What is Organizational Structure?
An organizational structure is a definitive configuration of operations. It determines the management of the group or the organization as a whole. So, it discerns the position and task of a worker to achieve the desired business goal. Organizational structure is flexible and can be tweaked according to the size and requirements of the company. A startup firm adopts a structure that is most convenient to manage with very little complexities. However, as the size of the company scales up, the setup has to be shifted to suit the situation. A self-sufficient structure is the best way to save extra costs. Hire professionals that can serve your company's overall objective.
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Attributes of Organizational Structure
Organizational structure is the foundation of any business. So, while selecting a structure, look for certain features that benefit your business in the long run.
Span of Control
This feature provides control over people, who work under a hierarchy. Suppose if the manager has a team of 8 members, she/he has the potential to regulate the work between other employees.
Building Departments
Departmentalization specifies the position and work of an individual. The departments consist of smaller groups, who work to achieve similar goals.
Decentralization
In this feature, the power is distributed to different managers. The diffusion of power starts from the top and goes down the line.
Centralization
In centralization, the top management takes all the decisions and also plans to improve the economic stability of the business.
Work Specialization
In simpler words, it refers to the allotment of work. As a manager, you can break the complex project into the nuclear unit for efficient working. This segregation process permits workers to finish a task in a short period.
Formalize
Formalization stands for the guidelines and regulations of a firm that helps the workflow. Managers can instruct the guidelines to the whole organization.
COC
COC stands for Chain of Command. This attribution is responsible for the organization's reporting hierarchy. This process assures that every manager is accountable for entrusted tasks.
These features are mandatory for every organizational structure to ensure business expansion. Here are a few factors that leverage organizational structures:
Delegating capabilities
Geographical location
Accountability task
Simple design
Kinds of Organizational Structure
There are 5 primary kinds of organizational structure which the majority of the organizations implement. However, the type of structure that companies adopt is based on the size, employee-strength and investment.
Organizations start with the most basic structure but make necessary changes as the company grows. This is important to ensure smooth continuity and utmost transparency.
Organic Organization
Simple organizations tend to adapt to market changes skillfully. This structure is flexible and is distinguished by having lesser regulations and management hierarchy. It is designed to formulate decentralized decision making.
The simple organization design goes well with today's marketing needs. As the industry is dynamic, adapting to new changes is essential. Employees can work side by side and can transmit information easily.
Here the role of a project manager is diminished as the structure has a decentralization layout.
Line Organization
This structure is widely adopted by small enterprises and is the simplest of all organization structure. Line organization has specified administration levels in the hierarchy. Power flow starts from the top and flows down the chain.
A hierarchical structure clarifies accountability, responsibility and authority at each grade. Due to its simple approach, authority and accountability are transparent and traceable. Quick feedback smoothens the communication process.
The role of the project manager depends on the position in the hierarchy. Some companies do not hire a project manager, although this structure restricts the chores of a project head.
Line and Staff Organization
This structure is the modified version of the line organization. In this, functional experts collaborate with line managers to lead the way.
This is a go-to approach for the present-day scenario. Most of the large enterprises adopt this setup. The staff comprises two sections; the specialized and common team.
Common or General Staff
The general staff includes regular employees. These employees are not experts and work under top management.
Expert or Specialized Staff
This category consists of experts who cater services to the company. They are offered various positions, such as quality control executives, maintenance experts or advisors.
FAQs on Formal and Project Management Organizations
1. What is a formal organisational structure?
A formal organisational structure is a system of well-defined jobs, each bearing a definite measure of authority, responsibility, and accountability. It is deliberately designed by top management to achieve specific organisational objectives. This structure clarifies the reporting relationships and follows a clear chain of command, ensuring systematic and orderly functioning.
2. What are the key features of a formal organisation?
A formal organisation is characterised by several key features that ensure its efficient operation. These include:
- Well-Defined Rules and Regulations: It operates on a set of explicit rules and policies.
- Determined Objectives: All activities are directed towards pre-determined goals.
- Division of Labour: Work is clearly divided among departments and employees to ensure specialisation.
- Clear Authority & Responsibility: The powers and duties of each position are explicitly defined.
- Chain of Command: It follows a hierarchical structure, also known as the scalar chain, for communication and authority flow.
3. How does a formal organisational structure differ from an informal one?
The primary difference lies in their creation and functioning. A formal structure is deliberately created by management to achieve business goals, with rigid rules and communication that follows the official chain of command. In contrast, an informal structure emerges spontaneously from social interactions among employees. It is flexible, has no written rules, and communication flows in all directions through the 'grapevine'.
4. Why is having a clear organisational structure crucial for a company's success?
A clear organisational structure is crucial because it provides the framework for all business operations. It ensures that there is no ambiguity in roles, which prevents the duplication of effort and resources. By defining the chain of command, it facilitates smooth communication, effective coordination between departments, and holds employees accountable, which collectively contributes to achieving organisational goals efficiently.
5. Can you provide an example of a formal organisational structure in a real company?
A classic example of a formal organisational structure is seen in a large manufacturing company like Tata Motors. The company has a clear hierarchy starting with the Board of Directors and CEO, followed by heads of different divisions (e.g., Passenger Vehicles, Commercial Vehicles). Within each division, there are functional departments like Production, Marketing, Finance, and Human Resources, each with its own head, managers, and subordinates, illustrating a clear division of work and a defined chain of command.
6. What are the primary advantages and limitations of a formal organisation?
While a formal organisation promotes efficiency, it has both advantages and disadvantages.
- Advantages: It leads to systematic working, facilitates coordination, prevents overlapping of tasks, and makes it easier to fix responsibility.
- Limitations: It can lead to procedural delays (red tape), may not consider the psychological and social needs of employees, and its rigidity can stifle creativity and initiative.
7. How does centralisation versus decentralisation impact decision-making within an organisation?
Centralisation and decentralisation significantly affect an organisation's agility and control. In a centralised structure, decision-making authority is concentrated at the top levels of management, which ensures uniformity and tight control. However, this can slow down decisions. In a decentralised structure, authority is delegated to lower levels, which empowers employees, leads to faster decision-making, and allows top management to focus on strategic issues. The choice between them often depends on the company's size, goals, and management philosophy.
