What Are the Factors That Affect Organizational Structure?
The organizational structure defines the communications pattern, the control system, and the command structure. The traditional hierarchical structure provides certainty, clarity, and clearly.
Although the study of organizational structures is still a developing field, it has been a major source of interest for classical theorists. Max Weber was, in fact, one of the first scholars to describe how organizations should be designed.
Henry Mintzberg defines organization structure as ―the sum total of how it divides its labour into distinct tasks and then achieves coordination between them.
Therefore, the organization structure is the overall configuration of positions and interrelationships among positions within the organization.
Why Organizational Structure is Important
Organizational structure defines:
- The communication pathways; the scalar principle provides an unbroken vertical communication line
- The linking mechanisms between management roles
- The allocation of formal responsibilities and authority
- The co-ordinating structure
- The relationships between departments, tasks, and people and their duties
- The power structure; where power, control, and decision making exists; strong leadership is possible
- Management roles and official tasks
- The functional distinction between departments
- Specialization in departments, skills, and management; procedures can be standardized
- Unity of command; one superior and one source of influence
- The exception principle; decisions can be programmed, and planning can form the basis of management
- Decisions are made from the perspective of the whole organization
Factors affecting organization structure: –
a. Size of the Organization
Size may be the number of employees, assets, sales, etc. Small firms tend to have fewer rules for how things should be done and more flexibility in how employees can confront problems. As the firm grows, the tendency to create more rules and reduce flexibility increases and its design becomes inevitable.
b. Technology in the Organization
This refers to the conversion process used by an organization to transform inputs into outputs. Organizations that have mass production will adopt a different structure from those with batch or unit technology.
c. Environment of the Organization
Environmental uncertainty can be captured by environmental change and environmental complexity. Highly dynamic environments will favour complex structures such as a matrix.
The Types of Organization Structures
1. Functional Organization Structure
This is a structure based on groupings of all the major business functions, e.g., production, marketing, finance, personnel. In a functional structure, tasks are linked together based on common functions, e.g., all production activities are linked together in a single function that undertakes all the tasks required of that function.
Functional Organization Structure Advantages
- By placing people together based on technical expertise, the organization can facilitate both their utilization and the coordination in the whole enterprise’s service.
- Better opportunities for promotion and career development.
Functional Organization Structure Advantages
- Growth of sectional interest that may conflict with the needs of the organization as a whole.
- Difficulty in adopting this structure to meet issues such as diversification or geographical dispersion.
2. Divisionalized Organization Structure
The organization is divided into divisions on the basis of products and/or geography. Each division is operated in a functional form but with certain key functions retained at the company headquarters (e.g., finance, planning, and personnel policy).
a) Product – based Divisionalization
It is usually based on individual products or product ranges. Each group carries its own functional specialisms, e.g., in the Health Sector, the key group of employees – medical, nursing, paramedical, and hotel services – are dispersed according to the services they provide.
Product-based Divisionalization Structure advantages
- It allows diversification to take place
- It can cope better with technological change problems because it groups people with expertise and their specialized equipment in one manor unit.
- Loss-making products can be easily identified.
Product-based Divisionalization Structure disadvantages
- The General Manager may promote their own product group to the detriment of other parts of the company.
b) Geographical Divisionalization
This is centered around appropriate geographical features, e.g., regions, nations, subcontinents.
Geographical Divisionalization Structure advantages
- Decision-making and control are made easier.
- The managers are familiar with the environment and can easily adapt to changes if required.
Geographical Divisionalization Structure Disadvantage
- Decentralization may cause additional control problems for senior management.
3. Matrix Organization Structure
This is based on a combination of functional organization with project-based structures, thereby combining vertical and lateral lines of communication and authority. Within these structures, there is a dual chain of command as those involved report to their own line managers and one or more functional managers.
Advantages of Matrix Organizational Structure
The Matrix organizational structure allows cross-functional activities to be undertaken while maintaining the function, skills, and departments’ loyalties. This type of structure is often associated with product-driven organizations. The advantages of such a structure can be described as:
- Improvement in communication which will be lateral as well as hierarchical
- Improved quality of decision making throughout the organization
- Direct contact between managers and employees replaces rules and bureaucracy
- Management motivation is improved by greater involvement in decision making and control
- Product driven rather than department driven and thus more aware of the market
- Improved product knowledge by all the management
- Improves quality of decision making, especially at times of change
- Adaptive to local geographic conditions
- Removes the problem of management islands’ associated with the departmental specialisms inherent in the hierarchical structure
- Managers can see and understand the whole picture
- Reduction of stress on senior management
- Provides flexibility across the organization
- Allows training and greater involvement for junior management
- Improved control through de-centralized functions such as product budgets and profit centers
- It helps to clarify who is responsible for the success of the project
- Better control of project
- Lower program costs
- Aids in the development of managers as they are given more responsibilities
Matrix Organization Structure disadvantages
- Conflicts concerning the allocation of resources
- Dual chain of command is confusing, can cause divided loyalty and power struggles
- Dilution of functional management throughout the organization
These are the available options. The functional structure is best suited to stable environments, while divisionalization is popular in large organizations offering wide ranges of services. With increasing complexity and size, many firms opt for a mixed structure, which may combine the benefits of two or more forms of organization.