An organizational structure can help a business operate more effectively. A company’s organizational structure describes how it sets up its employees and jobs to achieve its objectives. Organizational structures should promote productivity, foster a positive work environment, and enable teams to collaborate and perform well as a unit. A business should explain the concepts of organizational structure to its staff after you have created your org chart. Organizational structures enable businesses to maintain efficiency and focus. In this article, we define organizational structures and discuss their various types, functions, and advantages.
Company Structure
An organizational structure is a framework that specifies how to carry out specific tasks to meet the objectives of an organization. These activities may include guidelines, job descriptions, and accountability. An organizational structure also governs how to transfer information between levels of the organization . An organization’s human resources are systematically arranged according to its organizational structure (OS) to accomplish shared business goals. It outlines each employee’s roles and responsibilities so as to share work and information easily, ensuring an organization’s efficient operation.
It guarantees effective operation by outlining the organization’s hierarchy and workflow. Work design, departmentalization, delegation, hierarchy, and management ratio are the essential components of an organizational structure.
Centralized Organizational Structure
In this system, the highest level of management has complete discretion over all decisions. They take the form of a pyramid, with the decision-making authority resting with the executive team or leader at the top. They are below department managers, who oversee supervisors. Leading the lowest rung of the hierarchy of workers are these supervisors.
When operational units are confronted with competing objectives and strategic goals, a centralized OS structure ensures policy uniformity. Additionally, it facilitates decision-making more quickly. In the retail sector, this kind of OS is common.
Decentralization or Decentralized Organizational Structure
In this organizational structure, middle- and lower-level managers make decisions under regional customs or legal requirements. The top management can now concentrate on making crucial decisions. Using this OS, company structure organization flattens the hierarchy and gives employees more power.
Company Structure Organization
An organizational structure is the arrangement of resources at various levels according to their roles, levels of authority, and positions. It enables departments across a business to communicate, plan, and collaborate to accomplish corporate objectives.
A company creates an organizational structure to guarantee that the best candidates with the necessary skill set occupy each position within the organization. The OS reveals each role’s responsibility and power.
Type of Company Structure
#1. Functional Structure
It divides a company according to the level of employee specialization, which you can also refer to as bureaucratic organizational structure. Most small-to-medium-sized companies use a functional structure. Using a bureaucratic organizational structure entails dividing the company into departments that include marketing, sales, and operations.
The fixed set of departments created by the functional organizational structure is based on specific functions like human resources, accounting, marketing, etc. Depending on what each department needs, it divides the workforce into different groups. Furthermore, the functional organizational system (OS) enables employees to focus on a specific functional role without worrying about other departments.
Advantages of a Functional Structure:
- It supports the growth of specialized roles among employees.
- It increases the inventiveness and independence of specific departments and employees.
- It easily scales to fit all sizes of businesses.
Disadvantages of a Functional Structure:
- It discourages interaction and communication between various departments.
- It keeps important information about the strategies and operations of the department from workers in other departments.
#2. Hierarchical Structure
This is an example of a centralized organizational structure. Leaders are at the top of the organizational structure, followed by employees, and supervisors are in the middle to facilitate work. It is more of a linear OS where the top management delegates authority. It is a very popular OS variant.
In this system, there is centralization of decision-making process at the top. As a result of the lengthy process necessary for innovative ideas to rise through the ranks of management, the organization suffers from a lack of creativity. Additionally, each employee’s only channels of communication are their direct superior and their subordinates. This lessens coordination between various departments and tiers of authority.
Advantages of a Hierarchical Structure:
- It outlines the project organization, reporting structures, and authority structures in detail.
- It explains the corporate ladder and promotion system for your business, which promotes high-caliber work.
- Specialization of each employee’s work is beneficial.
- It helps team members within a team develop stronger relationships.
Drawbacks of Choosing a Hierarchical Structure:
- Administrative obstacles may cause projects to take longer to complete and may deter workers from taking chances.
- This structure encourages employees to put the needs of their divisions and immediate managers ahead of those of the entire business.
- It can give workers the impression that they have no control over how to approach their projects.
#3. Divisional or Multidivisional Structure
Large corporations with numerous business units frequently fall under the second category. A business that employs this technique organizes its leadership team according to the products, projects, or subsidiaries it manages. Businesses refer to this structure as the divisional or multidivisional (M-Form) structure. When a business has experienced exponential growth to become a titan in its industry, this type of organizational structure is necessary.
There will be separate teams for sales, marketing, human resources, and information technology in each division. The business could control the line of products in this way.
Advantages of a Divisional Structure:
- The various departments have some latitude to run independently from the rest of the business.
- It is more capable of meeting customer demands.
- There is more freedom for innovation within each department.
Disadvantages of a Divisional Structure:
- It could result in unintentional resource duplication.
- It promotes ineffective communication and little interaction between the various departments.
- Instead of bringing the company together to face off against external competitors, it promotes internal competition among departments.
#4. Flat (Flatarchy) Structure
A relatively recent concept, flatarchy—also referred to as a horizontal structure—is popular among startups. The hierarchy and chain of command is flat, as the name implies, and the staff have a lot of autonomy. Businesses implement this kind of organizational structure quickly.
There is no hierarchy in this system of administration. The staff is not under any orders or supervision. Instead, choices are made throughout the management hierarchy. As a result, small businesses with few employees or brand-new startups employ this type of structure. But as a company grows and matures, some level of hierarchy gradually seeps in; otherwise, it could lead to chaos and inefficiency.
An organization can form specialized teams using flatarchy to handle the creation of new goods and services more effectively and creatively. It is the best tool an organization has to deal with shifting market or industry sentiments without having to create expensive departments or overhaul the operating system. It is a transient form of organizational system that only exists when a business develops a new product, test a new service, or when a business aims to create a new type of customer support system.
Advantages of a Flat Structure:
- Employees are more independent and responsible.
- It enhances employee interaction and communication.
- Businesses initiate new procedures or concepts quickly.
Disadvantages of a Flat Structure:
- Improper supervision of workers.
- The reporting processes may be unclear.
- Workers lack or fail to acquire specialized skills.
- As the business expands, it is not easily scalable.
#5. Matrix Structure
Matrix structures are another option for businesses. Moreover, it is the least used and most ambiguous. Employees in this structure are matriculated among various departments, divisions, and superiors. In a matrixed organization, for instance, a worker might be responsible for both customer service and sales.
Under this organizational structure, there is no clear demarcation of roles and responsibilities of resources. The management share resources across different teams to ensure their maximum utilization. It is the least used organizational structure as it is quite complex and confusing and may prove counter-productive.
In this OS, the workers must perform two roles. For instance, the customer service representative doubles as the cashier in many banks. Although it might lower operating costs, it harms employee productivity and the effectiveness of the company. This type of decentralized organizational structure
Advantages of a Matrix Organization:
- The choice of the best workers for a project is flexible for supervisors.
- It enables an organizational structure that changes depending on the needs of the workforce.
- Employees have the chance to develop skills outside of their core responsibilities.
Disadvantages of a Matrix Organization:
- Project organization requirements and department organization requirements may conflict.
- The organizational structure is subject to frequent modifications.
#6. Circular Structure
Despite being hierarchical, circular structures refer to as such because they place higher-level staff members and managers in the center of the business, with concentric rings expanding outward to house lower-level staff members. The goal of this organizational structure is to promote honest dialogue and teamwork among the various ranks. While a circular structure is still centralized and hierarchical, responsibility and decision-making power are distributed outward from the center rather than downward. Although a circular organizational structure can encourage communication and teamwork, it can also be perplexing, especially for new hires, because there is no obvious chain of command.
Benefits of A Company Structure
An ideal Organizational Structure helps in the efficient operation of a company. Some of the benefits of OS are as follows
#1. Swift Decision-Making Possible
The organizational structure facilitates information transfer between management levels with ease. It facilitates making decisions quickly. The effectiveness of communication between your company’s various teams will have a positive impact on communication throughout the entire organization. As a result, there is quick decisions making. In other words, using an organizational structure and information flow can encourage making decisions more quickly.
#2. Better Operational Efficiency
Organizational structures help to make it easier to complete all duties and tasks that are unique to those divisions by dividing businesses into various teams or branches. A worker is quicker and more effective when they are aware of what they are supposed to be doing. In essence, a structured approach results in a streamlined and effective system that enhances business operations as a whole.
#3. Coordination Between Different Geographical Divisions of a Company
OS encourages simple organization management and multi-location operation. To ensure the achievement of shared organizational goals, better coordination between various units at various locations is made possible by a clearly defined OS. An organizational structure can help a business owner make sure that all of their locations run similarly and adhere to the same rules. Owners can not be everywhere, so having a well-organized structure can give you some peace of mind. This is especially true as your business starts to expand.
#4. Increased Productivity of Employees
A worker is better able to perform their duties at work when they have specific tasks and responsibilities. The direction needed for employees to perform at their highest level every day is provided by a well-organized structure. Increased confidence and morale among staff members can result from a better work ethic.
#5. Increases Effectiveness and Output
OS raises productivity because employees are more aware of their responsibilities and supervisors are more aware of what to expect from their staff. As a result, productivity as a whole is increased.
#6. Employee Empowerment
When employees are given roles and responsibilities that are appropriate for their skill level, they learn and improve. OS helps them feel more confident and independent as a result.
#7. Better Communication Among Members
OS fosters effective communication among management, supervisors, and employees. This encourages the efficient flow of information and labor. An organizational hierarchy has the potential to encourage effective communication between various divisions and teams, although this will vary from company to company and depend on the specific organizational structure in place. Others at work will be aware of whom to contact for specific issues once duties are assigned to various teams and individuals.
#8. Eliminates Duplication of Work
The risk of duplication of work is eliminated when employees are organized into teams based on their skills and expertise. For instance, if a project is given to one team, the other teams are aware that they are not required to take it on since they have their tasks set forth as well.
#9. Fewer Workplace Disputes
Using organizational structures may help to resolve employee conflict. Even though several variables may be at play in this situation, an employee will be more focused on their work once they are aware of their responsibilities. Most of the time, doing this is a great way to head off any potential workplace conflict.
Importance of Company Culture
Setting up an organizational structure can be very advantageous for a business. The organization’s hierarchy is defined by the structure, which also enables the business to specify the pay scale for its staff. Additionally, the structure greatly improves operations’ effectiveness and efficiency. The business can handle multiple tasks at once by organizing its personnel and job duties into distinct departments.
Additionally, a very clear organizational structure informs workers on how to complete their tasks in the best way possible. Every business needs an organizational structure because it promotes uniformity in function and management throughout the organization. It enables more effective coordination between different divisions and aids in managing the workforce effectively. Additionally, a well-organized system helps the business better meet customer needs and increase revenue.
What Is a Structure of a Company?
A company’s organizational structure describes how activities are planned and carried out to meet objectives. The norm for these events is to cover the company’s policies as well as the employees’ jobs and responsibilities. A company’s or organization’s structure establishes the hierarchy. The organizational structure of a company acts as the basis or platform for deciding how information flows between the different levels of management, depending on how it is coordinated and by whom.
What Are the 4 Types of Organizational Structures?
The four fundamental types of organizational structures are flat, divisional, matrix, and functional.
- Functional: Teams within your business are divided by functional organizational structures according to job duties and functions.
- Divisional: Teams are organized into divisions based on products, markets, or regions, with more compact organizational structures for each division of your company.
- Matrix: The teams in your company are divided into sections by matrix organizational structures, and each section has two teams that it reports to in addition to the C-Suite.
- Flat: Because middle management is not present and individual contributors are kept as close as possible to the leadership, a flat organizational structure minimizes hierarchy.
What Is a Good Structure for a Company?
Better communication and faster growth are both possible when your company is well-structured and operating at its peak. Organizational structures most frequently take the form of hierarchical structures, also referred to as line organizations. The chain of command that likely comes to mind when you think of any company is as follows: Power is transferred from top to bottom within the organization, from the board of directors to the CEO.
Depending on your team size, company type, and product offerings, your business will have a different optimal organizational structure.
What Is the 5 Organizational Structure?
- Hierarchical structure.
- Functional structure.
- Horizontal or flat structure.
- Divisional structures
- Matrix structure
How Do I Structure My Company?
Businesses assess their current workforce and teams to determine their organizational structure before carefully integrating the structure they have chosen with their business strategy, employee feedback, and leadership objectives. To create an organizational structure from scratch, follow these steps.
- Examine the teams and roles in your company.
- Develop a business plan
- Obtain input from current workers
- Obtain suggestions from other executives
- Organize your business following your company’s strategy and the input of your workforce and leaders.
- Make an organizational chart.
Conclusion
An organizational structure outlines how specific tasks are assigned to accomplish a particular objective. It outlines an employee’s role and various responsibilities within a company. Employees will move up the organizational hierarchy as their authority increases. Additionally, a company runs more effectively the better organized its structure is. Every business needs a solid organizational structure because it fosters consistency in function and management across the entire enterprise. It enables more effective workforce management and improved coordination between various departments. Additionally, a well-organized structure aids in meeting customer needs and raises revenue for the business.
A successful business must have an organizational structure because it increases productivity and efficiency, fosters communication, pinpoints business requirements, and unites employees with company objectives. It directly impacts how a business runs daily. When a business creates a solid organizational structure, the combined efforts of its staff, in conjunction with its systems and procedures, enable the business to make better decisions for the future.
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