NATURE AND

STRUCTURES OF
ORGANIZATION
FRANCOIS L. DETERA, MM.
LECTURER
OBJECTIVES:
At the end of the session, participants are expected to:
1. Discuss the nature of organizations (firms) and
the organizing process;
2. Identify the types of organizational design;
3. Distinguish the various types of organizational
structures;
4. Apply organization theories in analyzing
businesses and other organizations;
5. Identify the different elements of delegation, and;
6. Differentiate formal from informal organizations.
QUOTE OF THE DAY:

An Organization, no matter
how well designed, is only as
good as the people who live
and work in it.
- Dee
 NATURE AND DEFINITION OF
ORGANIZATION
• Management theorists in the 1920s and 1930s
sees Organization as a social group that is oriented
toward a purpose. For others, as having well-
coordinated processes and interacting with its
environment.

• Organization, considering the foregoing is defined

as a social group that has well-coordinated
processes and activities for the purpose of
achieving its objectives and is connected to the
 NATURE AND DEFINITION OF
ORGANIZATION
• Organizing as a management function entails the
structuring and grouping of jobs and ensuring that
these are performed by qualified and competent
personnel. This function brings together all the
human, physical and financial sources and
integrates them with related jobs and positions.

• Organizing also ensures that authority and

responsibility are well-defined and internally
coordinated within the organization.
 STEPS IN ORGANIZING
IDENTIFICATIO
N OF
ACTIVITIES
DEPARTMENTALIZ
ATION

DEFINITION OF
AUTHORITY
(HIERARCHY)
INTEGRATION OF
AUTHORITY AND
RESPONSIBILITY
 ORGANIZATIONAL DESIGN
AND STRUCTURE
• The overall design of an organizational structure focuses
on three aspects: work activities, reporting relationships
and departmental grouping options.
• The organizational design identifies the essential tasks
and operations of the company, establishes effective
work relationships and divides the company into
departments that will contribute toward achieving its
goals and objectives.
• The organizational structure is framework that shows
how each component of the company relates to each
other.
 CONFIGURATIONS & ELEMENTS
OF ORGANIZATIONAL STRUCTURE
• Mechanistic Structure is a rigid and tightly controlled
structure that resembles a bureaucracy. The flow of
communication and job responsibilities are carefully
delineated and decisions are mostly made from the top.

• This structure is common in stable environments and is

applicable to companies with uniform customers and
operations. Its advantage is that it maximizes efficiency
while minimizing costs. However, this discourages
individual initiative and innovation because of its tight
 CONFIGURATIONS & ELEMENTS
OF ORGANIZATIONAL STRUCTURE

• An organization that employs an Organic Structure,

meanwhile, is more flexible and highly adaptable. The
organization is decentralized and less formal, and
employees are given broader responsibilities based on the
current needs of the company.

• Employees are also empowered and given accountability

for their actions. This is recommended for organizations
with unstable environment. A major advantage of this
structure is that it results in greater employee satisfaction
because they are empowered and allowed to innovate.
 SIX ELEMENTS OF ORGANIZATIONAL
STRUCTURES
1. Work Specialization- refers to the way jobs are divided
into steps or individual tasks. Employees specialize in a
specific task or aspect of the job or operation.
2. Departmentalization- the grouping of similar functions,
jobs and tasks into departments. Departmentalization
may be functional, where personnel and tasks related
to a single company operation are grouped together.
Divisional departmentalization, meanwhile, groups
personnel and resources based on product, service,
process, geographic location or customer. Each division
has its own set of functional departments.
 SIX ELEMENTS OF ORGANIZATIONAL
STRUCTURES

3. Chain of Command- indicates the communication and

work relationship between employees and managers. The
chain of command is defined by three underlying
principles: (a) Authority- the right inherent in a managerial
position to give directions or tell people what to do and
expect them to undertake it, (b) Responsibility- the
obligation to perform duties assigned to an employee, and
(c) Unity of command- requires that an employee should
only report to one superior.
 SIX ELEMENTS OF ORGANIZATIONAL
STRUCTURES

4. Span of Control- refers to the number of employees a

manager can effectively and efficiently manage. Recent
trends result in many business employing larger span of
control for managers. A greater span increases flexibility
and speeds up decision making. Another, employees are
more empowered, less supervised and are given more
opportunities to work independently. Trainings ensure
that workers know the job thoroughly and can relieve or
replace anyone when necessary.
 SIX ELEMENTS OF ORGANIZATIONAL
STRUCTURES
5. Degree of centralization- refers to the extent authority
and decision-making is given to a small group of people in
the organization. Centralization occurs when major
decisions are made by top management and employees
must have approval from the top. This is common for
businesses with stable environment and also undertaken
in times of crisis when the TOP Management takes charge
of making important decisions. Decentralization occurs
when lower management is allowed to make important
decisions. This is applicable to companies that are widely
dispersed in several areas, or with businesses that
 SIX ELEMENTS OF ORGANIZATIONAL
STRUCTURES
6. Formalization- the process of standardizing jobs and
establishing rules and guidelines that direct employees. It
helps in providing consistency in the procedures and job
responsibilities of the employees. A company with a high
degree of formalization has clear job descriptions and
policies that govern its activities and employees behavior.

These elements all come together in determining the

most appropriate organizational structure that will enable
a company to achieve its plans.
SIMPLE ORGANIZATIONAL
STRUCTURE
OWNER/MANAGER

Secretary/ Assistant

Technical Production
Staff Staff Cashier
 SIMPLE ORGANIZATIONAL
STRUCTURE
- This is the most basic structure and is applicable to small
businesses where majority of the power and decision-making
rests on the owner. This allows for quick decision making and
hands-on interaction with the day-to-day activities of the firm.
- Businesses following this structure are easily maintained.
Accountability is also easily determined because the owner
has the sole authority and responsibility in running the
business.
- The disadvantage of this structure is that it is heavily reliant
on the business owner. In the absence of the owner/manager,
the organization cannot address opportunities and challenges
effectively. The dependence on a single individual may limit
the activities and growth of the business.
 FUNCTIONAL GROUPING
- This organizes a company by grouping together similar
functions into departments. Employees of similar skills
and competencies are grouped under the same
department/unit. Tasks and operations are controlled
through a vertical hierarchy, where employees follow a
chain of command and top managers delegate tasks to
lower-level managers and employees. Specific tasks are
easily accomplished to meet its functional goals.
- However, the organization with this structure cannot
respond quickly to environmental changes. This can also
lead to poor coordination among departments. Also,
innovation is unlikely to develop because there is a
FUNCTIONAL ORGANIZATIONAL
STRUCTURE
CEO

Executive
Secretary

VP for
VP for
VP for Sales VP for HR Finance &
Production
Admin

Staff Staff Staff Staff

Staff Staff
 FUNCTIONAL ORGANIZATIONAL
STRUCTURE
- This emphasizes the hierarchy and specialization
among departments and enables a company to
establish clear professional identities among its
employees, since they are given positions and ranks
in line with their areas of expertise or specialization.
- However, this may bring positive competition among
employees assigned to different departments. They
are actions are focused on the specific goals of each
department but may also contribute to the
achievement of the general goals of the company.
Harmony among departments is highly desired to
 DIVISIONAL GROUPING
- This design organizes a company into divisions that
correspond to certain products or services. The
division can also be based on geography such as a
regional branch/office. Each division is autonomous
and has its own departments, resources and units
that oversee the regular operations of the company.
- An advantage of this design is that divisions are free
to manage their own activities. The decentralized
nature of the organization enables each division to
adapt to the changes and threats they encounter. The
failure of one division will not automatically result to
 DIVISIONAL GROUPING
- The divisions can also focus more closely on their
specific products and services thus ensuring customer
satisfaction.
- However, communication among divisions must be
maintained to ensure that the entire company runs
smoothly. This concerns the top management.
- One disadvantage of the design is that integration
and standardization across product lines is difficult.
This is also prone to competition among divisions to
which the TOP management sees as beneficial to the
company. 
 DIVISIONAL ORGANIZATIONAL
STRUCTURE
- This result to higher productivity per division,
each division concentrates on its own division’s
performance. Corollary, employee supervision
and issue handling are more specific.
- However, this structure may lead to duplication
of functions, expertise and resources and is
more costly to maintain. Also, there may be too
much independence among divisions, thereby
discouraging camaraderie and synergy among
employees.
 GEOGRAPHICAL DIVISION
ORGANIZATIONAL STRUCTURE

Preside
nt
VP for
VP for VP for
Mindan
Luzon Visayas
ao
Producti Marketi Producti Marketi Producti Marketi
Finance Finance Finance
on ng on ng on ng

Staffs Staffs Staffs Staffs Staffs Staffs Staffs Staffs Staffs

 PRODUCT DIVISION
ORGANIZATIONAL STRUCTURE
President

VP for
VP for
Household
Cosmetics
Needs
Department
Department
Shampoo and
Toiletries Detergents Liquid Soap
Conditioner
Division Division Division
Division
Manager Manager Manager
Manager

Marketing & Marketing & Marketing &

Finance Finance Finance
Production Production Production

Staffs
 CUSTOMER DIVISION
ORGANIZATIONAL STRUCTURE
General
Manager

Corporate Individual
Accounts Clients
Division Division
Director Director

Marketing Production Finance Marketing Production Finance

Manager Manager Manager Manager Manager Manager

Staff Staff Staff Staff Staff Staff

 MULTI-FOCUSED GROUPING
- This design combines both the functional and
divisional structures in organizing a company.
This is used when both technical expertise and
product innovation are crucial in meeting
organizational goals. Instead of establishing
hierarchy or division, relationships within the
company are arranged in a grid, where
employees report to functional and product
managers. This is suited for medium-sized
companies that make multiple products or offer
 MULTI-FOCUSED GROUPING
CONTINUED
- 2 Types of Matrix structures:
a. Functional Matrix- organizes the company
in a way that
gives functional managers (in-charge of the
operation)
primary authority.
b. Product Matrix- assigns greater authority
to the product
(in-charge of product development)
managers.
 MULTI-FOCUSED GROUPING
CONTINUED
- The disadvantage of this structure is that the
existence of dual authorities may lead to
confusion and divided loyalties among
employees. This is also time consuming and
involves frequent conflict resolution sessions.
Further, the effectiveness of the design
depends on the familiarity of the participants
with the production process and their
willingness to adopt collegial (horizontal) rather
than vertical (bossy) type relationships.
 MATRIX ORGANIZATIONAL
STRUCTURE
- This combines features of functional and division
structures. This is often use in larger companies and
is set up as a grid where employees have dual
reporting relationships. Further, the flow of authority
of functional manager is vertical, while that of a
project manager is horizontal. Projects within a matrix
structure are usually assigned to specific time frames.
- One of the advantages of this structure is that
employees from different departments can be
selected to work on a project. This structure can also
quickly respond to a market or customer demand
 MATRIX ORGANIZATIONAL
STRUCTURE CONTINUED
- The disadvantage of this structure is that there is
conflict of interest among project managers and
functional managers in the allocation of resources.
Conflict of loyalty is also an issue among employees
since they are reporting to two manager, the project
and functional managers.
- The number of managers involved entails high
administrative costs for the company. Employees
also have heavier workload because of the
additional work in the project aside from the usual
MATRIX ORGANIZATIONAL
STRUCTURE
 HORIZONTAL GROUPING
- This eliminates the complexities of hierarchies and
divisions. Instead, it establishes a structure with
little or no levels between employees, middle
managers and top management. Employees are
organized into general core processes or operations
and all departments in the company work together
in all tasks.
- Corollary, this promotes flexibility and quick
response to changes. It also directs the attention of
all employees towards the production and delivery
 HORIZONTAL GROUPING
CONTINUED
- This also gives a broader view of organizational goals
and promotes teamwork and collaboration.
- However, determining the core processes of the
company will make organization time-consuming. This
design is also costly since it requires rigorous training
of employees to enable them to adapt to a horizontal
structure. (employees are almost equally skilled and
competent)
- More importantly, this design requires a lot of
changes in the work culture, job design, management
philosophy and information and rewards system in the
 TEAM-BASED ORGANIZATIONAL
STRUCTURE
- This is a horizontal design structure that organizes
employees into teams whose members perform
varied functions. Employees work together in
accomplishing various tasks, seeking solutions to
problems and identifying and engaging in business
opportunities.
- The allotted time for each task is maximized since
the hierarchy of management levels is removed,
which simplifies the task of reporting to immediate
superiors and top management.
 TEAM-BASED ORGANIZATIONAL
STRUCTURE CONTINUED
- Productivity is increased since the entire group
is working for a common goal, and the talents
and skills of each employee is maximized.
- One disadvantage however, is time
management since coordinating the teams
requires constant communication and frequent
meetings. Employees may also lack motivation
since team performance is valued rather than
individual contributions.
 VIRTUAL NETWORK
GROUPING
- This is the latest approach to organizational
design that takes advantage of the latest
advances in ICT such as the internet. The
company is structured as a group of departments
that are loosely connected through electronic
means. Technology is used in sharing information,
completing tasks and communicating.
- Most of the firm’s processes, such as accounting
and auditing, manufacturing, credit processing,
customer service, technical assistance IT and
 VIRTUAL NETWORK
GROUPING CONTINUED
- These activities are coordinated by a small
headquarter. This design is advantageous to a small
company since it requires fewer investments (to do
the earlier cited activities), reduces administrative
costs and is flexible to changing needs.
- However, managers do not have hands-on control
over the separate companies and their employees.
This also requires a lot of time to build and cultivate
relationships among the workforce since face-to-face
communication is limited. This may diminish
employees’ loyalty to the company and may feel
 NETWORK ORGANIZATIONAL
STRUCTURE
- A company using this structure hires only a few
employees, which amounts to lesser costs for
salaries and benefits. A company enjoys more
flexibility and can be more responsive to change
since majority or all the functions are outsourced.
- However, independent firms may be hard to
monitor. To do so, the company may have to
spend for expensive equipment to monitor these
firms. There is no corporate culture and employee
loyalty is questionable since employees may work
on project-based or part-time status.
 NETWORK ORGANIZATIONAL
STRUCTURE
JKL
Systems Zalora, Ph. Inc.
Sales &
Marketing Experience:

PQR, Inc.
Distribution – 2Go, LBC
MNO Inc.
Public
Distribution Express
Relations
ABC PR/Marketing– Facebook
Compa
ny
other sites that offers
promotional feature
Credit & Collection – thru
GHI Co. DEF, Inc.
banks/dragon
Credit & Manufactur pay/paypal.com
Collection ing
Manufacturing – by
supplier, i.e. Nike, Adidas,
 OTHER TYPES OF ORGANIZATIONS
In 1989, Henry Mintzberg expanded the
classification of organizations into a more detailed
list of types in his book, Mintzberg on Management.
These classifications are the following:
1. Entrepreneurial Org- the power is focused on the
chief executive; the staff is informal and small, with
a loose division of labor, not too structure resulting
to little management hierarchy;
2. Machine Org- DM is centralized and there is no
distinction b/w the line and staff, tasks are routine
 OTHER TYPES OF ORGANIZATIONS
CONTINUED…

3. Diversified org- the central admin is called

headquarters and there is a set of semi-
autonomous units or divisions under central
admin structure;
4. Professional org- this type has standardized
products and services & employees usually do
routine work, i.e. hospitals, universities and
public agencies. A professional org depends
on the skills and knowledge of its professional
 OTHER TYPES OF ORGANIZATIONS
CONTINUED…
5. Innovative Org- this system is considered as a
modern org which is flexible and does not use
planning and control systems. Multidisciplined
teams are formed and the firm hires experts who
are trained, experienced and are not restricted by
traditional specializations.
6. Missionary Organizations- the mission is the main
focus of this type; the mission is clear, distinct, and
inspiring. Employees are able to identify with the
firm’s purpose and are motivated to enthusiastically
 ORGANIZATIONS THEORIES
1. Bureaucracy- Wax Weber, 1800s, companies were run
like families, resulting to loyalty to people rather than
to org; Ideally, this theory promotes chain of command
and control and legitimacy of authority. Now, this is
associated with formality, hierarchy, rigidity and low
commitment (public orgs);
2. Scientific Management- F.W. Taylor, emphasis on
increase in production from a SOP leaving workers
with little opportunity to innovate;
3. Systems Theory- management is necessarily complex
but implementing an internal system removes some
 ORGANIZATIONS THEORIES
CONTINUED
4. Contingency Theory- there is no single best way in
managing an org; situational differences are given
consideration and different management principles
are applied.

Delegation- refers to the allocation of tasks to

employees. This allows subordinates to do tasks or
responsibilities outside of their regular work = shared
responsibility = shared accountability = employee
empowerment;