COMMON ORGANIZATIONAL STRUCTURES

Functional Structure
An organization with a functional structure is divided based on functional areas, such as IT, finance, or marketing.

LEARNING OBJECTIVES
Explain the functional structure within the larger context of organizational structures in general
Key Points
• A functional organization is a common type of organizational structure in which the organization is divided
into smaller groups based on specialized functional areas, such as IT, finance, or marketing.
• Functional departmentalization arguably allows for greater operational efficiency because employees with
shared skills and knowledge are grouped together by function.
• A disadvantage of this type of structure is that the different functional groups may not communicate with
one another, potentially decreasing flexibility and innovation. A recent trend aimed at combating this
disadvantage is the use of teams that cross traditional departmental lines.
Key Terms
• Silo: In business, a unit or department within which communication and collaboration occurs vertically,
with limited cooperation outside the unit.

• Departmentalization: The organization of something into groups according to function, geographic

location, etc.

Overview of the Functional Structure

In a functional structure, a common configuration, an organization is divided into smaller groups by areas of
specialty (such as IT, finance, operations, and marketing). Some refer to these functional areas as” silos “—entities
that are vertical and disconnected from each other. Correspondingly, the company’s top management team
typically consists of several functional heads (such as the chief financial officer and the chief operating officer).
Communication generally occurs within each functional department and is transmitted across departments
through the department heads.

Advantages of a Functional Structure

Functional departments: -
• Permit greater operational efficiency because employees with shared skills and knowledge are grouped
together by functions performed.

• Each group of specialists can therefore operate independently with management acting as the point of
cross-communication between functional areas.

• This arrangement allows for increased specialization.

Disadvantages of a Functional Structure

A disadvantage of this structure is that
• The different functional groups may not communicate with one another, potentially decreasing flexibility
and innovation.
• Functional structures may also be susceptible to tunnel vision, with each function perceiving the
organization only from within the frame of its own operation.
• Functional structures appear in a variety of organizations across many industries. They may be most
effective within large corporations that produce relatively homogeneous goods. Smaller companies that
 require more adaptability and creativity may feel confined by the communicative and creative silos
functional structures tend to produce.
Recent trends that aim to combat these disadvantages include the use of teams that cross traditional
departmental lines and the promotion of cross-functional communication.
Divisional Structure
Divisional structures group various organizational functions into product or regional divisions.
LEARNING OBJECTIVES
Describe the basic premise behind divisional structures within the general framework of organizational structure
Key Points
• The divisional structure is a type of organizational structure that groups each organizational function into
a division. These divisions can correspond to either products or geographies.
• Each division contains all the necessary resources and functions within it to support that product line or
geography (for example, its own finance, IT, and marketing departments).
• A multidivisional form (or “M-form”) is a legal structure in which one parent company owns subsidiary
companies, each of which uses the parent company’s brand and name.
• The divisional structure is useful because failure of one division doesn’t directly threaten the other
divisions. In the multidivisional structure, the subsidiaries benefit from the use of the brand and capital of
the parent company.
• Disadvantages of divisional structure can include operational inefficiencies from separating specialized
function. For the multidivisional structure, disadvantages can include increased accounting and taxes.
Key Terms
• Parent company: An entity that owns or controls another entity.

• Division: A section of a large company.

• Subsidiary: A company owned by a parent company or holding company.
Divisional Structure Overview
Organizations can be structured in various ways, with each structure determining the manner in which the
organization operates and performs. A divisional organization groups each organizational function into a division.
Divisional Strategies
Each division within this structure can correspond to either products or geographies of the organization. Each
division contains all the necessary resources and functions within it to support that particular product line or
geography (for example, its own finance, IT, and marketing departments). Product and geographic divisional
structures may be characterized as follows:
• Product departmentalization: A divisional structure organized by product departmentalization means that
the various activities related to the product or service are under the authority of one manager. If the
division builds luxury sedans or SUVs, for example, the SUV division will have its own sales, engineering,
and marketing departments distinct from those departments within the luxury sedan division.

• Geographic departmentalization: Geographic departmentalization involves grouping activities based on

geography, such as an Asia/Pacific or Latin American division. Geographic departmentalization is

A. KEPHA-ORGANISATION STRUCTURE 2
 particularly important if tastes and brand responses differ across regions, as it allows for flexibility in
product offerings and marketing strategies (an approach known as localization).

A common legal structure known as the multidivisional form (or “M-form”) also uses the divisional structure. In
this form, one parent company owns subsidiary companies, each of which uses its brand and name. The whole
organization is ultimately controlled by central management; however, most decisions are left to autonomous
divisions. This business structure is typically found in companies that operate worldwide—for example, Virgin
Group is the parent company of Virgin Mobile and Virgin Records.

Advantages of a Divisional Structure

As with all organizational structure types, the divisional structure offers distinct advantages and disadvantages.
Generally speaking, divisions work best for companies with wide variance in product offerings or regions of
geographic operation. The divisional structure can be useful because it affords the company greater operational
flexibility. In addition, the failure of one division does not directly threaten the other divisions. In the
multidivisional structure, subsidiaries benefit from the use of the brand and capital of the parent company.

Disadvantages of a Divisional Structure

Some disadvantages of this structure include operational inefficiencies from separating specialized functions—for
example, finance personnel in one division do not communicate with those in another division. Disadvantages of
the multidivisional structure can include increased accounting and tax implications.

Matrix Structure
The matrix structure is a type of organizational structure in which individuals are grouped via two operational
frames.

LEARNING OBJECTIVES
Illustrate the way two different operational perspectives can be crossed in a matrix structure to organize a
company

Key Points
• The matrix structure is a type of organizational structure in which individuals are grouped simultaneously
by two different operational perspectives.
• Matrix structures are inherently complex and versatile, making them more appropriate for large
companies operating across different industries or geographic regions.
• Proponents suggest that matrix management is more dynamic than functional management in that it
allows team members to share information more readily across task boundaries; it also allows for
specialization that can increase depth of knowledge.
• A disadvantage of the matrix structure is the increased complexity in the chain of command, which can
lead to a higher manager-to-worker ratio and contribute to conflicting loyalties among employees.
Key Terms
• Matrix: A two-dimensional array.
Overview of the Matrix Structure
Organizations can be structured in various ways, and the structure of an organization determines how it operates
and performs. The matrix structure is a type of organizational structure in which individuals are grouped by two
different operational perspectives simultaneously; this structure has both advantages and disadvantages but is
generally best employed by companies large enough to justify the increased complexity.
A. KEPHA-ORGANISATION STRUCTURE 3
Matrix organizational structure: In a matrix structure, the organization is grouped by both product and function.
Product lines are managed horizontally and functions are managed vertically. This means that each function—e.g.,
research, production, sales, and finance—has separate internal divisions for each product.

In matrix management, the organization is grouped by any two perspectives the company deems most
appropriate. Common organizational perspectives include function and product, function and region, or region
and product. In an organization grouped by function and product, for example, each product line will have
management that corresponds to each function. If the organization has three functions and three products, the
matrix structure will have nine (3×33×3) potential managerial interactions. This example illustrates how inherently
complex matrix structures are in comparison to other, more linear structures.

Advantages of a Matrix Structure

• This structure allows team members to share information more readily across task boundaries, countering
the “silo” critique of functional management.
• Matrix structures also allow for specialization that can both increase depth of knowledge and assign
individuals according to project needs.
Disadvantages of a Matrix Structure
• A disadvantage of the matrix structure is the increased complexity in the chain of command when
employees are assigned to both functional and project managers.
• This increase in complexity can result in a higher manager-to-worker ratio, which can in turn increase
costs or lead to conflicting employee loyalties.
• It can also create a gridlock in decision making if a manager on one end of the matrix disagrees with
another manager. Blurred authority in a matrix structure can result in reduced agility in decision making
and conflict resolution.
Matrix structures should generally only be used when the operational complexity of the organization demands it.
A company that operates in various regions with various products may require interaction between product
development teams and geographic marketing specialists—suggesting a matrix may be applicable. Generally
speaking, larger companies with a need for a great deal of cross-departmental communication benefit most from
this model.
Factors to Consider in Organizational Design
Considering the Environment
Considerations of the external environment—including uncertainty, competition, and resources—are key in
determining organizational design.
LEARNING OBJECTIVES
Identify the inherent complexities in the external environment that influence the design of an organization’s
structure
Key Points
• Organizational design is dictated by a variety of factors, including the size of the company, the diversity of
the organization‘s operations, and the environment in which it operates.
• According to several theories, considerations of the external environment are a key aspect of
organizational design. These considerations include how organizations cope with conditions of
uncertainty, procure external resources, and compete with other organizations.

A. KEPHA-ORGANISATION STRUCTURE 4
 • A company in a highly uncertain environment must prioritize adaptability over a more rigid and functional
strategy. In contrast, a company in a mature market with limited variability and uncertainty should pursue
more structure.
• A company with a low-cost strategy relative to its competition may benefit from a more simplistic and
fixed structural approach to operations, while a company pursuing differentiation must prioritize flexibility
and a more diversified structure.
Key Terms
• Strategy: A plan of action intended to accomplish a specific goal.
• Differentiation: A strategy focused on creating a unique product for a particular population.
Overview
Organizational design is dictated by a variety of factors, including the size of the company, the diversity of the
organization’s operations, and the environment in which it operates. Considerations of the external environment
are a key aspect of organizational design. The environment in which an organization operates can be defined from
a number of different angles, each of which generates different structural and design strategies to remain
competitive.

Complexity
Complexity theory postulates that organizations must adapt to uncertainty in their environments. The complexity
theory treats organizations and firms as collections of strategies and structures that interact to achieve the highest
efficiency within a given environment. Therefore, companies in a highly uncertain environment must prioritize
adaptability over a more rigid and functional strategy. Alternatively, a fixed and specific approach to
organizational design will capture more value in a mature market, where variability and uncertainty are limited.
Resource Dependence
Another perspective on organizational design is resource dependence theory—the study of how external
resources affect the behaviour of the organization. Procuring external resources is important in both the strategic
and tactical management of any company. Resource-dependence theory explores the implications regarding the
optimal divisional structure of organizations, recruitment of board members and employees, production
strategies, contract structure, external organizational links, and many other aspects of organizational strategy.
Competition
Another environmental factor that shapes organization design is competition. Higher levels of competition require
different organizational structures to offset competitors’ advantages while emphasizing the company’s own
strengths. A company that demonstrates strength in differentiation relative to the competition benefits from
implementing a divisional or matrix strategy, which in turn allows the company to manage a wide variety of
demographic-specific products or services. Alternatively, a company that demonstrates a low-cost strength
(producing products cheaper than the competition) benefits from employing a structural or bureaucratic strategy
to streamline operations.
Identifying External Factors
In considering organizational design relative to the environment, managers may find it helpful to employ two
specific frameworks to identify external factors and internal strengths and weaknesses:
• SWOT analysis: In this particular model, a company’s strengths and weaknesses are assessed in the
context of the opportunities and threats in the business environment. A SWOT analysis enables a company
to identify the ideal structure to maximize its internal strengths while capturing external opportunities and
avoiding threats.
A. KEPHA-ORGANISATION STRUCTURE 5
 • Porter’s five-force analysis: This analysis identifies factors of the industry’s competitive environment that
may substantially influence a company’s strategic design. The five forces include power of buyers, power
of suppliers, rivalry (competition), substitutes, and barriers to entry (how difficult it is for new firms to
enter the industry). Understanding these varying forces gives the company an idea of how adaptable or
fixed the organizational structure should be to capture value.

Porter’s five-force model: Porter’s five-force analysis identifies five environmental factors that can influence a
company’s strategic design: power of buyers, power of suppliers, competition, substitutes, and barriers to entry.
Smaller, more agile companies tend to thrive better in uncertain or constantly changing markets, while larger,
more structured companies function best in consistent, predictable environments. Understanding these tools and
frameworks alongside the varying external forces that act upon a business will allow companies to make strategic
organizational decisions that optimize their competitive strength.
Considering Company Size
The size and operational scale of a company is important to consider when identifying the ideal organization
structure.
LEARNING OBJECTIVES
Explain how the size of a company helps determine the organizational structure that optimizes operational
efficiency and managerial capacity
Key Points
• Company size plays a substantial role in determining the ideal structure of the company: the larger the
company, the greater need for increased complexity and divisions to achieve synergy.
• Companies may adopt any of six organizational structures based on company size and diversity in scope of
operations: pre-bureaucratic, bureaucratic, post-bureaucratic, functional, divisional, and matrix.
• Smaller companies function best with pre-bureaucratic or post-bureaucratic structures. Pre-bureaucratic
structures are inherently adaptable and flexible and therefore particularly effective for small companies
aspiring to expand.
• Larger companies usually achieve higher efficiency through functional, bureaucratic, divisional, and matrix
structures (depending on the scale, scope, and complexity of operations).

A. KEPHA-ORGANISATION STRUCTURE 6
 • Understanding the varying pros and cons of each structure will help companies to plan their organization
design and structure in a way that optimizes resources and allows for growth.
Key Terms
• Economies of scale: Processes in which an increase in quantity will result in a decrease in average cost of
production (per unit).
• Homogeneous: Having a uniform makeup; having the same composition throughout.
• Economies of scope: Strategies of incorporating a wider variety of products or services to capture value
through the ways in which they interact or overlap.
Company Size and Organizational Structure
Organizational design can be defined narrowly as the strategic process of shaping the organization’s structure and
roles to create or optimize competitive capabilities in a given market. This definition underscores why it is
important for companies to identify the factors of the organization that determine its ideal structure—most
specifically the size, scope, and operational initiatives of the company.
Company size plays a particularly important role in determining an organization’s ideal structure: the larger the
company, the greater the need for increased complexity and divisions to achieve synergy. The organizational
structure should be designed in ways that specifically optimize the effort and input compared to output. Larger
companies with a wider range of operational initiatives require careful structural considerations to achieve this
optimization.
Types of Organizational Structure
Companies may adopt one of SIX organizational structures based upon company size and diversity of scope of
operations.
Pre-bureaucratic
Ideal for smaller companies, the pre-bureaucratic structure deliberately lacks standardized tasks and strategic
division of responsibility. Instead, this is an agile framework aimed at leveraging employees in any and all roles to
optimize competitiveness.
Bureaucratic
A bureaucratic framework functions well in large corporations with relatively complex operational initiatives. This
structure is rigid and mechanical, with strict subordination to ensure consistency across varying business units.
Post-bureaucratic
This structure is a combination of bureaucratic and pre-bureaucratic, where individual contribution and control
are coupled with authority and structure. In this structure, consensus is the driving force behind decision making
and authority. Post-bureaucratic structure is better suited to smaller or medium-sized organizations (such as non-
profits or community organizations) where the importance of the decisions made outweighs the importance of
efficiency.
Functional
A functional structure focuses on developing highly efficient and specific divisions which perform specialized tasks.
This structure works well for large organizations pursuing economies of scale, usually through production of a
large quantity of homogeneous goods at the lowest possible cost and highest possible speed. The downside of this
structure is that each division is generally autonomous, with limited communication across business functions.

A. KEPHA-ORGANISATION STRUCTURE 7
Divisional
A divisional structure is also a framework best leveraged by larger companies; instead of economies of scale,
however, they are in pursuit of economies of scope. Economies of scope simply means a high variance in product
or service. As a result, different divisions will handle different products or geographic locations/markets. For
example, Disney may have a division for TV shows, a division for movies, a division for theme parks, and a division
for merchandise.
Matrix
A matrix structure is used by the largest companies with the highest level of complexity. This structure combines
functional and divisional concepts to create a product-specific and division-specific organization. In the Disney
example, the theme park division would also contain a functional structure within it (i.e., theme park accounting,
theme park sales, theme park customer service, etc.).
Strategic Organizational Design
Structure becomes more difficult to change as companies evolve; for this reason, understanding which specific
structure will function best within a given company environment is an important early step for the management
team. Smaller companies function best as pre-bureaucratic or post-bureaucratic; the inherent adaptability and
flexibility of the pre-bureaucratic structure is particularly effective for small companies aspiring to expand. Larger
companies, on the other hand, achieve higher efficiency through functional, bureaucratic, divisional, and matrix
structures (depending on the scale, scope, and complexity of operations).
Considering Technology
Technology impacts organizational design and productivity by enhancing the efficiency of communication and
resource flow.
LEARNING OBJECTIVES
Recognize the intrinsic structural value of the ever-evolving technological environment
Key Points
• Organizations use technological tools to enhance productivity and to initiate new and more efficient
structural designs for the organization. These uses of technology become potential sources of economic
value and competitive advantage.
• An example of an organizational structure emerging from newer technological trends is what some have
called the “virtual organization,” which connects a network of organizations via the internet.
• A network structure is another kind of organizational structure that is heavily reliant upon technology for
communication.
• More traditional organizational structures also benefit greatly from the advance of technology. Managers
can communicate and delegate much more effectively through using technologies such as email,
calendars, online presentations, and other virtual tools.
Key Terms
• Supply chain: A system of organizations, people, technology, activities, information, and resources
involved in moving a product or service from the supplier to the customer.
• Network: Any interconnected group or system.
Organizational design can be defined narrowly as the strategic process of shaping an organization’s structure and
roles to create or optimize capabilities for competition in a given market.

A. KEPHA-ORGANISATION STRUCTURE 8
Technology is an important factor to consider in organizational design. Modern organizations can be treated as
complex and adaptive systems that include a mix of human and technological interactions. Organizations can
utilize technological tools to enhance productivity and to initiate new and more efficient structural designs for the
organization, thereby adding potential sources of economic value and competitive advantage.
Technology: Technology has opened doors to incorporating new and advanced forms of organizational design.
This is most notably seen through rapid global communications and the ability to constantly and economically be
in contact.
Technological Organizational Structures
An example of an organizational structure that has emerged from newer technological trends is what some have
called the “virtual organization,” which connects a network of organizations via the internet. Over the internet, an
organization with a small core can still operate globally as a market leader in its niche. This can dramatically
reduce costs and overhead, remove the necessity for an expensive office building, and enable small, dynamic
teams to travel and conduct work wherever they are needed.
A similar organizational design that is heavily reliant upon technological capabilities is the network structure.
While the network structure existed prior to recent technologies (i.e., affordable communications via internet, cell
phones, etc.), the existence of complex telecommunications networks and logistics technologies has greatly
increased the viability of this structure.
Technology and Traditional Structures
Technology can also affect other longstanding elements of an organization. For example, information systems
allow managers to take a much more analytic view of their businesses than before the advent of such systems.
Managers can communicate and delegate much more effectively through using technologies such as email,
calendars, online presentations, and other virtual tools.
Technology has also impacted supply chain management —the management of a network of interconnected
businesses involved in the provision of product and service packages required by the end customers in a supply
chain. Supply chain management now has the capacity to track, forecast, predict, and refine the outbound
logistics, contributing to a wide variety of logistical advantages (such as minimizing costs from warehousing, fuel,
negative environmental impacts, or packaging).
Technology simplifies the process of managing reports, collecting communications, and keeping in touch, enabling
management in more formal structures to take on more workers. Increases in technology have essentially allowed
organizations to scale up their companies through more effective and efficient teams.
Considering the Organizational Life Cycle
The life cycle of an organization is important to consider when determining its overall design and structure.
LEARNING OBJECTIVES
Describe the way in which life cycles influence an organization’s overall design and structure
Key Points
• From an organizational perspective, the” life cycle” can refer to various factors such as the age of the
organization, the maturation of a particular product or process, or the maturation of the broader industry.
• In organizational ecology, the idea of age dependence is used to examine how an organization’s risk of
mortality relates to its age. Richard L. Daft outlines different patterns of age dependence in his four stages
model.

A. KEPHA-ORGANISATION STRUCTURE 9
 • The idea of the Enterprise Life Cycle in enterprise architecture argues for a life cycle concept as an
overarching design strategy —a dynamic, iterative process of changing the enterprise over time by
incorporating, maintaining, and disposing of new and existing elements of the enterprise.
• Companies must understand clearly where they are in their life cycle and what influence this will have on
their optimal organizational structure.
Key Terms
• Life cycle: The useful life of a product or system; the developmental history of an individual, group or
entity.
• Assessment: An appraisal or evaluation.
• Strategy: A plan of action intended to accomplish a specific goal.
Organization design can be defined narrowly as the strategic process of shaping organizational structure and roles
to create or optimize capabilities for competition in a given market. The life cycle of an organization, industry,
and/or product can be an important factor in organization design.
Trends in Organization
Flattening Hierarchies
Flattening hierarchies can benefit smaller organizations by increasing employee empowerment, participation, and
efficiency.
LEARNING OBJECTIVES
Define a flattened hierarchy, specifically in which situations where the utilization of this model is appropriate and
beneficial for an organization
Key Points
• A hierarchy can link entities either directly or indirectly; it can also link entities either vertically or
horizontally. The only direct links in a hierarchy are to a person’s immediate superior or subordinates.
• The flat organization model essentially “flattens” the hierarchy and promotes employee involvement
through a decentralized decision -making process.
• According to the logic behind this model, well-trained workers will be more productive when they are
directly involved in the decision-making process rather than closely supervised by many layers of
management.
• Flat organizations are most relevant in specific scenarios—most notably small organizations that are
dependent upon creativity, freedom of action, and high-powered employees.
Key Terms
• Hierarchy: An arrangement of items in which each item is represented as being above, below, or at the
same level as other items.
Links within Hierarchies
Hierarchies can be linked in several different ways. A hierarchy can link entities either directly or indirectly; it can
also link entities either vertically or horizontally. The only direct links in a hierarchy are to a person’s immediate
superior or subordinates. Parts of the hierarchy that are not linked vertically to one another can be horizontally
linked through a path by traveling up the hierarchy; this path eventually reaches a common direct or indirect
superior and then travels down the hierarchy again. An example of this would be two colleagues who each report
to a common superior but have the same relative amount of authority in the organization.
A. KEPHA-ORGANISATION STRUCTURE 10
Flat Hierarchies (wide span)
Flat (or horizontal) organizational structures have few or no levels of intervening management between staff and
managers. This “flattened” hierarchy promotes employee involvement through a decentralized decision-making
process. The idea is that well-trained workers will be more productive when they are directly involved in the
decision-making process rather than closely supervised by many layers of management.
Flat organization chart: This diagram illustrates the structure of a flat organization: there is no low- or mid-level
management—just one manager and the rest of the staff.
Advantages of Flattened Hierarchies
Flat structures empower each individual within the company to be involved in decision-making processes. This
allows for a great deal of creative discussion and operational diversity and tends to create great variance in new
ideas. By elevating the level of responsibility of baseline employees and eliminating layers of middle management,
comments and feedback can quickly reach all personnel involved in decisions. Response to customer feedback can
be carried out more rapidly.
This type of structure generally works best in smaller organizations or individual units within larger organizations.
Start-up companies, “mom and pop shops,” and other small independent businesses are the most common
examples of a flat structure.
Disadvantages of Flattened Hierarchies
Flat organizations are difficult to maintain as companies grow larger and more complex. When organizations reach
a critical size, they can retain a streamlined structure; however, they cannot keep a completely flat manager-to-
staff hierarchy without impacting productivity. Certain financial responsibilities may also require a traditional
hierarchical structure. While the flat structure can foster employee empowerment, involvement, and creativity, it
can also create inefficiency in decision-making processes. Some theorize that flat organizations become more
traditionally hierarchical when they gear themselves more toward productivity.

Because the interaction between workers is more frequent, this organizational structure generally depends on a
more personal relationship between workers and managers. As a result, the structure can be more time-
consuming to build than a traditional hierarchical model.
Decentralizing Responsibility
In decentralized structures, responsibility for decision making is broadly dispersed down to the lower levels of an
organization.
LEARNING OBJECTIVES
Compare and contrast centralization and decentralization of responsibility within the organizational hierarchy
Key Points
• Decentralization is the process of dispersing decision-making authority among the people, citizens,
employees, or other elements of an organization or sector.
• A decentralized organization shows fewer tiers in the organizational structure, a wider span of control,
and a bottom-to-top flow of ideas and decision making.
• The bottom-to-top flow of information allows lower-level employees to better inform the officials of the
organization during any decision-making processes.
• When companies decentralize authority, however, there can be confusion as to how final decisions are
made.

A. KEPHA-ORGANISATION STRUCTURE 11
Key Terms
• Mechanistic organization: A bureaucratic structure.

• Governance: Accountability for consistent and cohesive policies, processes, and decision rights.
• Authority: The power to enforce rules or give orders.
Decentralization is the process of dispersing decision-making authority among the people, citizens, employees, or
other elements of an organization or sector. In decentralized structures, responsibility for decision making and
accountability are broadly dispersed down to the lower levels of an organization. This dispersion can be
intentional or unintentional. A decentralized organization tends to show fewer tiers in its organizational structure
(less hierarchy), a wider span of control, and a bottom-to-top or horizontal flow of decision making and ideas.
Decentralization: The management structure in a decentralized organization changes from a top-down approach
to more of a peer-to-peer approach.
Contrasting Centralized and Decentralized Structures
In a centralized organization, decisions are made by top executives on the basis of current policies. These
decisions or policies are then enforced through several levels of hierarchy within the organization, gradually
broadening the span of control until they reach the bottom level.
In a decentralized organization, the top executives delegate much of their decision-making authority to lower tiers
of the organizational structure. This type of structure tends to be seen in organizations that run on less rigid
policies and wider spans of control among each officer of the organization. The wider spans of control also reduce
the number of tiers within the organization, giving its structure a flat appearance.
Decentralized organizational chart: This image illustrates a decentralized (often referred to as a “flat”)
organizational chart. Note that there are not multiple layers of management; there is one manager and then the
rest of the staff. This means that each staff-person necessarily has more responsibility and therefore more
autonomy.
Advantages of Decentralization
One advantage of this structure—if the correct controls are in place—is the bottom-up flow of information. This
flow allows lower-level employees to better inform the officials of the organization during any decision making
processes. For example, if an experienced technician at the lowest tier of an organization knows how to increase
the efficiency of the production, the bottom-to-top flow of information can allow this knowledge to pass up to the
executive officers.
Disadvantages of Decentralization
On the other side of the argument, when companies decentralize authority there can be confusion as to how final
decisions are made. It can be difficult to empower multiple people without certain decisions negatively interacting
with other decisions. Decentralized organizations must be mindful of the possibility of running in too many
different directions at once. Because of this, decentralization is most effective in organizations that have
transparent strategies, a strong mission, and a clear vision.
Increasing Empowerment
Modern organizations are more aware of the value of empowered employees and actively strive to structurally
increase empowerment.
LEARNING OBJECTIVES
Discuss the advantages of empowerment in an organization, and how organizational structure can improve upon
the promotion of empowered employees

A. KEPHA-ORGANISATION STRUCTURE 12
Key Points
• Empowerment is a process that enables individuals and groups to fully access their personal and collective
power, authority, and influence, and to employ this power when engaging with other people, other
institutions, or society.
• Leaders within an organization can play a strong role in encouraging employees to put empowerment into
practice.
• To enable empowerment, managers can share information, provide employees with autonomy, and
migrate to self-managed teams when possible.
• Though the idea of empowerment can produce successful results, it is important to understand the risks.
More decision -makers means more discussion about how a process should be accomplished and more
moving parts within the organization, increasing complexity.
Key Terms
• Empowerment: The accessing and employing of political, social, or economic power by an individual or
group.
Defining Empowerment
Empowerment is a process that enables individuals and groups to fully access personal and collective power and
employ this power when engaging with other people, other institutions, or society. Empowerment does
not give people power; rather, it helps to release and express the power that people already have.
Empowerment encourages people to gain the skills and knowledge that allows them to overcome obstacles in life
and work. This will ultimately enable personal development and a deeper sense of professional fulfilment.
Empowering people in organizations can encourage more confident, capable, and motivated employees.
Organizations are increasingly aware that empowerment often leads to better performance and higher
operational efficiency, and there is a general trend toward structuring organizations for empowerment.
Empowerment within the Organization
Empowering employees in the workplace means providing them with opportunities to make their own decisions
related to their tasks. This can be a powerful and positive aspect within an organization that promotes shared
power and enables checks and balances in decision-making processes.
Empowerment in organizations includes:
• Making decisions about personal and collective circumstances;
• Accessing information and resources for decision-making;
• Considering a range of options from which to choose (and understanding the options rather than just
deciding yes or no);
• Exercising assertiveness in collective decision-making;
• Employing positive thoughts toward the ability to make change;
• Learning and accessing skills for improving personal and collective circumstances; and
• Informing others’ perceptions though exchange, education, and engagement.
Though the idea of empowerment can produce very successful results, there are certain risks are involved. When
turning responsibility over to others, it is important to keep in mind that diversifying power creates more voices
and therefore potentially more conflict and discussion. All of these elements can slow down the decision-making

A. KEPHA-ORGANISATION STRUCTURE 13
process. As organizations move toward higher levels of empowerment, protocols should be put in place to
mitigate failure and improve decision-making efficiency across the board.

Decentralization: One key technique of empowering employees and providing autonomy is decentralizing the
organizational structure. Notice how the diagram of the centralized organization looks like one large asterisk with
many spokes, whereas the diagram of the decentralized organization looks like many small interconnected
asterisks.
Increasing Empowerment
Leaders within an organization can encourage employees to put empowerment into practice in several ways. If
leaders want to tap into the possibilities of an empowerment-based company, they need to have confidence in
employees. Employees should also be given opportunities to make their own decisions and succeed. For an
empowerment-based organization, rules and policies that interfere with self-management should be made more
lenient. Leaders should also set goals that can inspire people.
The following are three key concepts that leaders can use to empower employees throughout an organization:
• Share information with everyone. By sharing information with everyone, leaders gain a clear picture of the
company and its current situation. Allowing all employees to view company information helps to build
trust between employers and employees. This also provides decision-makers with important perspectives
to assess prior to deciding.
• Create autonomy through boundaries. By opening communication through information sharing, space can
be created for feedback and dialogue about what holds people back from being empowered. It is critical
that leaders minimize micro-management so that employees, who are specialists at the function they are
assigned, can set the tone for how a particular task is accomplished.
• Replace the old hierarchy with self-managed teams. By replacing the old hierarchy with self-managed
teams, more responsibility is placed upon unique and self-managed teams; this can lead to better
communication, diversity of strategies, and higher performance.

A. KEPHA-ORGANISATION STRUCTURE 14
The success of the modern organization relies heavily on understanding the complexity of a diverse global market.
Leveraging employee knowledge and enabling autonomy is increasingly important in capturing value and attaining
competitive advantages in this complex business environment.
Increasing Adaptation
In order to succeed, modern organizations must constantly adapt to evolving technologies and expanding global
markets.
LEARNING OBJECTIVES
Identify the importance and inherent value of increasing adaptation within company structures and performance
Key Points
• Technological advances, global market expansions, and the potential for constant (sometimes disruptive)
innovation all point to the need for organizations to be adaptive.
• Blockbuster and Netflix provide a classic example: in this case, Blockbuster was simply too slow to adapt to
the demand for live-streaming videos.
• If an organization takes on the identity of a growing, adapting, and learning organization, these qualities
become part of the fabric of how it operates.
• Implementing an adaptable strategy may have effects that ripple across an organization. Minimizing
disruption can reduce costs and save time.
• Resistance to change is considered a major obstacle to creating effective adaptability in an organization.
Integrating changes step by step while utilizing focus groups and training sessions can improve the efficacy
of adaptation.
Key Terms
• Adaptation: Adjustment to external conditions; modification of a thing or its parts in a way that makes it
more fit for existence under the conditions of its current environment.
The Importance of Adaptation
Organizational adaption is becoming increasingly relevant to both strategy and structure as the business
environment changes more quickly each year. Technological innovations, global market expansions, and the
potential for constant (sometimes disruptive) innovation all point to the need for organizations to be adaptive.
There are a number of examples in which some organizations have adapted to new technologies or global
competition, while others have failed to adapt and subsequently gone under. Blockbuster and Netflix provide a
classic example: in this case, Blockbuster was simply too slow to adapt to the demand for live-streaming videos.
Netflix, on the other hand, embraced this technological evolution and pioneered a user-friendly interface, gaining
the company enormous value.
Increasing Adaptation
Strategic management largely pertains to adapting an organization to its business environment. The greatest
agent for organizational change is the socialization aspect of culture, which can be empowered structurally. If an
organization takes on the identity of a growing, adapting, and learning organization, these qualities become part
of the fabric of how it operates. Knowing how and being able to increase this adaptability is important to
organizational success.
Implementing a strategy of adaptation may have effects that ripple across an organization. Increasing an
organization’s ability to adapt to change and minimize disruption can reduce costs and save time. One approach

A. KEPHA-ORGANISATION STRUCTURE 15
for increasing adaptation is to appoint an individual to champion the changes, address and eventually enlist
opponents, and proactively identify and mitigate problems.
Challenges in Adaptation
Resistance to change is considered a major obstacle to creating effective adaptability in an organization.
Organizational change can lead to loss of stability and—if this instability becomes great enough—loss of
organizational effectiveness.

Organizational loss of effectiveness (LOE): Organizational change can cause a loss of stability and results in the
development of a predictable and measurable set of symptoms within an organization. When a significant number
of these symptoms are present simultaneously, an organizational loss of effectiveness (LOE) will occur (Grady,
2005).
The following are methods that can be employed to help an organization and its staff to cope with change:
• Form focus groups. Staff from different departments can be selected to form focus groups, where quality
data can be collected. In focus group discussions, staff should be given the chance to freely express their
opinions and share their experiences.
• Provide training. Providing training courses to staff on new processes or structures can help to increase
staff competence and reduce their resistance to change.
• Implement changes step by step. This involves first implementing the system in small groups—such as
several departments or sections—and then widening the scope of implementation. This step-by-step
approach can help by exposing problems raised simultaneously across the small groups and providing
management with sufficient time to solve these problems before implementing the system across the
organization.
Increasing Coordination
Increasing coordination helps organizations to maintain efficient operations through communication and control.
LEARNING OBJECTIVES
Identify the way in which effective coordination across an organization can be increased through effective
structure and good management
Key Points
• Coordination is a managerial function in which different activities of the business are properly adjusted
and interlinked.
• The management team must pay special attention to issues related to coordination and governance and
be able to improve upon coordination through effective management.
• Managers should strengthen communication across all facets of the organization to increase the level of
integration between each moving part.
A. KEPHA-ORGANISATION STRUCTURE 16
 • If there is a lack of coordination, there is a risk that responsibility will become dispersed and tasks will be
left unclaimed. Organizing accountability for every task helps to ensure that efforts are tangibly
coordinated.
Key Terms
• Division: A section of a large company.
• Margin: A permissible difference; allowing some freedom to move within limits.
• Centralization: The act or process of combining or reducing several parts into a whole.
Defining Coordination
Coordination is the act of organizing and enabling different people to work together to achieve an organization’s
goals. It is a managerial function in which different activities of the business are properly adjusted and interlinked.
Employees within the functional divisions of an organization tend to perform a specialized set of tasks, such as
engineering. This leads to operational efficiency within that group. However, it can also lead to a lack of
communication between various functional groups within an organization, rendering the organization slow and
inflexible.

Organizational structure: This is an example of an organizational structure. At a high level are multiple functional
groups, or “modules”—technical, marketing, and intellectual property. The linked working groups (e.g., data
coding workgroup, security workgroup, and audio and video compression workgroup) within the technical
functional group likely have coordinated functions.
Increasing Coordination
Coordination is simply the managerial ability to maintain operations and ensure they are properly integrated with
one another; therefore, increasing coordination is closely related to improving managerial skills. The management
team must pay special attention to issues related to coordination and governance and be able to improve upon
coordination through effective management.
Increasing coordination internally can be accomplished by keeping all moving parts of the organization on the
same page. There are a number of ways to improve upon the coordination of different departments, work groups,
teams, or functional specialists. These include creating a well-communicated and accurate mission statement;
clearly defining strategic objectives; monitoring and evaluating each functional group; providing company-wide
updates and communications from each department; and, wherever possible, promoting cross-departmental

A. KEPHA-ORGANISATION STRUCTURE 17
meetings and projects. While this list is long and complex, the underlying concept is relatively simple: managers
should strengthen communication across all facets of the organization to increase the level of integration between
each moving part.
Structural Implications
In practice, coordination involves a delicate balance between centralization and decentralization. However,
maintaining coordination does not necessarily imply that decision-making processes are centralized or that actions
are carried out without the support of employees. Put simply, it is important to ensure that there is a person or
team in place that takes responsibility for general tasks.
If there is a lack of coordination, there is a risk that responsibility will become dispersed and tasks will be left
unclaimed. Organizing accountability for every task helps to ensure that efforts are tangibly coordinated and
provides structure to operational expectations. Structure is a central determinant of effective coordination across
an organization as it enables communications, underlines responsibilities, and provides concrete authority in
decision-making.

A. KEPHA-ORGANISATION STRUCTURE 18