Organizational Structure is the strategic manner by which organizations arrange (or rearrange) themselves. This is essentially important in determining how organizations plan on utilizing their resources, particularly their human resources. To do so efficiently, certain questions need to have precise answers such as the specific responsibilities of each individual within the organization, to whom exactly they report and most importantly the coordination process that is to be implemented to bring together all these people and processes simultaneously.
Bearing in mind that any framework followed needs to be consistent with the organizations main objectives, a formal channel defining the lines of authority from top to bottom (i.e. Hierarchy of Authority) is established which identifies clearly who is responsible for which personnel and/or tasks. Traditionally, the authority of decision-making has been a centralized process (i.e. directed to higher-level management), but with increasing challenges & innovation in recent times, many organizations now encourage a decentralized decision making model which gives its members the authority to make decisions without the need to consult their superiors. This has the advantage of producing a real-time response to problems by people who are specialized in that process while at the same time giving employees certain autonomy which creates a sense of job satisfaction and motivation. However this could lead to the undermining of upper management if not tackled properly.
There exist 2 primary dimensions to organizational structure:
- The Vertical Dimension relates to the hierarchy within a company by distinguishing the decision makers and people in charge. Such organizations are considered to have either a tall or a flat structure. It includes the Span of Control of these individuals, which refers to the number of people they are responsible for and in effect, those groups who report to a single manager (these differ in quantity based on the nature of the work, skill-sets available, organizational culture, management style and level of Formalization, i.e. documentation of processes, rules and regulations. Due to the high number or levels found in a Tall Structure (can exceed twelve), managers tend to have a Narrow Span of Control; where only 5 or 6 people report to any single supervisor. The converse holds for Flat Structures which have a Wide Span of Control; where up to 10 to 12 people could be reporting to a single manager, depending on the tasks involved. In short, the taller the structure, the more the Span of Control decreases.
- The Horizontal Dimension addresses the division and assignment of tasks and functions across various departments within the organization. Such organizations are considered to be either wide or narrow.
The structure that an organization adopts for itself is contingent upon a number of considerations like its products and services, the sort of customer base it caters to, the business strategy it employs and the management of different departments & processes. The most common organizational types can be classified as follows:
- The Functional Structure which is more in line with the Vertical Dimension is perhaps the most common structure in the business world due to its simplicity and ease. By this structure, organizations set up themselves into different departments with similar skill-sets, managed by someone who is an expert in that trade.
- The Divisional Structure is more concerned with utilizing people with similar abilities across the entire business, wherever the need may be. Thus such a structure lies within the Horizontal Dimension. Such divisions may be based on different product lines, consumer markets and even geographical markets.
- The Matrix Structure is an incorporation of both Functional and Divisional Structures, although interestingly, it operates like neither. The foundation of this structure is still functional; however different projects would require the pooling of these human resources from the various departments to serve their purpose. The project managers borrow their staff who are then involved in the project from start to finish. This is sometimes a challenge as there is a limited number of staff in each department and each project would have its own specific needs. However it is the most efficient of all organizational structures.
Culture is a complex yet powerful force present in any organization that encompasses its workers values, beliefs, attitudes, behavior and shared assumptions. It is the moral compass that guides individuals in their actions at an unconscious level in all aspects of its internal and external relationships. Organizational Culture can be identified by 4 basic types:
- Collaborative (Clan) Culture: This sort of culture is characterized by its open and friendly environment where people genuinely invest a lot of themselves in the work they do. A family system is at play where managers play parental and/or mentor figures. There is a great deal of focus on group coordination & consensus, and the organization’s belief is that its greatest assets are its workers.
- Create (Adhocracy) Culture: Entrepreneur and Innovative skills are highly valued in this culture with focus on individual initiative and freedom. The organization thrives by being market leader by continually introducing new products or services, hence their stress upon risk-taking measures and experimentation as a unifying quality. Long-term strategies focus on growth and acquiring new resources.
- Control (Hierarchy) Culture: Behavior is governed by a strict set of rules and policies in this setting. Formal structures intend on maintaining dependency and low cost of their product with workers being commended on their performance, efficiency and consistency. Leaders are required to be efficiency-conscious with ultimate goals of security and predictability.
- Compete (Market) Culture: This culture is perhaps the most cut-throat of all with worker competitiveness and goal oriented. Leaders need to be demanding, active and most importantly productive with the common unifying goal of success. The organization is in a constant battle to increase market share and penetration by providing competitive pricing and holding the position of market leader. Long-term focus is on achieving measurable goals and targets, and building a strong reputation.
It is important to understand that no one culture is better than the other. Each culture plays a critical role in an organization’s success so long as it is in sync with the organization’s goals. Recent studies conducted have shown that even within a single organization, there may exist multiple cultures (sub-cultures) besides the dominating one which once again should not be construed as a negative element. In fact many scholars believe the existence of sub-cultures to be a source of healthy competition and the driving force behind innovation within the industry. The understanding of organizational cultures is equally important for managers and owners not only to be aware of their employees needs but also in designing a workplace that complements such a culture.
Effects on Business
The relationship between Organizational Structures and Cultures is one that is not clearly distinguishable. In general, the structure is designed to exist within a particular culture, in effect, aiding the culture to run with the consistency and efficiency that would be the sign of a successful system. Thus, organizational structure is primarily concerned with the setup of the culture. Traditionally, certain cultures have been associated with certain structures and each of these setups have their benefits and disadvantages.
- Functional Structure + Control Culture: Since centralized decision making is prevalent here, top-management is in control of most aspects of the business. This could be beneficial if the management is highly skilled and there isn’t as much competence on the lower levels of the business but could be equally disastrous if such skills are in short supply in management. As a bonus, employees have the opportunity to learn a great deal from their seniors which could help in their career paths to take on decision making positions. Since this setup fosters stability and efficiency, there is better collaboration with similar processes per group while making use of the economies of scale. The biggest disadvantage here is of lack of communication not only between the different levels of the hierarchy but also between the different departments, leading to serious conflicts. This in turn affects each individual’s priority on goals which tend to be more department-focused than that of the organization as a whole. Customers are usually also affected by such systems where they are passed on from department to department regarding issues they might have.
- Divisional Structure + Create Culture: Since the structure is one which brings together different departments and the culture one in which individuals are encouraged to think innovatively, the result is a well-functioning unit with greater opportunities to learn about the different aspects of the business. In addition to better response time to customers issues due to greater accountability, the wider span of control helps in developing managerial and executive skills. The disadvantage here is of a great deal of duplication of tasks because of the different units with all departments in it performing the same function. This also spells out a reduction in specialization as well as a great deal of in-house competition between the different divisions of the business.
- Matrix Structure + Compete Culture: The efficiency of this model is extremely high due to the continuous utilization of highly skilled personnel from different departments on different projects. Since these sorts of projects depend on a vast amount of technical knowledge, individuals often have the authority to make critical decisions which also exposes others to a great amount of learning potential, even in scopes of fields beyond their own. Also departmental conflict is reduced due to the regular re-shuffling between projects , rather the competition is between different teams. Unfortunately it is because of these same hasty groupings that employees can tend to get frustrated and confused about their new functions and who they now report to. Also a great deal of time is wasted in meetings to decide on the allocation of these valuable human resources.
The above examples were just a few of many forms of different structures and cultures combined. It is important to note that for the specific needs of a particular business, some forms of combination of any 2 factors could serve them better than if the same set-up were used elsewhere. Numerous factors need to be taken into consideration before a decision is reached on which option is to be implemented, and it may also require the trial-testing of the different combinations practically before anything conclusive can be said in that regard.