The organizational structure is the foundation of every business and company. A clear and proper structure is key to a company’s organizational development and health. This article will introduce you to the major types and the pros and cons for both companies and employees.
What is organizational structure?
Organizational structure defines the arrangement of a company and determines the place and the role of each employee – letting employees know their responsibilities and to whom they should report. Having a clear and strong organizational structure can, therefore, lead to high effectiveness, efficiency, and productivity of a company. This includes avoiding miscommunication, work delays, poor process flows, disharmony, low morale, lack of control, slow decision-making, and other serious issues that would impede business development and growth.
Common types of organizational structure
Several common organizational structures are defined based on their division of work, level of hierarchy, chain of command, span of control, and delegation of responsibility. Companies take business size, life cycle, goals, and positioning into considerations while deciding which organizational structure would be best suited for their business. For example, how a company/business is set apart from its competitors and builds connections with its customers, also known as positioning, can be largely influenced by how the company operates on a daily basis according to its organizational structure.
Tall structure vs. Flat structure
Tall structures are very hierarchical with a long chain of command and narrow span of control. Tall structures are often adopted by bigger companies that require more control over everyday operations and management. As a result, communications and decision-making are relatively slow due to the number of layers that they have to go through. Under tall organization structures, each manager only supervises a few employees and has little authority or delegations.
In contrast, flat structures have a short chain of command, fewer hierarchical levels, and a wide span of control. Flat structures allow each manager to supervise more employees and have more power in management and decision-making. Thus, the decision-making process is faster with flat structures than tall structures. Additionally, junior employees also have more freedom at managing daily routine work.
Overall, flat structures initially provide more career development and growth opportunities for employees. However, tall structures may offer more promotion and higher management opportunities.
Centralized structure vs. Decentralized structure
The biggest difference between a centralized structure and a decentralized structure is how authority and decision-making capacity are delegated. In centralized structures, upper management has the highest degree of authority, while lower management has very little. This arrangement allows for clear, controlled and highly consistent decision-making. However, an effective centralized structure requires highly trained and capable upper management. Junior employees and lower management may also find it difficult to voice their opinions and concerns during the decision-making process. As a result, centralized structures risk losing motivation at lower level management and their team members.
In comparison, decentralized structures delegate authority and responsibilities along the chain of command, across all levels. Even though strategic decisions and plans are still largely made by upper management, lower management will have the opportunity to control daily operations and other relevant responsibilities. Because of this, decentralized structures ensure faster decision-making and problem solving by directly addressing the source. Employees also feel more satisfaction and motivation at work due to increased responsibility. However, decentralized structures carry the risks of decision inconsistency and poor decision quality. The former can damage team relationships and potentially jeopardize the entire operation.
Functional structure, Divisional structure, and Geographical structure
Functional, divisional, and geographical structures organize companies into various businesses, departments or locations. These organizational structures potentially provide employees with the freedom to transfer within the company depending on their needs and therefore enhance employees’ ability to learn and grow. Other benefits include quicker responses to rising issues within each division and clear allocation of cost and resources. However, these structures can also lead to higher cost burden on the company.
Under functional structures, a company is organized into different business functions or departments such as operations, marketing, finance, human resources, etc. Each department specializes in a specific functional aspect that supports the overall operation of the company.
Under divisional structures, a company is divided into different business units or focuses, each of which operates independently but still follows the overall guidance provided by the headquarters. For example, a company can develop multiple business segments simultaneously such as television, broadcasting, streaming media, consumer products, publishing, etc.
Companies under geographical structures organize business units according to their geographical locations. Each location contains independently operating groups or functions that specifically adapt to the local environment. Divisional and geographical organizational structures are more common for large and multinational companies.
In summary, working for a company that adopts any of the three organizational structures above could be beneficial for someone who is looking to establish a wide portfolio and interested in gaining experiences in multiple functions.
Matrix structure
As its name suggests, matrix structures encompass more than one organizational structure. Typically, a matrix structure is a mixture of both functional structure and projectized structure. A projectized structure means that the companies’ resources are allocated into specific projects. Under this structure, project managers have the ultimate power of decision-making. Since matrix structures are a combination of functional structure and projectized structure, companies under matrix structures are divided into different departments, but all departments work together to complete specific projects. Depending on the dynamics of the matrix, project managers and functional managers may carry different amounts of weight throughout the project. Nevertheless, matrix structures could benefit and appeal to individuals who are interested in a project manager career.
Matrix structures are often adopted by large companies with several large projects. Advantages of matrix structures include improved communication, resource sharing, and employee development opportunities. Possible disadvantages of matrix structures include reporting confusion, heavy workloads, and additional expenses.
Conclusion
As we have discussed above, each organizational structure has its unique set of features and challenges. Therefore, it is very important for job seekers and employees to be aware of these characteristics whether they are looking for new positions, starting at a new company or their company is undergoing an organizational restructure. Being familiar with the organizational structure of your company will ultimately help you make strategic decisions about your career and enhance your understanding of the company dynamics as well as your position within the company.