BUSINESS ORGANIZATIONAL STRUCTURE

1. Organizational structure by function

Functional structure is one of the most common types of organizational structure
in business, especially in larger companies, where groups of employees are
organized according to the function they perform.
What is a functional organizational structure?
In this type of organizational structure, businesses are organized according to their
roles and skills into smaller groups or departments. This may include, for
example:
• sales
• marketing
• production
• IT
• finance
• operations
• procurement / purchasing
 Individuals, teams and line managers are grouped into a specialized department
where they report to the head of the department, eg the sales director. The
business' top management team typically consists of several functional heads, eg
the chief financial officer, the marketing director or the head of operations.

Advantages of a functional structure

Functional structure arguably achieves greater operational efficiencies, as
employees with shared skills and knowledge work together and perform similar
functions.
The advantages of this type of structure are:

• specialization - departments focus on one area of work

• productivity - specialism means that staff are skilled in the tasks they do
• accountability - there are clear lines of management
• clarity - employees understand their own and others' roles
However, the nature of departmentalism within a functional structure can present
certain risks.
Disadvantages of a functional structure
The vertical separation of divisions and teams can lead to the creation
of 'organizational silos' - a mindset where one team hesitates to share
information or knowledge with other teams within the same organization.
This silo mentality can cause problems around:

• aligning priorities across the business

• the flow of information and communication
• collaboration
• co-ordination of decision-making
• embedding and managing change across departments
Functional structures are common in a wide range of businesses across many
sectors. They work best within large companies, especially those that produce
products or services on a continuous basis, such as in manufacturing.

Smaller companies may find functional structure too rigid, preventing them to
adapt to changes quickly and easily. Flat and hierarchical organizational
structures may be better options in this case.
 2. Hierarchical and Flat organizational structures
Organizational structures define a hierarchy within an organization. Two most
common arrangements include: a flat structure and a hierarchical organizational
structure. Each structure has its advantages and disadvantages. The most
appropriate arrangement will depend on the size and type of your business, and
the number of management levels that you need.
Hierarchical organizational structure
Hierarchical structure is typical for larger businesses and organizations. A
hierarchical structure business has a 'tall' hierarchy - ie multiple layers and a
longer 'chain of command'. Employees are ranked at many different levels within
the organization; each level is one above the other.
Resembling a pyramid, this structure gets wider as you move down - usually with
one chief executive at the top, followed by senior management, middle managers
and finally workers. Employees’ roles are clearly defined within the organization,
as is the nature of their relationship with other employees.

The advantages of a hierarchical structure business are:

• authority and responsibility are clear and well defined
• opportunities for promotion motivates employees
• employees can specialize and develop expertise in their field
The disadvantages of a hierarchical structure are:
• communication between different departments may be less effective
• bureaucracy can slow down decision making
• it may be more difficult for the business to adapt and change
• there could be rivalry between departments leading to decisions that benefit one
team, instead of the organization as a whole

Flat organizational structure

A flat structure means that the business either has no management layers or the
'chain of command' is very short and staff level employees all report to one overall
manager. This type of structure works in small businesses and those that need to
be very flexible.

The advantages of a flat organizational structure are:

• better communication and relationships between different roles
• simple, faster decision making processes
• better ability for the business to change and adapt
• increase in employee responsibility levels
The disadvantages of a flat organizational structure are:
• confusion when employees don’t report to a specific manager
• lack of employee specialism and specific job functions
• lack of long-term growth or opportunity for promotion
• difficulties in scaling up and growing the company
Apart from a flat or a hierarchical structure, other common ways of structuring a
business include: a matrix organizational structure, a project management
organizational structure.

3. Matrix organizational structure

A matrix organizational structure doesn't follow the traditional, hierarchical
model. In the matrix structure, you share resources and staff across teams and
projects, as well as within departments or functions.
What is a matrix organizational structure?
A matrix structure is a combination of two or more types of organizational
structures. It is a way of arranging your business so that you set up reporting
relationships as a grid, or a matrix, rather than in the traditional hierarchy.

In this structure, employees usually have dual reporting relationships - generally

to their functional manager as well as the project manager. Typically, one reporting
line will take priority over the other (eg staff may have to report to their functional
manager before reporting to the project manager).
Examples of matrix structure
 Different forms of matrix structure exist. These fall under three main categories,
depending on the level of power of the project manager:

• Functional or weak matrix - the functional manager retains most of the power
and is in charge of the people and resources. The project manager has a minimal
role and tends to carry out administrative or coordinating tasks.
• Strong matrix - the project manager holds most of the power and authority,
controls the project budget and manages staff. The role of the functional manager
is limited.
• Balanced matrix - the functional managers and the project managers share the
power and the authority over staff and budget.
In large organizations, it is possible to involve all these types of matrix structure at
different levels within a business. This is sometimes referred to as a 'composite
organization'.

The advantages of a matrix organizational structure

 The main advantage of the matrix structure is that it can:
• improve decision-making, since there are two chains of command
• help break down traditional ‘silo’ barriers
• improve communication across the business
• allow staff to apply their skills in different roles
• help share best practice and ideas across teams
• increase efficiencies due to sharing resources across departments
The matrix structure can also help businesses achieve quick market adaptation to
changing customer needs, as it can decrease the lead time to produce a new
product. This structure is most suitable for businesses operating in a dynamic
environment.
The disadvantages of a matrix organizational structure
A matrix structure may not be well suited for businesses working in a more settled
environment, with set customer requirements. Because of its complexity, and the
need for employees to report to two bosses, it can lead to:

• confusion regarding roles, responsibilities and priorities

• divided loyalties between project teams
• blurred lines of accountability
• difficulties in coordinating tasks or functions
• power struggle between the project manager and the functional manager
• large overhead costs, on account of having multiple managers

Matrix organizational structure vs functional

A matrix organizational structure often exists alongside a traditional functional
structure. It is common in large and multi-project organizations that relocate
employees when and where they need them. For smaller businesses with limited
resources, organizational structure by function may be more suited.

4. Project management organizational structure

Project management structure is becoming increasingly common. In a project
organizational structure, you arrange your business around dedicated teams that
work on a particular project.
What is a project based organizational structure?
The project structure involves taking a member of staff out of each functional
department and placing them in a temporary project team. This team then works
on one specific task.
This structure can be useful when developing a new product or entering a new
market. A business that usually has a functional or customer-based structure can
 use project management to complete short-term objectives. In this structure, a
project manager usually:
• has the decisive authority over the task
• leads a team of staff from different departments to complete a project
The individuals on the team work directly for the project managers.

The advantages of a project organizational structure

Some businesses may benefit from using a project management organizational
structure all the time, especially if they need to be flexible and agile in their
operations.

A clear benefit of a project structure is that you have more control over the team.
However, there are many other advantages. For example, such a structure can:
• facilitate a multi-disciplinary or cross-functional way of working
• flatten a business' hierarchy
• create a strong team culture and sense of identity
• ensure a business is organized according to its core activities
• make better use of employees' skills
• make it easier to schedule work with dedicated resources
The disadvantages of a project organizational structure
While the project structure is probably the simplest structure of all, it's worth
keeping in mind some possible downsides. For example, the project organizational
structure can:
• blur organizational lines, since it effectively removes staff from their functional jobs
• suck up resources and staff to work on a single project, rather than wider
objectives
• confuse lines of accountability as employees may report to several different
managers
Project organizational structure can also prove expensive, as having a dedicated
project team can often lead to high costs. This is likely to work best for big and
short-term projects.