3.

ORGANIZATIONAL
STRUCTURE

Prof. Lovorka
Galetić, PhD.
ORGANIZATIONAL STRUCTURE

 Word “structure” means

composition, complex, scheme
 Every organization, every
company, has its inner
composition, and that means
structure
 Many authors have defined
organizational structure
 Organizational Structure
• The formal system of task and authority
relationships that controls how people are
to cooperate and use resources to
achieve organization‘s goals.

• Can be managed and changed through

the process of organizational design.
ORGANIZATIONAL STRUCTURE
 It is often equalized with
organization
 Organization is broader concept
which includes:
 organization structure
 organizational resources
 organizational procedures

 It is equalized with management  it is one

of elements of the organization structure
ORGANIZATIONAL STRUCTURE
 Organizational structure is
dynamic, not static, because of the
constant change in the
organizational environment

 Relationship: goals – strategy –

structure
 Relationship of internal and external
design elements
Designing organizational structure
 Choosing the right organization
structure is one of the most
important decisions in the company
 There is no “one right way” to
design organizational structure
 There are no universal organization
principles which are good for all
cases
 Each internal and external design
element has diferent effect in every
special case.
The ways of forming org. structure:
1. Top down system
 based on classical theory
 set global organization units, departmant services,
and then design specific tasks
2. Basis upward system
3. Combined approach
 structuring onganization top down and basis
upward at the same time (bipolar strategy)
4. Sprearhead strategy
 changes begin from middle management levels
5. Multiple nucleus strategy
 Many organization changes begin at the same time
on diferrent management levels and in various
sections
The ways of forming org. structure:

 In every day use, ways that we are

talking about are used combined,
rarely separate
 While forming organization structure
of a new company and for big
reorganization procedures top down
system is mostly used.
 In all the other cases various
combinations are possible.
The ways of forming organizational
structure:
 Stability and flexibility of
organization structure:
 Stability makes specialization,
rationalization and expenses
decrease possible
 Flexibility makes adjustment to
evironment changes possible

 The balance should be found.

 Organizational structure has to
provide:
1. reaching organization goals
2. optimal grouping of activities
3. full attention on key functions
4. efficient use of all available
resources
5. organization flexibility
6. clear responsibility
7. rational use of human resources
8. adequate information and
communication system
Formal and informal organization

 Formal organization structure is a

result of the process of
organization design and it
represents backbone of each
organization.

 It is set by regulations and use of

written rules and procedures
Formal organization

 Formal organization structure regulates all

relevant questions referred to organization:
 It connects people and resources in closer
and wider groups ( workplaces, work
units, org. units, company)
 It allocates and connects organizational
tasks
 It defines people status in a company
(managers and employees)
 It sets rules and behavioral norms in a
organization
Formal organization
 Formal organization structure is shown with
graphs and schemes
Formal and informal organization
 Real organization structure (objective
existing) develops spontaniously in process
of formal organization structure functioning
 In the moment of setting organization
structure company’s real organization
structure matches formal. While time goes
by, differences between those two
organizational structures get bigger and
bigger
Formal and informal organization
 Formal organization structure needs to
adjust to the real:
 Simultaneously (constantly adjusting every year
- difference is small)
 Reorganization (if difference is big – every 4-5
years)

 Differences between formal and real

organization structure come by changing
elements of organization structure
Formal and informal organization
 Informal organization is related to people and
their work in organization
 Informal organization structure is a group of
relations between people in a organization,
which have grown while they have been
working together, and which effect formal
goals of organization
 Informal organization is usually connected
with informal groups in a company. Usually it
is considered negative, which does not have
to be true
 Formal and informal organization
 In every formal organization there are many informal
groups. They can be:
interest groups – they come as a result of job which
is done by group members
friendly groups – result of companionship between
members outside the company
E.g.: football team, aerobic team
 Formal and informal organization

 Informal organization structure can not be

shown:

Football Areobics
team team

Saturday shopinng
grup
Formal and informal organization

 Informal organization is very

important, it can dominate over formal
organization.
 It has hierarchy, it’s leaders and goals

 Formal organization  intended,

thought trough, planned
 Informal organization  spontaneous
Types of organization structures
 Types of organization structures
represent ways of carrying out internal
work devision in a company, and
forming lower organization units on all
company levels (departments, sectors,
services)

 Forming lower organization units in a

company is done according to the
theory of departmentalization
Types of organization structure
 There are two types of bureaucratic,
classical, traditional organization structure:
 Functional
 Divisional (product, geographic, market)

 Characteristics:
 specialization
 clear hierarchy of authority
 formal planing
 employment based on competency
Types of organization structure
 Around 1960
 Development of modern, organic
organization structures
 Adaptive - adjustment to the
changes in the environment
 Most significant: project structure
 matrix structure
 network structure
 horizontal structure
Types of organization structure

 In every day use we often find

combined, mixed organization
structures which include classic
and organic structures
(conglomerate organization)
 Functional organization structure

 Activities are grouped together by common

function from the bottom to the top of the
organization (e.g. manufacturing, research and
development, marketing, finance...)

 Most spread form of organization structure

 It is applied in:
 small and middle companies
 if company produces one or several similar
products by using same technology for the
same market (oil, sugar, cement, beer)
Functional organization structure
 Observed by number of functional
organization units we can talk
about three basic forms of
functional organizational structure:

 Initial
 Standard
 Developed
 Functional organization structure
 Initial form fos
 Number of formed functional organization units in
a company is smaller than number of business
functions

CEO

Finance Other Functions

Sales Manufacturing
& Accounting
 Functional organization structure
 Standard form fos
 Number of formed functional organization units is
equal to number of business functions

CEO

Finance & Development

HR R&D Procurement Manufacturing Sales
Accounting
 Functional organization structure
 developed form fos
 Number of formed functional organization units is
bigger than number of business functions

CEO

Procurem Home
Manufact Accounting
R&D ent HR Sales
uring & Finance

Develop Manufact Maintainan Export

ment uring ce
prep.

= Manufacturing = Sales
 Functional organization structure
 Advantages:
 high level of specialization
 unique coordination of jobs in the
same function
 applying one-way models and
procedures
 rational use of space and equipment
 low overhead expenses
Functional organization structure
 Problems:
 slow adjustment to changes in the
environment
 there is no cooperation and team
work among functional managers
 slow and inadequate decision making
 starched line of coordination and
communication
 absence of functional managers
responsibility for final business result
 Functional structure of the company with
foreign branch offices
CEO

Foreign
Branches

Mexico

UK

USA

Marketing Manufacturing R&D Finance Planning HR

 Functional structure of the company with
International Division
CEO

Marketing Manufacturing R&D Finance Planning HR

International
Division

International International
Division Divisiona
Services Services

Marketing R&D Planning Finance HR

 Typical model of foreign company
organizational structure

CEO

Marketing Manufacturing R&D Finance Planning HR