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Organizational Chart Software

What Is Organizational Structure?

Organizational structure describes the rules, roles and responsibilities within an organization, things we more commonly describe as the organization’s hierarchy. As such, the organizational structure determines such issues as:

  • What people do
  • Their specific job descriptions
  • How each job role fits within the overall system
  • How job functions are grouped: by section, work group, department, branch or team
  • Who makes decisions
  • Who each employee reports to

While a small business with only a handful of people may get away without having an organizational structure, the absence of a structure in most businesses can be a burden. For example, work may be duplicated or fall between the cracks if employees are not clear about their responsibilities in the organization. Having a clear structure in place provides accountability and clarity at every level. This, in turn, can help individuals and teams be more efficient and productive.

Centralized vs. Decentralized Organizational Structures

From a big picture viewpoint, an organizational structure is either centralized or decentralized. Centralized structures have linear hierarchies with a clear line of command between superiors and subordinates – such as exists in the army, for example. These structures are typically shaped like a pyramid. The board of directors sits at the top of the pyramid, making decisions that are then passed down through the CEO and executive team, to department managers, line managers and finally, to the workforce at the bottom of the pyramid.

Recently, there has been a shift toward decentralized structures, especially among new media businesses and technology startups. Decentralized structures give high levels of autonomy, accountability and decision-making to every employee and team. The idea is to eliminate decision-making bottlenecks further up the corporate chain, allowing the business to remain fast, flexible and adaptable to fast-moving conditions.

Within these two categories, there are four basic types of organizational structure – functionaldivisionalflatarchy and matrix – although many businesses develop variations on a theme. Each structure has pros and cons.

Pros and Cons of the Functional Structure

Also known as the bureaucratic structure, the functional structure breaks up the company based on the specialization of its workforce. For example, you may have departments or teams dedicated to manufacturing, sales, marketing, human resources and finance. This is the most common type of organizational structure in the United States.

Advantages

  • Members of the group can easily communicate with one another, which allows for fast decision-making and greater operational efficiency.
  • Members can also learn from one another because people with similar skill sets work shoulder to shoulder.

Disadvantages

  • The different functional groups may work in silos. This leaves them susceptible to tunnel vision, with each work group perceiving the organization only from its own frame of reference.
  • Employees have little personal autonomy, which potentially decreases adaptability and motivation.

Pros and Cons of the Divisional Structure