Organizational structure refers to the way in which an organization’s activities are divided, grouped, and coordinated into relationships between managers and employees, managers and managers and employees and employees. An organization’s departments can be formally structured in three major ways: by function, byproduct/ market or in matrix form.
Functional Organization is perhaps the most logical and basic form of departmentalization. It is used mainly by smaller firms that offer a limited line of products because it makes efficient use of specialized resources. Another major advantage of a functional structure is that it makes supervision easier, since each manager must be expert in only a narrow range of skills. In addition, a functional structure makes it easier to mobilize specialized skills and bring them to bear where they are most needed.
As an organization grows, either by expanding geographically or by broadening its product line, some of the disadvantages of the functional structure begin to surface. Because functional managers have to report to central headquarters it can be difficult to get quick decisions. It is often harder to determine accountability and judge performance in a functional structure. If a new product fails, who is to blame research and development, production or marketing? Finally coordination the functions of members of the entire organizations may become a problem for top managers. Because members of each department may feel isolated from or superior to those in other departments, they may have difficulty working with others in a unified way to achieve the organization’s goals. For example, the manufacturing department may concentrate on meeting cost standards and delivery dates and neglect quality. As a result, the service department may be flooded with complaints. In short, a functional structure can be a difficult setting in which managers must coordinate employees’ activities.
Product / Market organization:
Product or market organization, often referred to as organization by division, brings together in one work unit all those involved in the production and marketing of a product or a related group of products, all those in a certain geographic area, or all those dealing with a certain type of customer. In the 1990 Hewlett-Packard reorganization, John Young replaced one kind of product organization with another kind of product organization.
Most large, multi-product companies such as General Motors have a product or market organization structure. At some point in an organization’s existence, sheer size and diversity of products make functional departments too unwieldy. When a company’s departments becomes too complex or coordinating the functional structure, top management will generally create semi-autonomous divisions. In each division, managers and employees design, produce and market their own products.
Organization by division has several advantages. Because all the activities, skills and expertise are required to produce and market particular products are grouped in one place under a single head, a whole job can more easily be coordinated and high work performance maintained. In addition both the quality and the speed of decision making are enhanced because decisions made at the divisional level are closer to the scene of action. At the same time, the burden on central management is eased because divisional managers have greater latitude to act. Perhaps most important, accountability is clear. The performance of divisional management can be measured in terms of the division’s profit or loss.
The matrix structure sometimes referred to as ‘multiple command system’ is a hybrid that attempts to combine the benefits of both types of designs while avoiding their drawbacks. An organization with a matrix structure has two types of structure existing simultaneously. Employees have in effect two bosses that is, they work in two chains of command. One chain of command is functional or divisional. The second is a horizontal overlay that combines people from various divisions or functional departments into a project or business team led by a project or group manager who is an expert in the team’s assigned area of specialization.