Organizational Structures

In today's class Prof Dr. Mandi brought pyramid in the class. This blog is about managerial lessons that can be learnt through pyramid.

The thing he brought was few structures having equal no. & same size of balls attached to it. Now we joined the structures & then it looked like an organizational pyramid. The pyramidal shape of a company's organizational chart reflects a hierarchy. Executives are at the top of the chart; middle management follows; and workers are at the bottom. 

Students’ replies about the structure were-
All the balls are of same size. So everyone has same importance on the structure.
It is symmetrical so everyone can change their roles as per requirement.

The base layer or the worker class is providing support to the whole thing. So it can’t be ignored & have to be strong for company’s progress.

An organizational structure consists of activities such as task allocation, coordination and supervision, which are directed towards the achievement of organizational aims. It can also be considered as the viewing glass or perspective through which individuals see their organization and its environment.

Types of organizational structure-

1) Functional Structure-

• This type of structure brings together all employees engaged to perform a specialized set of tasks.
• For example as shown in the above diagram, organization has different functional departments such as sales, HR, engineering, finance. Finance VP is responsible for all financial activities of am organization.

Advantages- 

• It leads to operational efficiency within that group.
• It is best suited as a producer of standardized goods and services at large volume and low cost.
• Coordination and specialization of tasks are centralized in a functional structure, which makes producing a limited amount of products or services efficient and predictable.
• Efficiency can be realized as functional organizations integrate their activities vertically so that products are sold and distributed quickly and at low cost. To give an example, a small business could make components used in production of its products instead of buying them.

Disadvantages-

• It may lead to a lack of communication between the functional groups within an organization, making the organization slow and inflexible.
• It makes difficult to judge performance of various departments because the question arises as to who should be blamed when a product fails.

2) Divisional/Product Structure-

It groups each organizational function into a division. Each division within a divisional structure contains all the necessary resources and functions within it.

Divisions can further be categorized as given below-

a) Geographical basis-

In today’s fast world, there has been increasing need for an organization to be located close to their customers to quickly understand changes in the consumer behavior. Hence divisions are made geographically.

b) Product basis-

As shown in the image, the categorization has been done on the basis of broad category of products. Each division may have its own sales, engineering and marketing departments.

Another example, an automobile company with a divisional structure might have one division for SUVs, another division for subcompact cars, and another division for sedans.

3) Matrix Structure-

It groups employees by both function and product. This structure combines the best of both separate structures. This type of organization frequently uses teams of employees to accomplish work, in order to take advantage of the strengths, as well as make up for the weaknesses. 

As an example consider a company that produces two products, "product a" and "product b". Using the matrix structure, this company would organize functions within the company as follows: "product a" sales department, "product a" customer service department, "product a" accounting, "product b" sales department, "product b" customer service department, "product b" accounting department. 

Matrix structure is among the purest of organizational structures, a simple lattice emulating order and regularity demonstrated in nature.

Starbucks is one of the numerous large organizations that successfully developed the matrix structure supporting their focused strategy. Its design combines functional and product based divisions, with employees reporting to two heads. Creating a team spirit, the company empowers employees to make their own decisions and train them to develop both hard and soft skills.

Business structures can also be described in terms of whether the organization is tall or flat. This characteristic refers to how many layers of management there are in an organization. 

A tall structure is hierarchical and has different levels of management. Decision making tends to be centralized with management in tall organizations.

A flat structure is common in small companies (entrepreneurial start-ups, university spin offs). Decision making is less centralized and employees have better communication as all are at the same level.

Choice of an organizational structure depends upon an organization's size, number of facilities located in different geographic areas & marketing strategy.