Organizational structure is a very important in the operations of a business. Discovering what works best for your organization is vital to its success.
So how do you figure out which structure is best? By examining the characteristics that are best benefited by the structure of choice. There are three structures available to analyze, functional, divisional and matrix. Matrix is really a combination of functional and divisional so I will not be focusing greatly on examining this structure.
Function structures are centralized, but inflexible and are essentially a structure based on departmentalization.
Companies that would benefit from such a structure would be ones with less need for coordination. By this, I mean that the structure is flatter and there are less chains of command to delegate. As well, if your organization is unable to steadily adapt to competition or other environmental factors, a functional structure fits the profile. Usually small or medium companies choose this structure to operate with, but some larger companies have been known to use functional structures as well.
The following image is a basic illustration of what a functional structure would look like:
Divisional structures are also flexible, but are decentralized. Employees are divided by the product lines, or geographical location. Divisional structures lend better to companies that are very large in size and have multiple product lines.
The following outlines a divisional structure:
I have worked for Canada Post in the past, which operates with a divisional organizational structure. Given that Canada Post is a very large company, serving over 14 millions addresses, this structure benefits them.
Notice that I’ve determined Canada Post as having a divisional structure based on the company’s size. This is because I feel that size should be emphasized in determining the best structure for a company.
So why is size so important?
An increase in size creates a decreased concentration of power. The larger a company gets the more beneficial it becomes to create divisions that run alongside each other. By doing so, you don’t have just one high level position, such as director. Instead you need up with many, balancing their powers between each other.
I once worked at a pizza shop, in Ontario and it was apparent less coordination was needed, as its staff and managers would be able to easily interchange ideas. Essentially, all employees would be generally delegated to the same tasks, and would report to the one owner. There are no branches, and therefore not a great deal of specialization is needed. Thus, divisions are unnecessary for smaller companies.
Is size the only real factor? It’s important, but no. It’s not the only factor. The environment also plays a key role.
The environment in which you operate can shape your structure. Functional or flatter structures are better off in environments that are stable. Stable environments require less of a need for rapid changes, alterations or adaptations because of external factors.
The opposite goes for divisional structures, as they can quickly adjust to external factors, such as new competition.
So, should you operate under a Functional or Divisional structure? How about a mix of both? Examine your organization to know what’s appropriate!
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Business Mate. (2009). What is a Divisional Organizational Structure? Retrieved from Business Mate: http://www.businessmate.org/Article.php?ArtikelId=185
Field, R. H. (2002). Organizational Effectiveness, Structure, and Technology. Retrieved from Richard Field on Management and Information Science: http://apps.business.ualberta.ca/rfield/Organizational%20Effectiveness,%20Structure,%20and%20Technology.htm
Tutorials Point. (n.d.). Organizational Structures. Retrieved from Tutorials Point: http://www.tutorialspoint.com/management_concepts/organizational_structures.htm