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Structural Considerations

An organization structure is the way in which the tasks and sub-tasks required to
implement a strategy are arranged. The implementation of strategies would require the
performance of tasks. Some of these tasks are related to the formulation and
implementation of programmes and projects.

Any organization, as it grows in size and diversity, moves from a simple to a complex
organizational form. Organizational too follow a life cycle consisting of the introduction,
growth, maturity, and decline phases. The life cycle of organizations could be divided
into four stages that are not distinct and may overlap.

Stage I organizations are small-scale enterprises usually managed by a single person

who is the entrepreneur-owner-manager. These organizations are characterized by the
simplicity of objectives, operations, and management. The form of the organization is
also simple and could be termed as entrepreneurial. The strategies adopted are generally
of the expansion type.

Stage II organizations are bigger than Stage I organizations in terms of size and have a
wider scope of operations. They are characterized by functional specialization or process
orientation. The organizational form is simple functional (typically divided into the
finance, marketing, operations, and personnel departments) or process-oriented (divided
into process-based departments arranged in a particular sequence according to the
technology employed). The strategies adopted may range from stability to expansion.

Stage III organizations are large and widely scattered organizations generally having
units or plants at different places. Each division is semi-autonomous and linked to the
headquarters but functionally independent. The divisions may have a simple functional
form depending on their particular needs. The strategies adopted may be either stability
or expansion.

Stage IV organizations are the most complex. They are generally large multi-plant,
multi-product organizations that result from the adoption of related and unrelated
diversification strategies. The organizational form is divisional. The corporate
headquarters assume the responsibility of providing strategic direction and policy
guidelines through the formulation of corporate-level strategies. The divisions (which
may be companies, profit centres or SBUs) formulate their business-level strategies and
may adopt StageI, II or III type of structures.

Structures for Strategies:

There are several types of structures that are found in organizations.

Entrepreneurial Structure: It is the most elementary form of structure and is

appropriate for an organization that is owned and managed by one person. Typically,
these organizations are single-business product or service firms that serve local markets.
The owner-manager looks after all decisions, whether they are day-to-day operational
matters or strategic in nature.

The advantages that the entrepreneurial structure offers are:

• Quick decision-making, as power is centralized
• Timely response to environmental changes
• Informal and simple organization systems

The disadvantages of the entrepreneurial structure are

• Excessive reliance on the owner-manager and so proves to be demanding for the
• May divert the attention of owner-manager to day-to-day operational matters and
ignore strategic decision
• Increasingly inadequate for future requirements if volume of business expands

Functional Structure: As the volume of business expands, the entrepreneurial structure
outlives its usefulness. The need arises for specialized skills and delegation of authority
to managers who can look after different functional areas. Specialization of skills is both
according to the line and staff functions. The functional structure seeks to distribute
decision-making and operational authority along functional lines.

The advantages that a functional structure offers are:

• Efficient distribution of work through specialization
• Delegation of day-to-day operational functions
• Providing time for the top management to focus on strategic decisions

The disadvantages of a functional structure are:

• Creates difficulty in coordination among different functional areas
• Creates specialists, which results in narrow specialization, often at the cost of the
overall benefit of the organization
• Leads to functional, and line and staff conflicts

Despite the disadvantages, the functional structure is quite common and exists in its
original or a modified form as the organization evolves from the initial to the mature
stages of development.

Divisional Structure: The structural needs of expansion and growth are satisfied by the
functional structure but only up to a limit. There comes a time in the life of organizations
when growth and increasing complexity in terms of geographic expansion, market
segmentation, and diversification make the functional structure inadequate. Some form of
divisional structure is necessary to deal with such situations. Basically, work is divided
on the basis of product lines, types of customers served, or geographic area covered, and
the separate divisions or groups are created and placed under the divisional-level
management. Within divisions, the functional structure may still operate.

The advantages that a divisional structure offers are:

• Enables grouping of functions required for the performance of activities related to
a division
• Generates quick response to environmental changes affecting the businesses of
different divisions
• Enables the top management to focus on strategic matters

The disadvantages of the divisional structure are:

• Problems in the allocation of resources and corporate overhead costs; particularly
if the business and corporate objectives are ill-defined
• Inconsistency arising from the sharing of authority between the corporate and
divisional levels
• Policy inconsistencies between the different divisions

Strategic Business Unit: SBU has defined as “any part of a business organization which
is treated separately for strategic management purposes”. When organizations face
difficulty in managing divisional operations due to an increasing diversity, size and
number of divisions, it becomes difficult for the top management to exercise strategic
control. Here, the concept of an SBU is helpful in creating an SBU-organizational

The advantages that the SBU-organizational structure offers are:

• Establishes coordination between divisions having common strategic interests
• Facilitates strategic management and control of large, diverse organizations
• Fixes accountability at the level of distinct business units

The disadvantages of the SBU-organizational structure are:

• There are too many different SBUs to handle effectively in a large, diverse
• Difficulty in assigning responsibility and defining autonomy for SBU heads
• Addition of another layer of management between corporate and divisional

Matrix Structure: In large organizations, there is often a need to work on major
products or projects, each of which is strategically significant. A Matrix structure
organisation contains teams of people created from various sections of the business.
These teams will be created for the purposes of a specific project and will be led by a
project manager. Often the team will only exist for the duration of the project and matrix
structures are usually deployed to develop new products and services.

The advantages of a matrix include

• Individuals can be chosen according to the needs of the project.

• The use of a project team which is dynamic and able to view problems in a
different way as specialists have been brought together in a new environment.
• Project managers are directly responsible for completing the project within a
specific deadline and budget.

Whilst the disadvantages include

• A conflict of loyalty between line managers and project managers over the
allocation of resources.
• If teams have a lot of independence can be difficult to monitor.
• Costs can be increased if more managers (i.e. project managers) are created
through the use of project teams.

Network Structure: The increasing volatility of the environment, coupled with the
emergence of knowledge-based industries, has led to the creation of a network structure.
Also known as the ‘spider’s web structure’ or the ‘virtual organization’, the network
structure is composed of a series of project groups or collaboration linked by constantly
changing non-hierarchical cobweb-like networks. This structure is highly decentralised
and organised around customer groups or geographical regions. The network structure is
most suited to organizations that face a continually changing environment requiring quick
response, high level of adaptability, and strong innovative skills. This structure makes
extensive use of outsourcing of support services required to produce and market products
or services.

The advantages that the network structure offers are:

• High level of flexibility to change structural arrangements in line with business

• Permits concentration on core competencies of the firm
• Adaptability to cope with rapid environmental change

The disadvantages of a network structure are:

• Loss of control and lack of coordination as there are several partners

• Risks of overspecialization as most tasks are performed by others
• High costs as a duplication of resources could be there