Learning for "What are organisational structure?"

Some starting thoughts:


When two or more people come together; to work to achieve a common purpose or to achieve objectives, we have the basis of an organization.  Often, the next step is to establish what must be done and by whom – such as functions to be performed, where these will take place, people involved etc all of which leads to thinking about how the organization will be structured and how it will operate.


A Definition


Organizational structure refers to the formal definition of tasks, jobs, work units, people, and resources in a business/organization and the relationships between these.


What is Organizational Structure? Why is it Important?




Grouping related functions into manageable units to achieve the objectives of the enterprise in the most efficient and effective manner is traditionally referred to as departmentalization.  The primary forms of departmentalization are by function, process, product, market, customer, geographic area, and sometimes matrix (also called project organization). In many organizations, a combination of these forms is used.


Structure shapes the effectiveness of an organization in terms of inter-departmental working relationships, product and service development lead times, quality, efficiency, and responsiveness to customer demands. It also influences individual employee and working team morale, motivation, commitment, and satisfaction.


Different Types of Organizational Structures


By Function


Perhaps the oldest and most common method of grouping related functions is by specialized function, such as marketing, finance, and production (or operations). Sometimes this form of departmentalization may create problems if individuals with specialized functions become more concerned with their own specialized area than with the overall business.


By Process


Departmentalization can also take place by process. This type of structure is often found in large process or manufacturing companies,



By Product


Whenever specialized knowledge of certain products or services is needed, departmentalisation by product may be observed. This usually occurs in large diversified companies.


By Market


When a need exists to provide better service to different types of markets, departmentalisation by market may be the appropriate form. Below is an example of a business serving non-profit markets, which uses the market form of departmentalisation,


By Customer


Sometimes key or major customers warrant departmentalisation by customers or groups of type of customers. This is often the case in banks, financial institutions or service industries such as marketing, advertising and insurance.

By Geographic location


When organizations are spread throughout the world or have territories in many parts of a country, departmentalisation by geographic area may provide better service to customers and be more cost effective.


Combination of Organization Structures




In reality, organizations of any size may employ multiple types of structure using various combinations of the elements covered on the previous slides.




Many organizations, particularly large, physically dispersed and diversified organizations, utilize several different forms of departmentalization.



Departmentalization by matrix, or project, has received considerable use in recent years, particularly in such industries as aerospace (e.g., NASA). Staff with different backgrounds and experiences appropriate to the project are assembled and given the specific project to be accomplished within a certain time period.


Other Aspects of Organizational Structure

A note on Centralization v decentralization


Centralization and decentralization involve the principle of delegation of authority. When a limited amount of authority is delegated in an organization, it is usually characterized as centralized. When a significant amount of authority is delegated to lower levels in the organization, the business is characterized as decentralized. Centralization and decentralization are opposites, and there are different degrees of each. In a highly centralized organization, employees at lower levels have a limited range of decision-making authority. The scope of authority to make decisions in decentralized organizations, by way of contrast, is very broad for lower level employees.


Emerging Organisational Structures


Each new generation of technology creates new opportunities to redesign or

rethink organizational structure. The acceleration of change requires flexible structures that can rapidly incorporate and adapt to technological and process changes.


Whilst backbone structures (such as the ones we have looked at in this document) focused on strategic management as well as provision of administrative and support functions will still exist; there will be a growing use of informal structures (task oriented), to include project teams (actual and virtual), matrix structures, collaboration networks, and others that work within and across the organizational hierarchy.


Technology fulfills the communication and coordination functions that once were accomplished through a formal chain of command. Organizations are no longer limited to one design presumed to be right for all circumstances. They can adopt whatever informal structures are needed to meet current operations and dismantle them when the requirements change. This enables large organizations to act like small ones in dealing with change. They do not have to overhaul a large infrastructure. Using informal structures, they can experiment and adapt on a small scale before making large resource commitments; they can also redirect personnel quickly and avoid the cost of overall restructuring.


Virtual Organization (Food for thought)


Organic or Open Organization


The usual goals for organizations are high productivity and efficiency.  Organizations are seen as reliable machines and employees are considered to be sub-machines or constituent parts of the machine.  This type of organization requires stable environment in which it operates and it is not subjected to rapid change and development.  The emergence of globalization and the high connectivity through telecommunication channels has on the one hand provided the firms with opportunity in the shape of new markets.  On the other hand, this also has its adverse consequences in that it encourages the threat of substitute products and services, usually from small and medium sized firms, operating in manufacturing and service industries and communities at much reduced costs.  The environment therefore becomes turbulent and subject to rapid change.  Well documented and established rules, stringent policies and procedures for business processes and manufacturing regimes become hurdles that undermine the ability of organization to adapt to the changes in the environment quickly and effectively.


Organic organization philosophy promotes the encouragement of creativity of individuals.  It is based on the hypothesis that productivity and adaptability to rapid change is increased when employees are placed at the centre of their environment and they are allowed to manage themselves and their resources.  When their creativity is accounted for and rewarded.  When their continuous development is encouraged through provision of opportunities and resources. 


This type of system or organization allows for the de-centralization of jobs.  Formal procedures are de-emphasized.


Modular Organization


Modularity in organization changes the traditional hierarchical structure to form loosely coupled networks of organizational actors. The underlying idea is that these loosely coupled actors or objects would quite easily form and reform organizational components that are loosely coupled.


The idea of modularity in organizational structure goes hand in hand with idea of modularity in software development.  One of the software engineering goals for software design is that we should design software applications in a highly modular fashion.  Computing applications should be made of components that are highly modular.  That is each components should do one thing and one thing only.  For example in a Human Resource Management application a component may be responsible for creating Wage Slips.  This is a tangible and of value business process and outcome.  The same component should not also manage employee schedule.  It should be modular.  Furthermore, software components should be loosely coupled. That is if we change the internal structure or implementation of one of the components, this does not adversely affect the performance or functionality of other components that it interacts with.  In other words these components should be loosely coupled.  In building systems we endeavor to build solutions made up of components that are highly modular and loosely coupled.


These are organizations where non-core functions are likely to be sub-contracted or outsourced.  This is a direct effect of the use of technology and telecommunication channels for doing business.  Using affordable technology and connectivity, companies can maintain relationships with business partners at lower costs than ever before.  This also has an impact on the product in that such organizations tend to build products or services that are highly modular.  These organizations concentrate on their core capabilities and build alliances and joint ventures. 


In summary


Other Aspects of Organizational Structure - A note on centralization v decentralization


Characteristics of Decentralized Structures





Some emerging trends are significant

·        Business areas/functions are increasingly accountable for the value they create for the customer.

·        Business boundaries are blurring as electronic networks tie business partners, suppliers and customers more closely together.

·        Activities are becoming more distributed, business wide (and sometimes worldwide).

·        The size and importance of premises such as centralized business headquarters is decreasing.




Classifications and some diagrams in this document are derived from:


Montana, P. and Charnov, B. Management: A Streamlined Course for Students and Business People. (Hauppauge, New York: Barron’s Business Review Series, 1993), pp. 155-169.