Organizational structure definition
/What is Organizational Structure?
Organizational structure is the set of rules used to delineate how tasks are controlled within an organization. These rules state the reporting relationships between positions, as well as how work is delegated and controlled. The structure also controls the flow of information through the firm. The type of structure adopted can be stated graphically in an organization chart. The two general classifications of organizational structure are noted below.
Centralized Organizational Structure
In a centralized organizational structure, decision-making is concentrated at the top of the entity, with lower levels of the entity being told how to implement those decisions. This approach is more common in large organizations operating in industries that do not experience much change. In this structure, information is aggregated at the top and is then selectively distributed down through the organization.
Decentralized Organizational Structure
In a decentralized organizational structure, decision-making is diffused throughout the business, which results in fewer levels. This approach works best when the organization needs to be more agile in its decision-making. In this structure, information is more democratically shared across the organization.
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Types of Organizational Structures
More specifically, a business might adopt one of the organizational structures noted below that is tailored to operate best within its specific business environment.
Functional Organizational Structure
The functional organizational structure breaks up a company into departments, so that each area of specialization is under the control of a different manager. For example, there may be separate departments for accounting, engineering, purchasing, production, and distribution. This is the most common organizational structure.
There are several advantages to the functional organizational structure. First, the departmental structure that is inherent in this design is a good way to centralize clusters of skill sets, which is a good way to get specialized work done. Second, it allows specialists to only work on the tasks for which they have specialized skills and experience, which allows them to become more efficient. Further, they can expect to keep doing the same work for an extended period of time, which allows them to continue improving in their areas of specialization.
There are also a few disadvantages to the functional organizational structure. First, it is all too easy for the silo mentality to arise, where there is little cross-over of information between departments, which can result in suboptimized outcomes. Also, department managers tend to view the organization only from the perspective of their individual departments, rather than from the perspective of the firm as a whole; this can result is decision-making that is good only for the most powerful department managers.
Organic Organizational Structure
The organic organizational structure has an extremely flat reporting structure, where the span of control of the typical manager encompasses a large number of employees. Interactions among employees tend to be horizontally across the organization, rather than vertically between layers of managers and their direct reports.
Divisional Organizational Structure
The divisional organizational structure creates separate organizational structures to service different geographic regions or product lines. It is used in larger organizations. There can be functional or organic structures within a division.
Matrix Organizational Structure
The matrix organizational structure allows employees to have multiple responsibilities across multiple functional areas. When implemented correctly, it can result in an effective organization. However, it is confusing for employees and so is rarely used.