Organisation Structure

Organizational Structure
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.

Organisation Structure refers to the pattern of relationships among individuals and department in an organisation Organisation Structure is the framework through which the organisation operates. Classification of organisation structure is based on various activities which are grouped together to create departments and units & prescribing their relationships in the organisation.

 Organizational structure also refers to the well defined jobs, each bearing a definite authority, responsibility and accountability.

Why Have a Structure?

All businesses have to organise what they do. A clear structure makes it easier to see which part of the business does what. There are many ways to structure a business.

Ways to Structure a Business

By function: Arranging the business according to what each section or department does.

By product or activity: Organising according to the different products made.

By area: Geographical or regional structure.

Ways to Structure a Business

By customer: Where different customer groups have different needs.

By process: Where products have to go through stages as they are made.

What are the advantages/disadvantages of different types of business structure?

Types of Structures
This depends on the business type, size and structure used.

Functional Organizational Structure

 Functional structure is created by grouping the activities on the basis of functions required for the achievement of organizational objectives. Functions are classified into Basic(essential: e.g. production, marketing, in manufacturing organization), Secondary(subparts :e.g. marketing is further divided into market research, advertising, salesetc) & Supportive (e.g. finance, accounting, personnel, industrial relations)functions according to their nature and importance. Authority relationships in functional structure may be in the form of line, staff & functional.

 Lets look at a functional structure:

Chief Executive

Board of Directors

Production

Marketing

Accounts

Personnel

IT

A Sample of Pier 1s Functional Structure

Clark Johnson CEO

Exec. V.P. Finance & Admin. V.P. Tax

Senior V. P. Stores

Senior V.P. Logistics V.P. Distribution

V.P. Controller

V.P. MIS

Director Corp. Planning

Director Transportation

Characteristics of functional structure:

1. Specialization by functions 2. Emphasize on sub goals 3. Pyramidal growth of the organization

4. Line and Staff division

5. Functional authority relationships among various departments. 6. Limited span of management and tall structure.

ADVANTAGES: Result into high degree of specialization

Brings order & clarity in the org.

Promotes professional achievements, provides satisfaction to the specialist.

Resources can be saved

High degree of control and coordination of functions.

DISADVANTAGES: Judging the performance of each dept is difficult.

Slow Decision Making process

Lack responsiveness necessary to cope up with new & rapidly changing work requirements. Offers usually line & staff conflict & interdepartmental conflict and results in inefficiency.

Functional Structure
Advantages Specialisation each department focuses on its own work. Accountability someone is responsible for the section. Clarity know your and others roles. Disadvantages Closed communication could lead to lack of focus. Departments can become resistant to change. Coordination may take too long. Gap between top and bottom.

Suitability Required when small organisation grows & business activities become more & more complex.
Works better if organisation has one major product or similar product line.

Product Structure

 Product departmentalization involves the grouping of all activities necessary to manufacture a product or product line.
Preferred for product expansion & diversification when manufacturing & marketing characteristics of each product are of primary concern. Used when the product is relatively complex & a great deal of capital is required for plant and facilities. Each product division contains the functions necessary to that service the specific goods or services it produces

Product Structure
CEO Corporation

Corporate Managers

Washing Machine Division

Lighting Division

Television Division

Product Team Structure

CEO

Func. Managers
Sales Design Production

Manufacturing

Manufacturing

Manufacturing

= Product Team Manager

= Team member

Advantages
Coordination within product lines made easier

More adaptable to changes in environment (e.g., can shut down a division when a product is no longer selling)
Responsibility for failures, successes identifiable

Competition across divisions can serve as a motivator

Disadvantages
Redundancy of functions across divisions (e.g., marketing, R&D) Competition for resources, power Lack of development of expertise in functional areas

An Example of Organisation by Product/Activity

Hewlett Packard

Imaging and Printing Group

Personal Systems Group

Enterprise Systems Group

HP Services

HP Financial Services

Organisation by Product/Activity
Advantages Clear focus on market segment helps meet customers needs. Positive competition between divisions. Better control as each division can act as separate profit centre. Disadvantages Duplication of functions (e.g. different sales force for each division) Negative effects of competition. Lack of central control over each separate division.

Organisation by Area
Hewlett-Packards Headquarters Worldwide
Hewlett Packard

Americas Houston, Texas

Europe, Middle East, Africa Geneva, Switzerland

Asia Pacific Hong Kong

Geographic Structure
CEO Corporation

Corporate Managers

Northern Region

Western Region

Southern Region

Eastern Region

Organisation by Area
Advantages Serve local needs better Positive competition More effective communication between firm and local customers Disadvantages Conflict between local and central management Duplication of resources and functions

Line Organisation Structure

Lines of authority and instructions are vertical, i.e. they flow from the top to the bottom. The unity of command is maintained in a straight and unbroken line. It implies that each subordinate receives instructions from his immediate superior alone and is responsible to him only.

 All persons at the same level of organisation are independent of each other.

This structure specifies responsibility and authority for all the positions limiting the area of action by a particular position holder.

Line & Staff Organisation Structure

Refers to a pattern in which staff specialists advise managers to perform their duties.

Staff managers provide advice to the line manager who are generally specialists in the field. Staff positions are purely advisory in nature. They have a right to recommend but have no authority to enforce their preference on other dept. The line executives are the DOERS or commanders, where as, the specialists are the THINKERS or advisors.

ADVANTAGES Planned Specialisation Quality Decisions Prospect for Personal Growth Training Ground For Personnel DISADVANTAGES Lack Of Well Defined Authority Line & Staff Conflicts Suitability Not suitable for small organisations as it is quite costly for them.

Divisional Structures
A division is a collection of functions working together to produce a product.

Divisions create smaller, manageable parts of a firm.

Divisions develop a business-level strategy to compete. A division has marketing, finance, and other functions. Functional managers report to divisional managers who then report to corporate management.

Product structure: divisions created according to the type of product or service. Geographic structure: divisions based on the area of a country or world served. Market structure: divisions based on the types of customers served.

Market Structure
CEO Corporation

Corporate Managers

Large Business Customers

Small Business Customers

Educational Institutions

Individual Customers

FLAT STRUCTURE

 FLAT STRUCTURE reduces the levels of management. Widens span of control of management at various levels of organisation. More decentralized with regard to decision-making

ADVANTAGES: More delegation of authority More clear policy Development of managers for higher positions because of their initiative & authority to make decisions. DISADVANTAGES: Tendency of overloaded superior to become bottlenecks in decision making Requirement of highly trained managerial personnel.

Tall & Flat Organizations

Tall structures have many levels of authority relative to the organizations size.

As levels in the hierarchy increase, communication gets difficult. The extra levels result in more time being taken to implement decisions. Communications can also become garbled as it is repeated through the firm.

Flat structures have few levels but wide spans of control.

Results in quick communications but can lead to overworked managers.

VERTICAL STRUCTURE

 Narrow span of control Large number of management levels More centralized decision making

ADVANTAGES: Close Supervision Close control of subordinate activities Fast communication between superior & his subordinate DISADVANTAGES: Creation of many levels of management High cost to the organisation Excessive distance between lowest level & highest level in the organisation.

Matrix Organization

Matrix Organization
In a matrix organization a vertical as well as lateral communication and information flow is allowed. The matrix organization integrates functional responsibility with product responsibility. It is a combination of the functional and the product org. structure.

 A product manager is responsible for the total performance of the product and
Will have the production manager, the marketing manager, the accounts manager as his counterparts in the manufacturing, marketing, and accounting functions respectively.

 These functional managers report to the functional head vertically and product manager laterally.
MOS is used in big companies having diverse business activities The structure enjoys the advantages of a functional as well as of a product organization.

Matrix & Product Teams

Matrix structure: managers group people by function and product teams simultaneously.

Results in a complex network of reporting relationships. Very flexible and can respond rapidly to change. Each employee has two bosses which can cause problems. Functional manager gives different directions than product manager and employee cannot satisfy both.

Product Team Structure: no 2-way reporting and the members are permanently assigned to the team and empowered to bring a product to market.

Matrix Structure
CEO Func. Managers Sales Design Production

Team Managers

Product team A Product team B Product team C

Product Team

= two boss employee

Product Team Structure

CEO

Func. Managers
Sales Design Production

Manufacturing

Manufacturing

Manufacturing

= Product Team Manager

= Team member

Hybrid Structures
Many large organizations have divisional structures where each manager can select the best structure for that particular division.

One division may use a functional structure, one geographic, and so on.

This ability to break a large organization into many smaller ones makes it much easier to manage.

Design Of Matrix Structure

In MOS, a project manager is appointed to coordinate the activities of the project. A subordinate in matrix structure may receive instructions from two bosses. Matrix superior has to share the facilities with others. He reports in a direct line to the up, but does not have a complete line of command below.

Matrix Organization
MD Manufacturing Finance Personnel Material

Product Manager-A Product Manager-B

Production MGR-A ProductionMGR-B

Finance Mgr-A Finance Mgr-B

Personnel Mgr-A

Material Mgr-A

Personnel Mgr-B

Material Mgr-B

Advantages & Disadvantages

Advantages of the matrix organization

It attempts to retain the benefits of both structures ( functional organization and project organization).

Coordinates resources in a way that applies them effectively to different projects. Staff can retain membership on teams and their functional department colleagues.

Disadvantages of the matrix organization

Potential for conflict between functional vs. project groups.

Greater administrative overhead.

Increase in managerial overhead

There are 7 types of Organisation Structures Line Line & staff Functional Divisional Project Matrix Free-form