ORGANIZATIONAL STRUCTURE

Presented By :Neeraj Bhandari

WHAT IS ORGANIZATIONAL STRUCTURE ?• Organizational structure is a system used to define a

hierarchy within an organization. • It identifies each job, its function and where it reports to

within the organization. • This structure is developed to establish how an

organization operates and assists an organization in obtaining its goals to allow for future growth.

• The structure is illustrated using an organizational chart.

WHY DO WE NEED ORGANIZATIONAL STRUCTURE ?

• Evaluating Employee Performance• Achieving Goals• Function• Communication• Prevention/Solution

WHAT ARE THE DIMENSIONS OF ORGANIZATIONAL STRUCTURE?

Organizational structure has three dimensions 1. Vertical differentiation - the location of decision-

making responsibilities within a structure 2. Horizontal differentiation - the formal division of the

organization into sub-units 3. Integrating mechanisms - the mechanisms for

coordinating sub-units

WHY IS VERTICAL DIFFERENTIATION IMPORTANT?• Vertical differentiation determines where decision-making

power is concentratedCentralized decision-making• facilitates coordination• ensures decisions are consistent with the organization’s

objectives• gives managers the means to bring about organizational

change• avoids duplication of activities

WHY IS VERTICAL DIFFERENTIATION IMPORTANT?

Decentralized decision-making• relieves the burden of centralized decision-

making• has been shown to motivate individuals• permits greater flexibility• can result in better decisions• can increase control

WHY IS HORIZONTAL DIFFERENTIATION IMPORTANT?

• Horizontal differentiation refers to how the firm divides into sub-units• usually based on function, type of business, or geographical area

• Most firms begin with no formal structure, but as they grow, split into functions reflecting the firm’s value creation activities - functional structure • functions are coordinated and controlled by top management• decision-making is centralized • product line diversification requires further horizontal

differentiation

TYPES OF ORGANIZATIONAL STRUCTURE

Functional StructureA structure in which positions are grouped according to their main functional (or specialized) area.

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MANAGERSMANAGERS MANAGERS

FUNCTIONAL STRUCTURE

ADVANTAGE• In-depth expertise development• Clear career path within function• Efficient use of resources• Possible economies of scale• Ease of coordination within function• Potential technical advantage over competitors

FUNCTIONAL STRUCTURE

Disadvantages• Slow response to multifunction problems• Decision backlog at top of hierarchy• Bottlenecks due to sequential tasks• Inexact measures of performance• Narrow training of future managers

DIVISIONAL STRUCTURE• A structure in which positions are grouped according to

similarity of products, services or markets.

DIVISIONAL STRUCTUREAdvantages:• Fast response to environmental change• Simplified coordination across functions• Simultaneous emphasis on organisational goals• Strong customer orientation• Accurate measurement of performance• Broad training in management skills

DIVISIONAL STRUCTUREDisadvantages:• Resource duplication in each division• Reduction of in-depth expertise• Competition amongst divisions• Limited sharing of expertise between divisions• Innovation restricted to each division• Neglect of overall goals

HYBRID STRUCTURE• A structure adopting both functional and divisional

structures at the same management levels.

HYBRID STRUCTURE

Advantages:• Alignment of corporate and divisional

goals• Functional expertise and/or efficiency• Adaptability and flexibility in divisions

HYBRID STRUCTURE

Disadvantages:• Conflicts between corporate departments

and divisions• Excessive administration overhead• Slow response to exceptional situations

MATRIX STRUCTURE• A matrix organization structure is usually defined

as one where there are multiple reporting lines – that is, people have more than one formal boss.

• In other words, employees have dual reporting relationships - generally to both a functional manager and a product manager.

MATRIX STRUCTURE

MATRIX STRUCTURE

Advantages• Resources can be used efficiently, since experts and

equipment can be shared across projects.• Products and projects are formally coordinated across

functional departments.• Information flows both across and up through the

organization.• Employees are in contact with many people, which helps with

sharing of information and can speed the decision process

MATRIX STRUCTURE

DISADVANTAGES• Violation of unity of command• Costly structure• Problem of overspecialization• Feeling of insecurity• Lack of commitment

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