The Definition of Organizational Management

Organizational management is a common management style for modern small businesses. The
organizational method allows managers to break down the entire operation of a department into
several phases. Dividing operational functions into sections allows management to obtain a clear picture
of what the goals of a department are and how to implement the goals most effectively. It also allows
managers to respond rapidly to factors that affect the internal or external expectations of company.

Planning

The planning process of the organizational management structure is the first step for management. In
the planning phase, a manager sets goals for his department and defines the actions that must transpire
to reach those goals. This phase may involve plans for revenue and expense management, inventory
control, labor and regular daily tasks for the department. Managers use the plans created in this process
as a foundation for all other aspects of the organizational management system.

Organization

In the organization step, managers use the plans created in the planning phase to organize the
execution of goals. Managers allocate responsibilities to various team members according to the skills,
labor hours and job definition of each employee. Some employees receive authority to delegate
additional responsibilities to other team members. This type of organization relieves undue burden from
the primary management team and allows each department within a company to work more efficiently.

Leadership

The leadership function of the organizational management structure may be overlooked by some
companies. However, this aspect is vitally important to successful management. An ideal leader is a
person who has the ability to connect with employees and others who are instrumental in facilitating
the goals of the organization. Leaders serve a purpose other than simply creating and managing a plan.
In addition to the ability to relate positively to other employees, an ideal leader also possesses qualities
of integrity, drive and industry knowledge; and is confident in their leadership missions. A manager must
carefully consider these qualities when he selects leaders within the organization.

Resource Control
The control process is the final stage of the organizational management system. In this step, managers
set controls to analyze the progress and effectiveness of each plan made during the planning phase. A
control is a system that uses data compilations to determine if goals are met. If results are inefficient or
show over-achievement based on initial plans, adjustments can be made to the organization process to
ensure resources are used in the most effective manner. Data for the control process may be delivered
in company financial statements, labor reports, internal and external complaint systems or regulatory
agencies.

Organization Management - Meaning, Need and its Features

A set-up where individuals from diverse backgrounds, different educational qualifications and varied
interests come together to work towards a common goal is called an organization.

The employees must work in close coordination with each other and try their level best to achieve the
organization’s goals.

It is essential to manage the employees well for them to feel indispensable for the organization.

Organization management helps to extract the best out of each employee so that they accomplish the
tasks within the given time frame.

Organization management binds the employees together and gives them a sense of loyalty towards the
organization.

What is Organization Management?

Organization management refers to the art of getting people together on a common platform to make
them work towards a common predefined goal.

Organization management enables the optimum use of resources through meticulous planning and
control at the workplace.

Organization management gives a sense of direction to the employees. The individuals are well aware
of their roles and responsibilities and know what they are supposed to do in the organization.
An effective management ensures profitability for the organization. In a layman’s language organization
management refers to efficient handling of the organization as well as its employees.

Need for Organization Management

Organization management gives a sense of security and oneness to the employees.

An effective management is required for better coordination among various departments.

Employees accomplish tasks within the stipulated time frame as a result of effective organization
management.

Employees stay loyal towards their job and do not treat work as a burden.

Effective organization management leads to a peaceful and positive ambience at the workplace.

Essential Features of Organization Management

Planning

Prepare an effective business plan. It is essential to decide on the future course of action to avoid
confusions later on.

Plan out how you intend to do things.

Organizing

Organizing refers to the judicious use of resources to achieve the best out of the employees.

Prepare a monthly budget for smooth cash flow.

Staffing

Poor organization management leads to unhappy employees who eventually create problems for
themselves as well as the organization.

Recruit the right talent for the organization.

Leading

The managers or superiors must set clear targets for the team members.
 A leader must make sure his team members work in unison towards a common objective. He is the
one who decides what would be right in a particular situation.

Control

The superiors must be aware of what is happening around them.

Hierarchies should be well defined for an effective management.

The reporting bosses must review the performance and progress of their subordinates and guide
them whenever required.

Time Management

An effective time management helps the employees to do the right thing at the right time.

Managing time effectively always pays in the long run.

Motivation

Motivation goes a long way in binding the employees together.

Appreciating the employees for their good work or lucrative incentive schemes go a long way in
motivating the employees and make them work for a longer span of time.

Management Style - Meaning and Different Types of Styles

The art of getting employees together on a common platform and extracting the best out of them refers
to effective organization management.

Management plays an important role in strengthening the bond amongst the employees and making
them work together as a single unit. It is the management’s responsibility to ensure that employees are
satisfied with their job responsibilities and eventually deliver their level best.

The management must understand its employees well and strive hard to fulfill their expectations for a
stress free ambience at the workplace.

What is Management Style ?

Every leader has a unique style of handling the employees (Juniors/Team). The various ways of dealing
with the subordinates at the workplace is called as management style.
The superiors must decide on the future course of action as per the existing culture and conditions at
the workplace. The nature of employees and their mindsets also affect the management style of
working.

Different Management Styles

Autocratic Style of Working

In such a style of working, the superiors do not take into consideration the ideas and suggestions of
the subordinates.

The managers, leaders and superiors have the sole responsibility of taking decisions without
bothering much about the subordinates.

The employees are totally dependent on their bosses and do not have the liberty to take decisions
on their own.

The subordinates in such a style of working simply adhere to the guidelines and policies formulated
by their bosses. They do not have a say in management’s decisions.

Whatever the superiors feel is right for the organization eventually becomes the company’s policies.

Employees lack motivation in autocratic style of working.

Paternalistic Style of Working

In paternalistic style of working, the leaders decide what is best for the employees as well as the
organization.

Policies are devised to benefit the employees and the organization.

The suggestions and feedback of the subordinates are taken into consideration before deciding
something.

In such a style of working, employees feel attached and loyal towards their organization.
 Employees stay motivated and enjoy their work rather than treating it as a burden.

Democratic Style of Working

In such a style of working, superiors welcome the feedback of the subordinates.

Employees are invited on an open forum to discuss the pros and cons of plans and ideas.

Democratic style of working ensures effective and healthy communication between the
management and the employees.

The superiors listen to what the employees have to say before finalizing on something.

Laissez-Faire Style of Working

In such a style of working, managers are employed just for the sake of it and do not contribute
much to the organization.

The employees take decisions and manage work on their own.

Individuals who have the dream of making it big in the organization and desire to do something
innovative every time outshine others who attend office for fun.

Employees are not dependent on the managers and know what is right or wrong for them.

Management by Walking Around Style of Working

In the above style of working, managers treat themselves as an essential part of the team and are
efficient listeners.

The superiors interact with the employees more often to find out their concerns and suggestions.

In such a style of working, the leader is more of a mentor to its employees and guides them
whenever needed.

The managers don’t lock themselves in cabins; instead walk around to find out what is happening
around them.
Examples of Organization Management

Organizational structure tends to dictate an organization's management. There are two primary types of
structure: tall, or hierarchical, and flat. Tall organizations are centralized; flat ones are decentralized. In a
hierarchical centralized organizational structure, top management makes all the decisions and
information flows down from the top, through layers of middle managers, to the lowest levels of the
enterprise. Rules and standardized processes and procedures predominate. In a decentralized
organization, top management sets direction and strategy, while middle managers are tasked with
making their own decisions to support corporate strategy. Information flows in both directions, and
innovation is encouraged.

Planning

Planning is one of the four main managerial functions. In a hierarchy, the top management level
performs planning, based on internal production statistics, financial reports and evaluation of industry
trends. Department-level managers, together with top management, do the planning in a flat
organization. The degree of input by middle and lower management depends on the management style
of the chief executive officer; but the goal of flattening an organization is to move decision-making
closer to line functions, so the entire enterprise can react quickly to changes in the industry.

Organizing

A second management function is organizing operations and implementing decisions. A predetermined

directional flow of information from top management, and standard procedures for implementing
decisions, can streamline a hierarchical organization. Department managers in a flat organization
implement decisions and organize operations to support the direction of the company. With style and
method of organization left to department managers, situational experience at the lower levels of the
company are readily handled without waiting for approval from top management.

Leadership

Managers at all levels of both tall and flat organizations must be skilled leaders --- another function of
management. Hierarchies limit the individual decision-making by managers throughout the body of the
organization, but their leadership skills involve encouraging adherence to company policy and delivering
their parts of the total enterprise operation on time and according to quality expectations. In a flat
organization, leaders can operate in a more entrepreneurial fashion. Their tasks still include meeting
deadlines and quality considerations, with constraints on how they accomplish their goals greatly
limited.

Controlling

Control, a fourth function of management, flows down the hierarchy in tall organizational structures ---
the classic image of a bureaucracy. Each management layer controls the layer below, and abides by
control from above. Decentralization of a flat organizational structure puts control on a more localized
level, as long as each department cooperates with the others. Flat organizations operate more as a
collection of teams that work together to move the enterprise ahead.

Factors Affecting Organizational Structure

Organizational structure is the framework companies use to outline their authority and communication
processes. The framework usually includes policies, rules and responsibilities for each individual in the
organization. Several factors affect the organizational structure of a company. These factors can be
internal or external. Small business owners must be responsible for creating their companies
organizational structure framework. Business owners may use a management consultant or review
information from the Small Business Administration before setting up their organizational structure.

Size

Size is many times the driving factor for a company’s organizational structure. Smaller or home-
based businesses do not usually have a vast structure because the business owner is usually responsible
for all tasks. Larger business organizations usually require a more intense framework for their
organizational structure. Companies with more employees usually require more managers for
supervising these individuals. Highly specialized business operations can also require a more formal
organizational structure.

Life Cycle
The company’s life cycle also plays an important part in the development of an organizational
structure. Business owners attempting to grow and expand their company’s operations usually
develop an organizational structure to outline their company’s business mission and goals.
Businesses reaching peak performance usually become more mechanical in their organizational
structure. This occurs as the chain of command increases from the business owner down to frontline
employees. Mature companies usually focus on developing an organizational structure to improve
efficiency and profitability. These improvements may be the result of more competitors entering the
economic marketplace.

Strategy

Business strategies can also be a factor in a company’s organizational structure development.

High-growth companies usually have smaller organizational structures so they can react to changes in
the business environment quicker than other companies. Business owners may also be reluctant to give
up managerial control in business operations. Small businesses still looking to define their business
strategy often delay creating an organizational structure. Business owners are usually more interested in
setting business strategies rather than developing and implementing an internal business structure.

Business Environment

The external business environment can also play an important part in a company’s organizational
structure. Dynamic environments with constantly changing consumer desires or behavior is often more
turbulent than stable environments. Companies attempting to meet consumer demand can struggle
when creating an organizational structure in a dynamic environment. More time and capital can also be
spent in dynamic environments attending to create and organizational structure. This additional capital
is usually a negative expense for many small businesses.

Five Functions of Management & Leading

Effective management and leadership involve creative problem solving, motivating employees and
making sure the organization accomplishes objectives and goals. There are five functions of
management and leadership: planning, organizing, staffing, coordinating and controlling. These
functions separate the management process from other business functions such as marketing,
accounting and finance.

Planning
The planning function of management controls all the planning that allows the organization to run
smoothly. Planning involves defining a goal and determining the most effective course of action needed
to reach that goal. Typically, planning involves flexibility, as the planner must coordinate with all levels
of management and leadership in the organization. Planning also involves knowledge of the company’s
resources and the future objectives of the business.

Organizing

The organizing function of leadership controls the overall structure of the company. The organizational
structure is the foundation of a company; without this structure, the day-to-day operation of the
business becomes difficult and unsuccessful. Organizing involves designating tasks and responsibilities to
employees with the specific skill sets needed to complete the tasks. Organizing also involves developing
the organizational structure and chain of command within the company.

Staffing

The staffing function of management controls all recruitment and personnel needs of the organization.
The main purpose of staffing is to hire the right people for the right jobs to achieve the objectives of the
organization. Staffing involves more than just recruitment; staffing also encompasses training and
development, performance appraisals, promotions and transfers. Without the staffing function, the
business would fail because the business would not be properly staffed to meet its goals.

Coordinating

The coordinating function of leadership controls all the organizing, planning and staffing activities of the
company and ensures all activities function together for the good of the organization. Coordinating
typically takes place in meetings and other planning sessions with the department heads of the company
to ensure all departments are on the same page in terms of objectives and goals. Coordinating involves
communication, supervision and direction by management.

Controlling

The controlling function of management is useful for ensuring all other functions of the organization are
in place and are operating successfully. Controlling involves establishing performance standards and
monitoring the output of employees to ensure each employee’s performance meets those standards.
The controlling process often leads to the identification of situations and problems that need to be
addressed by creating new performance standards. The level of performance affects the success of all
aspects of the organization.

Types of Organizational Structure in Management

Small companies can use a variety of organizational structures. However, a small company's organization
structure must be designed to effectively meet its goals and objectives, according to the Lamar
University article titled "Organizational Structure" on its website. Types of organizational structure in
management can include flat structures as well as functional, product and geographical-structured
organizations.

Flat Organizational Structure

Many small companies use a flat organizational structure, where very few levels of management
separate executives from analysts, secretaries and lower-level employees. Flat organizations work best
when a company has less than 20 employees, especially if the company employs one or two employees
per department. One advantage of using a flat organizational structure for management is that decisions
can be made relatively quickly. The flat organizational lacks the typical bureaucracy of taller
organizational structures--those with many levels of management.

Functional Organizational Structure

A functional organizational structure is centered on job functions, such as marketing, research and
development and finance. Small companies should use a functional organization when they want to
arrange their organizational structure by department. For example, a small company may have a
director, two managers and two analysts in the marketing department. The director would likely report
to the Chief Executive Officer, or CEO, and both managers would report to the director. In addition, each
manager may have an analyst reporting to them. A functional organizational structure works well when
small companies are heavily project-focused. Directors can assign certain projects to managers, who can
then divvy up tasks with their analysts. The department can then more effectively meet their project
deadlines.

Product Organzational Structure

A product organizational structure has managers reporting to the president or head of the company by
product type. Product organizational structures are primarily used by retail companies that have stores
in various cities. However, stores in each city may still need a local human resources or marketing
department to carry out functions locally. For example, a small department store company may have a
vice president of sporting goods, housewares and general merchandise at the corporate office. One
manager may report to each vice president. However, each manager may oversee the work of one or
more field marketing employees who travel and handle local marketing stores in several states. These
field marketing employees may work for the sporting goods manager one week in League City, Texas,
then do merchandising for the housewares manager another week in the Sugarland, Texas, market.

Geographical Organizational Structure

The Small Business Administration is responsible for defining small businesses in different industries. For
example, in manufacturing, the SBA usually considers a company with 500 or fewer employees a small
business. Point is, small businesses are still large enough to use a geographical organizational structure.
A geographical organizational structure is when companies decentralize the functional areas. For
example, unlike the product organizational structure, there may be a local marketing, finance,
accounting and research development person based in each region. For example, a small consumer
products food company may be large enough to place a marketing research manager and analyst in each
of six different regions. This can be important because consumers in various areas have different tastes.
Hence, a geographical structure will enable the company to better serve the local market.

Examples of Organizational Planning

Five Functions of Management & Leading

Planning is a key management role in any organization, whether a private business, a nonprofit
organization, a corporate business or a government agency. Managers engage in different types of
organizational planning to strategically steer their companies towards profitable and successful futures.
Effective planning relies on a thorough understanding of the range of variables involved in each decision
and collaboration with employees from different levels of an organization. Reviewing a few examples of
organizational planning can refine your own planning skills.

Workforce Development Planning

Workforce development is all about creating a diverse, high-performance workforce made up of loyal
and satisfied employees. High-performance organizations do not develop by chance; rather, a
competitive workforce is the result of years of effective planning and successful plan implementation.
Setting goals to meet or exceed equal employment opportunity goals set by the Equal Employment
Opportunity Commission, EEOC, is an example of workforce development planning. Creating advanced
training programs to develop more informed and experienced managers is another example.

Product Planning

The goal in product planning is to create a more appealing product mix than your competitors'. Product
planning is a function of the marketing, finance and operations departments. The marketing department
is responsible for discovering what targets customers want and need. The operations department is
responsible for providing input on how best to design and manufacture products; the accounting
department provides guidance on how to keep costs low and sets the ideal prices. The product pyramid
profit model is an example of a product planning strategy. Under the product pyramid model,
companies offer several different products in the same category, each with a different level of quality
and a different price point. While the company may make slim-to-no profits on the low-end products,
serving all types of consumers in the market segment can help the company capture more market share
for its high-profit premium products.

Expansion Plans

Business owners and managers continually lay plans for the next stages of growth in their companies.
Growth plans identify opportunities and roadblocks to success in the marketplace and set forth
strategies to overcome hurdles and take advantage of opportunities to gain market share from
competitors. Small businesses have a range of options available to keep their companies growing.
Marketing can be a major growth driver for new businesses without an established reputation, for
example. As another example, licensing can allow a small company's products to reach national or
international distribution quickly through established distribution channels. Merging with other small
companies or seeking to be acquired by a larger company can boost a company's size and market share
quickly, as another example.

Financial Planning

Companies engage in financial planning activities the same as individuals and households. Companies
make plans to manage debt and utilize their profit in the most productive manner. Savvy businesses
never let cash sit idle; instead, they always put free cash to use earning a return or investing in the
company's future. Business owners can draft their own financial plans or turn to experienced
professionals to maximize the value of financial holdings. Making plans to spend allocated profit in the
most productive way is an example of financial planning in business. For example, a company may
decide to spend all of its profit on marketing activities to increase demand for their products, and decide
to use credit to purchase the extra inventory needed to meet the new demand created by marketing
spending. Investing in government bonds to earn capital gains with otherwise idle cash is another
example of financial planning in business.

Examples of Organization Skills

Organizational skills are considered valuable for any employee; but there are several, more specific skills
that together give a person "strong organizational skills." Someone with strong organizational skills is
generally considered to have the ability to manage his duties through wise planning, time optimization,
detail orientation and prioritization.

Planning

In their article "What Do Employers Really Want?" Randall S. Hansen and Katharine Hansen tie strong
organizational skills to strong planning ability. They imply that someone with strong organizational skills
makes planning important. A person with good organizational skills sets out specific tasks for
accomplishment or completion and approaches those tasks with intention. This is quite different from
people who lack organizational skills and operate without specific plans, acting more spontaneously.
Being a good planner, then, is important to having strong organizational skills.

Prioritization

Prioritization is integral to organizational skills. In its "Organizational Skills -- Interview Questions"

overview, JobBank USA poses a number of questions that demonstrate prioritization is key to having
strong organizational skills. Organizing your activities is relatively pointless if you do not prioritize tasks
so that you accomplish the most important items first. By prioritizing, organized people get their most
important tasks completed first to optimize their production.

Time Management

Time management is another critical element of organizational skills. Making the best use of your time is
important within the context of organization. In fact, organization is generally intended to help you get
as much accomplished as possible during a particular time frame. Proper time management typically
includes the use of a scheduler or planner to outline meetings or important activities that are to take
place on each given day. Outlining the use of your time helps you get the most value from it.
Detail Orientation

Organization and detail orientation are commonly linked. Detail orientation is a focus on the small things
that make a project complete or fulfill every aspect of a particular task. Detail orientation often helps
organized employees avoid oversights on important projects and little missteps that can serve as
detractors to an otherwise well-completed project. Accountants and project managers are among
employees that often possess strong detail orientation ability, because minor errors are major problems
within their work.

Five Functions of Management & Leading

Effective management and leadership involve creative problem solving, motivating employees and
making sure the organization accomplishes objectives and goals. There are five functions of
management and leadership: planning, organizing, staffing, coordinating and controlling. These
functions separate the management process from other business functions such as marketing,
accounting and finance.

Planning

The planning function of management controls all the planning that allows the organization to run
smoothly. Planning involves defining a goal and determining the most effective course of action needed
to reach that goal. Typically, planning involves flexibility, as the planner must coordinate with all levels
of management and leadership in the organization. Planning also involves knowledge of the company’s
resources and the future objectives of the business.

Organizing

The organizing function of leadership controls the overall structure of the company. The organizational
structure is the foundation of a company; without this structure, the day-to-day operation of the
business becomes difficult and unsuccessful. Organizing involves designating tasks and responsibilities to
employees with the specific skill sets needed to complete the tasks. Organizing also involves developing
the organizational structure and chain of command within the company.

Staffing
The staffing function of management controls all recruitment and personnel needs of the organization.
The main purpose of staffing is to hire the right people for the right jobs to achieve the objectives of the
organization. Staffing involves more than just recruitment; staffing also encompasses training and
development, performance appraisals, promotions and transfers. Without the staffing function, the
business would fail because the business would not be properly staffed to meet its goals.

Coordinating

The coordinating function of leadership controls all the organizing, planning and staffing activities of the
company and ensures all activities function together for the good of the organization. Coordinating
typically takes place in meetings and other planning sessions with the department heads of the company
to ensure all departments are on the same page in terms of objectives and goals. Coordinating involves
communication, supervision and direction by management.

Controlling

The controlling function of management is useful for ensuring all other functions of the organization are
in place and are operating successfully. Controlling involves establishing performance standards and
monitoring the output of employees to ensure each employee’s performance meets those standards.
The controlling process often leads to the identification of situations and problems that need to be
addressed by creating new performance standards. The level of performance affects the success of all
aspects of the organization.

Explain the Three-Tier Organizational Structure

Organizational structures are hierarchies of command. There are two major types: tall and flat. The main
difference between tall and flat organizations is how information flows through the enterprise. The
three-tier structure is classified as a flat hierarchy. Modern organizational theory favors the flat
structure because the free, two-way information flow it embodies tends to encourage innovation -- an
important enterprise trait in the rapidly changing technology industry, and in the industries that adopt
technology to foster more rapid growth.

Tall Organizational Structure

A tall organizational structure is normally thought of as an old-style bureaucracy. It is composed of a

small executive decision-making level, with several management levels under it, such as regional
managers, department managers, administrative managers, and so on down the scale of authority. The
staff employees, who perform the day-to-day work of the company and interface with the consumers,
are at the bottom of the hierarchy. Information flows from the decision makers at the top down through
layers of management, where each manager conveys the decisions from above and exercises authority
over the managers below. There is little upward flow of information, and the staff levels carry out the
orders from above, rarely reporting the actual efficacy of those orders on daily work and customer
interaction.

Flat Organizational Structure

A three-tier organizational structure is more of a flat structure, but not as flat as they come. Some flat
organizations place a broad executive management level just above the staff level. Another type of flat
structure is the matrix organizational structure, which groups executive managers with staff according to
projects. The value of a flat structure is the immediate two-way flow of information, which keeps
decision makers close to the results of their decisions, and allows rapid change if those results are not
meeting enterprise goals. A two-tier or matrix structure works well for the production of products where
information flows horizontally between design, manufacture and sales. In an organization made up of
many retail stores or sales branches, efficiency often dictates the introduction of regional or divisional
managers between the executive level and the staff. Information flows horizontally between staff and
management, and is reflected by management to the executive level.

Three-Tier Organizational Structure

A three-tier organizational structure is a standard hierarchical method of managing a large, wide-spread

organization. It separates the top-level decision makers -- the board of directors, chairman of the board,
chief executive officer, chief financial officer and chief operations officer -- from the bottom-level staff by
a middle layer of management oversight generally made up of regional, divisional or subsidiary
managers. In a three-tier structure, information flows both ways between staff and managers, and
between managers and the executive level. In this structure, managers generally have the authority to
make changes to directives from the executive level.

Innovation

The flatter the organizational structure, the greater influence staff has on the direction of enterprise
initiatives and decisions. This encourages a staff employee to innovate to solve problems. In a three-tier
structure, staff and managers work together to overcome obstacles in the local business, with the
authority to do so granted by the executive level. In many ways, a three-tier structure resembles a
matrix structure, as management and staff collaborate on local production within their divisions and
report their performance back to the executive level.
Different Types of Organizational Structure

Organizations are set up in specific ways to accomplish different goals, and the structure of an
organization can help or hinder its progress toward accomplishing these goals. Organizations large and
small can achieve higher sales and other profit by properly matching their needs with the structure they
use to operate. There are three main types of organizational structure: functional, divisional and matrix

Functional Structure

Functional structure is set up so that each portion of the organization is grouped according to its
purpose. In this type of organization, for example, there may be a marketing department, a sales
department and a production department. The functional structure works very well for small businesses
in which each department can rely on the talent and knowledge of its workers and support itself.
However, one of the drawbacks to a functional structure is that the coordination and communication
between departments can be restricted by the organizational boundaries of having the various
departments working separately.

Divisional Structure

Divisional structure typically is used in larger companies that operate in a wide geographic area or that
have separate smaller organizations within the umbrella group to cover different types of products or
market areas. For example, the now-defunct Tecumseh Products Company was organized divisionally--
with a small engine division, a compressor division, a parts division and divisions for each geographic
area to handle specific needs. The benefit of this structure is that needs can be met more rapidly and
more specifically; however, communication is inhibited because employees in different divisions are not
working together. Divisional structure is costly because of its size and scope. Small businesses can use a
divisional structure on a smaller scale, having different offices in different parts of the city, for example,
or assigning different sales teams to handle different geographic areas.

Matrix

The third main type of organizational structure, called the matrix structure, is a hybrid of divisional and
functional structure. Typically used in large multinational companies, the matrix structure allows for the
benefits of functional and divisional structures to exist in one organization. This can create power
struggles because most areas of the company will have a dual management--a functional manager and a
product or divisional manager working at the same level and covering some of the same managerial
territory.

Centralized Vs. Decentralized Organizational Structure

An organizational structure is the outline of a company’s framework and guidelines for managing
business operations. Small business owners are usually responsible for creating their companies'
organizational structure, which is usually an extension of the owner’s personality, management style
and characteristics. Two types of organizational structures are found in the business environment:
centralized and decentralized. Each structure offers advantages and disadvantages for business owners.

Definition

Centralized organizational structures rely on one individual to make decisions and provide direction for
the company. Small businesses often use this structure since the owner is responsible for the company’s
business operations. Decentralized organizational structures often have several individuals responsible
for making business decisions and running the business. Decentralized organizations rely on a team
environment at different levels in the business. Individuals at each level in the business may have some
autonomy to make business decisions.

Advantages

Centralized organizations can be extremely efficient regarding business decisions. Business owners
typically develop the company’s mission and vision, and set objectives for managers and employees to
follow when achieving these goals. Decentralized organizations utilize individuals with a variety of
expertise and knowledge for running various business operations. A broad-based management team
helps to ensure the company has knowledgeable directors or managers to handle various types of
business situations.

Disadvantages

Centralized organizations can suffer from the negative effects of several layers of bureaucracy. These
businesses often have multiple management layers stretching from the owner down to frontline
operations. Business owners responsible for making every decision in the company may require more
time to accomplish these tasks, which can result in sluggish business operations. Decentralized
organizations can struggle with multiple individuals having different opinions on a particular business
decision. As such, these businesses can face difficulties trying to get everyone on the same page when
making decisions.

Considerations

Business owners should carefully consider which type of organizational structure to use in their
company. Small organizations typically benefit from centralized organizational structures because
owners often remain at the forefront of business operations. Larger organizations usually require a more
decentralized structure since such companies can have several divisions or departments. Business
owners may need to consider changing the organizational structure depending on the growth and
expansion of business operations.

Misconceptions

Organizational structures do not always require significant amounts of planning time. Many businesses
have organizational structures that simply evolve during the business’s lifetime. Business owners often
set the tone based on how they manage employees. Employees will perceive how the owner handles
different business situations and simply adjust their work style accordingly. This will create an
organizational structure by default, with no serious planning involved.

Internal & External Factors That Affect an Organization

Five Components of an Organization's External Environment

Some of the forces impacting your small business are more challenging to master than others. The
degree to which you can control them varies. At the same time, you can improve the state of internal
and external factors effecting your small business; you can't make the economy grow, but you can
encourage spending. Understanding the factors at work better equips you to prepare for them.

Internal Communication

The culture of your organization is built on internal communication; this includes interpersonal
relationships, training materials, newsletters, philosophical statements and policies. Your employees are
happier when they are courteous and respectful of one another. They want their achievements to be
recognized. When you provide sufficient instructions to your subordinates, you enable them to do their
jobs effectively. When you help employees identify with your company's mission and goals, you are
likelier to keep them long-term.

Structure

Structure is an internal factor that impacts your company's day-to-day operations. You might sort your
company by departments and teams, or you might structure it so that employees work with outside
contractors. The structure impacts the number of employees you hire, the levels of hierarchy, the extent
of employee and department collaboration and the roles of your employees. If you choose a structure
based on contractual work, for example, you will save money on employees but have less control over
the end product.

Economics

The economy is an external factor that effects the success of your business. The ability of your clients to
pay directly impacts your bottom line, regardless of whether you sell a product or service. You can offer
sales and promotions, and you can tout the value of your company's offerings, but during rough financial
times your clients might prefer to allocate their resources elsewhere. Economics might be specific to
your clients' industries, and it might be a global issue impacting supply and demand. If you make a toy
and business at toy stores across the country declines, your sales will suffer. Diversifying your product
line minimizes this challenge.

External Communications

The way your company interacts with customers and its public audience impacts your company's image.
If you alienate your external audience, you risk losing your source of income. Ensure tactful
communication strategies to promote a positive impression. Effective advertisements speak to the
intended audience. Customers expect to be treated with courtesy by you and your employees. Maintain
a professional voice in your emails, letters and other correspondence. Ensure your website is welcoming
and simple to navigate. Press releases need contact information and newsworthy content.

Factors Affecting Organizational Structure

Organizational structure is the framework companies use to outline their authority and communication
processes. The framework usually includes policies, rules and responsibilities for each individual in the
organization. Several factors affect the organizational structure of a company. These factors can be
internal or external. Small business owners must be responsible for creating their companies
organizational structure framework. Business owners may use a management consultant or review
information from the Small Business Administration before setting up their organizational structure.

Size

Size is many times the driving factor for a company’s organizational structure. Smaller or home-
based businesses do not usually have a vast structure because the business owner is usually responsible
for all tasks. Larger business organizations usually require a more intense framework for their
organizational structure. Companies with more employees usually require more managers for
supervising these individuals. Highly specialized business operations can also require a more formal
organizational structure.

Life Cycle

The company’s life cycle also plays an important part in the development of an organizational
structure. Business owners attempting to grow and expand their company’s operations usually
develop an organizational structure to outline their company’s business mission and goals.
Businesses reaching peak performance usually become more mechanical in their organizational
structure. This occurs as the chain of command increases from the business owner down to frontline
employees. Mature companies usually focus on developing an organizational structure to improve
efficiency and profitability. These improvements may be the result of more competitors entering the
economic marketplace.

Strategy

Business strategies can also be a factor in a company’s organizational structure development.

High-growth companies usually have smaller organizational structures so they can react to changes in
the business environment quicker than other companies. Business owners may also be reluctant to give
up managerial control in business operations. Small businesses still looking to define their business
strategy often delay creating an organizational structure. Business owners are usually more interested in
setting business strategies rather than developing and implementing an internal business structure.

Business Environment
The external business environment can also play an important part in a company’s organizational
structure. Dynamic environments with constantly changing consumer desires or behavior is often more
turbulent than stable environments. Companies attempting to meet consumer demand can struggle
when creating an organizational structure in a dynamic environment. More time and capital can also be
spent in dynamic environments attending to create and organizational structure. This additional capital
is usually a negative expense for many small businesses.