CHAPTER FIVE

ORGANIZATIONAL STRUCTURE
 Definitions & Concepts
 Organization refers to a collection of people, who
are involved in pursuing of defined objectives.
 It encompasses division of work among
employees and alignment of tasks towards the
ultimate goal of the collection.
 Organization process entails
Determination and classification of activities
Grouping of activities
Assignment of authority and responsibility
Developing of relationship
Framing of policies for proper coordination
 Definitions & Concepts
 Organization structure is the formal pattern of interactions
and coordination designed by a manager to link the tasks of
individuals and groups in achieving organizational goals.
 Organization structure is the arrangement &
interrelationship of the component parts, & positions of an
organization.
 The horizontal dimension identifies departments, units, and
divisions on the same level of a management.
 Whereas the vertical dimension refers to the authority
relationships between superiors and subordinates and it also
identifies who is responsible and accountable for whom.
 Cont…
Organizational Chart:
o Organization chart is a line diagram that depicts the broad outlines of an
organization’s structure.
o It shows the flow of authority, responsibility, and communication among
the various departments which are located at different levels of the
hierarchy.
 The organization chart can tell us:
Who reports to whom (chain of command)
The number of managerial level
How many subordinates work for each manager (the span of control)
How the organization is structured-by function, territory, customer.
The hierarchy of decision making- where a decision maker for a problem is located
 Cont…
Organization may be static or dynamic
• Static organization:
 Consider organization as an entity or a network of specified relationship.
 These organizations have no variables and time doesn't change them
significantly.
 It lays emphasis on position and not on individuals.
• Dynamic organization:
 Consider organization as a process of an on-going activity.
 In this sense, organization is a process of organizing work, people and the
systems.
 It considers organization as an open adoptive system and not as a closed
system.
 Dynamic concept lays emphasis on individuals and considers organization as
a continuous process.
 Types of organizations
 There are two types of organizations: Formal and
informal
i) Formal organization: is intentional,
deliberately or rationally created organization.
o It is characterized by well-defined authority,
reporting relationships, job titles, policies,
procedures, & specific job duties.
o Formal organization has consciously designed,
durable and inflexible.
 Types of formal organizations
A. Functional structure
 organizations are divided into specialized groups with specific roles
and duties.
 also known as a bureaucratic organizational structure and is
commonly found in small to medium-sized entities.
 Most people in the workforce have experience working in this type of
organizational structure. 
Some advantages of this structure:
 Employees grouped by skill
 Greater sense of teamwork
Some disadvantages of this structure:
 Lack of communication with other departments
 Unhealthy competition
 Management issues
 Types formal of organizations
B. Divisional structure
 Organizational structure in which various teams work alongside each other toward a
single, common goal.
 Each of these divisions has its own executive who manages how that branch operates,
controls its budgets and allocates its resources.
 Large companies employ this type of organizational structure.
some advantages of this structure:
 Focus on a single good or service
 More decentralized leadership
some disadvantages of this structure:
 Poor integration with other divisions
 Competition between divisions
 Lack of communication between divisions
 Potential tax implications
 Types of formal organizations
C. Flatarchy
 Organizational structure in which there are little to no levels of management.
 A company using this structure could have only one manager in between its executive
and all other employees.
 This type of organizational structure is used more by smaller companies since they
have fewer employees, though it can be used in companies of all sizes.
some advantages of this structure:
 Cost efficient
 Fosters good communication
 Higher employee morale
 Faster decision making
some disadvantages of this structure:
 Potential employee conflict
 Leadership confusion
 Types of formal organizations
D. Matrix structure
 In the matrix style of organizational structure, employees are divided into teams that
report to two managers—a project or product manager along with a functional manager.
 In essence, a matrix structure have two managers, a matrix structure promotes duality
and the sharing of resources.
some advantages of this structure:
 Fosters open dialogue
 Flexible workplace environment
some disadvantages of this structure:
 Leadership confusion
 Conflicting leadership loyalties
 Potentially more costly
 Roles may not be clearly defined
 Potentially heavy employee workload
 Advantages of formal organization structure

• Enables members to work together toward the same

objectives
• Establish laws and rules that govern labor and norms
within a formal organization
• Provides guidance to all employees by laying out the
official reporting relationships that govern the
workflow of the company
• No Overlapping of Work
• Creation of Chain of Command
• More Emphasis on Work
 Types of organizations

ii) Informal organization: is a network of personal

and social relationships that arises spontaneously
as people associate with one another in a work
environment.
o It is an unofficial network of personal and social
relations.
o It operates outside the formal authority
relationships.
 Cont…
Why people form informal groups?
1.Need for satisfaction: people have needs that in some cases are not
met through the formal organization.
o The opportunity to fulfill security, relationship, & esteem can
encourage people to look out and join others in an informal group.
2. Proximity and interaction: a common reason people join groups is
that they work near one another.
3. Similarity: People may join informal groups because they are
attracted to other people who are similar to themselves.
o Several persons with the same attitudes or beliefs, similarity can be
personality, race, sex, economic position, age, educational
background, religion, etc.
4. Power: What cannot be achieved individually often becomes possible
through group action. There is power in numbers.
 Departmentalization: Meaning & Bases
Departmentalization: All organizations divide their overall
operations into sub-activities and then combine these sub-
activities into working groups.
o This process of grouping specialized activities in a logical
manner is called Departmentalization.
 Department - is a distinct area, division, or branch of an
organization. i.e a result of the Departmentalization process.
 Departmentalization is not an end by itself but is simply a
method of arranging activities to facilitate the accomplishment
of objectives.
Bases for Departmentalization.
 Common bases are function, territory, product, customer &
process.
 Cont…

1.Departmentalization by Function
o It is the grouping together of activities in accordance with the functions of an
enterprise
o It is the most common base for departmentalization and is present in almost
every enterprise. E.g. Human resources, production, marketing, finance, etc.
2. Departmentalization by Territory/ Geography
o This is to groups activities on the basis of geographic region or territory.
o It is common in enterprises that operate over wide geographic areas.
3. Departmentalization by Product
o It is the grouping and arrangement of activities around products or
product groups.
o This can be true if each product requires a unique strategy or product
process or distribution system or capital sources.
o This approach works well for an enterprise which engaged in very
different types of products. E.g. Petroleum refining - kerosene, diesel,
Electronics - Radios, TVs, Computers
 Cont…
4. Departmentalization by Customer
•It is a grouping of activities around customers. This grouping
reflects a primary interest in customers.
•This makes economic sense when the customers are distinct enough
in their demands, preferences, and needs.
5. Departmentalization by Process
o Manufacturing firms often group activities around a process
or type of equipment.
o This is when special skill is needed to operate different
machines.
6. Departmentalization on Combined Base
o It is a base in which multiple bases are used at different
organizational levels of a particular organization.
 Span of Management

o The term span of management is also referred to as a span of

control, span of supervision, span of authority or span of
responsibility.
o Span of management - refers to the number of subordinates who
report directly to a manger, or the number of subordinates who will
be directly supervised by a manager.
o There is no magical number for the span of control.
o Based on the number of subordinates who should report to a manager:
i. Narrow Span of Management
This means superior controls few numbers of subordinates or few
subordinates report to a superior.
o When there is narrow span of management in an organization, we get:
1.Tall organization structure with many levels of supervision
2.More communication between superiors and subordinates.
3.Managers are underutilized and their subordinates are over controlled.
4. Centralized authority
Cont…
 Cont…
Advantages
 Close supervision and control
 Fast communication between subordinates and superiors.
 Easy to coordinate and control activities.
Disadvantages
 Superiors tend to get too involved in the subordinates work
 The problem of setting more trained managerial personnel
 Excessive distance between lowest level and top level management.
 High costs due to many levels
ii) Wide Span of Management
 Many subordinates report to a superior or a superior supervises many
subordinates.
 A flat organization structure with fewer management levels between top
and lower level, many number of subordinates and decentralized authority
& Fewer hierarchal level.
 Cont…
There are two major reasons why the choice of
appropriate span is important.
 Span of management affects the efficient utilization of
managers and the effective performance of their
subordinates.
 Too wide a span may mean that managers are
overextending themselves and that their subordinates are
receiving too little guidance or control.
The wider the span of management, the less direct
supervision there is; the narrower the span, the greater
the number of managers and, therefore, the higher the
cost in salaries.
THANKS!