UNIT 13
ORGANIZATIONAL STRUCTURE
STRUCTURE
Overview
Learning Objectives
13.1 Concept of Organizational Structure
13.2 Importance of Organizational Structure
13.3 Types of Organizational Structures
Let us sum up
Check your progress
Glossary
Suggested Readings
Answer to Check Your Progress
OVERVIEW
An organization is a group of people working toward a common purpose
that develops and maintains relatively stable and predictable patterns of
behaviour. Organizations are usually described in terms of their
differences among the three aspects of complexity, formalization, and
centralization. The existence of policies, procedures, and rules that limit
member choices is referred to as formalization. The discretion and
freedom of action of members of a highly formalized organization are
constrained by the organizational arrangements. There is more flexibility
of action and decision in less formalized organizations. The distribution
of power and authority is referred to as centralization. Those in higher
positions in the centralized organization maintain power and influence.
Decisions, rights, and responsibility are delegated to the lower levels of
the organization in decentralized organizations. Two factors reflect the
combination of complexity, formalization, and centralization:
organizational structure and organizational culture.
LEARNING OBJECTIVES
After completing this unit, you will be able to:
• define the organizational structure
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• describe the importance of organizational structure
• discuss various types of organizational structures
13.1 CONCEPT OF ORGANIZATIONAL STRUCTURE
The "structure" of an organization is a network of horizontal and vertical
dimensions designed at achieving common goals. It is the system or
framework that allows people and facilities to work together to achieve
predefined objectives. The division, group, and coordination of tasks in
organizations are defined by the organizational structure. Every
organization has a structure that defines the roles and responsibilities of
its members so that everyone is aware of their responsibilities to the
group.
According to Pradeep N. Khandwalla, “organizational structure is the
formal or quasi-formal net-work of reporting or controlling relationships in
an organization and powers and duties associated with each role in this
net-work.”
According to George Terry “it is the establishing of effective authority
relationships among selected work, persons, and the work-places in
order for the group to work together effectively.”
According to Peter Drucker, organizational structure is an indispensable
means, and a wrong structure will seriously impair business
performance and may even destroy it. Organizational structure must be
so designed as to make possible the attainment of the objectives of the
business for five, ten or fifteen years hence.
In a nutshell, organizational structure refers to the relationship between
the responsibilities that each member of the organization performs,
which include:
i. Division of labour. The work must be divided and subdivided in such
a way that the subdivided components can be assigned to the person
who has special components for the task's performance. By doing so,
the organization implements the principles of specialization and
motivation, as well as the elements of efficiency, such as avoiding waste
caused by duplication and overlapping of efforts, and the principle of
control, which holds the person accountable for his own failings.
ii. Identify authority sources: Each person should act as a cog in the
organization's wheel. Everyone's efforts must be focused on the
organization's common goal. Power or authority stems from the
governed instinct of consent, superior physical strength, knowledge, or
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other influence, in addition to the authority-responsibility structure of a
formal organization.
iii. Relationship: Relationship types present a unified whole in every
organizational structure in order to achieve the organization's common
goal. These relationships can be official or informal, administrative or
operational, vertical, horizontal, or diagonal. Some may work on an
equal footing with others in this process, while others may be either
above or below them.
iv. Coordination: An organization's goal cannot be fulfilled without
coordination. It is the executive in charge of this crucial role who must
perform the function of direction. He must coordinate the work of the
individuals and groups so that the organization's goal is met as efficiently
as possible by avoiding waste while also ensuring that each individual's
ego is satisfied to the greatest extent possible.
13.2 IMPORTANCE OF ORGANIZATIONAL STRUCTURE
A strong organizational structure can help ensure the enterprise's long-
term existence and stability. The following points can help us better
understand the importance of organization and organizational structure:
1. Better operational efficiency: Structuring a company into teams
ensures that tasks and responsibilities are distributed clearly. This helps
the various divisions in achieving their objectives greater efficiency. They
have the ability to work fast and efficiently.
2. Quick decision making: Everyone knows what to anticipate when
responsibilities are clearly stated. Because everyone knows who is
responsible for what, the organization's overall communication is bound
to improve. Better information flow helps different teams to communicate
and collaborate, which improves decision making.
3. Improves performance: Feedback loops and performance reviews
can be implemented in organised teams. When everyone is given the
correct instruction, they are motivated to improve their performance. In a
structured organization, employees have more faith in their talents.
Improved productivity is a result of increased motivation and morale.
4. Eliminates duplication of work: An organizational structure
eliminates the possibility of responsibilities roles and activities. This is
due to the fact that teams are divided based on the skills and roles are
clearly defined, preventing two people from working on the same thing.
5. Reduces employee conflict: One of the most significant
advantages of organizational structures is the reduction of workplace
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conflict. When there are no overlapping roles and different teams work
independently employees try to attain clearly defined goals.
6. Facilitates administration: Planning, staffing, directing, and
controlling functions are all aided by a good organization. Inadequate
organization can result in duplication of effort and work, as well as the
omission of some important tasks. Through division of labour, consistent
delegation or description of tasks, and clarity of authority and
responsibility relationships, a healthy organization makes it easier to
perform various managerial functions.
7. Promotes growth and diversification: A well-designed
organization based on scientific principles can help to establish the
conditions for planned expansion and diversification.
8. Coordination: The importance of organization in establishing
coordination between the company's different departments cannot be
overstated. It helps to establish clear departmental relationships and to
place a balanced emphasis on various activities.
9. Optimal use of technological innovations: A sound organizational
structure is flexible enough to allow for technological improvements. It
makes it easier to implement changes in the firm by adjusting the power
and responsibility relationships in response to changes.
10. Optimal use of human resources: A good organization matches
people with jobs and vice versa. It guarantees that each person is
placed in the most appropriate position for them. This contributes to a
better usage of the company's employees.
11. Stimulates creative thinking: A clear demarcation of authority, a
broader range of responsibilities, discretionary freedom for employees,
and the rewards for specialized work, among other things, would
undoubtedly enhance the spirit of constructive and innovative thinking.
12. Training and development: Delegation of authority is a vital tool for
training and developing employees, and good organization makes it
easier to do so. This helps employees to be ready to take on greater
responsibility when the time comes.
13.3 TYPES OF ORGANIZATIONAL STRUCTURES
Every system in the world has a structure that governs its operation. A
company's overall culture is defined by its organizational structure.
Productivity, employee relations, and marketing strategies are all
influenced by organizational structure. It is important for a firm to
develop the most strategic organizational structure that will enable it to
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achieve its objectives successfully. One company's organizational
structure may differ from that of another. Let us take a look at some of
the most common organizational structures.
1. Line organization: In a line organization structure, power flows from
the top to the bottom of the organization, and there are no specialized
services or support. In small firms, line organization structure is the
simplest and most prevalent style of organization. Each department has
its own manager with power over its workers, and the organization is
normally organised into departments controlled and directed by a
general manager. The line organization structure embeds authority,
which flows in a direct path from the top of the management hierarchy
down through the various levels of managers and the subordinates, and
finally to the operational levels of workers.
2. Staff organization: The improved version of line organization is line
and staff organization. Functional specialists are added to the line and
staff organization, offering the line the advantages of specialists. The
staff is responsible for assisting the line members in achieving the goal.
This is the most common type of organization structure, especially
among large companies. Staff members are basically advisory in nature
and have little influence over the line managers. There are two types of
staff:
a. General staff: This staff works as an assistant to top management
and has a background that is similar to that of executives. They are not
experts and, in most cases, do not have any authority or duty of their
own. They are known as special assistants, assistant managers, or
deputy chairpersons at colleges.
b. Specialized staff: Unlike general staff, who often support only one
line manager, specialist staff gives expert advice and services to all
employees within the organization. This staff has specialized knowledge
in specific functional areas and could serve in the following roles:
i. Advisory capacity: This staff's major goal is to give management with
expert advice and help as needed. Law, public relations, and economic
development are some of the common fields addressed by the advisory
staff.
ii. Service capacity: This staff serves the organization as a whole, not
just a particular division or function. The personnel department, for
example, is at the service of the company by obtaining the necessary
staff for all departments. Research and development, purchasing,
statistical analysis, insurance issues, and other services are available.
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iii. Control capacity: Quality control staff who may have the authority to
control quality and enforce standards are included in this category.
3. Functional organization: The organization is divided into groups by
tasks, responsibilities, or expertise in a functional structure. A functional
organization might be advantageous since departments can be confident
that their employees have the necessary skills and knowledge to fulfil
their objectives. Functional organizations are a larger scale version of
functional departments, with separate hierarchies for each function. The
basis for grouping jobs that are related to the same organizational
function or a specialized expertise, such as marketing, finance, or
production, is functional departmentalization. Due to the engagement of
specialists in each functional area and the allocation of resources by
function rather than being duplicated or scattered across, the functional
structure increases operational efficiency as well as product quality. One
of the drawbacks of the functional structure is that it emphasizes narrow
specialization rather than general managerial skills, resulting in
functional managers who are unprepared for leadership roles.
Furthermore, business units may be so focused on their particular areas
that they are less receptive to the demands of the entire firm.
4. Committee organization: A committee is a group of people who
work together. The committee, not an individual, makes all of the
decisions. Members of the committee have the same decision-making
authority. The fact that there is a committee for each function or
department distinguishes committee organization. The advantages of
the committee structure are: a. balanced decisions; b. greater
coordination; c. involvement of multiple interest groups; d. less fear of
authority centralization; e. improved motivation; f. management
development technique; g. reduced conflict; h. flexible form; i.
managerial strategy tool; and j. appropriate for strategic decisions
5. Divisional organization: People or activities with similar qualities are
grouped together into a single division or unit in a divisional organization.
These divisions, also known as self-contained structures, operate as if
they were small organizations within a larger organization, achieving
divisional goals as set forth by organizational policies and plans.
Organizations are divided into divisions based on specialized products,
services, or geographic locations under a divisional structure. A large
software company, for example, might divide its workforce by product
category. A cloud software division, an enterprise software division, and
a personal computer software division are all present. Decentralized
decision-making allows divisions to direct their own activities. This
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improves communication, coordination, and control, all of which
contribute to the organization's success. Furthermore, because the units
are self-contained and semi-autonomous, the managers are satisfied,
which improves effectiveness and efficiency. The following criteria are
used to classify this division and concentration of related activity into
integrated units:
a. Departmentalization by product: The units are formed according to
the type of product in this case, which is more effective in multi-line
organizations where product expansion and diversification, as well as
manufacturing and marketing features, are the primary considerations.
b. Departmentalization by customers: Organizations that deal
differently with different types of customers use this type of
departmentalization. Thus, the key to business consolidation is
customers. Customers who deposit a specified amount of money with
the bank for a certain period of time receive priority services from
several banks. Similarly, business customers are given priority at banks
over non-business customers.
c. Departmentalization by area: A geographic division can be used if
an organization serves different geographic locations. Large,
geographically spread enterprises, such as banks, insurance,
department store chains, or a nationally distributed product, benefit
greatly from these divisions.
d. Departmentalization by time: Hospitals and utility companies that
operate 24 hours a day, such as telephone companies, are frequently
divided into departments depending on time shifts. For example, a
telephone company may have a day shift, an evening shift, and a night
shift, each with its own department, despite the fact that they all serve
the same purpose.
6. Project organization: They are temporary organizational structures
that are formed for specific tasks for a specific period and then
dismantled after the goal is met. A company's purpose, for example,
could be to develop a new automobile. Specialists from the many
functional departments will work together on this project. These
structures are very useful when:
1. The project is clearly defined in terms of the goals to be attained,
and a deadline for completion is set. The project to build a new
airport is one example.
2. The project is distinct and unique from the organization's
everyday work routine.
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3. Different types of activities requiring different skills and
specializations must be coordinated to reach the desired goal.
4. The project must be temporary in nature and not extend with
other projects.
7. Matrix organization: In some ways, a matrix structure is a
combination and interaction of project and functional structures, and it is
suggested to solve problems associated with project and functional
structures separately. Employees with similar talents are placed together
and report to many managers in the matrix organizational structure,
which resembles a grid. This usually includes a functional manager who
monitors projects and their progress, as well as a product manager who
is in charge of the company's product strategy and success. Large
multinational corporations commonly employ the matrix structure, which
encourages departments to share talents and expertise in order to
achieve goals. Functional and project lines of authority overlap and are
shared by functional and project managers, which is one of the major
characteristics of a matrix structure. The functional structure is primarily
responsible for: 1. giving project technical guidance; 2. providing highly
skilled and specialized functional staff; and 3. completing the project
according to the technical specifications.
LET US SUM UP
The established pattern of relationships between components or parts of
an organization is known as organizational structure. It describes the
relationships between the company's various positions and activities. It
is primarily concerned with the proper delegation of authorities as well as
the distribution of various tasks and activities. Many firms choose an
organizational structure that best suits their size and the business goals
to keep operations running smoothly. Organizational structure helps
employees in understanding their responsibilities and roles, as well as
guiding goal setting. In this unit, we outline seven common types of
organizational structures, as well as their benefits and drawbacks, to
assist you in selecting the best one for your company.
CHECK YOUR PROGRESS
Choose the correct answer
1. The relationships between organizational units and lines of authority
are depicted by organizational _________.
a. Charts b. Channels
c. Structures d. Paradigm
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2. Military organization is also known as ___________.
a. Line organization b. Functional organization
c. Line and staff organization d. None of the above
3. What organizational structure do major steel plants typically follow?
a. Line organization b. Functional Organization
c. Line and staff organization d. All of the above
4. Departmentation is a process in which ___________
a. Tasks are grouped into jobs
b. Jobs are grouped into effective work groups
c. Work groups are grouped into identifiable segments
d. All of the above
5. Which organizational structure features specialization?
a. Matrix b. Divisional
c. Multi-divisional d. Functional
GLOSSARY
Organizational : The way activities like task assignment,
structure coordination, and supervision are oriented
toward the attainment of organizational goals
is defined by the organizational structure.
Hierarchical : It is the basic framework of the entire
organization company. It denotes a direct vertical
relationship in which power is transferred.
Departmentalization : It is the process of organizing jobs into
departments and sub-departments and
delegating authority for task completion in
order to increase efficiency and coordination
in a firm.
Matrix organization : A matrix organization is one in which line
managers are organised along many lines. In
practice, this means that the organization's
employees have more than one boss.
Hierarchy : It is a system that places individuals or things
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to different levels or ranks based on their
importance.
SUGGESTED READINGS
1. Aswathappa, K. Organizational Behaviour. New Delhi: Himalaya
Publishing House.
2. Mishra, M.N. Organizational Behaviour. New Delhi: Vikas Publishing
House.
3. Prasad, L.M. Organizational Behaviour. New Delhi: Sultan Chand &
Sons.
4. Stephen P. Robbins., Timothy A. Judge., and Neharika Vohra.
Organizational Behavior. New Delhi: Pearson Education India.
5. Uma Sekaran. Organizational Behaviour: Text & Cases. New Delhi:
Tata McGraw Hill.
WEB RESOURCES
1. Types of Organizational Structure | 7 Types | Explained | Learn It
In Tamil | தமிழ் - YouTube
2. Organizational Structure|Formal & Informal|Tamil|Sakthi's
Knowledge Hub|SKH Knowledge Hub|SKH - Bing video
3. Organization Structure - Organizational Behavior 2 - Bing video
4. Organization Structure 1 - Organizational Behavior - YouTube
ANSWER TO CHECK YOUR PROGRESS
1.c 2.a 3.c 4.d 5.d
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