Organizations, like ships at sea, need a clear design, hierarchy, and well-defined processes to navigate sometimes challenging waters and reach their destinations safely. Ships have different classes to meet different needs—shipping barges, transport vessels, etc.—but they share the need for a clear chain of command and detailed, enforced policies to ensure the vessel is operating at peak safety and efficiency. This is also true of businesses, which have different sizes and types of organizational structure, but share a need for transparent and effective policies and hierarchies in order to reach their goals. Show
By understanding how common types of organizational structures are implemented, how they support the organizations using them, and the challenges and advantages they bring, you can decide which is right for your business and begin working toward meeting your goals for greater efficiency, competitive strength, profitability, and more. What are the Common Types of Organizational Structure?Every organizational structure is, at its heart, a diagram describing:
These org charts can be either mechanistic—i.e., highly centralized, specialized, and formalized bureaucratic structures with narrow, rigid parameters for control, roles, and authority—or organic—i.e., decentralized, loosely departmentalized structures with minimal specialization and an emphasis on performance and capabilities rather than prescribed roles and functions. As a rule, mechanistic org charts work well for policy-driven, high-accountability purposes, but can hamper creativity with their strict controls and rigidity. Organic structures are ideal for startups, small businesses looking to build their brand, and larger companies that need very high flexibility and adaptability to meet changing consumer expectations, market conditions, or competitive challenges. From small businesses to large organizations like global megacorporations, companies across the globe generally rely on four different types of organizational structures in the mechanistic model: Functional, Divisional, Matrix, and Hybrid. Functional structures are those in which team members are grouped into departments based on their shared skill sets, specializations, accountabilities, and goals. Communication and decision making are improved by both physical proximity and sharing of tools and information. Examples of functional structure include information technology (IT) and accounting-based organizations. Divisional structures focus their attention and activities around specific groups (e.g., markets, goods and services, customer demographics, etc.). This type of organizational chart allows teams to collaborate on broad, shared organizational goals while maintaining a primary focus on their respective, specific goals. Examples of divisional structure include geographical (e.g., teams develop similar products with localized customizations for different markets) and product-based (e.g., different divisions all focus on a specific product within a broader product line). Matrix structures combine functional structures with divisional structures in a grid arrangement that combines vertical functions (e.g., organizational roles and titles) with horizontal divisions (e.g., directors of various product lines, projects, etc.). A matrix organization decentralizes decision-making and provides teams with increased autonomy while simultaneously improving cross-functional collaboration to boost overall productivity and encourage innovative approaches to problem solving. Hybrid structures are similar to matrix structures, but eschew the grid-style org chart in favor of a hierarchical arrangement where business activities can serve either functional or divisional purposes. This popular approach allows for collaborative sharing of data and resources while preserving division-specific specializations. While the “big four” may be the most common, companies around the world also use four other other types of organizational structure which are more organic in nature: Process, Circular, Flat, and Network. Process structures concentrate on end-to-end workflows for specific processes. Their procedures and policies seek to optimize the business activities performed by tracking how each different business activity interacts with the others within the hierarchy, as well as how each specific process itself is conducted. This improves adaptability and flexibility to meet changing demand and market conditions. Circular structures are hierarchical, but rather than a straight ladder arrangement or pyramid, they place high-level employees and leaders at the center and inner rings of a circle and lower-level staff at the outer rings. This structure is intended to encourage dissemination of information and inspiration from the center and allow different divisions to participate as components of a single whole. Flat structures also move away from traditional hierarchy, with a more organic and detailed approach that doesn’t take any one shape. Instead, they work to minimize authoritative distance between functions and roles by limiting levels of management. In flat structures, management and executive staff take a more collaborative rather than supervisory role, working and communicating closely with team members and project managers. Network structures are a bit different compared to their peers, as they are generally used when an organization collaborates and shares resources with another. This could take the form of two companies working together, or a large organization with multiple divisions located in various places and with their own leadership and procedures. Network structures are similar to divisional structures, but instead of product lines or target demographics, they might sort their business activities and roles around specific outsourced services or partnered organizations.
Pros and Cons of Each Type of Organizational StructureWhile there’s no one “right” kind of structure to build a successful business, every business needs an organizational chart if they plan to operate with efficiency, expect accountability, and compete effectively. Choosing the right organizational structure for your own company begins with understanding the pros and cons of each org chart and how they affect a company’s business activities. Functional Organizational StructuresPros:
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Divisional Organizational StructuresPros:
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Matrix Organizational StructuresPros:
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Hybrid Organizational StructuresPros:
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Process Organizational StructuresPros:
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Circular Organizational StructuresPros:
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Flat Organizational StructuresPros:
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Network Organizational StructuresPros:
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Effective Data Management is Essential to All Organizational StructuresRegardless of which org chart provides the foundation for your company’s business activities, one of the most effective tools you can use to ensure your structure is a successful one is a comprehensive software solution that features data management tools as well as next-gen tech like automation, artificial intelligence, and advanced analytics. Choosing a cloud-based, purpose-built solution like PLANERGY gives you the ability to centralize your data management, automate high-volume processes, and access, analyze, and use your data in real time. With complete and accurate information and intuitive dashboards, you can set budgets, forecast financials, and generate reports on demand. You’ll also be able to set KPIs for compliance, performance, and spend, track essential business processes, and make continuous improvement a core component of all your workflows. And whether your organizational structure is centralized or decentralized, standardizing your workflows and sharing a single datasphere will ensure everyone’s working toward the same goals and following the policies you’ve set for your business. Both Large and Small Businesses Benefit from Effective Organization StructuresA business attempting to navigate the seas of commerce without an effective organizational structure will soon find itself adrift in unfriendly waters. Choosing the best org chart for your business will help you monitor and improve your business activities, and ensure everyone on your team is communicating and collaborating effectively to help you achieve your goals for growth, profitability, and competitive performance. Which of the following types of structure combines the functional and divisional structures?Matrix Structure
Matrix Structure is a combination of functional and divisional structures. This structure allows decentralized decision making, greater autonomy, more inter-departmental interactions, and thus greater productivity and innovation.
What is the two boss system?In these organizational structures, you typically have two bosses: a “straight-line” direct boss, who is the person who prepares your performance review and decides on your raise; and a “dotted-line” boss, who may also assign you work but has less control over your review.
What is the main purpose of organizing as a management function?The purpose of organizing is to distribute the resources and delegate tasks to personnel to achieve the goals established in the planning stage. Managers may need to work with other departments of the organization, such as finance and human resources, to organize the budget and staffing.
What is a major advantage of the functional type of organization quiz?The functional organisation refers to the organisation formed by grouping of jobs of similar nature under major functions and organising these functions as separate departments such as human resource, finance etc, and it leads to simplicity in the working process. Was this answer helpful?
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