The structure of an organization can affect the efficiency of its operations and its ability to adapt to its environment when conditions change. Some organizational structures are good at ensuring that work is carried out according to regulations and procedures. Other are better at handling change. A well-structured organization balances the effort required to coordinate work between departments with control of the work and with the flexibility to react to external events.
The structure of an organization determines how leaders delegate authority and how they assign responsibilities. Its key characteristics are the degree of centralization, the nature of the division into organizational units and the reporting paths. Highly centralized structures with functional or departmentalized units and single reporting paths feature tight controls and are efficient but inflexible. Decentralized structures with work-oriented organizational units and multiple reporting paths have less controls and require extra coordination. They are more suited to rapidly changing environments.There are three main organizational structures with a combination of these characteristics.
The organizational units of a simple or departmentalized organizational structure are responsible for parts of the operations of the organization, such as production, sales, human resources and finance. This organizational type is the most centralized, with single reporting paths in a hierarchical pyramid. The simple structure is most common in smaller organizations where the leader is not far removed from the working level. As the organization grows, the centralized decision-making becomes a weakness as the information from the working level has to travel to the top of the pyramid and decisions have to be handed down through many levels.
In a functionally structured organization, specialists or experts handle the standard functions such as accounting and engineering. Because they have expertise in their areas, the managers of the functional units have a high degree of autonomy with regard to decisions within their departments. In organizations with a functional structure, decision-making is nominally centralized, but the leader delegates a part of the central authority to the specialists in their departments. The leader is free to focus on company-wide matters and overall goals, but operation of the organization remains highly efficient and tightly controlled.
Matrix organizations sacrifice the tight control and high efficiency of the hierarchical structure for increased flexibility and the capability to adapt rapidly to a changing environment. Decision-making remains hierarchical for internal organizational functions but is decentralized for work-related matters. Employees at the working level report to one supervisor for salary, promotion and discipline while reporting to another manager for work. Work-related matters are handled at the working level, allowing those managers to make rapid decisions based on their own observations. A matrix organization is more effective than the other types when quick response is required.
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