In choosing a company’s organizational structure, management is searching for the one that will bring the company’s moving parts together into a well-coordinated, efficient and effective unit. The choice is important because the right groupings of people and work facilitate business activities, allowing employees to accomplish the company’s strategic vision and mission. Some groupings lead to a highly defined and mechanistic structure. Other ways of departmentalizing create a loose and more free-flowing organization. Possible structures include functional, divisional, matrix, team and network.
The functional organizational structure groups people by typical broad business activities — marketing, finance, human resources and production — then further subdivides as necessary. This results in a vertical, hierarchical structure. Advantages include efficiency and clear lines of authority, communication and accountability. Workers easily coordinate and communicate within their departments. Unfortunately, a departmental focus causes interdepartmental communication and coordination to suffer. Hierarchical layers mean ideas for change must brave a bureaucratic chain of command. Functional structures are the most controlled and mechanized
but also the least nimble and adaptive to changes in their environment.
There are some definite advantages to grouping all staff by function:
- Staff is managed by a person with experience in their same specialty who can adequately understand and review their work.
- Staffers have the opportunity to move up within their functional areas, which gives a reason for them to stay long-term. The company gets the advantage of their expertise and company knowledge over time.
- Staffers work with others in their field, which allows for knowledge sharing and lateral job moves to learn new skills.
The functional structure also has some disadvantages, including:
- Functional areas may have difficulties working with other functional areas. There is often a perception that they are competing with other functional areas for resources and a lack of understanding of what other areas do for the company. So, the
accounting department may be upset that its request for an additional headcount is denied, but the company financial results point to a need for additional sales people rather than accountants.
- As the company grows larger, the functional areas can become difficult to manage due to their size. They can become almost like small companies on their own, with their own cultures, facilities, and management methods.
- Functional areas may become distracted by their own goals and focus on them, rather than on overall company objectives. For instance, there may be a desire by the I.T. department to implement a new, state-of-the-art computer system, but the overall
company objectives support investment in new products instead. Since the unit doesn’t have an overview of the entire company, it may focus attention on goals that it believes are important but which are not priorities for top management.
The divisional structure groups workers according to geography, product line or customer. Each division operates as a separate company, complete with all the necessary functions, though sometimes upper management controls some functional areas such as finance. Duplication of roles across divisional units is one of this structure’s drawbacks, as it means less efficiency and economy. Additionally, interdivisional rivalries and poor communication and coordination among units may result. However, the divisional structure lets each product line excel, better serves customer niches and can cater to geographic and cultural differences.
The matrix structure blends the functional and divisional structures, gaining the advantages of both. Each person belongs to a functional department such as production, reporting to a boss above. Each person also answers to a project team or business unit. Teams benefit from the functional expertise of members, while the functional hierarchy exerts a measure of control and
accountability for business activities. The downside is, of course, that everyone has two bosses with possible conflicting interests and loyalties. Divisional and functional power struggles can erupt.
The team structure groups people according to a common objective. Each team is empowered to meet its goal, taking responsibility for results. Team participants hold the power. The company sheds its management layers, resulting in a horizontal rather than vertical structure. Without chains of command, decisions are made more quickly and the company becomes adaptable and able to move nimbly within the marketplace. Meanwhile, empowered individuals make for motivated, invested employees. The risk of the team structure lies in employee control. Workers must be trained to take on challenges.
Rather than hiring workers for all of its business functions, a company using the network structure relies on outside companies. The networking company can employ few workers, while enjoying the reach, capacity and functionality of a larger business. It may, for instance, hire an outside manufacturer to produce its products. The network structure lowers costs and gains flexibility because it uses outside help according to need. Creating a network-based company, however, means losing control over whatever processes the company delegates to others.