An organizational structure defines task completion rules to meet company goals, enhancing productivity and information flow. Different structures, like matrix and functional, suit various business needs and cultures.
By Brad Nakase, Attorney
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An organizational structure is a set of rules that outline how particular tasks are to be completed to achieve the objectives of the organization. Rules, duties, and commitments may be a part of these activities.
The company’s information flow across levels is also determined by the structure of the organization. For instance, choices are made at the management tier of an organization under a decentralized structure, but decisions under a centralized structure are made at the bottom level. Organizations can stay focused and productive when they have an established organizational structure.
Important Points
Organizational structures are used extensively by companies of all sizes. In an organization, they specify a particular hierarchy. An effective organizational structure outlines the responsibilities of each worker and how they fit into the scheme as a whole. In other words, it establishes who is responsible for what in order to help the business achieve its goals.
An organization can see how it is structured and how to best go toward accomplishing its objectives by using this structuring. The most influential members of the company are typically positioned at the top of a pyramid-shaped diagram or chart that depicts organizational structures, with the least powerful people at the base.
For some companies, it could be challenging to operate without a formal structure. Employees could find it confusing as to who they should report to, for example. Uncertainty over who is in charge of what within the company may result from that.
Establishing a framework can boost productivity and offer clarity to all parties involved. Since they will probably be more time and energy-conscious, this also implies that each division can increase performance.
A structure for an organization might be decentralized or centralized. Organizational structures have often included a clear line of command and centralized leadership. A well-known organizational feature of the armed forces is its extremely centralized hierarchy of leaders and followers. Each function in a centralized structure has extremely defined responsibilities, and roles below it automatically follow the direction of their higher-ups.
Decentralized companies have become more prevalent, as is the situation with many software startups. With practically every employee having a high degree of personal agency, this enables businesses to stay quick, nimble, and flexible. As an illustration, Johnson & Johnson is a business well-known for its decentralized organizational structure.
Every one of the company’s 200+ brands and business units which operate independently in occasionally highly disparate industries, functions independently. Naturally occurring hierarchies nevertheless exist in decentralized organizations (e.g., the COO works at an elevated position rather than a junior associate). Teams are, nevertheless, free to decide for themselves and reach the best solution without always needing “permission” from higher authority.
1. Functional Organizational Structure
In the actual world, there are four main kinds of organizational systems in use. The first kind of structure is the most typical one: functional. This organizational structure, which divides a corporation according to the areas of expertise of its personnel, is also known as a bureaucratic one. A functional structure is used by the majority of small-to-medium-sized organizations. Using an organizational design that is bureaucratic entails dividing the company into departments that include sales, marketing, and operations.
2. Multidivisional or Divisional Organizational Structure
Large corporations with numerous business divisions typically have the second kind. This system, known as the divisional/multidivisional arrangement, is used by businesses to organize their leadership team according to the projects, products, and subsidiaries that they manage. Johnson & Johnson is a prime example of this organizational design. The corporation organizes itself so that each of its hundreds of products and business segments functions as a separate entity with a president of their own.
Along with expertise, divisions can also be defined geographically. As an illustration, a multinational company might have divisions in Europe and North America.
3. Team-Based
In team-based businesses, workers are grouped into cohesive groups to serve certain functions and goals, much like in functional or divisional structures. However, every team is a unit made up of workers and leaders.
4. Flat Structure (Flatarchy)
A horizontal arrangement, or flatarchy, is more recent and is employed by numerous startups. It settles the structure of authority and hierarchy and grants its staff members a great deal of autonomy, as its title suggests. Employers with this kind of structure execute changes quickly.
5. Matrix Structure
A matrix system is another option for businesses. It also happens to be the least utilized and most perplexing. Employees in this structure are matrixed among various departments, divisions, and superiors. A worker in a matrixed organization, for instance, might be responsible for both customer service and sales tasks.
6. Circular Structure
Despite being hierarchical, circular structures are named thus because they arrange managers and higher-level staff in the heart of the company, with concentric rings extending outward to house lower-level staff members. The goal of this organizational structure is to promote cooperation and candid communication among the various tiers.
7. Network Structure
In order to perform specific essential tasks, contractors and outside vendors are arranged according to a network arrangement. Its branches are spread regionally, and its relatively tiny headquarters is combined with important activities that are contracted out to outside companies and advisors.
A corporation can get great benefits from instituting an organizational structure. A company’s layout not only establishes its levels of authority but also lets it choose how much each employee will be paid. The company can determine pay grades and levels for all positions by implementing the organizational structure.
Operations are also far more effective and efficient because of the structure. The organization can efficiently carry out several tasks at once by dividing workers and responsibilities into several departments.
Furthermore, personnel are better informed about how to complete their tasks when there is an unambiguous organizational structure. Employees will need to put in more effort, for instance, to win over those with the power to make decisions or buy favors in a hierarchical firm. Employees in an organization with decentralized structures need to be more proactive and inventive problem solvers. In addition to helping employees monitor their personal development within the organization and highlight a particular set of talents, this may also assist prospective employees in determining whether the business would be a suitable fit for their tastes and working styles.
There are four different kinds of organizational structures: flat, matrix, multi-divisional, and functional. Other types of structures are network, team-based, and circular.
An organizational structure’s essential components include rules, roles, duties, and the information flow between various levels within the business, as well as how specific operations are directed to meet the organization’s objectives.
A decentralized structure is a representation of an organizational structure that allows for significant levels of autonomy for people and teams without requiring regular approval of business decisions by a core team. Johnson & Johnson is an exemplary example of a decentralized organization. The company organizes its thousands of goods and business lines so that every business unit has its own president and runs as a separate entity.
The most influential members of the company are typically positioned at the very top of a pyramid-shaped chart or diagram that depicts organizational structures, with the least powerful people at the base.
Since it varies depending on the type of business and the sector that it serves, there is no single ideal organizational structure.
The optimization and optimal structuring of organizations to achieve maximum productivity and effectiveness has given rise to entire academic disciplines. When choosing the right kind of structure for their company, executives should take into account a number of aspects, such as the industry, corporate culture, and business goals.
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