What is Organisation Structure? Definition, Types, Factors Impacting

What is Organisation Structure? Definition, Types, Factors Impacting

  • Post last modified:2 August 2023
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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.

Table of Content

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.

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.

Concept of Organisational Structure

An organizational structure can be defined as the logical arrangement of tasks, duties, roles, and responsibilities with the aim to achieve the predetermined objectives of the organization. In the words of Kast and Rosenzweig, the structure is the established pattern of relationships among the component parts of the organization.

An organizational structure intends to promote coordination among individuals in the organization by clearly defining the reporting structure (who will work under whom). It also defines interpersonal relationships between individuals and their jobs.

An organizational structure is broadly categorized into types, namely centralized structure and decentralized structure. In a centralized structure, decisions are taken at the top level of management and passed to the lower level management.

On the other hand, in a decentralized structure, departments are given the autonomy to make their own decisions depending on their requirements. Generally, the centralized structure is found in small-scale organizations where there is less hierarchy, while the decentralized structure is followed by organizations having a worldwide presence and where it is impossible to make decisions at the central level.

Characteristics of Effective Organisational Structure

An effective organizational structure represents the arrangement of activities, individuals responsible for performing these activities, coordination between individuals and departments, and optimal utilization of resources. The following are some characteristics of an effective organizational structure:

Simple and unambiguous

The structure of an organization should have a minimum chain of command so that unnecessary confusion and chaos can be avoided. Having more than one supervisor can lead to communication gaps and inefficient monitoring. Thus, the chain of command should flow from a single superior to his/ her subordinates.

Flexible and adaptable

As the business environment is dynamic, the organizational structure should be created so that it can readily be altered as per the changing needs and demands.

Clarity of roles

Every employee should know the authority–responsibility relation from top to bottom or horizontally. This would help employees understand to whom they must report and perform their roles and responsibilities effectively.

Involvement of top management

The participation of top management is crucial to developing an organizational structure. This is because the essential elements, such as corporate objectives, functions, and policies, are decided by the top management.

Principles for Effective Organisational Structure

To maintain effective structures, organizations are required to follow certain principles. These principles are explained as follows:

Division of work

The structure of an organization should be designed in a manner that every employee should be allotted work as per his/her abilities, skills, and competencies. This helps employees in achieving specialization in a particular work; thereby increasing their efficiency.

Unity of command

An employee who is given multiple commands causes difficulty for the employee in decision-making, which, in turn, affects his/her performance. Thus, there should be a single line of command in an organization.

Principle of departmentation

Departmentation involves dividing a large organization into smaller units (called departments) as per specialized functions. Departmentation helps in making managerial functions easier and brings work specialization.

Principle of authority

The overall authority of the organization must be broken down into departments, divisions, or/and functions. Authority helps in supervising the performance of subordinates and monitoring and controlling organizational activities.

Span of management

It implies the number of subordinates supervised by one manager. There should be an adequate number of subordinates under a manager. The number of subordinates under a manager depends on the ability of the manager and the subordinates, the nature of work, the objectives to be achieved, etc.

Scalar chain

It is the line of command that shows the flow of information among employees at different levels in the organizational structure. This chain specifies the mode through which information should be flown from higher authority to lower authority. Effective flow of information makes employees aware of their roles and responsibilities.

Unity of purpose

Every organization strives to meet its purpose. This can be possible if the top management communicates its purpose to its employees so that they can also work towards accomplishing that purpose.

Principle of flexibility

Change is inevitable in any organization. Thus, the structure of an organization should be flexible enough to adapt to the necessary changes made in the internal and external environment of the organization.

Principle of synergy

Synergy implies that the efforts of all individuals should result in more than the sum of individual output. The networking of individuals in an organizational structure must lead to synergy.

Principle of team spirit

Team spirit in an organization makes employees understand the behavior of each other and learn to accept each other’s differences. An effective organizational structure requires coordination of employees to serve the common purpose, which can be possible if team spirit is inculcated among them.

Guidelines for Organisational Structure

Some guidelines that organizations must follow while developing their organizational structure are given below:

Defining clear goals and objectives

An organization should clearly define its goals and objectives while developing its structure. Clear and discrete goals help team members enable individuals to understand their job roles and responsibilities.

Determining the appropriate type of organizational structure

An organization should select a suitable type of organizational structure depending on the authority-responsibility structure used by it. For example, in a centralized organizational structure, the top to down approach is followed to assign tasks and responsibilities to individuals.

Defining the scalar chain of command

The chain of command should be properly decided in an organizational structure. For instance, if there is a single leader, the chain of command would be unitary, which means functions and roles would be delegated by a single person. On the other hand, if there are multiple heads, the delegation of functions and roles of individuals would be divided into various heads and there would be multiple commands of authorities.

Six Box Organisational Model

The six-box model was developed by an American analyst Marvin Weisbord in 1976 to evaluate the functioning of organizations. It is a framework that represents the concerns to be addressed by organizations while designing their structures. This model views organizations from formal and informal perspectives.

In this model, Weisbord gave six broad categories of organizational life, including purposes, structures, relationships, leadership, rewards, and helpful mechanisms. According to Weisbord, the purpose of an organization includes the organization’s mission and goals. On the other hand, the structure could be defined as the way of organizing the organization; this could be on the basis of function, product, program, or project.

Weisbord defined relationships as the ways in which people and units interact with each other. Rewards could be in the form of intrinsic and extrinsic rewards that people associate with their work. Leadership could be defined as typical leadership tasks that help in creating balance among different categories of organizational life. Finally, the helping mechanisms, according to Weisbord, are the planning, controlling, budgeting, and information systems that help in meeting organizational goals.

Let us discuss these six box organisational model areas in detail.

Purpose

This box is concerned with the overall direction of an organization. In addition, in this box, it is considered to what extent people are clear about the organization’s vision and mission and provide support to meet the organization’s purpose.

Structure

The box represents that the organization’s structure should be well-fitted with the organization’s purpose.

Relationships

As per Weisbord, there are three most important relationships in an organisation. They are between individuals; between different departments; and between individuals and their jobs. He has suggested that the quality of these relationships is important for managing conflicts in the organisation. Effective communication and coordination are the two main tools to improve the quality of relationships in the organisation.

Rewards

This box is concerned with the compensation packages and incentive system of the organization. A fair reward mechanism acts as a motivating factor and prompts employees to work towards organizational goals and objectives. The structure of the organization should be such that the performance of employees is rewarded.

Leadership

Weisbord considers this box central as leaders are responsible for monitoring the performance of the other five boxes and maintaining a balance among these boxes. According to him, leaders define purposes, embody these purposes in programs, maintain the organization’s integrity, and manage conflicts.

Helpful mechanisms

As per Weisbord, helpful mechanisms are the cement that binds an organization together to make it more than a collection of individuals with separate needs. The mechanisms are the processes that help employees to accomplish their jobs and meet organizational objectives. A few examples of such mechanisms are planning, control, budgeting, information systems, etc.

Weisbord proposes money, people, ideas, and machinery as inputs, which are used to fulfill the organization’s mission. The outputs, on the other hand, are products and services. However, there are two premises that are important to understand in Weisbord’s model.

These premises include:

  • Formal versus informal systems: Formal systems involve policies and procedures that the organization claims to do. Informal systems on the other hand are the behaviours that actually occur within the system. The gap between formal and informal systems within the organization defines the effectiveness of the organizational structure. The lesser the gap between the two, the more effective the organization would be.

  • Fit between the organization and the environment: It is the second premise that focuses on the difference between the current performance of an organization and the way the organization should perform to meet external demands. Weisbord describes external demands as customers, government, and unions.

Weisbord further presents diagnostic questions for each box of his model. For example, he proposes that OD consultants regulate whether organizational members support the organization’s mission and goals within the purposes box. This question deals with the premise regarding the nature of the formal and informal systems within the organization.

Let us see a sample of some questions that could be posed:

  • Purposes: Do organizational members support the organization’s mission and goals?

  • Structure: Is there a fit between the purpose and the internal structure of the organization?

  • Relationships: What type of relationship exists between individuals and different departments? What is the quality of relations? Is there any interdependence?

  • Rewards: What is the formal rewarding system of the organization? What do organizational members feel about the rewards and punishments they get from the organization?

  • Leadership: Do leaders define purposes and express them in their programs?

  • Helpful mechanisms: Do these mechanisms help or hamper the achievement of organizational objectives?

Thus, you can see that Weisbord’s model focuses on diagnostic questions that relate to the internal issues within an organization. These questions analyze the fit between “what is there” and “what should be there in the organization.”

Although the model provides insight to develop the structure of the organization, it suffers from certain limitations. Some of its limitations are:

  • Oversimplification: This model is very simplified which is not valid in a complex organizational environment.

  • Insufficiency: This model is not complete. For instance, the model does not deal with power issues nor it includes any competitive aspects of the organization.

  • Inadequacy: The relationships between the boxes are not explained adequately.

Matrix or Mixed Model

The matrix organizational structure is one of the most complex organizational structures. This structure is developed to complete a particular project or a special task. Thus, in this structure, employees from different departments of the organization temporarily work together. For example, the new product development project of an organization requires experts from different departments like finance, product engineering, production, marketing, sales, research, and development, etc.

In the matrix structure, there is no particular direction of authority and responsibility and a single individual may receive commands from two different sources at the same time namely the functional manager and project manager. Functional managers are responsible for heading departments such as engineering and marketing, while project managers supervise employees working on specific projects in different departments. The authority of functional managers flows downwards, whereas the authority of project managers flows horizontally. Thus, in the matrix structure, authority flows downwards and across.

In a nutshell, it can be said that the matrix structure links employees, tasks, and technologies by combining two or more departments within the organization with the aim of leveraging the benefits of all the departments. Citigroup is an example of an organization that uses the mixed model approach.

Advantages of Matrix Organizational Structure

The advantages of the matrix organizational structure are as follows:

  • Sound decisions: In the matrix organizational structure, decisions are taken by experts. Thus, the decisions made in this structure are always effective and valuable.

  • Development of skills: The matrix organizational structure helps in widening the skills of employees. For instance, marketing people can learn about financing if they need to report to finance managers.

  • Effective strategic planning: By delegating tasks to project managers, the top managers can easily concentrate on effective strategic planning.

  • Optimum utilization of resources: The matrix organizational structure makes optimum use of human and physical resources as there is no duplication of work. Thus, there is no wastage of resources in the matrix organization.

  • Team effort: In a matrix organizational structure, the employees work as a team to accomplish a particular task or project. This facilitates effective coordination among employees and motivates them to achieve pre-defined goals.

Disadvantages of Matrix Organizational Structure

The disadvantages of the matrix organizational structure are as follows:

  • Increased workload: In a matrix organizational structure, managers and employees have to not only do their regular work but also manage other additional tasks like attending various meetings. This leads to a high workload on managers and employees.

  • High operational cost: In a matrix organizational structure, charges are incurred on paperwork, report generation, meetings, etc. This leads to an increase in the operating costs of an organization.

  • Absence of unity of command: There is no unity of command as an employee faces multiple commands from different managers. This may lead to chaos and ambiguity in roles and responsibilities.

  • Complexity: In the matrix structure, the size of the hierarchy is too large. Thus, there are higher chances of chaos and confusion in this structure.

Other Organisational Models

Apart from the matrix organizational structure, there are some other types of organizational structures. However, the type of structure selected by an organization depends on its requirements, business size, staff strength, budget, etc. The following are some other types of organizational structures:

Line organizational structure

In this structure, there is a single line of command. This type of model is informal, and the decision-making process is easy and straightforward. It is generally used in small-scale organizations. The line organizational model is also known as a scalar, military, or vertical organizational model.

Line and staff organizational structure

Under this structure, the flow of information is from top to bottom in a line, and staff members support line managers. For example, a production manager (line employee) is responsible for producing goods, while the quality manager (staff member) checks and ensures the quality. This model is used in medium and large-scale organizations.

Functional organizational structure

It is an organizational structure in which individuals with similar functional areas or skills are grouped in separate units. These different units are directly controlled and coordinated by the top management of the organization. The useful organizational model is suitable for large-scale organizations with limited products.

Divisional organizational structure

An organizational structure in which an organization is divided into different independent units is called a divisional organizational model. The division is made on the basis of the product, market, and geographic region of the organization. For example, if the organization has three different product lines, it would have separate divisions for these product lines. This is one of the most widely used structures by organizations.

Article Source
  • Baligh, H. (2014). Organization Structure & Design (1st ed.). Springer.

  • Hannagan, T., & Bennett, R. (1995). Management (1st ed.). London: Pitman.

  • McFarland, D. (1974). Management: principles and practices (1st ed.). New York: Macmillan

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