Organizational structure
Encyclopedia
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.

Organizations are a variant of clustered entities
Business cluster
A business cluster is a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Clusters are considered to increase the productivity with which companies can compete, nationally and globally. In urban studies, the term agglomeration is used...

.

An organization can be structured in many different ways, depending on their objectives. The structure of an organization will determine the modes in which it operates and performs.

Organizational structure allows the expressed allocation of responsibilities for different functions and processes to different entities such as the branch
Branch (banking)
A branch, banking center or financial center is a retail location where a bank, credit union, or other financial institution offers a wide array of face-to-face and automated services to its customers....

, department
Departmentalization
Departmentalization refers to the process of grouping activities into departments.Division of labour creates specialists who need coordination. This coordination is facilitated by grouping specialists together in departments....

, workgroup
Working group
A working group is an interdisciplinary collaboration of researchers working on new research activities that would be difficult to develop under traditional funding mechanisms . The lifespan of the WG can last anywhere between a few months and several years...

 and individual.

Organizational structure affects organizational action in two big ways. First, it provides the foundation on which standard operating procedures and routines rest. Second, it determines which individuals get to participate in which decision-making processes, and thus to what extent their views shape the organization’s actions.

Operational organizations and informal organizations

The set organizational structure may not coincide with facts, evolving in operational action. Such divergence decreases performance, when growing. E.g. a wrong organizational structure may hamper cooperation and thus hinder the completion of orders in due time and within limits of resources and budgets. Organizational structures shall be adaptive to process requirements, aiming to optimize the ratio of effort and input to output.

History

Organizational structures developed from the ancient times of hunters and collectors in tribal organizations through highly royal and clerical power structures to industrial structures and today's post-industrial structures.

As pointed out by Mohr (1982, pp. 102–103), the early theorists of organizational structure, Taylor, Fayol, and Weber "saw the importance of structure for effectiveness and efficiency and assumed without the slightest question that whatever structure was needed, people could fashion accordingly. Organizational structure was considered a matter of choice... When in the 1930s, the rebellion began that came to be known as human relations theory, there was still not a denial of the idea of structure as an artifact, but rather an advocacy of the creation of a different sort of structure, one in which the needs, knowledge, and opinions of employees might be given greater recognition." However, a different view arose in the 1960s, suggesting that the organizational structure is "an externally caused phenomenon, an outcome rather than an artifact." In the 21st century, organizational theorists such as Lim, Griffiths, and Sambrook (2010) are once again proposing that organizational structure development is very much dependent on the expression of the strategies and behavior of the management and the workers as constrained by the power distribution between them, and influenced by their environment and the outcome.

Pre-bureaucratic structures

Pre-bureaucratic (entrepreneurial) structures lack standardization
Standardization
Standardization is the process of developing and implementing technical standards.The goals of standardization can be to help with independence of single suppliers , compatibility, interoperability, safety, repeatability, or quality....

 of tasks. This structure is most common in smaller organizations and is best used to solve simple tasks. The structure is totally centralized. The strategic leader makes all key decisions and most communication is done by one on one conversations. It is particularly useful for new (entrepreneurial) business as it enables the founder to control growth and development.

They are usually based on traditional domination or charismatic domination in the sense of Max Weber
Max Weber
Karl Emil Maximilian "Max" Weber was a German sociologist and political economist who profoundly influenced social theory, social research, and the discipline of sociology itself...

's tripartite classification of authority
Tripartite classification of authority
Max Weber distinguished three ideal types of legitimate political leadership, domination and authority:# charismatic authority ,# traditional authority and...


Bureaucratic structures

Weber (1948, p. 214) gives the analogy that “the fully developed bureaucratic mechanism compares with other organizations exactly as does the machine compare with the non-mechanical modes of production. Precision, speed, unambiguity, … strict subordination, reduction of friction and of material and personal costs- these are raised to the optimum point in the strictly bureaucratic administration.” Bureaucratic structures have a certain degree of standardization. They are better suited for more complex or larger scale organizations, usually adopting a tall structure. The tension between bureaucratic structures and non-bureaucratic is echoed in Burns and Stalker's distinction between mechanistic and organic structures.

The Weberian characteristics of bureaucracy are:
  • Clear defined roles and responsibilities
  • A hierarchical structure
  • Respect for merit.

Post-bureaucratic

The term of post bureaucratic is used in two senses in the organizational literature: one generic and one much more specific. In the generic sense the term post bureaucratic is often used to describe a range of ideas developed since the 1980s that specifically contrast themselves with Weber's ideal type bureaucracy
Bureaucracy
A bureaucracy is an organization of non-elected officials of a governmental or organization who implement the rules, laws, and functions of their institution, and are occasionally characterized by officialism and red tape.-Weberian bureaucracy:...

. This may include total quality management
Total Quality Management
Total quality management or TQM is an integrative philosophy of management for continuously improving the quality of products and processes....

, culture management and matrix management
Matrix management
Matrix management is a type of organizational management in which people with similar skills are pooled for work assignments. For example, all engineers may be in one engineering department and report to an engineering manager, but these same engineers may be assigned to different projects and...

, amongst others. None of these however has left behind the core tenets of Bureaucracy. Hierarchies still exist, authority is still Weber's rational, legal type, and the organization is still rule bound. Heckscher, arguing along these lines, describes them as cleaned up bureaucracies, rather than a fundamental shift away from bureaucracy. Gideon Kunda, in his classic study of culture management at 'Tech' argued that 'the essence of bureaucratic control - the formalisation, codification and enforcement of rules and regulations - does not change in principle.....it shifts focus from organizational structure to the organization's culture'.

Another smaller group of theorists have developed the theory of the Post-Bureaucratic Organization., provide a detailed discussion which attempts to describe an organization that is fundamentally not bureaucratic. Charles Heckscher
Charles Heckscher
Charles Heckscher is a professor in the Department of Labor Studies and Employment at Rutgers University, and director of the Center for Workplace Transformation at Rutgers....

 has developed an ideal type, the post-bureaucratic organization, in which decisions are based on dialogue and consensus rather than authority and command, the organization is a network rather than a hierarchy, open at the boundaries (in direct contrast to culture management); there is an emphasis on meta-decision making rules rather than decision making rules. This sort of horizontal decision making by consensus model is often used in housing cooperatives, other cooperatives and when running a non-profit or community organization
Community organization
Community organizations are civil society non-profits that operate within a single local community. They are essentially a subset of the wider group of nonprofits. Like other nonprofits they are often run on a voluntary basis and are self funded...

. It is used in order to encourage participation
Participation (decision making)
Participation in social science refers to different mechanisms for the public to express opinions - and ideally exert influence - regarding political, economic, management or other social decisions. Participatory decision making can take place along any realm of human social activity, including...

 and help to empower
Empowerment
Empowerment refers to increasing the spiritual, political, social, racial, educational, gender or economic strength of individuals and communities...

 people who normally experience oppression
Oppression
Oppression is the exercise of authority or power in a burdensome, cruel, or unjust manner. It can also be defined as an act or instance of oppressing, the state of being oppressed, and the feeling of being heavily burdened, mentally or physically, by troubles, adverse conditions, and...

 in groups.

Still other theorists are developing a resurgence of interest in complexity theory and organizations
Complexity theory and organizations
Complexity theory and organizations, also called complexity strategy or complex adaptive organization, is the use of Complexity theory in the field of strategic management and organizational studies.- Overview :...

, and have focused on how simple structures can be used to engender organizational adaptations. For instance, Miner et al. (2000) studied how simple structures could be used to generate improvisational outcomes in product development. Their study makes links to simple structures and improviser learning. Other scholars such as Jan Rivkin and Sigglekow, and Nelson Repenning revive an older interest in how structure and strategy relate in dynamic environments.

Functional structure

Employees within the functional divisions of an organization tend to perform a specialized set of tasks, for instance the engineering department would be staffed only with software engineers. This leads to operational efficiencies within that group. However it could also lead to a lack of communication between the functional groups within an organization, making the organization slow and inflexible.

As a whole, a functional organization
Functional Organization
Functional organization is a type of organizational structure that uses the principle of specialization based on function or role.It allows decisions to be decentralized since issues are delegated to specialized persons or units, leaving them the responsibility of implementing, evaluating, or...

 is best suited as a producer of standardized goods and services at large volume and low cost. Coordination and specialization of tasks are centralized in a functional structure, which makes producing a limited amount of products or services efficient and predictable. Moreover, efficiencies can further be realized as functional organizations integrate their activities vertically so that products are sold and distributed quickly and at low cost. For instance, a small business could make components used in production of its products instead of buying them. This benefits the organization and employees faiths.

Divisional structure

Also called a "product structure", the divisional structure groups each organizational function into a division. Each division within a divisional structure contains all the necessary resources and functions within it. Divisions can be categorized from different points of view. One might make distinctions on a geographical basis (a US division and an EU division, for example) or on product/service basis (different products for different customers: households or companies). In another example, an automobile company
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...

 with a divisional structure might have one division for SUVs, another division for subcompact cars, and another division for sedans.

Each division may have its own sales, engineering and marketing departments.

Matrix structure

The matrix structure
Matrix management
Matrix management is a type of organizational management in which people with similar skills are pooled for work assignments. For example, all engineers may be in one engineering department and report to an engineering manager, but these same engineers may be assigned to different projects and...

 groups employees by both function and product. This structure can combine the best of both separate structures. A matrix organization frequently uses teams of employees to accomplish work, in order to take advantage of the strengths, as well as make up for the weaknesses, of functional and decentralized forms. An example would be a company that produces two products, "product a" and "product b". Using the matrix structure, this company would organize functions within the company as follows: "product a" sales department, "product a" customer service department, "product a" accounting, "product b" sales department, "product b" customer service department, "product b" accounting department. Matrix structure is amongst the purest of organizational structures, a simple lattice emulating order and regularity demonstrated in nature.
  • Weak/Functional Matrix: A project manager with only limited authority is assigned to oversee the cross- functional aspects of the project
    Project
    A project in business and science is typically defined as a collaborative enterprise, frequently involving research or design, that is carefully planned to achieve a particular aim. Projects can be further defined as temporary rather than permanent social systems that are constituted by teams...

    . The functional managers maintain control over their resources and project areas.
  • Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and the functional managers. It brings the best aspects of functional and projectized organizations. However, this is the most difficult system to maintain as the sharing power is delicate proposition.
  • Strong/Project Matrix: A project manager
    Project manager
    A project manager is a professional in the field of project management. Project managers can have the responsibility of the planning, execution, and closing of any project, typically relating to construction industry, architecture, computer networking, telecommunications or software...

     is primarily responsible for the project. Functional managers provide technical expertise and assign resources as needed.

Organizational circle: moving back to flat

The flat structure
Flat organization
Flat organization refers to an organizational structure with few or no levels of intervening management between staff and managers...

 is common in small companies (enterprenerial start-ups, university spin offs). As the company grows it becomes more complex and hierarchical, which leads to an expanded structure, with more levels and departments.

Often, it would result in bureaucracy
Bureaucracy
A bureaucracy is an organization of non-elected officials of a governmental or organization who implement the rules, laws, and functions of their institution, and are occasionally characterized by officialism and red tape.-Weberian bureaucracy:...

, the most prevalent structure in the past. It is still, however, relevant in former Soviet Republics, China, and most governmental organizations all over the world. Shell Group used to represent the typical bureaucracy: top-heavy and hierarchical. It featured multiple levels of command and duplicate service companies existing in different regions. All this made Shell apprehensive to market changes, leading to its incapacity to grow and develop further. The failure of this structure became the main reason for the company restructuring into a matrix.

Starbucks
Starbucks
Starbucks Corporation is an international coffee and coffeehouse chain based in Seattle, Washington. Starbucks is the largest coffeehouse company in the world, with 17,009 stores in 55 countries, including over 11,000 in the United States, over 1,000 in Canada, over 700 in the United Kingdom, and...

 is one of the numerous large organizations that successfully developed the matrix structure supporting their focused strategy. Its design combines functional and product based divisions, with employees reporting to two heads. Creating a team spirit, the company empowers employees to make their own decisions and train them to develop both hard and soft skills. That makes Starbucks one of the best at customer service.

Some experts also mention the multinational
Multinational corporation
A multi national corporation or enterprise , is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation...

 design, common in global companies, such as Procter & Gamble
Procter & Gamble
Procter & Gamble is a Fortune 500 American multinational corporation headquartered in downtown Cincinnati, Ohio and manufactures a wide range of consumer goods....

, Toyota and Unilever
Unilever
Unilever is a British-Dutch multinational corporation that owns many of the world's consumer product brands in foods, beverages, cleaning agents and personal care products....

. This structure can be seen as a complex form of the matrix, as it maintains coordination among products, functions and geographic areas.

In general, over the last decade, it has become increasingly clear that through the forces of globalization, competition and more demanding customers, the structure of many companies has become flatter, less hierarchical, more fluid and even virtual.

Team

One of the newest organizational structures developed in the 20th century is team
Team
A team comprises a group of people or animals linked in a common purpose. Teams are especially appropriate for conducting tasks that are high in complexity and have many interdependent subtasks.A group in itself does not necessarily constitute a team...

. In small businesses, the team structure can define the entire organization. Teams can be both horizontal and vertical. While an organization is constituted as a set of people who synergize individual competencies to achieve newer dimensions, the quality of organizational structure revolves around the competencies of teams in totality. For example, every one of the Whole Foods Market
Whole Foods Market
Whole Foods Market is a foods supermarket chain based in Austin, Texas which emphasizes "natural and organic products." The company has been ranked among the most socially responsible businesses and placed third on the U.S...

 stores, the largest natural-foods grocer in the US developing a focused strategy, is an autonomous profit centre composed of an average of 10 self-managed teams, while team leaders in each store and each region are also a team. Larger bureaucratic organizations can benefit from the flexibility of teams as well. Xerox
Xerox
Xerox Corporation is an American multinational document management corporation that produced and sells a range of color and black-and-white printers, multifunction systems, photo copiers, digital production printing presses, and related consulting services and supplies...

, Motorola
Motorola
Motorola, Inc. was an American multinational telecommunications company based in Schaumburg, Illinois, which was eventually divided into two independent public companies, Motorola Mobility and Motorola Solutions on January 4, 2011, after losing $4.3 billion from 2007 to 2009...

, and DaimlerChrysler
DaimlerChrysler
Daimler AG is a German car corporation. By unit sales, it is the thirteenth-largest car manufacturer and second-largest truck manufacturer in the world. In addition to automobiles, Daimler manufactures buses and provides financial services through its Daimler Financial Services arm...

 are all among the companies that actively use teams to perform tasks.

Network

Another modern structure is network. While business giants risk becoming too clumsy to proact (such as), act and react efficiently, the new network organizations contract out any business function, that can be done better or more cheaply. In essence, managers in network structures spend most of their time coordinating and controlling external relations, usually by electronic means. H&M
H&M
H & M Hennes & Mauritz AB is a Swedish retail-clothing company, known for its fast-fashion clothing offerings for women, men, teenagers and children....

 is outsourcing its clothing to a network of 700 suppliers, more than two-thirds of which are based in low-cost Asian countries. Not owning any factories, H&M can be more flexible than many other retailers in lowering its costs, which aligns with its low-cost strategy. The potential management opportunities offered by recent advances in complex networks theory have been demonstrated including applications to product design and development, and innovation problem in markets and industries.

Virtual

A special form of boundaryless organization is virtual. Hedberg, Dahlgren, Hansson, and Olve (1999) consider the virtual organization as not physically existing as such, but enabled by software to exist. The virtual organization exists within a network of alliances, using the Internet. This means while the core of the organization can be small but still the company can operate globally be a market leader in its niche. According to Anderson, because of the unlimited shelf space of the Web, the cost of reaching niche goods is falling dramatically. Although none sell in huge numbers, there are so many niche products that collectively they make a significant profit, and that is what made highly innovative Amazon.com so successful.

Hierarchy-Community Phenotype Model of Organizational Structure

In the 21st century, even though most, if not all, organizations are not of a pure hierarchical structure, many managers are still blind-sided to the existence of the flat community structure within their organizations.

The business firm is no longer just a place where people come to work. For most of the employees, the firm confers on them that sense of belonging and identity- the firm has become their “village”, their community. The business firm of the 21st century is not just a hierarchy which ensures maximum efficiency and profit; it is also the community where people belong to and grow together- where their affective and innovative needs are met.

Lim, Griffiths, and Sambrook (2010) developed the Hierarchy-Community Phenotype Model of Organizational Structure borrowing from the concept of Phenotype from genetics. "A phenotype refers to the observable characteristics of an organism. It results from the expression of an organism’s genes and the influence of the environment. The expression of an organism’s genes is usually determined by pairs of alleles. Alleles are different forms of a gene. In our model, each employee’s formal, hierarchical participation and informal, community participation within the organization, as influenced by his or her environment, contributes to the overall observable characteristics (phenotype) of the organization. In other words, just as all the pair of alleles within the genetic material of an organism determines the physical characteristics of the organism, the combined expressions of all the employees’ formal hierarchical and informal community participation within an organization give rise to the organizational structure. Due to the vast potentially different combination of the employees’ formal hierarchical and informal community participation, each organization is therefore a unique phenotype along a spectrum between a pure hierarchy and a pure community (flat) organizational structure."P

See also

  • Corporation
    Corporation
    A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

  • Cross-functional team
    Cross-functional team
    A cross-functional team is a group of people with different functional expertise working toward a common goal. It may include people from finance, marketing, operations, and human resources departments. Typically, it includes employees from all levels of an organization...

  • Group development
    Group development
    The goal of most research on group development is to learn why and how small groups change over time. To do this, researchers examine patterns of change and continuity in groups over time...

  • Leadership
    Leadership
    Leadership has been described as the “process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task". Other in-depth definitions of leadership have also emerged.-Theories:...

  • Management
    Management
    Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...

  • Management consulting
    Management consulting
    Management consulting indicates both the industry and practice of helping organizations improve their performance primarily through the analysis of existing organizational problems and development of plans for improvement....

  • Organization development
    Organization development
    Organization development is a new term which means a conceptual, organization-wide effort to increase an organization's effectiveness and viability...

  • Organizational culture
    Organizational culture
    Organizational culture is defined as “A pattern of shared basic assumptions invented, discovered, or developed by a given group as it learns to cope with its problems of external adaptation and internal integration" that have worked well enough to be considered valid and therefore, to be taught to...

  • Parent company
    Parent company
    A parent company is a company that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors; the second company being deemed as a subsidiary of the parent company...

  • Team building
    Team building
    Team building refers to a wide range of activities, presented to businesses, schools, sports teams, religious or nonprofit organizations designed for improving team performance...

  • Value network
    Value network
    A value network is a business analysis perspective that describes social and technical resources within and between businesses. The nodes in a value network represent people . The nodes are connected by interactions that represent tangible and intangible deliverables. These deliverables take the...

  • Text and Conversation Theory
    Text and conversation theory
    Text and conversation is a theory in the field of organizational communication illustrating how communication makes up an organization. In the theory's simplest explanation, an organization is created and defined by communication. communication “is” the organization and the organization exists...

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