ORGANIZATION STRUCTURE

• An organizational structure is a system that outlines how

certain activities are directed in order to achieve the goals of
an organization.
• These activities can include rules, roles, and responsibilities.
• The organizational structure also determines how information
flows between levels within the company.
• The key principle of an organizational structure is how
authority is passed down and around the company.
• Understanding what everyone's roles and responsibilities are
helps to create accountability for individuals, teams and
departments.
• An organizational chart is the visual representation of this
vertical structure. It is therefore very important for an
organization to take utmost care while creating the
organizational structure.
• The structure should clearly determine the reporting
relationships and the flow of authority as this will support good
communication – resulting in efficient and effective work
process flow.
• The key principle of an organizational structure is how
authority is passed down and around the company.
• Understanding what everyone's roles and responsibilities are
helps to create accountability for individuals, teams and
departments.
Common Organization Structures
1. Functional organization structure
• The functional structure is the most common model found in
most organizations.
• Organizations with such a structure are divided into smaller
groups based on specialized functional areas, such as
operations, finance, marketing, Human Resources, IT, etc.
• The organization’s top management team consists of several
functional heads (such as the VP Operations, VP
Sales/Marketing).
• Communication generally occurs within each functional
department and is communicated across departments through
the department heads.
Example of functional organization structure
• This structure provides greater operational efficiency as
employees are functionally grouped based on expertise and
shared functions performed.
• It allows increased specialization as each group of specialists
can operate independently.
Disadvantages
• When different functional areas turn into silos they focus only
on their area of responsibility and do not support other
functional departments.
• Also expertise is limited to a single functional area allowing
limited scope for learning and growth.
2. Product Organizational Structure
• This is another commonly used structure, where organizations
are organized by a specific product type.
• Each product category is considered a separate unit and falls
within the reporting structure of an executive who oversees
everything related to that particular product line.
• For example, in a retail business the structure would be
grouped according to product lines.
• Organization structured by product category facilitates
autonomy by creating completely separate processes from
other product lines within the organization.
• It promotes depth of understanding within a particular product
area and also promotes innovation.
• It enables clear focus with accountability for program results.
• As with every model, this model also has a few downsides like
requirement of strong skills specializing in the particular
product.
• It could lead to functional duplication and potential loss of
control; each product group becomes a heterogeneous unit in
itself.
3. Geographic Organizational Structure
• Organizations that cover a span of geographic regions structure
the company according to the geographic regions they operate
in.
• This is typically found in organizations that go beyond a city or
state limit and may have customers all across the country or
across the world.
Advantages
• It brings together employees from different functional specialties and
allows geographical division.
• The organization responds more quickly and efficiently to market needs,
and focuses efforts solely on the objectives of each business unit,
increasing results.
Disadvantages
• Though this structure increases efficiency within each business
unit, it reduces the overall efficiency of the organization, since
geographical divisions duplicate both activities and
infrastructure.
• It tends to be resource intensive as it is spread across and also
leads to duplication of processes and efforts.
4. Matrix Organizational Structure
• A matrix structure is organized to manage multiple dimensions.
It provides for reporting levels both horizontally as well as
vertically and uses cross-functional teams to contribute to
functional expertise.
• As such employees may belong to a particular functional
group but may contribute to a team that supports another
program
Advantages
• This type of structure brings together employees and
managers across departments to work toward accomplishing
common organizational objectives.
• It leads to efficient information exchange and flow as
departments work closely together and communicate with
each other frequently to solve issues.
• This structure promotes motivation among employees and
encourages a democratic management style where inputs
from team members are sought before managers make
decisions.
Disadvantages
• The matrix structure often increases the internal complexity in
organizations.
• As reporting is not limited to a single supervisor, employees tend
to get confused as to who their direct supervisor is and whose
direction to follow.
• Such dual authority and communication leads to communication
gaps, and division among employees and managers.
ORGANIZATION CHARTS
• Organization chart is a diagrammatical presentation of
relationships in an enterprise.
• The functions and their relationships, the channels of authority
and relative authority of different managers etc. are depicted in
an organizational chart.
• An organization chart is a managerial tool. It helps in
specifying authority and responsibility of every position.
• As organization chart specifically defines authority and
responsibility of people in the enterprise there will be no
duplication and overlapping of duties etc.
• Org charts help to demonstrate clear reporting structures for all
the employees in the organization.
• It creates a road-map for how the work is to be done and the
process required to ensure this information is shared
throughout the company, to the right individuals.
• Its purpose is to illustrate the reporting relationships and chains
of command within the organization
Types of Organization Charts:
There are three ways in which organization charts can be shown:
(i) Vertical
(ii) Horizontal
(iii) Circular
(i) Vertical or Top to Bottom
• In this chart major functions are shown at the top and
subordinate functions in successive lower positions.
• In this chart scalar levels run horizontally and functions run
vertically. The supreme authority is shown at the top while lowest
authority at the bottom.
(ii) Horizontal or Left to Right
In this chart highest positions are put on the left side and those
with diminishing authority move towards the right.
The organizational levels are represented by vertical columns, the
flow of authority from higher to lower levels being represented by
movement from left to right
Vertical Chart Board of Directors

Chief Executive

Marketing Manager Production Manager Finance Manager Personnel Manager

Regional Marketing Regional Marketing Controller Administration

Manager Manager Finance Officer
Salesman Salesman Salesman Salesman
Accountant Superitended

Accounts Clerks
Deputy Manager Deputy Manager clerks
Purchase Production
Purchasing
Foreman Incharge Incahrge Incharge
Assistant
recruitment Training Administration

Clerks
Workers Clerks Clerks Clerks
• In other words it presents scalar levels in a vertical position
and functions horizontally.
• The same levels of authority as shown in vertical chart can be
depicted in a left to right chart as follows:
• In horizontal chart the supreme authority i.e. Board of
Directors is shown on the left and chief executive and
functional managers and other levels move towards right.

Marketing Manager
Horizontal Chart
Production Manager
Board of Directors Board of Directors

Finance Manager

Personnel Manager
(iii) Circular
• In circular chart the centre of the circle represents the position
of supreme authority and the functions radiate in all directions
from the centre.
• The higher the positions of authority, the nearer they are to the
centre and the lesser the positions of authority, the more
distant they are from the centre.
• The positions of relative equal importance are located at the
same distance from the centre.
• The lines forming different blocks of functions or positions
indicate the channels of formal authority, the same as in other
arrangements.
Advantages of Organization Charts:
• It helps in specifying authority and responsibility of every
position. The relationships among different persons are also
established for smooth working of the organization.
• As organization chart specifically defines authority and
responsibility of people in the enterprise there will be no
duplication and overlapping of duties etc.
• The organization chart will help in pointing out the faults,
deficiencies, dual command etc. in the organization. The
management will be able to take prompt remedial action in
case of certain lacuna.
• The organization chart acts as an information centre to the
new entrants and they can easily understand different levels of
authority and responsibility.
• The charts are also helpful in decision-making process. They
act as a guide to the decision makers.