop, InDesign, etc.
Product-based divisional org chart
 Geographic based divisional organization structure
• Divisions are separated by region, territories, or districts, offering more effective localization
and logistics. Companies might establish satellite offices across the country or the globe in order
to stay close to their customers.
Geographical divisional org chart
Matrix organizational structure
• A matrix organizational chart looks like a grid, and it shows cross-functional teams that form for
special projects. For example, an engineer may regularly belong to the engineering department
(led by an engineering director) but work on a temporary project (led by a project manager). The
matrix org chart accounts for both of these roles and reporting relationships.
• Pros
• Allows supervisors to easily choose individuals by the needs of a project
• Gives a more dynamic view of the organization
• Encourages employees to use their skills in various capacities aside from their original roles
• Cons
• Presents a conflict between department managers and project managers
• Can change more frequently than other organizational chart types
matrix org chart
Team based organizational structure
• It’ll come as no surprise that a team-based organizational structure groups employees according
to (what else?) teams. A team organizational structure is meant to disrupt the traditional hierarchy,
focusing more on problem-solving, cooperation, and giving employees more control.
Pros
• Increases productivity, performance, and transparency
• Promotes a growth mindset
• Changes the traditional career models by getting people to move laterally
• Values experience rather than seniority
• Requires minimal management
• Fits well with agile companies with Scrum or tiger teams
Cons
• Goes against many companies’ natural inclination of a purely hierarchical structure
• Might make promotional paths less clear for employees
team-based org chart
Network organization structure
• These days, few businesses have all their services under one roof, and juggling the multitudes of
vendors, subcontractors, freelancers, offsite locations, and satellite offices can get confusing. A
network organizational structure makes sense of the spread of resources. It can also describe an
internal structure that focuses more on open communication and relationships rather than
hierarchy.
Pros
• Visualizes the complex web of onsite and offsite relationships in companies
• Allows companies to be more flexible and agile
• Give more power to all employees to collaborate, take initiative, and make decisions
• Helps employees and stakeholders understand workflows and processes
Cons
• Can quickly become overly complex when dealing with lots of offsite processes
• Can make it more difficult for employees to know who has final say
network org structure