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Types of organizational structure

Paper Type: Free Essay Subject: Business
Wordcount: 5133 words Published: 10th May 2017

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What is the definition of an organization? Is a social unit of people that is structured and managed to meet a need or to pursue collective goals. All organizations have a management structure that determines relationships between the different activities and the members, and subdivides and assigns roles, responsibilities, and authority to carry out different tasks. Organizations are open systems they affect and are affected by their environment.

A business organization is an individual or group of people that collaborate to achieve certain commercial goals. Some business organizations are formed to earn income for owners. Other business organizations, called nonprofits, are formed for public purposes. These businesses often raise money and utilize other resources to provide or support public programs.

The term “business organization” refers to how a business is structured. The business organization is defined in the bylaws when the business is formed with the name and contact information of those who own and run the company with their roles defined. The bylaws state the purpose of the organization and what it does. A sole proprietorship does not have bylaws because one person owns and controls the business.

What is an organizational structure?

Is the typically hierarchical arrangement of lines of authority, communications, right and duties of an organisation. Organisational structure determines how the roles, power and responsibilities are assigned, controlled, and coordinated, and how information flows between the different levels of management. A structure depends on the organisation’s objectives and strategy. In a centralized structure, the top layer of management has most of the decision making power and has tight control over departments and divisions. In a decentralized structure, the decision making power is distributed and the departments and divisions may have different degrees of independence. A company such as Proctor and Gamble that sells multiple products may organize their structure so that groups are divided according to each product and depending on geographical area as well.

Organizational structure is a system used to define a hierarchy within an organization. It identifies each job, its function and where it reports to within the organization. This structure is developed to establish how an organization operates and assists an organization in obtaining its goals to allow for future growth. The structure is illustrated using an organizational chart.

There are two types of Organizational structure.

Formal Structure – which is the organisation of business that hierarchical the nature. For a company, formal structure can be found on its organisational chart that includes the staff names and their official job titles. It is easy to understand and to the point is unlike the long drawn out definitions while reading, one do forgets the previous sentence after moving to the next. The other defines the term in its crudest form. A formal organisation structure shows a recognisable chain of command, it also has many levels of management. This makes communication slower and decision making harder to implement.

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Informal structure – Informal structure consists of the social structure of an organisation. It includes the corporate culture, behaviour interactions and social connections which occur within an organisation. Many organisation have a formal, written structure, and a more informal, cultural structure. A good advantage for the informal structure is, it evolves constantly. And it can easily respond quickly in a changing situation. An informal structure is much more relaxed, with very few levels of management. This makes communication much easier between levels and decisions and made faster.

Centralization & Decentralization

Centralization is said to be a process where the concentration of decision making is in a few hands. All the important decision and actions at the lower level, all subjects and actions at the lower level are subject to the approval of top management. According to Allen, “Centralization” is the systematic and consistent reservation of authority at central points in the organization.

For example “Company A is run by Stephen Clarkson B. Delgado”. Company A is being controlled by a centralized or a top level superior; this is an example of an centralized organization.

The implication of centralization can be:

Reservation of decision making power at top level.

Reservation of operating authority with the middle level managers.

Reservation of operation at lower level at the directions of the top level

Decentralization is a systematic delegation of authority at all levels of management and in all of the organization. In a decentralization concern, authority in retained by the top management for taking major decisions and framing policies concerning the whole concern. Rest of the authority may be delegated to the middle level and lower level of management. Decentralization is the distributing power and decision making among different people, departments, or locations within an organization.

For example, a national retail chain may allow its store managers to make decisions on the merchandise that will be carried in their particular stores.

Some benefits decentralization would include

decisions are made by those who have the most knowledge about local conditions

greater managerial input in decision- making has a desirable motivational effect

managers have more control over results

Business Structures

As a government has different types of organization, Organisations have a formal structure which is the way that the organisation is organised by those with responsibility for managing the organisation. They create the formal structures that enable the organisation to meet its stated objectives. Often these formal structures will be set out on paper in the form of organisational charts.

However, in the course of time an informal structure develops in most organisations which is based on the reality of day-to-day interactions between the members of the organisation. This informal structure may be different from that which is set out on paper.

Informal structures develop because:

people find new ways of doing things which they find easier and save them time

patterns of interaction are shaped by friendship groups and other relationships

people forget what the formal structures are

It is easier to work with informal structures.

Sometimes the informal structure may conflict with the formal one. Where this is the case the organisation may become less efficient at meeting its stated objectives. However, in some cases the informal structure may prove to be more efficient at meeting organisational objectives because the formal structure was badly set out.

There are two types of Organizational structures

Tall Structures

Tall organizational structure is one which has many levels of hierarchy. In these organizations, there are usually many managers, and each manager has a small span of control – they are in charge of only a small group of people. Tall structures tend to be more complicated and complex, and may be slower to respond to market changes than organizations where managers have a larger span of control. Tall structure has many levels of management and its supervision. Long chain of command is one of it. It means, running from the top of an organisation. The advantage of tall structure is clear management structure, narrow span of control, the function of each layer will be clear and distinct, and a clear progression.

Pros and Cons of tall structure

The pros of tall structures lie in clarity and managerial control. The narrow span of control allows for close supervision of employees. Tall structures provide a clear, distinct layer with obvious lines of responsibility and control and a clear promotion structure. Challenges begin when a structure gets too tall. Communication begins to take too long to travel through all the levels. These communication problems hamper decision-making and hinder progress.

Flat Structures

Flat structures have fewer management levels, with each level controlling a broad area or group. Flat organizations focus on empowering employees rather than adhering to the chain of command. By encouraging autonomy and self-direction, flat structures attempt to tap into employees’ creative talents and to solve problems by collaboration.

Pros and cons of flat structure

Flat organizations offer more opportunities for employees to excel while promoting the larger business vision. That is, there are more people at the “top” of each level. For flat structures to work, leaders must share research and information instead of hoarding it. If they can manage to be open, tolerant and even vulnerable, leaders excel in this environment. Flatter structures are flexible and better able to adapt to changes. Faster communication makes for quicker decisions, but managers may end up with a heavier workload. Instead of the military style of tall structures, flat organizations lean toward a more democratic style. The heavy managerial workload and large number of employees reporting to each boss sometimes results in confusion over roles. Bosses must be team leaders who generate ideas and help others make decisions. When too many people report to a single manager, his job becomes impossible. Employees often worry that others manipulate the system behind their backs by reporting to the boss; in a flat organization, that means more employees distrusting higher levels of authority.

Diagram of Tall and Flat Structure

Tall structure


Diagram 1: Tall structure

By: http://www.emeraldinsight.com/content_images/fig/0291020503007.png

Flat structure


Diagram 2: Flat structure

By: http://lh5.googleusercontent.com/-UYB474BaaCY/Te0Hxo459jI/AAAAAAAAE1k/3gIGD7S0614/Flat-Organisation-Structure-Advantages-Disadvantages.jpg

Span of control

Span of control is the term now used more commonly in business management, particularly human resource management. Span of control refers to the number of subordinates a supervisor has. In a business of more than one person, unless the business has equal partners, then there are managers and subordinates. Subordinates are workers controlled by the manager.

A hierarchy describes the structure of the management of the business, from the top of the company – the managing director, through to the shop floor worker, who reports to their foreman, in a manufacturing business.

The hierarchy of a business is usually best understood by drawing an organisation chart showing which levels of management and employees report to whom.

An example of a hierarchy is shown in the diagram below:


Diagram 3: Span of control

Created by: http://www.tutor2u.net/business/gcse/organisation_span_of_control.htm

The advantages of a narrow span of control are:

A narrow span of control allows a manager to communicate quickly with the employees under them and control them more easily

Feedback of ideas from the workers will be more effective

It requires a higher level of management skill to control a greater number of employees, so there is less management skill required

An example of a wide span of control is shown in the diagram to the right:http://www.tutor2u.net/business/gcse/organisation_public_sector_clip_image004.gif

Diagram 4: Wide span of control

By: www.tutor2u.net, (n.d)

There are also different types of organizational structure

Product Structures

An organizational structure is a framework in which companies outline the different responsibilities in their company. A product-based organizational structure separates the company by products, activities, projects or geography. This allows a company to have a particular focus on specific items in its business operations. Organizational structure refers to the different hierarchies or levels in a company. An organizational structure appears as a series of boxes, vertical and horizontal lines. The boxes represent various titles within the organization, and the vertical lines represent to whom that position reports. Horizontal lines show which employees are on the same level. The appearance of an organization structure is usually pyramidal because there are fewer executive-level positions at the top of the company.

Advantages and disadvantages:

Product-based structures allow companies to remain flexible in the business environment. This allows the company to add or remove structure sections as necessary. However, it can prohibit companies from achieving company-wide goals since each unit operates on its own.

product-business-organization-structure.jpg (516Ã-344)

Diagram 5: Product structure

By: http://the-business-plan.com/wp-content/uploads/product-business-organization-structure.jpg

Geographical structure

Organizational structure defines the hierarchy in which an organization will operate. There are many defined types of organizational structure, but some organizations may create their own, or use a combination of several structures to efficiently run business operations. Geographic organizational structure is used for organizations that have offices or business units in different geographic locations. Geographical structure is the firm organized into geographical units (regional, national, international) that report to a central headquarter which administers the core functions such as planning and marketing.

example-geographic-org-chart.jpg (600Ã-159)

Diagram 6: Geographical Structure

By: http://thethrivingsmallbusiness.com/wp-content/uploads/2010/02/example-geographic-org-chart.jpg


The term organizational structure refers to how the people in an organization are grouped and to whom they report. One traditional way of organizing people is by function. Some common functions within an organization include production, marketing, human resources and accounting. The classic organizational structure where the employees are grouped hierarchically, managed through clear lines of authority, and report ultimately to one top person.


Some advantages of a functional organization are that the lines of command are clear. Individuals specialize and departments tend to develop common knowledge across the group. There may be an advantage to individuals in that career paths can be fairly easily defined.


Disadvantages of the functional organization include poor communication across groups and slow response to changes in the environment. Too much work may be referred upward due to the lack of decision making authority, and serious problems can ensue when groups develop a narrow perspective.


Diagram 7: Function Structure

By: http://thethrivingsmallbusiness.com/wp-content/uploads/2010/02/example-functional-org-chart-jpg.jpg

Multi divisional

Companies use organizational structures to characterize their hierarchical and reporting structures. The organizational structure shows the superior-subordinate equations in the organization. A multi-divisional organizational structure is used by large organizations. Here, the scale of operations is very large; hence the number of employees is also very enormous. The company divides all of its strategic functions into departments. All these departments do their share of the allocated work, and all the work is later collated as the organizational tasks. According to the Human Resource Management Guide, a multidivisional organizational structure consists of self-contained units that operate as their own separate entity. For example, Procter and Gamble owns multiple national brand names and creates a self-contained business model and organizational structure for each product. Each brand is given its own corporate identity, leadership and organizational design.


A multidivisional organizational structure promotes motivation among team members because of the performance/reward connection. This structure makes it easy for leadership in the organisation to maintain keen oversight and reward those who perform well. The service provided to customers meets their needs more appropriately because leadership and employees work more closely with customers. There is also clear identity and purpose in this structure that increases team member loyalty, dedication and satisfaction.


A multidivisional organizational structure does have some disadvantages. The disadvantages deal directly with external relationships. Although the department itself is very close and possesses a defined identity and purpose, communication between departments can be difficult. Conflict between departments is common due to competition and differences in values, systems and expectations. This structure also costs more to operate and manage because each division is considered its own entity.


Diagram 8: Multidivisional diagram

By: http://www.emeraldinsight.com


Matrix structure is defined as a type of management system in which workers report to more than one person, effectively having two or more supervisors at the same time. This can be illustrated by the example of a project environment, where professionals with different types of expertise are brought together to work on a projects. They report to a number of managers of different projects, as well as to a functional supervisor. The idea is to share knowledge and personnel to maximize effectiveness. The matrix structure is an organizational design that groups employees by both function and product. The organizational structure is very flat, and the structure of the matrix is differentiated into whatever functions are needed to accomplish certain goals. Each functional worker usually reports to the functional heads, but do not normally work directly under their supervision. Instead, the worker is controlled by the membership of a certain project, and each functional worker usually works under the supervision of a project manager. This way, each worker has two superiors, who will jointly ensure the progress of the project. The functional head may be more interested in developing the most exiting products or technologies, whereas the project manager may be more concerned with keeping deadlines and controlling product costs.


The cross functional teams of a matrix structure reduce the functional barriers between departments, and increase the integration of functions.

Matrix structures open up for communication, and may provide an opportunity for team members to learn from each other – thus distributing valuable knowledge laterally within the organization.

The matrix structure makes it possible to assign specialized resources to projects when needed.


A matrix structure lacks the effectiveness of bureaucracy, and will potentially not work if the organization does not need to react swiftly to changes

The flat hierarchy may be the cause of conflict, and different stakeholders may pursue entirely different goals.

The great focus on integration between functional areas requires a great amount of lateral communication, and it may require great resources to get information distributed efficiently between team members.

As said before, the use of a matrix structure seems more feasible for organizations operating in business environments characterized by change, dynamism and uncertainty. This could e.g. be organizations operating in high-tech industries such as computing or telecommunication


Diagram 9: Matrix Diagram

By: http://thethrivingsmallbusiness.com/wp-content/uploads/2010/02/Example-Matrix-Organization-Chart-jpg.jpg

Definition of Culture

Is the values and behaviours that contribute to the unique social and psychological environment of an organization. Organizational culture includes an organization’s expectations, experiences, philosophy, and values that hold it together, and is expressed in its self-image, inner workings, interactions with the outside world, and future expectations. It is based on shared attitudes, beliefs, customs, and written and unwritten rules that have been developed over time and are considered valid. Also called corporate culture. Company culture is the personality of a company and defines what a company, from an employee perspective, is like to work for. Company culture includes the company mission, values, ethics, expectations, goals, and work environment. Whether written as a mission statement, spoken or merely understood, corporate culture describes and governs the ways a company’s owners and employees think, feel and act. Your own business’s culture may be based on beliefs spelled out in your mission statement. It could consist in part of a corporate symbol, like the rainbow-colored apple that symbolizes Apple Computer. Whatever shape it takes, your corporate culture plays a big role in determining how well your business will do.

There are four types of cultures:


Is one based on the dominance of one or a small number of individuals within an organisation. They make the key decisions for the organisation. This sort of power culture may exist in a small business or part of a larger business. There are some organizations where the power remains in the hands of only few people and only they are authorized to take decisions. They are the ones who enjoy special privileges at the workplace. They are the most important people at the workplace and are the major decision makers. These individuals further delegate responsibilities to the other employees. In such a culture the subordinates have no option but to strictly follow their superior’s instructions. The employees do not have the liberty to express their views or share their ideas on an open forum and have to follow what their superior says. The managers in such a type of culture sometimes can be partial to someone or the other leading to major unrest among others.


Exists in large hierarchical organisations in which individuals have clear roles (jobs) to perform which are closely specified. Individuals tend to work closely to their job description, and tend to follow the rules rather than to operate in a creative way. Role culture is a culture where every employee is delegated roles and responsibilities according to his specialization, educational qualification and interest to extract the best out of him. In such a culture employees decide what best they can do and willingly accept the challenge. Every individual is accountable for something or the other and has to take ownership of the work assigned to him. Power comes with responsibility in such a work culture.


Exists when teams are formed to complete particular tasks. A distinct team culture develops, and because the team is empowered to make decisions, task cultures can be creative. Organizations where teams are formed to achieve the targets or solve critical problems follow the task culture. In such organizations individuals with common interests and specializations come together to form a team. There are generally four to five members in each team. In such a culture every team member has to contribute equally and accomplish tasks in the most innovative way.


There are certain organizations where the employees feel that they are more important than their organization. Such organizations follow a culture known as person culture. In a person culture, individuals are more concerned about their own self rather than the organization. The organization in such a culture takes a back seat and eventually suffers. Employees just come to the office for the sake of money and never get attached to it. They are seldom loyal towards the management and never decide in favour of the organization. One should always remember that organization comes first and everything else later. There are certain organizations where the employees feel that they are more important than their organization. Such organizations follow a culture known as person culture. In a person culture, individuals are more concerned about their own self rather than the organization. The organization in such a culture takes a back seat and eventually suffers. Employees just come to the office for the sake of money and never get attached to it. They are seldom loyal towards the management and never decide in favour of the organization. One should always remember that organization comes first and everything else later.

Task 2

Explain how the relationship between an organisation’s structure and culture can impact on the performance of the business

All businesses have Business organization has structures and cultures that have been followed to apply great impact on the productivity of their business. These organizations could have applied either a product structure, Multi-dimensional, Matrix structure etc. And have followed a power type culture or person type culture and so on. Each of these has its own effect and impact on their business. These structures and cultures play an important role of setting the definition of an company, setting their goals and how they could organize its members to meet their goals

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As The behaviours and beliefs characteristic of a workplace are its culture. The culture and structure of an organization affect one another. A structure appropriate to the organization helps to develop a healthy culture. In companies with rigid structures, communication tends to follow reporting lines. In companies with flatter structures, communication may occur more easily across departments. Studies have found a relationship between job satisfaction and organizational structure. Organizations with flatter structures may foster more feelings of self-actualization and create less anxiety in employees. Relationships with customers may suffer if departmental relationships cause the customer difficulty in getting problems addressed. Multi-functional teams that can answer a customer’s questions and resolve issues have a positive effect on customer satisfaction. Organizational structure impacts the success of a company’s projects. If project personnel also perform routine operational work, it may be difficult for them to focus on projects and meet schedules. If the flow of information across departments is difficult, it may affect ability to share resources effectively.

Task 3

Look at the factors associated with individual behaviour and discuss how they influence an individual’s behaviour at work.

Each individual’s work has its own effects on organizations. There are many factors on how individual or group goals have affected an organization. These goals could also be the life force of the performance both could be positive or negative depending on how the scenario goes. Either way all these factors are important as a single employee’s goals and ambition could lead any organization to success if in proper standing and worked on accordingly.

Collective goals

These are goals that are collected or shared by individual to form a same goal coming from the same ideology. For instance a basketball team’s belief in practicing and training other people with the game or making basketball more accessible to others, this could lead their team to complete objectives like win in an inter-basketball tournament, gaining new players and earning more money. Or to simply fulfil the need of its members to gather more players to gain more company and improve their basketball abilities. Within these goals there are many different types of goals as it is shown

Ideological Goal, These are the goals or objective that has a connection with an individual’s belief and values. These Goals usually are the inspiration of what an individual have for example. An Archery club’s mission or ideological goal is to share to other people their own knowledge of archery.

Formal Goals are goals set by an dominant individual, These goals are usually organizational based goals that is set by a higher supremacy. These goals move an organization on how that individual or owner wants his organizations to be.

Shares personal goals are goals pursued when the individual members agree and collide with their own individual ideas as missions. These are the goals shared by all individuals of a group to form one centralized mission where they can all complete as a group.

Controlled performance

Every organization needs to take responsibility to its owners and other stakeholders for the achievement of its collective goals. These goals cannot simple move on its own and needs to be moulded step by step being controlled accordingly so that to ensure the success of their goals and missions. This ensures that

All goals whether ideological, formal, or shared personal goals are understood by all members

The necessary resources are secures and utilised in such a way that goals will be reached without undue risk, disruption or waste

They can tell whether, or to what extent they have reached their goals.

This is why all organizations has a centralized management, to ensure that the employees who are working on these goals and mission carry out their individual tasks positively and with no mistake to avoid negative backlashes and effects.


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