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Types of Organizational Structures

management, business, organization, administration, organizational structures, directing, controlling, staffing, leading

When organizations are young and very small, they do not have very much structure. As they grow a little larger, structure is most frequently based on functional groups. Thus, production activities are grouped together, as are marketing activities and personnel activities. This organizational form is sufficient when all the organization's activities are focused on one product or service and if change is gradual.

It is task groupings that illustrate how the static elements of structure are used in any organization. Positions can be grouped together based on quite different logics that often serve quite different purposes. Tasks can be grouped according to shared expertise or function, process, product, time horizon, or geographical location.

When an organization diversifies its products or services, however, the functional form is inefficient. Various products are subject to different time constraints, diversification probably causes growth in size, and complexity is increased. Under these conditions, organizations often move to product organization. The product form is appropriate when an organization produces two or more products or services that are different in their technical makeup, production requirements, and markets. Adaptation and change now focus on the product in each part of the organization. This organizational form may even cause competition among units in the same organization, as with the built-in competition among General Motors' Oldsmobile, Chevrolet, Buick, Pontiac, and Cadillac divisions.

The matrix organization is an alternative to the functional or product forms. In essence, when other structural forms do not work, a firm may try restructuring along matrix lines. Matrix management is an attempt to superimpose the logic of one approach to grouping. A key point to remember is that no organization uses matrix management for the entire organization; rather, the form is an ancillary arrangement employed strictly for project- or product-specific work within the context of an organization that is structured in some other way.

In this system, employees report not only to a functional manager but also to a project team leader or a product manager with regard to product issues. A key feature of the matrix structure is this dual reporting, which violates a traditional principle of establishing reporting relationships. This radical step is taken because the special expertise of the functional worker is deemed essential to the success of the project or product. The assignment may be temporary or long term, depending on the nature of the project.

Matrix management was invented by the U.S. government in the 1960s when it required contractors to have project management systems as a condition for underwriting research and development projects. The creation of such systems had the advantage of providing government contractors—and their agency contacts—with one individual accountable for the project. The existence of this project leader or product manager, who has the overall responsibility for the project and the contributions of all the functional employees participating in it, is the other key feature of matrix management.

Although matrix management is designed to preserve flexibility, it creates a number of problems. First, people entering the system often need a long period of settling in, by which time the project may be complete. In addition, workers often feel confusion about reporting requirements, and authority in any one position is diminished. Three conditions should be present before managers consider adopting matrix management:

1. The involvement of two or more sectors (such as functions, products,services, or markets)
2. The need to carry out uncertain, complex, and interdependent tasks
3. The need to share human resources and maintain flexibility

Divisionalization is yet another form of structuring used as organizations grow larger. The divisional structure which imposes further complexity is probably negatively related to formalization and imposes the necessity for decentralization, particularly for organizations that must be responsive to their environments. Usually, organizations are subdivided into divisions based on product or geography or both. Organizations that adopt the divisional structure sometimes adopt grid structures, which are larger forms of matrix management in which managers have multiple reporting lines.

Divisionalization was originally adopted by U.S. business organizations. They assigned profit responsibility to division managers, essentially making divisions into businesses in their own right, with the main corporate office retaining responsibilities for strategic planning, overall financial control, and so on. Under such an arrangement, corporate managers become accountable for the performance of the company as a whole, rather than that of any individual division.

Divisionalization creates a number of problems. First, there may not be an obviously superior way to divisionalize. Second, this kind of structuring is by definition divisive, creating all the problems that such strategies typically engender. Third, the greater the interdependence among divisions, the more difficult it will be to make the structure work. Fourth, the divisions themselves may grow large and diversified, losing the underlying logic of the original basis for divisionalization.
Published: 2007-04-17
Author: Martin Hahn

About the author or the publisher
Martin Hahn PhD has received his education and degrees in Europe in organizational/industrial sociology. He grew up in South-East Asia and moved to Europe to get his tertiary education and gain experience in the fields of scientific research, radio journalism, and management consulting.

After living in Europe for 12 years, he moved to South-East again and has worked for the last 12 years as a management consultant, university lecturer, corporate trainer, and international school administrator

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