24 Aug ORGANIZATIONAL STRUCTURE PART TWO
Functional structure
A functional organizational structure is a structure that consists of activities such as coordination, supervision and task allocation. The organizational structure determines how the organization performs or operates. The term organizational structure refers to how the people in an organization are grouped and to whom they report. One traditional way of organizing people is by function. Some common functions within an organization include production, marketing, human resources, and accounting.
This organizing of specialization leads to operational efficiency where employees become specialists within their own realm of expertise. The most typical problem with a functional organizational structure is however that communication within the company can be rather rigid, making the organization slow and inflexible. Therefore, lateral communication between functions become very important, so that information is disseminated, not only vertically, but also horizontally within the organization. Communication in organizations with functional organizational structures can be rigid because of the standardized ways of operation and the high degree of formalization.
As a whole, a functional organization is best suited as a producer of standardized goods and services at large volume and low cost. Coordination and specialization of tasks are centralized in a functional structure, which makes producing a limited amount of products or services efficient and predictable. Moreover, efficiencies can further be realized as functional organizations integrate their activities vertically so that products are sold and distributed quickly and at low cost.
For instance, a small business could make components used in production of its products instead of buying them.
Even though functional units often perform with a high level of efficiency, their level of cooperation with each other is sometimes compromised. Such groups may have difficulty working well with each other as they may be territorial and unwilling to cooperate. The occurrence of infighting among units may cause delays, reduced commitment due to competing interests, and wasted time, making projects fall behind schedule. This ultimately can bring down production levels overall, and the company-wide employee commitment toward meeting organizational goals.
Divisional structure
The divisional structure or product structure consists of self-contained divisions. A division is a collection of functions which produce a product. It also utilizes a plan to compete and operate as a separate business or profit center. According to Zainbooks.com, divisional structure in America is seen as the second most common structure for organization today.
Employees who are responsible for certain market services or types of products are placed in divisional structure in order to increase their flexibility. Examples of divisions include regional (a U.S Division and an EU division), consumer type (a division for companies and one for households), and product type (a division for trucks, another for SUVS, and another for cars). The divisions may also have their own departments such as marketing, sales, and engineering.
The advantage of divisional structure is that it uses delegated authority so the performance can be directly measured with each group. This results in managers performing better and high employee morale.[citation needed] Another advantage of using divisional structure is that it is more efficient in coordinating work between different divisions, and there is more flexibility to respond when there is a change in the market. Also, a company will have a simpler process if they need to change the size of the business by either adding or removing divisions. When divisional structure is utilized more specialization can occur within the groups. When divisional structure is organized by product, the customer has their own advantages especially when only a few services or products are offered which differ greatly. When using divisional structures that are organized by either markets or geographic areas they generally have similar function and are located in different regions or markets. This allows business decisions and activities coordinated locally.
The disadvantages of the divisional structure is that it can support unhealthy rivalries among divisions. This type of structure may increase costs by requiring more qualified managers for each division. Also, there is usually an over-emphasis on divisional more than organizational goals which results in duplication of resources and efforts like staff services, facilities, and personnel.
Matrix structure
The matrix structure group employees by both function and product. This structure can combine the best of both separate structures. A matrix organization frequently uses teams of employees to accomplish work, in order to take advantage of the strengths, as well as make up for the weaknesses, of functional and decentralized forms. An example would be a company that produces two products, “product a” and “product b”. Using the matrix structure, this company would organize functions within the company as follows: “product a” sales department, “product a” customer service department, “product a” accounting, “product b” sales department, “product b” customer service department, “product b” accounting department.
Weak/Functional Matrix: A project manager with only limited authority is assigned to oversee the cross- functional aspects of the project. The functional managers maintain control over their resources and project areas.
Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and the functional managers. It brings the best aspects of functional and projectized organizations. However, this is the most difficult system to maintain as the sharing of power is a delicate proposition.
Strong/Project Matrix: A project manager is primarily responsible for the project. Functional managers provide technical expertise and assign resources as needed.
Matrix structure is only one of the three major structures. The other two are Functional and Project structure. Matrix management is more dynamic than functional management in that it is a combination of all the other structures and allows team members to share information more readily across task boundaries. It also allows for specialization that can increase depth of knowledge in a specific sector or segment.
There are both advantages and disadvantages of the matrix structure; some of the disadvantages are an increase in the complexity of the chain of command. This occurs because of the differentiation between functional managers and project managers, which can be confusing for employees to understand who is next in the chain of command. An additional disadvantage of the matrix structure is higher manager to worker ratio that results in conflicting loyalties of employees. However the matrix structure also has significant advantages that make it valuable for companies to use. The matrix structure improves upon the “silo” critique of functional management in that it diminishes the vertical structure of functional and creates a more horizontal structure which allows the spread of information across task boundaries to happen much quicker. Moreover, matrix structure allows for specialization that can increase depth of knowledge & allows individuals to be chosen according to project needs. This correlation between individuals and project needs is what produces the concept of maximizing strengths and minimizing weaknesses.
Organizational circle: moving back to flat
The flat structure is common in small companies (entrepreneurial start-ups, university spin offs). As companies grow they tend to become more complex and hierarchical, which leads to an expanded structure, with more levels and departments.
However, in rare cases, such as the examples of Valve Corporation, GitHub, Inc. and 37signals, the organization remains very flat as it grows, eschewing middle managers. All of the aforementioned organizations operate in the field of technology, which may be significant, as software developers are highly skilled professionals, much like lawyers. Senior lawyers also enjoy a relatively high degree of autonomy within a typical law firm, which is typically structured as a partnership rather than a hierarchical bureaucracy. Some other types of professional organizations are also commonly structured as partnerships, such as accountancy companies and GP surgeries.
Often, growth would result in bureaucracy, the most prevalent structure in the past. It is still, however, relevant in former Soviet Republics, China, and most governmental organizations all over the world. Shell Group used to represent the typical bureaucracy: top-heavy and hierarchical. It featured multiple levels of command and duplicate service companies existing in different regions. All this made Shell apprehensive to market changes,leading to its incapacity to grow and develop further. The failure of this structure became the main reason for the company restructuring into a matrix.
Starbucks is one of the numerous large organizations that successfully developed the matrix structure supporting their focused strategy. Its design combines functional and product based divisions, with employees reporting to two heads. Creating a team spirit, the company empowers employees to make their own decisions and trains them to develop both hard and soft skills.
Some experts also mention the multinational design,common in global companies, such as Procter & Gamble, Toyota and Unilever. This structure can be seen as a complex form of the matrix, as it maintains coordination among products, functions and geographic areas.
With the growth of the internet, and the associated access that gives all levels of an organization to information and communication via digital means, power structures have begun to align more as a “wire-archy”, enabling the flow of power and authority to be based not on hierarchical levels, but on information, trust, credibility, and a focus on results.
In general, over the last decade, it has become increasingly clear that through the forces of globalization, competition and more demanding customers, the structure of many companies has become flatter, less hierarchical, more fluid and even virtual.
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