PM1 – Week 2 – Activity 5: Organizational structures

Organizations are the groups of people, with ideas and resources, working towards common goals. In order to make the best utilization of organization’s resources for achieving its goals, organizational structure plays a key role as it is the formal decision-making framework by which job tasks are divided, grouped, and coordinated and units of the organization are explicitly defined and its policies, procedures, and goals are clearly stated.

The organizational structure is conceived and built by the top management. It is very important to choose the right structure as it enables the organization to achieve its goals most effectively. Organizational structure is represented in the form of organization chart which shows job titles, lines of authority, and relationships between departments.

An organizational structure can also be expressed by its degree of complexity, formalization, and centralization. Complexity refers to the amount of differentiation in an organization. Formalization is the degree to which an organization relies on rules and procedures to direct the behavior of its employees while centralization refers to the degree of concentration of decision-making.

The level of these elements in an organizational structure of a firm depends on its size, strategy, technology, and environment. For example large organizations usually use a structure with high complexity and formalization and centralized decision-making where fixed duties are delegated to their employees and only top management participate in decision-making.

There are three most commonly used organizational structures i.e. functional, project, and matrix where as divisional and network/virtual are also currently in use.

In functional structure employees are grouped together based upon the functions of specific jobs within the organization. For example sales department where all employees performing sales functions are grouped together, accounting department, engineering department etc. In functional structure authorities reside with functional head or supervisor. It provides clearly marked career paths for hiring and promotion. Employees work alongside colleagues who share similar interests. Coordination of functional tasks is difficult because of little reward for cooperation with other groups.

Project structure consists of an autonomous project team, existing independently of the rest of the organization. The project team is assembled for a specific project and disperse when project complete. The project manager has the authority and control over the various discipline groups and is responsible for the coordination and monitoring of the effort of the team. Project structure is flexible, provides immediate response to project needs, responsibilities for success of project clearly identified.

In the matrix structure, the personnel and other resources that a project manager requires are not permanently assigned to the project, but are obtained from a pool controlled and monitored by a functional manager. Personnel required to perform specific functions in a particular project are engaged for the period necessary, and are then returned to the control of their functional manager. In matrix structure the main problem is a conflict between functional and project groups.

Divisional structure is almost similar to functional structure. The major difference is that in divisional structure the divisions have higher degree of authority as compared to functional units in functional structure. The divisional structure is broken down into three areas product, market, and geographic.

Product structure group employees together based upon specific products produced by the company. For example a company produces three distinct products “Product A”, “Product B”, and “Product C”. The company will have separate division for each product.

Market structure group employees together based upon specific market in which company sells. For example a company sells it product to individuals as well as to corporate. It will have separate divisions like retail division and corporate division.

Geographic structure group employees together based upon specific geographic location. This is often used by large companies that operate in different areas. For example a company may have its divisions in different cities or countries.

Under network or virtual structure, organizations outsource various functions. The common example of this structure is telecommunication and cellular organizations. In this structure project team members are drawn from various team organizations to share necessary skills. This structure allows the organizations more flexibility and less consumption of resources. It is difficult to have proper control over quality under this structure.

Finding the organizational structure that works best for a particular company is very important because using wrong structure can result poor communication, poor product development, and poor customer service and hence results in failure to achieve its objectives.


References:

http://www.sbea.mtu.edu/smgoltz/ba3700/OrgStructure.html

http://telecollege.dcccd.edu/mgmt1374/book_contents/3organizing/org_process/org_process.htm

http://www.soc.iastate.edu/soc420a/RuthNeilPaper1.pdf