Organization structures - Business Environment

Apart from the very simplest form of enterprise in which one individual carries out all tasks and responsibilities, business organisations are characterized by a division of labour which allows employees to specialize in particular roles and to occupy designated positions in pursuit of the organisation’s objectives. The resulting pattern of relationships between individuals and roles constitutes what is known as the organisation’s structure and represents the means by which the purpose and work of the enterprise is carried out. It also provides a frame work through which communication scan occur and within which the processes of management can be applied.

Responsibility for establishing the formal structure of the organisation lies with management and a variety of options is available. Whatever form is chosen, the basic need is to identify a structure which will best sustain the success of the enterprise and will permit the achievement of a number of important objectives.

Through its structure an organisation should be able to:

  • achieve efficiency in the utilization of resources;
  • provide opportunities for monitoring organizational performance;
  • ensure the accountability of individuals;
  • guarantee co-ordination between the different parts of the enterprise;
  • provide an efficient and effective means of organisational communication;
  • create job satisfaction, including opportunities for progression; and
  • adapt to changing circumstances brought about by internal or external developments.

In short, structure is not an end in itself, but a means to an end and should ideally reflect the needs of the organisation within its existing context and taking into account its future requirements.

The essence of structure is the division of work between individuals and the formal organizational relationships that are created between them. These relationships will be reflected not only in individual job descriptions, but also in the overall organization chart which designates the formal pattern of role relationships,and the interactions between roles and the individuals occupying those roles. Individual authority relationships can be classified as line, staff, functional and later a land arise from the defined pattern of responsibilities, as follows:

  • Line relationships occur when authority flows vertically downward through the structure from superior to subordinate (e.g. managers–section leader–staff).
  • Staff relationshipsare created when senior personnel appoint assistants who normally have no authority over other staff but act as an extension of their superior.
  • Functional relationships are those between specialists (or advisers)and line managers and their subordinates (e.g. when a specialist provides a common service throughout the organisation but has no authority over the users of the service).

The personnel or computing function may be one such service that creates a functional relationship. (Note that specialists have line relationships with their own subordinates.)

  • Lateral relationships exist across the organisation, particularly between individuals occupying equivalent positions within different departments or sections (e.g.committees, heads of departments, section leaders).

With regard to the division of work and the grouping of organisational activities,this can occur in a variety of ways. These include:

  • By function or major purpose, associated particularly with departmental structures.
  • By product or service, where individuals responsible for a particular product or service are grouped together.
  • By location, based on geographical criteria.
  • By common processes (e.g. particular skills or methods of operation).
  • By client group(e.g. children, the disabled, the elderly).

In some organizations a particular method of grouping will predominate; in others there will tend to be a variety of types and each has its own particular advantages and disadvantages. In the discussion below, attention is focused on five main methods of grouping activities in business organisations. Students should attempt to discover what types of structure exist within their own educational institution and the logic (if any) which underlies the choices made.

Functional organisation

The functional approach to organisation is depicted in. As its name indicates, in this type of structure activities are clustered together by common purposeor function. All marketing activities, for example, are grouped together as acommon function, typically within a marketing department. Similarly, other areas of activity, such as production, finance, personnel and research and development, have their own specialised sections or departments, responsible for all the tasks required of that function.

Functional organisation

Apart from its obvious simplicity, the functional organisation structure allows individuals to be grouped together on the basis of their specialisms and technical expertise, and this can facilitate the development of the function they offer as well as providing a recognized path for promotion and career development. On the downside, functional specialization, particularly through departments, is likely to create sectional interests which may operate to the disadvantage of the organization as a whole, particularly where in equalities in resource allocation between functions become a cause for inter function rivalry. It could also be argued that this form of structure is most suited to single-product firms and that it becomes less appropriate as organisations diversify their products and/or markets. In such circumstances, the tendency will be for businesses to look for the benefits which can arise from specialization by product or from the divisionalization of the enterprise.

Organisation by product or service

In this case the division of work and the grouping of activities is dictated by the productor service provided, such that each group responsible for a particular part of the output of the organisation may have its own specialist in the different functional areas(e.g. marketing, finance, personnel).

Organisation by product or service

One advantage of this type of structure is that it allows an organization to offer a diversified range of products, as exemplified by the different services available in National Health Service hospitals (e.g. maternity, orthopaedic, geriatric, and so forth). Its main disadvantage is the danger that the separate units or divisions within the enterprise may attempt to become too autonomous, even at the expense of other parts of the organisation, and this can present management with problems of co-ordination and control.

The divisional structure
As firms diversify their products and/or markets often as a result of merger or takeover
a structure is needed to co-ordinate and control the different parts of the organisation.
This structure is likely to be the divisional (or ‘multi- divisional’) company.
A Divisionalized structure is formed when an organisation is split up into a number of self-contained business units, each of which operates as a profit center.
Such a division may occur on the basis of product or market or a combination of the two, with each unit tending to operate along functional or product lines, but with certain key functions (e.g. finance, personnel, corporate planning) provided centrally, usually at company headquarters.

Divisionalized structure

The main benefit of the multi-divisional company is that it allows each part of what can be a very diverse organization to operate semi-independently in producing and marketing its products, thus permitting each division to design its offering to suit local market conditions a factor of prime importance where the firm operates on a multinational basis. The dual existence of divisional profit centers and a central unit responsible for establishing strategy at a global level can, however, be a source of considerable tension, particularly where the needs and aims of the center appear to conflict with operations at the local level or to impose burdens seen to be unreasonable by divisional managers (e.g. the allocation of central overhead costs).

Much the same kind of arguments apply to the holding company, though this tends to be a much looser structure for managing diverse organizations, favoured by both UK and Japanese companies. Under this arrangement, the different elements of the organization (usually companies) are co-ordinated and controlled by a parent body, which may be just a financial entity established to maintain or gain control of other trading companies. Holding companies are associated with the growth of firms by acquisition which gives rise to a high degree of product or market diversification. They are also a popular means of operating a multinational organization.

Matrix structures
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.

Matrix structures

Matrix structures offer various advantages, most notably flexibility, opportunities for staff development, an enhanced sense of owner ship of a project or program, customer orientation and the co-ordination of information and expertise. On the negative side, difficulties can include problems of co-ordination and control, conflicting loyalties for staff and uncertain lines of authority. It is not uncommon in an organization designed on matrix lines for project or program leaders to be unsure of their authority over the staff from the contributing departments. Nor is it unknown for functional managers to withdraw their co-operation and/or support for projects located outside their immediate sphere of influence.

Project teams
Despite its flexibility, the matrix often has a degree of permanence; in contrast, the project team is essentially a temporary structure established as a means of carrying out a particular task, often in a highly unstable environment. Once the task is complete, the team is disbanded and individuals return to their usual departments or are assigned to a new project.

Fashioned around technical expertise rather than managerial rank and often operating closely with clients, project teams are increasingly common in high-technology firms, construction companies and in some types of service industry, especially management consultancies and advertising. Rather than being a replacement for the existing structure, they operate along side it and utilize in-house staff (and in some cases, outside specialists) on a project-by-project basis. While this can present logistical and scheduling problems and may involve some duplication of resources, it can assist an organisation in adapting to change and uncertainty and in providing products to the customer’s specifications. Project teams tend to be at their most effective when objectives and tasks are well defined, when the client is clear as to the desired outcome and when the team is chosen with care.


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