What is Organisation Structure? Definition, Types, Factors Impacting

  • Post last modified:27 March 2023
  • Reading time:19 mins read
  • Post category:Management

What is Organisation Structure?

The organisational structure is a framework for determining the responsibilities and tasks distributed, grouped, and coordinated within the organisation. An organisational structural design determines the hierarchy of the system that allows for the coordination and supervision of activities and tasks effectively and efficiently.

The framework of the structure helps in determining the authority to know about the working and reporting structures within the system. The work and activities within the organisational structure are divided among departments and units that work on the chain of command. The framework of the structure identifies the working responsibility of each job, its function, and the procedure of reporting within the organisation.

Organisation Structure Definition

According to Mintzberg, Organisational structure defines how individuals and groups are organized or how their tasks are divided and coordinated.

According to Albert K. Wickesberg, organisational structure can be defined as “the set of inter-personal relationships which operates in the context of position, procedure, process, technology and social environment comprises what is known as organisational structure”.

The structure of an organisation is the main basis around which the different activities are worked upon and various procedures and processes operate. The structure of an organisation is designed by the management for the smooth functioning of the organisation.

Factors Impact Organization Design

The organisational structure is designed based on the following factors:

Organisational objectives

While designing the structure, an organisation needs to consider its objectives. Organisational structure should be framed on the basis of organisational objectives set during the planning function.

Size of the organisation

The size of an organisation has a major impact on the design of its structure. An organisation’s size may be defined on the basis of the number of employees working, the amount of money that has been invested, the turnover of the company, or its main capacity of production.

Environmental factors

Every organisation operates in a specific environment. The environment is commonly referred to as the business environment. The environment inside an organisation is known as the internal environment (such as employees, management policies, processes, culture etc.) while the environment outside an organisation is known as the external environment (such as market trends, competitors, social customs, emerging technologies etc.).

Role of technology

Technology plays an important role while per- forming various activities and is an important part in framing the organisational structure. Nowadays, almost all the activities in an organisation are technology based. For instance, use of various software, automation of various processes etc.

Employees in the organisation

People form an integral part of an organisation. People are employed in managerial and non-managerial roles as per their knowledge, skills and abilities (KSA) to perform various activities assigned to them.

Organisational structures depend mainly on one of the following two approaches:

  • Centralised structure: It is when the power of authority and decision-making lies with the top management in the organisation.

  • Decentralised structure: It is when the decision making power is distributed among employees at lower levels where various departments and groups or business units have various levels of independence. However, the top management controls all strategic issues.

Types of Organisational Structures

The different types of organisational structures are as follows:

Functional organisation structure

In this structure, an organisation is grouped or divided into various departments according to various specialisations and job roles. The organisation has different departments such as the sales department, production department, marketing, logistics department, and more. Functional departments are sometimes referred to as “silos.”

This means the system is vertical and disconnected, and the communication flows through the department heads to the top management. This structure is suitable for a business dealing with operations, such as manufacturing industries.

Figure 1 depicts the functional organisation structure:

In Figure 1, the CEO of the organisation is placed at the top. Further, the top management team of the organisation consists of several functional heads, viz., VP Operations, VP Sales/ Marketing, VP Finance and VP HR. Departmental heads (Plant manager, Regional manager, Accounts manager, Audit manager, HR manager) of each functional department are responsible for carrying out communication with each functional department.

Divisional Organisation Structure

The divisional structure works for companies that are large and function in vast geographic locations while working on different products and services within the economy. The advantage of working in this form of structure is that the divisions get to operate on an independent level as a result of which the requirements and needs of the division get easily fulfilled. These forms of structures are costly and complex to operate because of the organisation’s vast size and many organisational structures at different locations.

Figure 2 depicts the divisional organisation structure:

As shown in Figure 2, the President is placed at the top of an organisation in a divisional organisation structure. The top management team of the organisation consists of several division heads, viz., product A division, product B division, product C division, product D division, and the administration and finance division.

Each product division has a separate R&D department, manufacturing unit, marketing department and customer service department. The administration and finance division comprises the human resource department, procurement department, accounting/finance department, PR/communications department, training/safety department and legal department. The departments of the administration and finance division function equally for all product divisions.

Matrix organisation structure

The matrix form of organisational structure is a cross between the divisional and functional structure. This structure operates in large multinational companies. The advantage of the matrix organisational structure is that both functional and divisional structures exist within one organisation.

There is a functional manager and a project manager within the system. The functional manager is responsible for the operations of productions, quality control, marketing, scheduling, and more. The project manager is responsible for handling projects while the functional managers have the responsibility for making decisions about the project or the product.

Hence the employees may have dual reporting relationships, i.e. reporting to both the functional manager and the project manager. Figure 3 depicts the matrix organisation structure:

In Figure 3, there is a vertical chain of command and a lateral chain of command. The vertical chain is for the functions of production, finance, marketing and research and development. The lateral chain is for the three projects, Project A, Project B and Project C.

In the matrix structure, an individual needs to report to two managers, the project manager and the concerned functional manager. For instance, an engineer who is assigned to work in project A will report to both project manager A and the production manager of the production department.

Project Based organisation structures

These are temporary organisational structures that are formed for working on a certain project for a specific period and once the objective is achieved, the team is disassembled. The team formed for working on the project comes from the production, engineering, quality control, market, and more departments. Once the project has been completed successfully, the team members return back to their respective areas of duty. Figure 4 depicts the project-based organisation structure:

The project-based organisation structure is based on the projects of the organisation. Each project has its own manager and a team member. This structure is simpler and less hierarchical as compared to the other forms of organisation structure.

Line and staff organisation structures

Many large business organisations follow this structure where information flows from top to bottom in a line. These structures are very common in the business environment and consist of both line managers supported by staff departments. There are functional specialists to help and advise the line managers in the areas of quality, production, marketing, and more. There is a vertical form of relationship between the various levels of line and staff. The staff department is advisory and usually does not possess and command authority over line managers. Figure 6.5 depicts the line and staff organisation structure:

In Figure 5, the managing director is preceded by the board of directors. The managers of various divisions report to the managing director. This shows the line of authority being followed.

The various functional experts (financial advisor, human resource manager, legal advisor and assistant to MD) work as staff and serve the line officials by advising, supporting and guiding managers and employees, whenever required.

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