Types of Organisation Structure

Different types of Organisation structure can be distinguished on the basis of arrangement of activities. Accordingly, three broad types of structural forms are:

1)     Functional,

2)     Divisional, and

3)     Adaptive

 



Functional structure: When units and sub-units of activities are created in an organisation on the basis of functions, it is known as functional structure. Thus, in any industrial organisation, specialised functions like manufacturing, marketing, finance and personnel are constituted as separate units of the organisation. All activities connected with each such function are placed in the same unit. As the volume of activity increases, sub-units are created at lower levels in each unit and the number of persons under each manager at various levels get added. This results in the interrelated positions taking the shape of a pyramid. The figure shows the functional structure of a medium-size organisation.

The main advantage of the functional structure of organisation is that there is functional specialisation in each unit, which leads to operational efficiency of

 

Chief Executive

Manufacturing

Marketing

Finance

Mechanical works

Electrical works

Advertising

Sales

Accounts

Audit

Sub-units

Sub-units

Sub-units

 

people engaged, and the organisation as a whole derives the benefit of specialised operations. The heads of the functional units are in direct touch with the chief executive who can sort out inter-functional problems, if any, and also coordinate the interrelated functions. The chief executive is also able to be in direct touch with lower level subordinates and thereby have full knowledge of the state of affairs in the organisation.

However, while the functional arrangement may be well suited to small and medium size organisations, it is incapable of handling the problems of an organisation as it grows in size and complexity. Problems of sub-units at lower levels do not receive adequate attention of higher level managers while some of the activities tend to be over-emphasised.

Functional units become unwieldy and difficult to manage when there are diverse kinds of activities performed in large number of sub-units. Personal contact between superiors and subordinates becomes rare, and flow of communication is slow leading to problems of coordination and control.

 

Divisional structure : The divisional organisation structure is more suited to very large enterprise particularly those which deal in multiple products to serve more than one distinctive markets. The organisation is then divided into smaller business units which are entrusted with the business related to different products or different market territories. In other words, independent divisions (product divisions or market division) are created under the overall control of the head office. Each divisional manager is given autonomy to run all functions relating  to the product or market segment or regional market. Thus, each division may have a number of supporting functions to undertake.

 

Chief Executive

Corporate Planning and Control

Finance

Personnel

Chemicals Products Division

Textiles Division

Manufacturing

Marketing

Accounting

Personnel

Manufacturing

Marketing

Accounting

Personnel

 

 

A divisional structure may consist of two or more product divisions or market or territorial divisions as depicted in the Figure

In a divisional structure, each division contributes planned profits to the organisation, but otherwise operates as an independent business. The functional units are headed by managers while the final authority vests in the divisional manager, who coordinates and controls the activities of the various functional units in the division. The top management of the organisation, besides providing funds, determines the organisational goals and formulates policies.

The divisional structure is characterised by decentralisation of authority. Thus it enables managers to take decisions promptly and resolve problems appropriate to the initiative in matters within their jurisdiction. But such a structure involves heavy financial costs due to the duplication of supporting functional units for the divisions. Moreover, it requires adequate number of capable managers to take charge of the respective divisions and their functional units.

 

Adaptive structure : Organisation structures are often designed to cope with the unique nature of the undertaking and the situation. This type of structure is known as adaptive structure. There are two types in structures.

i)      Project Organisation, and

ii)    Matrix Organisation.

 

i)      Project organisation : When an enterprise undertakes any specialised, time-bound work involving one-time operations for a fairly long period, the project organisation is found most suitable. In this situation, the existing organisation creates a special unit so as to engage in a project work without disturbing its regular business. This becomes necessary where it is not possible to cope the special task or project. Within the existing system, the project may consist of developing a new project, installing plant, building an office complex, etc. A project organisation is headed by a project manager in charge, who holds a middle management rank and reports directly to the chief executive. Other managers and personnel in the project organisation are drawn from the functional departments of the parent organisation. On completion of the project they return to their parent departments.

The main advantage of such a structural arrangement is that it leaves regular business undisturbed. It is exclusively concerned with the task of completing the project work on time and in conformity with the standards of performance relevant to its goal. There is better management and control over the project activities as the project manager enjoys necessary authority and is alone responsible for the results. But project organisations may create problems as well. Functional managers often resent the exercise of authority by the project manager in the functional areas and hence conflict arises. The stability of the functional departments is disturbed by transfer of personnel to project work from time to time. Shifting of personnel from project to project disrupts their development in the specialised fields.

 

ii)    Matrix organisation : This is another type of adaptive structure which aims at combining the advantages of autonomous project organisation and functional specialisation. In the matrix organisation structure, there are functional departments with specialised personnel who are deputed to work full time in different projects. Sometimes in more than one project under the overall guidance and direction of project managers. When a project work is completed, the individuals attached to it go back to their respective functional department to be assigned again to some other project. This arrangement is found suitable where the organisation is engaged in contractual project activities and there are many projects to manager, as in a large construction company or engineering firm.

Matrix organisation provides a flexible structure ideally suited to the requirements of changing conditions. It facilitates pooling of specialised and technical personnel from different functional departments, who can be deputed to a number of projects. They acquire valuable experience of handling varied and complex problems in project work. There is speedy exchange of information and decision-making as they work under the coordinating authority of project managers.

The major drawback of matrix organisation is that the personnel drawn from specialised functional departments are subjected to dual authority, that of the functional heads and the project managers. The principles of unity of command is thereby sacrificed. This generates stresses and strains in project management, because there is simultaneous engagement of the same individual in a number of projects. 

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