UNIT 8

ORGANISATIONAL
STRUCTURE
ARUNDHATHI B
Organizational Structure
An organizational structure specifies how
tasks, responsibilities, and communication
are distributed within an organization.
These structures are usually presented in
the form of organizational charts (org
charts).
Detailed
▪ The organizational structure influences many aspects,
such as:
▪ how employees communicate with each other
▪ how they cooperate
▪ how power is distributed

▪ An org chart is a diagram that displays the formal

reporting line or hierarchical relationship and helps to
visually explain how work is structured in the
company.
Every org chart should contain the following elements:

DIVISION OF CHAIN OF SPAN OF CENTRALIZATION FORMALIZATION

LABOUR COMMAND CONTROL
 ▪ The way in which operational tasks are organized and
divided between positions and departments.

DIVISION OF ▪ Also referred to as a company’s specialization.

LABOUR
▪ To a certain extent, the division of labor is an infinite
The tasks in an
compromise between productivity, flexibility, and
organization are distributed
employee motivation.
according to
certain criteria ▪ An assembly line worker who only carries out a certain
activity is certainly highly specialized in that task, but
▪ as they become less willing to familiarize themselves
with other activities, their level of personal motivation
will certainly suffer.
 ▪ The chain of command within an organization essentially answers the
question - “Who reports to whom?”

▪ Every employee in an organization has a direct report.

CHAIN OF ▪ Command relationships can be viewed as the flow of authority.
COMMAND
Every employee in an
organization has a direct
report

▪ There is currently a trend toward flatter hierarchies

▪ This preference is especially preferred by employees of the younger

generation
 ▪ A narrower span of control enables the development of closer
relationships between managers and their subordinates, promoting
collaboration.
▪ This, however, will probably increase costs because more
managers need to be hired.
SPAN OF ▪ It can also lead to less freedom for employees as they are more

CONTROL closely controlled.

▪ The most appropriate structure for any given organization depends

first and foremost on the organizational culture of the organization, as
well as on its products, managers, and employees (Theobald &
Nicholson-Crotty, 2005).
How many employees a
manager is responsible for
within the organization Each manager is
responsible for 2
subordinates

The manager is
responsible for 10
employees
 ▪ Centralized organizational structures usually concentrate power and
authority within a relatively small group of people in the company
since they have formal authority over important decisions.

▪ Decentralization becomes necessary as a company grows.

CENTRALIZATION ▪ Eventually, the top management of an organization will be unable to
make every single decision within the company.

Reflects the center of

authority within an
organization and shows where
decisions are formally made

If decisions are concentrated at a If the decision-making authority is

single point in an organization, the distributed to subordinate employees
degree of centralization is high. who are authorized to make decisions
themselves, an organization has a more
decentralized structure.
 Centralized & De-centralized
Military Tech companies

▪ The military is a classic example of a centralized organizational ▪ Many tech companies, such as Google and Facebook, are
structure, where orders and decisions are issued from the top- known for their decentralized organizational structures. In
down. In this structure, the higher-ups have complete control these companies, employees are given a lot of autonomy to
over the lower levels, and there is little to no decision-making make decisions and work on projects, and there is a focus on
power given to the lower ranks. collaboration and teamwork.
 ▪ Although this is not immediately apparent from the organizational
chart, the degree of formalization is part of the organizational
structure, as it has a direct effect on the behavior of employees in
FORMALIZATION the organization.

▪ Formalization is an important and useful coordination mechanism

that companies rely upon if they produce a standardized product
or provide a standardized service.
The range of policies, rules,
regulations, and procedures ▪ If a company manufactures its product in different locations, as is
used to standardize behaviors common in the automotive or and computer industries, then
formalization is a good way to ensure quality.
and decisions.
▪ Highly standardized menu and recipes that is the same across all its ▪ Google has a highly formalized approach to policies and procedures -
locations. policies related to employee conduct, data security, and compliance
with regulations.
▪ Highly structured training program for its employees - how to prepare
food, how to interact with customers, and how to maintain cleanliness ▪ Formal performance evaluation process for its employees, which
and hygiene in the restaurant. includes specific criteria for evaluating performance.

▪ Detailed standard operating procedures (SOP) for all aspects of its ▪ Formal code of conduct that outlines the expected behaviors and
operations, including food preparation, customer service, and ethical standards - includes guidelines on topics such as respect for
restaurant maintenance. others, diversity and inclusion, and conflict of interest.

▪ Formal dress code policy for its employees, which specifies the uniform ▪ a formal organizational structure, with a clear hierarchy of roles and
that employees are required to wear responsibilities. This ensures that everyone knows who is responsible
for what, and helps to maintain consistency and efficiency across
▪ Formal code of conduct that outlines the expected behaviors and different departments and business units.
ethical standards for its employees - guidelines on topics such as
honesty, integrity, and respect for others. ▪ highly formalized approach to knowledge management, with a variety
of tools and processes - place to capture and share knowledge across
the organization - includes internal wikis, training programs, and other
resources
TYPICAL ORGANIZATIONAL
STRUCTURES
FUNCTIONAL STRUCTURE
 ▪ Departmentalization: The organization is divided into
functional departments based on the type of work they
Characteristics of perform, such as finance, human resources, operations, and
marketing.
Functional Structures ▪ Specialization: Each department is staffed by employees with
specialized skills and expertise

▪ Clear hierarchy: There is a clear chain of command with

defined reporting relationships between managers and their
subordinates.

▪ Standardization: Processes and procedures are standardized

within each functional department (consistency and
efficiency).

▪ Centralization: Decision-making is centralized at the top of

the organization

▪ Clear roles and responsibilities: Each employee has a clear

role and set of responsibilities within their department. This
helps to promote accountability and efficient completion.

▪ Narrow span of control: Managers typically have a small

number of direct reports, which allows them to provide more
focused attention to each employee and ensure that they are
meeting their goals and objectives.
 How the advantages of functional
organizational structures play out in real-
world companies?
Clear hierarchy and specialization:
▪ In a real-world company like Ford Motor Company,
employees are grouped by their area of expertise,
such as engineering, marketing, or finance.
▪ This allows for clear lines of authority and
specialization, which can help to increase efficiency
and productivity.

▪ Engineers work on developing new car models

▪ Marketing specialists work on promoting these
models to customers
Efficient use of resources:
▪ In a real-world company like Apple Inc.,
resources are optimized by grouping employees
by function.

▪ Apple has separate teams for hardware and

software engineering, design, marketing, and
customer service.
▪ This allows Apple to better allocate resources
such as personnel, equipment, and technology to
different functions based on their needs.
Improved communication:
▪ In a real-world company like Coca-Cola,
functional structures help to reduce confusion
and ensure that everyone is on the same page.

▪ The company has a separate team for supply

chain management, which helps to ensure that
▪ raw materials are procured efficiently
▪ production schedules are adhered to
▪ finished products are delivered on time
Enhanced skill development:
▪ In a real-world company like Amazon,
employees have the opportunity to
work closely with others in their field,
which can enhance their skills and
knowledge.

▪ Amazon has separate teams for

software development, data analytics,
and marketing, which enables
employees to specialize in their
respective areas and learn from each
other.
Greater flexibility:
▪ In a real-world company like GE Healthcare,
functional structures allow for greater flexibility
to respond to changing market conditions or
customer demands.

▪ The company has separate teams for research

and development, manufacturing, and marketing
▪ This enables it to respond more quickly to
changes in the healthcare industry and develop
new products that meet customer needs.
 1. Silos and lack of collaboration - each department
operates independently; this can lead to communication
breakdowns, duplication of efforts, and slow decision-
making.
Disadvantages 2. Slow response times – as decision-making is often
centralized
of functional 3. Lack of flexibility - difficult to quickly adapt to new
organizational situations or opportunities that require cross-functional
collaboration.
structures 4. Difficulty in scaling: As companies grow, the complexity
of coordinating across multiple functional areas can
increase, which can lead to inefficiencies and slow
decision-making.
5. Limited career growth: may not offer employees as
many opportunities for career growth/advancement
because they tend to be more rigidly structured.
Kodak:
Kodak's functional organizational structure, which was focused on film development,
made it difficult for the company to adapt to the digital age. This led to a decline in sales
and eventually bankruptcy.

Nokia:
Nokia's functional organizational structure, which was focused on feature phones, made it
difficult for the company to adapt to the rise of smartphones. This led to a decline in
market share and eventually the sale of its phone business to Microsoft.

BlackBerry:
BlackBerry's functional organizational structure, which was focused on enterprise email
services, made it difficult for the company to adapt to the rise of consumer-focused
smartphones. This led to a decline in market share and eventually a shift in the company's
focus to enterprise software and services.
DIVISIONAL STRUCTURE
 ▪ Decentralization: decision-making authority is distributed
among the various divisions rather than being concentrated
Characteristics of in a single central office.

Divisional Structures ▪ Product or service focus: Each division focuses on a particular

product or service line, market segment, or geographic
region. This allows the division to be more responsive to the
needs of its customers and to adapt more quickly to changes
in the market.

▪ Independent operations: Each division operates as a self-

contained unit, with its own management team, budget, and
resources. This allows for greater autonomy and
accountability within each division.

▪ Coordination: Coordination is typically achieved through

cross-functional teams or committees that work to align the
different divisions and ensure that they are all working
towards the same goals.

▪ Efficient use of resources: Because each division is

responsible for its own budget and resources, there is a
greater focus on efficiency and cost control. This can lead to
better allocation of resources and improved profitability for
the company as a whole.
 How the advantages of divisional
organizational structures play out in real-
world companies?
▪ Focus on products or markets:
▪ By dividing the organization into smaller, self-contained units or divisions
▪ focus on specific products or markets
▪ leads to greater responsiveness to customer needs
▪ better understanding of the specific challenges and opportunities within each market segment.

▪ Increased autonomy:
▪ Each division operates with its own management team, budget, and resources
▪ leads to greater autonomy and accountability within each division
▪ faster decision-making and greater flexibility to respond to changing market conditions.

▪ Better resource allocation:

▪ Because each division has its own budget and resources, there is a greater focus on efficiency and cost
control
▪ This can lead to better allocation of resources and improved profitability for the company as a whole

▪ Better performance measurement:

▪ With each division operating independently, it is easier to measure the performance of each division
▪ Easy to identify areas for improvement
▪ This can lead to a culture of continuous improvement and a focus on achieving specific performance targets
Nestle
▪ By dividing the company into
separate geographic regions,
each with its own management
team and resources
▪ Nestle is able to effectively
manage its global operations.
▪ This allows for greater
responsiveness to local market
conditions and better
coordination across different
regions.
 1. Duplication of resources: Each division in a divisional structure
has its own functional areas, such as marketing, finance, and
operations - This can lead to duplication of resources, such as
having multiple accounting or human resources departments
across different divisions. This can increase costs and lead to
inefficiencies.
Disadvantages 2. Lack of communication and coordination: Without a strong

of divisional culture of sharing information and working together, divisions

may become siloed and work in isolation from each other, leading
to missed opportunities and reduced overall effectiveness.
organizational 3. Potential for conflict: there is a potential for conflict between
structures divisions, especially if they compete for resources or have
different priorities.

4. Difficulty in implementing company-wide strategies: With each

division operating independently, it can be challenging to
implement company-wide strategies or initiatives. This can
confuse customers too.

5. Increased complexity: Harder to manage; slower decision-making

which can reduce the company's agility and responsiveness to
changing market conditions.
Hewlett-Packard:

• Once a leading technology company, but it struggled to maintain its

competitive edge in the face of changing market conditions.
• One factor that contributed to its decline was its complex divisional
structure, which made it difficult to coordinate its operations effectively.
• The company had separate divisions for different products and services,
which led to silos and a lack of collaboration between different parts of
the business.

United Airlines:

• United Airlines struggled with a complex divisional structure that made it

difficult to manage its operations effectively
• The company had separate divisions for different regions and routes,
which led to duplication of resources and a lack of coordination between
different parts of the business
• This contributed to operational inefficiencies and a decline in customer
satisfaction.
MATRIX STRUCTURE
 ▪ This design foresees two parallel lines of authority and provides for
departmentalization based on functions as well as products

Matrix ▪ employees receive instructions from two different managers or

supervisors, e.g., a technical manager and a disciplinary manager, which
organizational might create a complex structure

design
• organizations with different
product lines and services
• employees work with
colleagues from diverse
departments who have
expertise in other functions.
 ▪ The challenge of matrix organizations is the uncertainty regarding roles and
responsibilities.

Matrix ▪ In addition, it is relatively difficult to measure the performance of an

individual employee on a given project.
organizational
design
• organizations with different
product lines and services
• employees work with
colleagues from diverse
departments who have
expertise in other functions.
Characteristics of ▪ Dual Reporting Structure: In a matrix organization,
employees report to both functional managers (e.g.
Matrix Structures marketing, finance, etc.) and project managers (e.g. product
development, sales, etc.).

▪ Cross-Functional Teams:
o typically have cross-functional teams that work on
projects or products.
o include members from different departments or areas
of expertise, which helps to ensure that all aspects of a
project or product are considered.

▪ Flexible Structure: Allows for quick changes to be made in

response to shifting priorities or market conditions.

▪ Increased Collaboration:
o Encourage collaboration between different teams and
departments.
o lead to increased creativity and innovation, as well as
better decision-making
 ▪ Higher Complexity:
Characteristics of o More complex than traditional hierarchical
Matrix Structures structures.
o Lead to increased communication and coordination
challenges (as well as potential for conflicts
between different teams or departments)

▪ Shared Resources: This sharing of resources can help to

reduce costs and improve efficiency.

▪ Greater Autonomy:
o Provide employees with greater autonomy and
decision-making authority.
o Leads to increased job satisfaction and motivation,
as well as better performance.
 How the advantages of matrix
organizational structures play out in real-
world companies?
 IBM: IBM is a technology company that offers a range of products and services, including hardware,
software, and consulting.
• The company uses a matrix structure to organize its operations around different business units,
such as cloud computing, artificial intelligence, and cybersecurity
• This allows IBM to bring together experts from different areas to work on complex projects and
deliver innovative solutions to customers.

Nestle: Nestle is a food and

beverage company that operates in
more than 190 countries.

• The company uses a matrix

structure to organize its global
operations around different
product categories, such as
coffee, pet food, and bottled
water.
• This allows Nestle to share
resources and expertise across
different regions and product
lines, while maintaining a strong
focus on customer needs.
 1. Duplication of resources: Each division in a divisional structure
has its own functional areas, such as marketing, finance, and
operations - This can lead to duplication of resources, such as
having multiple accounting or human resources departments
across different divisions. This can increase costs and lead to
inefficiencies.
Disadvantages 2. Lack of communication and coordination: Without a strong

of matrix culture of sharing information and working together, divisions

may become siloed and work in isolation from each other, leading
to missed opportunities and reduced overall effectiveness.
organizational 3. Potential for conflict: there is a potential for conflict between
structures divisions, especially if they compete for resources or have
different priorities.

4. Difficulty in implementing company-wide strategies: With each

division operating independently, it can be challenging to
implement company-wide strategies or initiatives. This can
confuse customers too.

5. Increased complexity: Harder to manage; slower decision-making

which can reduce the company's agility and responsiveness to
changing market conditions.
Ford: To overcome these challenges, Ford made several changes:

• In the 1990s, Ford adopted a matrix structure in an effort Simplification of the matrix:
to become more customer-focused. Reduced the number of layers in its matrix structure, which
• However, the structure led to communication breakdowns, helped to streamline decision-making and communication.
slow decision-making, and power struggles between
departments. Strengthening of the functional structure:
Ford re-emphasized its traditional functional structure,
which helped to reduce power struggles between
departments

Increased use of cross-functional teams:

• To improve collaboration and communication across
departments.
• By bringing together employees from different
functional areas to work on specific projects, Ford was
able to break down silos and improve information
sharing.

Investment in technology:
• Ford invested in new technologies such as computer-
aided design and manufacturing (CAD/CAM), which
helped to improve communication and collaboration
between departments.
• By using these technologies, Ford was able to reduce
the time and cost of product development.
Cisco:
To overcome these challenges, Ford made several
• In the early 2000s, Cisco implemented a matrix structure changes:
that led to confusion, duplication of efforts, and lack of
accountability. Simplification of the matrix:

• The company eventually abandoned the matrix structure Strengthening of the functional structure:
and returned to a more traditional functional structure.
new performance management system
• emphasized individual accountability and goal-
setting.
• Helped increase accountability and reduce
confusion around roles and responsibilities

Investment in technology:
• collaboration software and video conferencing,
which helped to improve communication and
collaboration across the organization

Focus on culture and leadership:

• focused on building a strong culture and leadership
team that emphasized collaboration,
accountability, and innovation
• Helped to create a more cohesive and effective
organization.
 P&G as a
functional, divisional & matrix
organizational structure
 P&G as a functional structure
▪ The company is divided into six global business units (GBUs)
based on product categories, including beauty, grooming, health
care, fabric and home care, baby care and family care.

▪ Each GBU is responsible for developing and marketing products

within their respective categories.

▪ Underneath the GBUs, P&G has a number of functional

departments, such as finance, legal, human resources, research
and development, and supply chain, which provide support to the
GBUs and ensure that the company operates smoothly.

▪ Overall, P&G's functional organizational structure allows the

company to leverage the expertise of its employees and ensure
that each function is managed effectively and efficiently.
 P&G as a divisional structure
Beauty
▪ P&G is divided into several business segments, each of which Grooming
operates as a separate division with its own management team
Care
and strategic objectives.

▪ Each division has its own CEO who is responsible for developing
and executing the division's strategy, managing its operations, Fabric and
Health Care
and delivering financial results. Home Care
▪ Allows to be more responsive to changes in the marketplace and
tailor its products and services to meet the unique needs of each
division's customer base. Baby Care Global
▪ Overall, P&G's divisional structure provides greater autonomy and Family Business
and flexibility for its different business units while still allowing Care Services
the company to leverage its functional expertise across the
organization.
 ▪ Low level of hierarchical structure and high decentralization,
resulting in high flexibility.
▪ This leads to less control and more freedom of choice for
Network employees

▪ The idea behind the network structure is based on social networks

organizations ▪ relies on open communication with both internal and external
partners.
▪ A distinction is made between internal and cross-organizational
network organization.
▪ In the first case, the individual units of the network
organization belong to the same company, but their
coordination is more decentralized and flexible.
▪ In cross-organizational network organizations, independent
companies coordinate and complement each other in order to
achieve competitive advantages by focusing on their core
competencies (Gabler Wirtschaftslexicon, 2020).
A POOR ORGANIZATIONAL STRUCTURE LEADS
TO CONFUSION AND INCONSISTENCIES IN
ROLES, POWERS, RESPONSIBILITIES, AND
COORDINATION BETWEEN GROUPS AND
DEPARTMENTS.

IN TURN, THIS OFTEN

LEADS TO A LACK OF EXCHANGE OF IDEAS,
SLOW DECISION-MAKING, STRESS, AND
CONFLICT.
IMPACTS OF POOR SIGNALS OF POOR
ORGANIZATIONAL STRUCTURES ORGANIZATIONAL STRUCTURES
▪ Serious financial loss – due to the • In large enterprises, CEOs should not
overuse of enterprise resources and directly set tasks to interns, since such
budget Irrational processes should be done by directors
▪ Poor communication among different Hierarchy or department managers.
departments – can be difficult for Structure • In small and medium-sized companies,
teammates to find who and when to however, a strict hierarchy may hinder
report their tasks. sales opportunities.

▪ Weak strategic management across • For example, multiple employees are

departments – hard to plan and follow responsible for the same project that
efficient long-term plans for developing Role
only one person needs to complete; or
new products or services, building new Confusion
• A project team receives commands
suppliers channels and so on. from different superiors etc.
▪ Bad brand reputation – delayed orders
• Lead to unequal distribution of
and long waiting times for your clients. Workload
workload among different
you may also lose new customers. Imbalance
departments
 Ford's management team embarked on a major
restructuring effort that aimed to simplify the
company's organizational structure and improve its
operational efficiency.

Ford had grown rapidly

through acquisitions and had
Early 2000s - Ford struggled
developed a complex and
with poor financial Consolidating operations, reducing the number of
hierarchical management
performance, declining layers in the management hierarchy, and eliminating
structure that made it difficult
market share, and a redundant positions.
to implement strategic
fragmented organizational
changes and to respond
structure.
quickly to changes in the
market.
Implemented a new management philosophy called
the "One Ford" approach, which emphasized the
need for greater collaboration, communication, and
teamwork across different departments and regions.

Ford was able to achieve significant improvements

in its financial performance and market share.

Also introduced a number of new products and

technologies that helped to improve its
competitiveness and appeal to consumers.
Impacts of pandemic on
organizational structure
 ▪ Shift towards remote work - more focus on virtual ▪ Increased focus on employee wellness - new policies and
teams, remote management, and digital programs to support employees' mental and physical
communication. health; focus on employee wellness programs and

10 ▪ Increased use of digital technologies - adopting digital

benefits.

technologies to maintain business continuity and meet ▪ Greater focus on customer needs - adapt products and
customer needs; more focus on digital roles and teams. services to meet changing customer demands; focus on
customer-centric teams and processes.

▪ Decentralization of decision-making: need to delegate

decision-making authority to lower-level employees and ▪ Expansion of digital marketing and e-commerce - adopt
teams to respond quickly to changing market new marketing strategies to reach customers online;
conditions. more focus on digital marketing and e-commerce teams.

▪ Greater emphasis on agility and adaptability - had to ▪ Increase in cross-functional teams - work across
restructure and adopt leaner structures to survive the departments and functions to respond to the pandemic's
economic impact of the pandemic. challenges

▪ Reevaluation of supply chains - adopt new strategies to ▪ Greater focus on innovation and creativity - more focus
ensure business continuity; more focus on risk on innovation teams and processes; to adapt to
management and resilience. customers
Wrap Up
Thank you
QUESTIONS?