functional organizational structure essay

Organizational Structure

Functional Organizational Structure

By Mike Baumgarten

Last updated: May 4, 2023

Table of contents

What is a functional organizational structure?

Which characteristics does a functional structure organization have, pros and cons of a functional organizational structure, who is the functional structure optimal for, example of a functionally structured organization, learn more about organizational design.

In this article, we’ll cover what a functional organizational structure is and what characterizes this type of structure. Finally, we’ll explore the pros and cons of the model.

A functional organizational structure is a safe way to ensure that employees are focused and decision-making processes are streamlined. Due to a strict focus on efficiency and a clear chain of command, functional structures are especially popular among larger companies.

Every time an organizational structure has benefits, however, it also has downsides. In this article, we’ll cover what a functional organizational structure is and what characterizes this type of structure. Finally, we’ll explore the pros and cons of the model.

Let’s get into it!

A functional structure is defined as a system where employees are grouped in different departments based on expertise, each having a functional head. Unlike a hierarchical chart, employees are organized by function rather than by authority.

These departments are referred to as “silos”. This term comes from the metaphor of grain silos that are tall, slim, and isolated to each store different types of grain. Similarly, employees in a functional organizational structure are isolated from other departments.

There are three main areas where a functional organizational structure is distinctive in its design. These are:

• Departmental specialization

In a functional organization, every department is specialized in a particular field, such as sales, marketing, engineering, or finance.

• Clear hierarchy

Employees within the department report to the department head who reports to the executives.

• Limited cross-collaboration

As employees work in silos, they are entirely focused on their own work and do not work cross-functionally.

The characteristics of a functional organizational structure can be both good and bad, depending on the needs of the organization. Here are some of the pros and cons of the structure:

• Clear decision-making process

Because each employee isn’t individually managed, functional organizational designs allow for more flexibility and autonomy within each department, while still keeping an effective chain of command through the head of each department.

• Grouped based on expertise

By strictly working within their field, employees can focus entirely on their own domain of expertise. This can increase efficiency and lead to higher satisfaction since employees don’t have to work in fields they aren’t interested in.

• Easier measurement and development

Because employees are grouped by fields of expertise, it becomes easier to evaluate their performance, as employees can be measured against each other. New skill development also becomes easier since training can be focused on a particular skill set within that field.

• Internal isolation

Within a functional org structure, there is a risk of professional as well as personal isolation. As employees are grouped by expertise, cross-functional collaboration is not encouraged. This can lead to social issues if teams do not socialize with others.

• Less innovation

Innovation often happens when different perspectives meet to come up with a solution. Functional structures can prevent this creativity from unfolding, as the model discourages employees from cross-functional collaboration.

• Slower decision-making

The chain of command in functional organizational structures goes through the department head further up to the executives. Though the decision-making process in functional structures is clear and well-defined, it is slow when compared to flatter structures.

Functional organizational structures are suitable for larger companies that want to keep their employees focused on their specific areas of expertise.

These structures do not prioritize fostering innovation through cross-functional collaboration. Instead, they focus on efficient workflows and a streamlined decision-making process.

A large company that operates with a structure that has functional elements is Unilever , the owner of brands such as Knorr, Dove, and Ben & Jerry’s. In late 2022, Unilever announced changes to its organizational structure to make it “simpler, more category-focused”.

It moved away from its matrix structure and organized into five departments focused on Beauty & Well-Being, Personal Care, Nutrition, Home Care, and Ice Cream. Each department, or Business Group as Unilever calls it, is responsible for its own operations.

This structure has elements of a divisional organizational structure, but also of a functional structure, since the departments each have a specialized focus and operate in isolation from each other.

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What is an Org Chart?

Which org structure fits you, matrix organizational structure.

Functional Organizational Structure: Everything You Need to Know

A functional organization structure is a structure used to organize workers. 3 min read updated on August 10, 2020

What Is a Functional Organizational Structure?

A functional organizational structure is a structure used to organize workers. They are grouped based on their specific skills and knowledge. It vertically structures each department with roles from the president to finance and sales departments, to customer service, to employees assigned to one product or service. Functional organizations contain specialized units that report to a single authority, usually called top management.

Each functional unit handles one aspect of the product or service provided such as:

• information technology
• development
• research, etc.

They are referred to as "silos" because the function independently and have their own vertical management structure. Workers within each functional department communicate with each other exclusively, and then department heads communicate with each other. This structure works well in a stable environment that has continuous operations. The goal of a functional structure is to put together every informational and human resource necessary for one activity in a single place. The functional organizational structure helps organizations run their business and earn a profit.

Advantages of a Functional Structure

When employees who have similar skills and experiences are grouped together, it makes production more efficient and of a higher quality. Roles and tasks do not change very much so there is little time spent learning, and accountability is clear. Since the hierarchy is simple, employees know the one manager they are to answer to, instead of multiple people. This streamlines communication and reduces confusion among employees. Employees can feel confident about what they're doing because it is standardized. They are more likely to feel a loyalty to their department and the organization as a whole. This increases morale and work ethic, as there is more job security . There is a clear path of growth for employees which provides motivation, and they are more likely to be corporative with people in their department. A functional organizational structure  provides a perfect environment for learning for new employees (especially new college graduates) to be taught the real-world application of theoretical information.

Disadvantages of the Functional Organizational Structure

Employees may find it boring to repeat the same task over and over, and become less enthusiastic over time. If promotions are not handled well, an employee may be discouraged if a lower-performing peer is promoted over them. Problems may arise among management if department heads are only focused on their department and do not communicate effectively with other departments. This can cause poor communication and "silos" that are too independent from one another. If employees and management are only loyal to their teams, there will be a lack of teamwork and coordination.

It is a rigid structure where changes, innovations, and flexibility can be difficult to implement. An employee in any department may lack knowledge of information about all other departments. Managers tend to make decisions without consulting the department first, which can lead to problems. A department can become too autocratic and put its goals above those of the organization as a whole. With so many specialists involved in a process, it is difficult to pin the blame for a specific product or service malfunction on any individual.

Who Is Best Suited for a Functional Organizational Structure?

Larger companies are better suited to use the functional organizational structure, especially ones that produce just a few types of goods or services. Smaller companies may not need the structure or may find it too constraining. For projects in which the depth of knowledge is more important than the breadth of information, a functional organizational structure is appropriate. For instance, a fundamental research and development program is well-suited to a functional organizational structure since the project can capitalize on the expertise of the department.

The functional organizational structure helps organizations run their business and earn a profit by grouping employees based on their skills and expertise. It provides a clear hierarchy and minimizes confusion among employees who may be unsure who they are to report to. It is an efficient way to run a business but can have drawbacks as it can lead to a lack of communication between departments and unenthusiastic employees.

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Content Approved by UpCounsel

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Preferred Organizational Structure: Functional Organizational Structure Essay

• To find inspiration for your paper and overcome writer’s block
• As a source of information (ensure proper referencing)
• As a template for you assignment

An organizational structure refers to a system established to oversee the organization’s flow of activities to achieve its goals, which include roles, rules, and responsibilities. There are several organizational structures, such as product, functional, matrix, customer, and geographic. I prefer the functional one because it categorizes individuals as per their particular functions. The accounting, human resource, and purchasing departments have distinct secured zones from which they operate, thus independently managed. Another example of the functional organizational structure’s events is that there is a director to whom managers of various functional areas report (Young & Ghoshal 2016). The director acts as the overall in charge of the operations of the organization.

One of the vital advantages of the functional organizational structure is the fact that functions are run on the basis of expertise, which allows for maximum productivity of each individual because they are engaging in duties in which they are most efficient. However, a disadvantage of this system is that departments may tend to operate as solo units, which may lead to failure to support the functions of the other areas of expertise, thus making the organization lose its sense of unity, which is pivotal in any organization’s success. I also prefer an organizational structure that operates by some guidelines, which are of massive benefit to the organization. The functional Organization structure works by these guidelines. One of the guidelines includes having goals of the organization defined by those at high levels, such as the director of operations. There are also apparent job descriptions present for each job, ensuring each worker knows what is expected of them. There should also be clear lines of responsibility and authority that guide everyone’s behavior. Another guideline is that top management is the one that makes crucial organizational decisions—all these sum up a preferred organizational structure.

Young, C., & Ghoshal, S. (2016). Organization theory and the multinational corporation . Springer.

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IvyPanda. (2022, August 12). Preferred Organizational Structure: Functional Organizational Structure. https://ivypanda.com/essays/preferred-organizational-structure-functional-organizational-structure/

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1. IvyPanda . "Preferred Organizational Structure: Functional Organizational Structure." August 12, 2022. https://ivypanda.com/essays/preferred-organizational-structure-functional-organizational-structure/.

Bibliography

IvyPanda . "Preferred Organizational Structure: Functional Organizational Structure." August 12, 2022. https://ivypanda.com/essays/preferred-organizational-structure-functional-organizational-structure/.

Functional Structure vs. Matrix

What's the difference.

Functional structure is a traditional organizational structure where employees are grouped based on their specific functions or areas of expertise. Each department or function operates independently and has its own hierarchy. On the other hand, matrix structure is a more flexible and dynamic organizational structure where employees are grouped based on both their functions and projects. In a matrix structure, employees report to both a functional manager and a project manager, allowing for better coordination and communication across different functions. While functional structure promotes specialization and efficiency within each department, matrix structure encourages collaboration and cross-functional teamwork.

Further Detail

Introduction.

Organizational structure plays a crucial role in determining how a company operates and achieves its goals. Two commonly used structures are functional structure and matrix structure. While both have their own advantages and disadvantages, understanding their attributes can help organizations make informed decisions about which structure best suits their needs. In this article, we will compare the attributes of functional structure and matrix structure, highlighting their key differences and similarities.

Functional Structure

Functional structure is a traditional organizational design where employees are grouped based on their specialized functions or areas of expertise. Each department focuses on a specific function, such as marketing, finance, operations, or human resources. Here are some key attributes of functional structure:

• Clear Specialization: Functional structure allows employees to specialize in their respective areas, leading to deep expertise and efficiency within each department.
• Clear Reporting Lines: In this structure, employees report to a single manager within their functional department, ensuring clear lines of authority and accountability.
• Efficient Resource Allocation: Functional structure enables efficient allocation of resources as each department can focus on its specific function and optimize resource utilization accordingly.
• Enhanced Skill Development: Employees have the opportunity to develop specialized skills within their functional area, leading to career growth and expertise.
• Limited Cross-Functional Collaboration: Due to the siloed nature of functional structure, cross-functional collaboration may be limited, potentially hindering innovation and communication between departments.

Matrix Structure

Matrix structure is a more complex organizational design that combines functional and project-based reporting lines. It aims to leverage the benefits of both functional specialization and cross-functional collaboration. Here are some key attributes of matrix structure:

• Dual Reporting Lines: In matrix structure, employees have two reporting lines: one to their functional manager and another to the project or product manager. This allows for a balance between functional expertise and project-specific goals.
• Enhanced Collaboration: Matrix structure promotes collaboration across departments, as employees from different functions work together on projects, sharing knowledge and expertise.
• Flexibility and Adaptability: Matrix structure enables organizations to quickly adapt to changing market conditions or project requirements by assembling cross-functional teams with the necessary skills and expertise.
• Improved Communication: With employees from different functions working closely together, matrix structure fosters better communication and information sharing, leading to more informed decision-making.
• Potential for Role Confusion: The dual reporting lines in matrix structure can sometimes lead to role confusion or conflicts, as employees may receive conflicting instructions or priorities from their functional and project managers.

Now that we have explored the attributes of both functional structure and matrix structure, let's compare them in various aspects:

Organizational Focus

In functional structure, the focus is primarily on specialized functions or departments. Each department operates independently, optimizing its function's performance. In contrast, matrix structure emphasizes both functional expertise and project-specific goals, striking a balance between the two.

Communication and Collaboration

Functional structure may limit cross-functional collaboration due to its siloed nature. Communication primarily occurs within departments, potentially hindering information sharing and innovation. On the other hand, matrix structure promotes collaboration and communication across functions, fostering a more integrated and collaborative work environment.

Flexibility and Adaptability

Functional structure may struggle with flexibility and adaptability, as changes or new projects may require reorganizing departments or creating new ones. Matrix structure, on the other hand, offers greater flexibility and adaptability by assembling cross-functional teams based on project requirements, allowing organizations to respond quickly to market changes.

Decision-Making Authority

In functional structure, decision-making authority lies primarily with functional managers who have expertise in their respective areas. On the contrary, matrix structure involves shared decision-making between functional and project managers, considering both functional requirements and project goals.

Employee Development

Functional structure provides employees with the opportunity to develop specialized skills within their functional area, leading to career growth and expertise. Matrix structure, however, offers employees the chance to develop a broader skill set by working on cross-functional projects, enhancing their versatility and adaptability.

Choosing the right organizational structure is crucial for any company's success. Functional structure and matrix structure are two popular options, each with its own attributes and implications. Functional structure offers clear specialization and efficient resource allocation but may limit cross-functional collaboration. On the other hand, matrix structure promotes collaboration, flexibility, and adaptability but can lead to role confusion. Ultimately, organizations must carefully consider their goals, culture, and industry dynamics to determine which structure aligns best with their needs and objectives.

Comparisons may contain inaccurate information about people, places, or facts. Please report any issues.

What is a Functional Organizational Structure?

Feb 10, 2021 | Organizational Design

Your organization has a lot riding on its structure; it defines the roles and responsibilities of everyone within it and plays a huge part in shaping its culture.

While an organization can choose to adopt any structure , it makes sense to utilize one that aligns with its requirements. Every organizational structure has a different underlying “system”.

In a hierarchical system, for example, the line of authority flows upwards to individual supervisors and managers, ultimately to the CEO while in a matrix system, there are multiple lines of authority that flow to different people.

Today, we’re going to look at the functional organizational structure.               

How Does a Functional Organizational Structure Work?

In a functional organizational structure, the organization is divided into smaller groups and divisions based on specialized function areas, such as marketing or finance.

By dividing an organization into a variety of functional structures, greater control can be exercised over operations and how work is performed.

These functional areas operate in their own bubbles and are disconnected from each other. Generally, the line of authority from each function will flow to a senior executive or functional head, such as the VP of marketing, and then to the CEO and the board. A great example of this is Amazon’s corporate structure . 

The functional organization structure is ideal for a business that deals primarily with operations, such as e-commerce, logistics, or manufacturing, where specialist employees fill skilled roles.

What are the Advantages of a Functional Organizational Structure?

There are many advantages to the functional organizational structure:

It Develops Specialist Employees

When companies use a functional organizational structure, groups of employees with similar skills and knowledge are grouped together. This enables employees to hone these skills and become specialists and experts in their field, leading to long-term professional development.

The in-depth knowledge held by these employees can also help a company achieve its long-term functional goals.

It Promotes Operational Efficiency

Due to their expertise, workers with a finely tuned set of specialist skills can carry out tasks more quickly, efficiently, and confidently.

The knock-on effect of this is in two parts: i) it will also lend a boost to the achievement of organizational goals and ii) it will keep employees motivated and encourage them to stick around and develop within and move up the company hierarchy.

It Creates a Clear Hierarchy

A functional structure—especially when it is mapped out using org chart software and distributed to your employees—creates clarity within the organization. It presents everyone with their individual place and role in the organization clearly and without ambiguity.

This reduces the number of communication channels, enabling information to flow more quickly and without resistance through the organization.

What are the Disadvantages of a Functional Organizational Structure?

Just as there are several key advantages, there are some disadvantages that need to be considered if you’re considering adopting a functional structure:

Cooperation Can Be Difficult

Although the functional organizational structure is efficient, cooperation and collaboration can sometimes be compromised. This is because functional groups largely work in their own bubbles, meaning that rifts between different groups can develop over time.

When this happens, infighting and a reluctance to cooperate can lead to delays, wasted time, and projects that come off the rails. This can ultimately drive down motivation, production, and efficiency, making it more difficult to reach organizational goals.

Inflexible Management

The difficulties facing communication and cooperation don’t just affect individual teams, they can also work their way to management level.

This is because functional organizations have more rigid and bureaucratic operations, and this can slow down the decision-making process. And because teams exist in these bubbles or “silos”, functional departments and units aren’t accountable to one another, leading to poor horizontal coordination between managers.

3 Examples of Other Organizational Structures

If the functional organizational structure doesn’t sound like it’s right for your organization, you’ve got plenty of other options—you could even invent your own!

Here are three examples of other common organizational structures:

1. Hierarchical Organizational Structure

The pyramid-shaped hierarchical organizational structure is by far the most commonly used one by organizations worldwide. In the hierarchical structure, the chain of command goes from the very top (e.g., CEO) and cascades downwards to the very bottom (e.g., entry-level roles) and each employee has their own manager or supervisor.

The hierarchical structure is popular because it’s the best at defining levels of authority. It also motivates employees with clear career paths and progression opportunities. At the same time, it can slow down innovation and make lower-level employees feel as if they’ve got less of a stake in the company or are less important.

2. Matrix Organizational Structure

A matrix organizational structure is composed of a sort-of grid or matrix pattern, rather than a traditional pyramid-shaped hierarchy.

In a matrix organization, people with similar or complementary skills are pooled together for projects and collaborative work assignments, meaning that more than one manager is reported to for a single project or undertaking.

For example, a new sales project in an organization may overlap with the marketing department. All sales professionals will report to their own manager, with some members of the sales team also reporting to the marketing manager for the duration of the project, and vice-versa.

3. Flat/Horizontal Organizational Structure

A flat (or horizontal) org structure is better for companies where there are very few levels between entry- and staff-level employees and upper management. A classic example would be a start-up organization where upper management is heavily involved in its day-to-day operations.

Many start-ups and new businesses use this structure while they grow, eventually evolving into a more suitable structure as new departments are formed, and more employees are brought on board. Some organizations maintain this structure even while they grow because it encourages more involvement from employees and leads to innovation and a stronger culture.

This is because the flat structure gives employees more autonomy and promotes open communication. At the same time, the flat structure can create confusion since there is often the absence of a clear supervisor and it can be difficult to maintain as the company gets bigger.

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Purdue Online Writing Lab Purdue OWL® College of Liberal Arts

Organization and Structure

Welcome to the Purdue OWL

This page is brought to you by the OWL at Purdue University. When printing this page, you must include the entire legal notice.

Copyright ©1995-2018 by The Writing Lab & The OWL at Purdue and Purdue University. All rights reserved. This material may not be published, reproduced, broadcast, rewritten, or redistributed without permission. Use of this site constitutes acceptance of our terms and conditions of fair use.

There is no single organizational pattern that works well for all writing across all disciplines; rather, organization depends on what you’re writing, who you’re writing it for, and where your writing will be read. In order to communicate your ideas, you’ll need to use a logical and consistent organizational structure in all of your writing. We can think about organization at the global level (your entire paper or project) as well as at the local level (a chapter, section, or paragraph). For an American academic situation, this means that at all times, the goal of revising for organization and structure is to consciously design your writing projects to make them easy for readers to understand. In this context, you as the writer are always responsible for the reader's ability to understand your work; in other words, American academic writing is writer-responsible. A good goal is to make your writing accessible and comprehensible to someone who just reads sections of your writing rather than the entire piece. This handout provides strategies for revising your writing to help meet this goal.

Note that this resource focuses on writing for an American academic setting, specifically for graduate students. American academic writing is of course not the only standard for academic writing, and researchers around the globe will have different expectations for organization and structure. The OWL has some more resources about writing for American and international audiences here .

Whole-Essay Structure

While organization varies across and within disciplines, usually based on the genre, publication venue, and other rhetorical considerations of the writing, a great deal of academic writing can be described by the acronym IMRAD (or IMRaD): Introduction, Methods, Results, and Discussion. This structure is common across most of the sciences and is often used in the humanities for empirical research. This structure doesn't serve every purpose (for instance, it may be difficult to follow IMRAD in a proposal for a future study or in more exploratory writing in the humanities), and it is often tweaked or changed to fit a particular situation. Still, its wide use as a base for a great deal of scholarly writing makes it worthwhile to break down here.

• Introduction : What is the purpose of the study? What were the research questions? What necessary background information should the reader understand to help contextualize the study? (Some disciplines include their literature review section as part of the introduction; some give the literature review its own heading on the same level as the other sections, i.e., ILMRAD.) Some writers use the CARS model to help craft their introductions more effectively.
• Methods: What methods did the researchers use? How was the study conducted? If the study included participants, who were they, and how were they selected?
• Results : This section lists the data. What did the researchers find as a result of their experiments (or, if the research is not experimental, what did the researchers learn from the study)? How were the research questions answered?
• Discussion : This section places the data within the larger conversation of the field. What might the results mean? Do these results agree or disagree with other literature cited? What should researchers do in the future?

Depending on your discipline, this may be exactly the structure you should use in your writing; or, it may be a base that you can see under the surface of published pieces in your field, which then diverge from the IMRAD structure to meet the expectations of other scholars in the field. However, you should always check to see what's expected of you in a given situation; this might mean talking to the professor for your class, looking at a journal's submission guidelines, reading your field's style manual, examining published examples, or asking a trusted mentor. Every field is a little different.

Outlining & Reverse Outlining

One of the most effective ways to get your ideas organized is to write an outline. A traditional outline comes as the pre-writing or drafting stage of the writing process. As you make your outline, think about all of the concepts, topics, and ideas you will need to include in order to accomplish your goal for the piece of writing. This may also include important citations and key terms. Write down each of these, and then consider what information readers will need to know in order for each point to make sense. Try to arrange your ideas in a way that logically progresses, building from one key idea or point to the next.

Questions for Writing Outlines

• What are the main points I am trying to make in this piece of writing?
• What background information will my readers need to understand each point? What will novice readers vs. experienced readers need to know?
• In what order do I want to present my ideas? Most important to least important, or least important to most important? Chronologically? Most complex to least complex? According to categories? Another order?

Reverse outlining comes at the drafting or revision stage of the writing process. After you have a complete draft of your project (or a section of your project), work alone or with a partner to read your project with the goal of understanding the main points you have made and the relationship of these points to one another. The OWL has another resource about reverse outlining here.

Questions for Writing Reverse Outlines

• What topics are covered in this piece of writing?
• In what order are the ideas presented? Is this order logical for both novice and experienced readers?
• Is adequate background information provided for each point, making it easy to understand how one idea leads to the next?
• What other points might the author include to further develop the writing project?

Organizing at the sentence and paragraph level

Signposting.

Signposting is the practice of using language specifically designed to help orient readers of your text. We call it signposting because this practice is like leaving road signs for a driver — it tells your reader where to go and what to expect up ahead. Signposting includes the use of transitional words and phrasing, and they may be explicit or more subtle. For example, an explicit signpost might say:

This section will cover Topic A­­ and Topic B­­­­­.

A more subtle signpost might look like this:

It's important to consider the impact of Topic A­­ and Topic B­­­­­.

The style of signpost you use will depend on the genre of your paper, the discipline in which you are writing, and your or your readers’ personal preferences. Regardless of the style of signpost you select, it’s important to include signposts regularly. They occur most frequently at the beginnings and endings of sections of your paper. It is often helpful to include signposts at mid-points in your project in order to remind readers of where you are in your argument.

Questions for Identifying and Evaluating Signposts

• How and where does the author include a phrase, sentence, or short group of sentences that explains the purpose and contents of the paper?
• How does each section of the paper provide a brief summary of what was covered earlier in the paper?
• How does each section of the paper explain what will be covered in that section?
• How does the author use transitional words and phrases to guide readers through ideas (e.g. however, in addition, similarly, nevertheless, another, while, because, first, second, next, then etc.)?

WORKS CONSULTED

Clark, I. (2006). Writing the successful thesis and dissertation: Entering the conversation . Prentice Hall Press.

Davis, M., Davis, K. J., & Dunagan, M. (2012). Scientific papers and presentations . Academic press.

10.1 Organizational Structures and Design

• What are mechanistic versus organic organizational structures?

First, an organizational structure is a system for accomplishing and connecting the activities that occur within a work organization. People rely on structures to know what work they should do, how their work supports or relies on other employees, and how these work activities fulfill the purpose of the organization itself.

Second, organizational design is the process of setting up organizational structures to address the needs of an organization and account for the complexity involved in accomplishing business objectives.

Next, organizational change refers to the constant shifts that occur within an organizational system—for example, as people enter or leave the organization, market conditions shift, supply sources change, or adaptations are introduced in the processes for accomplishing work. Through managed change , leaders in an organization can intentionally shape how these shifts occur over time.

Finally, organizational development (OD) is the label for a field that specializes in change management. OD specialists draw on social science to guide change processes that simultaneously help a business achieve its objectives while generating well-being for employees and sustainable benefits for society. An understanding of OD practices is essential for leaders who want to maximize the potential of their organizations over a long period of time.

Together, an understanding of these concepts can help managers know how to create and direct organizations that are positioned to successfully accomplish strategic goals and objectives. 1

To understand the role of organizational structure, consider the experience of Justin, a young manager who worked for a logistics and transportation company. Their success at leading change in the United States gave their leaders the confidence that Justin could handle a challenging assignment: organize a new supply chain and distribution system for a company in Northern Europe. Almost overnight, Justin was responsible for hiring competent people, forming them into a coherent organization, training them, and establishing the needed infrastructure for sustained success in this new market.

If you were given this assignment, what would you do? How would you organize your employees? How would you help them understand the challenge of setting up a new organization and system? These are the kinds of questions that require an understanding of organizational structure, organizational design, organizational change, and organizational development.

One of the first issues Justin will need to address deals with how they will organize the system. “The decisions about the structure of an organization are all related to the concept of organizational design. There are two fundamental forms of structure to remember when designing an organization.

To address these questions, we need to be familiar with two fundamental ways of building an organization.

The formal organization is an officially defined set of relationships, responsibilities, and connections that exist across an organization. The traditional organizational chart, as illustrated in Exhibit 10.2 , is perhaps the most common way of depicting the formal organization. The typical organization has a hierarchical form with clearly defined roles and responsibilities.

When Justin sets up the formal organization, they will need to design the administrative responsibilities and communication structures that should function within an organizational system. The formal systems describe how flow of information and resources should occur within an organization. To establish the formal organization, they will identify the essential functions that need to be part of the system, and they will hire people to fill these functions. They will then need to help employees learn their functions and how these functions should relate to one another.

The informal organization is sometimes referred to as the invisible network of interpersonal relationships that shape how people actually connect with one another to carry out their activities. The informal organization is emergent, meaning that it is formed through the common conversations and relationships that often naturally occur as people interact with one another in their day-to-day relationships. It is usually complex, impossible to control, and has the potential to significantly influence an organization’s success.

As depicted in Exhibit 10.3 , the informal organization can also be mapped, but it is usually very different than the formal organization. The chart you see in this example is called a network map, because it depicts the relationships that exist between different members of a system. Some members are more central than others, and the strength of relationships may vary between any two pairs or groups of individuals. These relationships are constantly in flux, as people interact with new individuals, current relationships evolve, and the organization itself changes over time. 2

The informal organization in Justin’s design will form as people begin interacting with one another to accomplish their work. As this occurs, people will begin connecting with one another as they make sense of their new roles and relationships. Usually, the informal organization closely mirrors the formal organization, but often it is different. People quickly learn who the key influencers are within the system, and they will begin to rely on these individuals to accomplish the work of the organization. The informal organization can either help or hinder an organization’s overall success.

In sum, the formal organization explains how an organization should function, while the informal organization is how the organizational actually functions. Formal organization will come as Justin hires and assigns people to different roles. They can influence the shape of the informal organization by giving people opportunities to build relationships as they work together. Both types of structures shape the patterns of influence, administration, and leadership that may occur through an organizational system.

As we continue our discussion of structure and design, we will next examine different ways of understanding formal structure.

Types of Formal Organizational Structures

Now, Justin will need to choose and implement an administrative system for delegating duties, establishing oversight, and reporting on performance. They will do this by designing a formal structure that defines the responsibilities and accountability that correspond to specific duties throughout an organizational system. In this section, we’ll discuss the factors that any manager should consider when designing an organizational structure.

Bureaucracy

One of the most common frameworks for thinking about these issues is called the bureaucratic model . It was developed by Max Weber, a 19th-century sociologist. Weber’s central assumption was that organizations will find efficiencies when they divide the duties of labor, allow people to specialize, and create structure for coordinating their differentiated efforts, usually within a hierarchy of responsibility. He proposed five elements of bureaucracy that serve as a foundation for determining an appropriate structure: specialization, command-and-control, span of control, centralization, and formalization. 3

Specialization

The degree to which people are organized into subunits according to their expertise is referred to as specialization —for example, human resources, finance, marketing, or manufacturing. It may also include specialization within those functions. For instance, people who work in a manufacturing facility may be well-versed in every part of a manufacturing process, or they may be organized into specialty units that focus on different parts of the manufacturing process, such as procurement, material preparation, assembly, quality control, and the like.

Command-and-Control

The next element to consider is the reporting and oversight structure of the organization. Command-and-control refers to the way in which people report to one another or connect to coordinate their efforts in accomplishing the work of the organization.

Span of Control

Another question addresses the scope of the work that any one person in the organization will be accountable for, referred to as span of control . For instance, top-level leaders are usually responsible for all of the work of their subordinates, mid-level leaders are responsible for a narrower set of responsibilities, and ground-level employees usually perform very specific tasks. Each manager in a hierarchy works within the span of control of another manager at a level of the organization.

Centralization

The next element to consider is how to manage the flows of resources and information in an organization, or its centralization . A highly centralized organization concentrates resources in only one or very few locations, or only a few individuals are authorized to make decisions about the use of resources. In contrast, a diffuse organization distributes resources more broadly throughout an organizational system along with the authority to make decisions about how to use those resources.

Formalization

The last element of bureaucracy, formalization , refers to the degree of definition in the roles that exist throughout an organization. A highly formalized system (e.g., the military) has a very defined organization, a tightly structured system, in which all of the jobs, responsibilities, and accountability structures are very clearly understood. In contrast, a loosely structured system (e.g., a small, volunteer nonprofit) relies heavily on the emergent relationships of informal organization.

Mechanistic and Organic Structures

Using the principles of bureaucracy outlined above, managers like Justin have experimented with many different structures as way to shape the formal organization and potentially to capture some of the advantages of the informal organization. Generally, the application of these principles leads to some combination of the two kinds of structures that can be seen as anchors on a continuum (see Table 10.1 ).

On one end of the continuum is mechanistic bureaucratic structure . This is a strongly hierarchical form of organizing that is designed to generate a high degree of standardization and control. Mechanistic organizations are often characterized by a highly vertical organizational structure , or a “tall” structure, due to the presence of many levels of management. A mechanistic structure tends to dictate roles and procedure through strong routines and standard operating practices.

In contrast, an organic bureaucratic structure relies on the ability of people to self-organize and make decisions without much direction such that they can adapt quickly to changing circumstances. In an organic organization, it is common to see a horizontal organizational structure , in which many individuals across the whole system are empowered to make organizational decision. An organization with a horizontal structure is also known as a flat organization because it often features only a few levels of organizational hierarchy.

The principles of bureaucracy outlined earlier can be applied in different ways, depending on the context of the organization and the managers’ objectives, to create structures that have features of either mechanistic or organic structures.

For example, the degree of specialization required in an organization depends both on the complexity of the activities the organization needs to account for and on the scale of the organization. A more organic organization may encourage employees to be both specialists and generalists so that they are more aware of opportunities for innovation within a system. A mechanistic organization may emphasize a strong degree of specialization so that essential procedures or practices are carried out with consistency and predictable precision. Thus, an organization’s overall objectives drive how specialization should be viewed. For example, an organization that produces innovation needs to be more organic, while an organization that seeks reliability needs to be more mechanistic.

Similarly, the need for a strong environment of command-and-control varies by the circumstances of each organization. An organization that has a strong command-and-control system usually requires a vertical, tall organizational administrative structure. Organizations that exist in loosely defined or ambiguous environments need to distribute decision-making authority to employees, and thus will often feature a flat organizational structure.

The span of control assigned to any specific manager is commonly used to encourage either mechanistic or organic bureaucracy. Any manager’s ability to attend to responsibilities has limits; indeed, the amount of work anyone can accomplish is finite. A manager in an organic structure usually has a broad span of control, forcing her to rely more on subordinates to make decisions. A manager in a mechanistic structure usually has a narrow span of control so that they can provide more oversight. Thus, increasing span of control for a manager tends to flatten the hierarchy while narrowing span of control tends to reinforce the hierarchy.

Centralization addresses assumptions about how an organization can best achieve efficiencies in its operations. In a mechanistic structure, it is assumed that efficiencies will occur in the system if the resources and decisions flow through in a centralized way. In an organic system, it is assumed that greater efficiencies will be seen by distributing those resources and having the resources sorted by the users of the resources. Either perspective may work, depending on the circumstances.

Finally, managers also have discretion in how tightly they choose to define the formal roles and responsibilities of individuals within an organization. Managers who want to encourage organic bureaucracy will resist the idea of writing out and tightly defining roles and responsibilities. They will encourage and empower employees to self-organize and define for themselves the roles they wish to fill. In contrast, managers who wish to encourage more mechanistic bureaucracy will use tools such as standard operating procedures (SOPs) or written policies to set expectations and exercise clear controls around those expectations for employees.

When a bureaucratic structure works well, an organization achieves an appropriate balance across all of these considerations. Employees specialize in and become highly advanced in their ability to perform specific functions while also attending to broader organizational needs. They receive sufficient guidance from managers to stay aligned with overall organizational goals. The span of control given to any one manager encourages them to provide appropriate oversight while also relying on employees to do their part. The resources and decision-making necessary to accomplish the goals of the organization are efficiently managed. There is an appropriate balance between compliance with formal policy and innovative action.

Business Structures

Aside from the considerations outlined above, organizations will often set structures according to the functional needs of the organization. A functional need refers to a feature of the organization or its environment that is necessary for organizational success. A business structure is designed to address these organizational needs. There are two common examples of functional structures illustrated here.

Product structures exist where the business organizes its employees according to product lines or lines of business. For example, employees in a car company might be organized according to the model of the vehicle that they help to support or produce. Employees in a consulting firm might be organized around a particular kind of practice that they work in or support. Where a functional structure exists, employees become highly attuned to their own line of business or their own product.

Geographic structures exist where organizations are set up to deliver a range of products within a geographic area or region. Here, the business is set up based on a territory or region. Managers of a particular unit oversee all of the operations of the business for that geographical area.

In either functional structure, the manager will oversee all the activities that correspond to that function: marketing, manufacturing, delivery, client support systems, and so forth. In some ways, a functional structure is like a smaller version of the larger organization—a smaller version of the bureaucracy that exists within the larger organization.

One common weakness of a bureaucratic structure is that people can become so focused on their own part of the organization that they fail to understand or connect with broader organizational activities. In the extreme, bureaucracy separates and alienates workers from one another. These problems can occur when different parts of an organization fail to communicate effectively with one another.

Some organizations set up a matrix structure to minimize the potential for these problems. A matrix structure describes an organization that has multiple reporting lines of authority. For example, an employee who specializes in a particular product might have both the functional reporting line and a geographic reporting line. This employee has accountability in both directions. The functional responsibility has to do with her specialty as it correlates with the strategy of the company as a whole. However, her geographic accountability is to the manager who is responsible for the region or part of the organization in which she is currently working. The challenge is that an employee may be accountable to two or more managers, and this can create conflict if those managers are not aligned. The potential benefit, however, is that employees may be more inclined to pay attention to the needs of multiple parts of the business simultaneously.

Concept Check

• What is an organizational structure?
• What are different types of organizational structures?
• What is organizational design?
• What concepts should guide decisions about how to design structures?

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• Authors: David S. Bright, Anastasia H. Cortes
• Publisher/website: OpenStax
• Book title: Principles of Management
• Publication date: Mar 20, 2019
• Location: Houston, Texas
• Book URL: https://openstax.org/books/principles-management/pages/1-introduction
• Section URL: https://openstax.org/books/principles-management/pages/10-1-organizational-structures-and-design

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