Organisation Structure

Organizational Structure

• An organizational structure consists of activities such as task allocation, coordination and supervision, which are directed towards the achievement of organizational aims. It can also be considered as the viewing glass or perspective through which individuals see their organization and its environment.

Organisation Structure refers to the pattern of relationships among individuals and department in an organisation

Organisation Structure is the framework through which the organisation operates.

Classification of organisation structure is based on various activities which are grouped together to create departments and units & prescribing their relationships in the organisation.

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

Why Have a Structure?

• All businesses have to organise what they do.

• A clear structure makes it easier to see which part of the business does what.

• There are many ways to structure a business.

Ways to Structure a Business

• By function:• Arranging the business according to what each

section or department does.

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

• By area: • Geographical or regional structure.

Ways to Structure a Business

• By customer:• Where different customer groups have different

needs.

• By process: • Where products have to go through stages as they

are made.

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

Types of Structures

• This depends on the business type, size and structure used.

Functional Organizational Structure

Functional structure is created by grouping the activities on the basis of functions required for the achievement of organizational objectives.

Functions are classified into “Basic”(essential: e.g. production, marketing, in

manufacturing organization),“Secondary”(subparts :e.g. marketing is further divided

into market research, advertising, sales…etc) & “Supportive” (e.g. finance, accounting, personnel,

industrial relations)functions according to their nature and importance.

Authority relationships in functional structure may be in the form of line, staff & functional.

• Let’s look at a functional structure:

Production Marketing Accounts Personnel IT

Board of Directors

Chief Executive

A Sample of Pier 1’s Functional StructureA Sample of Pier 1’s Functional Structure

V .P . Tax V .P . C on tro lle r

V .P . M IS D irec to rC orp . P lan n in g

E xec . V .P .F in an ce & A d m in .

S en io r V . P .S to res

D irec to rTran sp orta tion

V .P .D is trib u tion

S en io r V .P .L og is tic s

C la rk Joh n sonC E O

Characteristics of functional structure:

1. Specialization by functions

2. Emphasize on sub goals

3. Pyramidal growth of the organization

4. Line and Staff division

5. Functional authority relationships among various departments.

6. Limited span of management and tall structure.

ADVANTAGES:

Result into high degree of specialization

Brings order & clarity in the org.

Promotes professional achievements, provides satisfaction to the specialist.

Resources can be saved

High degree of control and coordination of functions.

DISADVANTAGES:

Judging the performance of each dept is difficult.

Slow Decision Making process

Lack responsiveness necessary to cope up with new & rapidly changing work requirements.

Offers usually line & staff conflict & interdepartmental conflict and results in inefficiency.

Functional Structure

Advantages• Specialisation – each

department focuses on its own work.

• Accountability – someone is responsible for the section.

• Clarity – know your and others’ roles.

Disadvantages• Closed communication

could lead to lack of focus.

• Departments can become resistant to change.

• Coordination may take too long.

• Gap between top and bottom.

Suitability

Required when small organisation grows & business activities become more & more complex.

Works better if organisation has one major product or similar product line.

Product Structure

Product departmentalization involves the grouping of all activities necessary to manufacture a product or product line.

Preferred for product expansion & diversification when manufacturing & marketing characteristics of each product are of primary concern.

Used when the product is relatively complex & a great deal of capital is required for plant and facilities.

Each product division contains the functions necessary to that service the specific goods or services it produces

Product StructureProduct Structure

W ashing M achineDivision

LightingDivision

T elevisionDivision

CorporateM anagers

CEOCorporation

Product Team StructureProduct Team StructureCEOCEO

Func.Func. ManagersManagers

SalesSales DesignDesign ProductionProduction

Manufacturing Manufacturing Manufacturing

= Product Team Manager = Team member

Advantages

Coordination within product lines made easier

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

Responsibility for failures, successes identifiable

Competition across divisions can serve as a motivator

Disadvantages

Redundancy of functions across divisions (e.g., marketing, R&D)

Competition for resources, power

Lack of development of expertise in functional areas

An Example of Organisation by Product/Activity

Imaging andPrinting Group

PersonalSystems Group

EnterpriseSystems Group

HP ServicesHP Financial

Services

Hewlett Packard

Organisation by Product/Activity Advantages

• Clear focus on market segment helps meet customers’ needs.

• Positive competition between divisions.

• Better control as each division can act as separate profit centre.

Disadvantages• Duplication of functions

(e.g. different sales force for each division)

• Negative effects of competition.

• Lack of central control over each separate division.

Organisation by AreaHewlett-Packard’s Headquarters

Worldwide

AmericasHouston, Texas

Europe, Middle East, AfricaGeneva, Switzerland

Asia PacificHong Kong

Hewlett Packard

Geographic StructureGeographic Structure

NorthernRegion

W esternRegion

SouthernRegion

EasternRegion

CorporateM anagers

CEOCorporation

Organisation by Area

Advantages

• Serve local needs better • Positive competition• More effective

communication between firm and local customers

Disadvantages

• Conflict between local and central management

• Duplication of resources and functions

Line Organisation Structure

Lines of authority and instructions are vertical, i.e. they flow from the top to the bottom.

The unity of command is maintained in a straight and unbroken line. It implies that each subordinate receives instructions from his immediate superior alone and is responsible to him only.

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

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

Line & Staff Organisation Structure

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

Staff managers provide advice to the line manager who are generally specialists in the field.

Staff positions are purely advisory in nature. They have a right to recommend but have no authority to enforce their preference on other dept.

The line executives are the “DOERS” or commanders, where as, the specialists are the “THINKERS” or advisors.

ADVANTAGES• Planned Specialisation• Quality Decisions• Prospect for Personal Growth• Training Ground For Personnel

DISADVANTAGES• Lack Of Well Defined Authority• Line & Staff Conflicts

Suitability • Not suitable for small organisations as it is quite

costly for them.

Divisional StructuresDivisional Structures• A division is a collection of functions working

together to produce a product.• Divisions create smaller, manageable parts of a firm.

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

to corporate management.– Product structure: divisions created according to the

type of product or service.– Geographic structure: divisions based on the area of

a country or world served.– Market structure: divisions based on the types of

customers served.

Market StructureMarket Structure

Large BusinessCustom ers

Sm all BusinessCustom ers

EducationalInstitutions

IndividualCustom ers

CorporateM anagers

CEOCorporation

FLAT STRUCTURE

FLAT STRUCTURE reduces the levels of management.

Widens span of control of management at various levels of organisation.

More decentralized with regard to decision-making

ADVANTAGES: More delegation of authority More clear policy Development of managers for higher positions

because of their initiative & authority to make decisions.

DISADVANTAGES: Tendency of overloaded superior to become

bottlenecks in decision making Requirement of highly trained managerial

personnel.

Tall & Flat OrganizationsTall & Flat Organizations– Tall structures have many levels of authority

relative to the organization’s size.• As levels in the hierarchy increase, communication gets

difficult.• The extra levels result in more time being taken to

implement decisions.• Communications can also become garbled as it is

repeated through the firm.– Flat structures have few levels but wide spans of

control.• Results in quick communications but can lead to

overworked managers.

VERTICAL STRUCTURE

Narrow span of control

Large number of management levels

More centralized decision making

ADVANTAGES: Close Supervision Close control of subordinate activities Fast communication between superior &

his subordinateDISADVANTAGES: Creation of many levels of management High cost to the organisation Excessive distance between lowest level &

highest level in the organisation.

Matrix Organization

Matrix Organization

In a matrix organization a vertical as well as lateral communication and information flow is allowed.

The matrix organization integrates functional responsibility with product responsibility.

It is a combination of the functional and the product org. structure.

A product manager is responsible for the total performance of the product and

Will have the production manager, the marketing manager, the accounts manager as his counterparts in the manufacturing, marketing, and accounting functions respectively.

These functional managers report to the functional head vertically and product manager laterally.

MOS is used in big companies having diverse business activities

The structure enjoys the advantages of a functional as well as of a product organization.

Matrix & Product TeamsMatrix & Product Teams– Matrix structure: managers group people by

function and product teams simultaneously.• Results in a complex network of reporting relationships.• Very flexible and can respond rapidly to change.• Each employee has two bosses which can cause

problems.– Functional manager gives different directions than

product manager and employee cannot satisfy both.– Product Team Structure: no 2-way reporting and

the members are permanently assigned to the team and empowered to bring a product to market.

Matrix StructureMatrix Structure

CEOCEO

Func.Func. ManagersManagers

SalesSales DesignDesign ProductionProduction

Product Product team Ateam A

Product Product team Bteam B

Product Product team Cteam C

Product Team

= two boss employee

Te

am M

an

ag

ers

Te

am M

an

ag

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Product Team StructureProduct Team StructureCEOCEO

Func.Func. ManagersManagers

SalesSales DesignDesign ProductionProduction

Manufacturing Manufacturing Manufacturing

= Product Team Manager = Team member

Hybrid StructuresHybrid Structures

• Many large organizations have divisional structures where each manager can select the best structure for that particular division. – One division may use a functional structure, one

geographic, and so on.• This ability to break a large organization into

many smaller ones makes it much easier to manage.

Design Of Matrix Structure

In MOS, a project manager is appointed to coordinate the activities of the project.

A subordinate in matrix structure may receive instructions from two bosses.

Matrix superior has to share the facilities with others.

He reports in a direct line to the up, but does not have a complete line of command below.

Matrix Organization

MD

Manufacturing Finance Personnel Material

Production-MGR-B

Product Manager-B

Product- ion MGR-A

Product Manager-A

Finance Mgr-A

Personnel Mgr-A

MaterialMgr-A

Finance Mgr-B

Personnel Mgr-B

MaterialMgr-B

Advantages & DisadvantagesAdvantages & Disadvantages

Advantages of the matrix organization

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

Coordinates resources in a way that applies them effectively to different projects.

Staff can retain membership on teams and their functional department colleagues.

Disadvantages of the matrix organization

Potential for conflict between functional vs. project groups.

Greater administrative overhead.

Increase in managerial overhead

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