2. WHAT IS ORGANIZATIONAL STRUCTURE ?
• Organizational structure is a system used to define a
hierarchy within an organization.
• It identifies each job, its function and where it reports to
within the organization.
• This structure is developed to establish how an
organization operates and assists an organization in
obtaining its goals to allow for future growth.
• The structure is illustrated using an organizational chart.
3. WHY DO WE NEED ORGANIZATIONAL STRUCTURE ?
• Evaluating Employee Performance
• Achieving Goals
• Function
• Communication
• Prevention/Solution
4. WHAT ARE THE DIMENSIONS OF ORGANIZATIONAL
STRUCTURE?
Organizational structure has three dimensions
1. Vertical differentiation - the location of decision-
making responsibilities within a structure
2. Horizontal differentiation - the formal division of the
organization into sub-units
3. Integrating mechanisms - the mechanisms for
coordinating sub-units
5. WHY IS VERTICAL
DIFFERENTIATION IMPORTANT?
• Vertical differentiation determines where decision-making
power is concentrated
Centralized decision-making
• facilitates coordination
• ensures decisions are consistent with the organization’s
objectives
• gives managers the means to bring about organizational
change
• avoids duplication of activities
6. WHY IS VERTICAL
DIFFERENTIATION IMPORTANT?
Decentralized decision-making
• relieves the burden of centralized decision-
making
• has been shown to motivate individuals
• permits greater flexibility
• can result in better decisions
• can increase control
7. WHY IS HORIZONTAL
DIFFERENTIATION IMPORTANT?
• Horizontal differentiation refers to how the firm divides
into sub-units
• usually based on function, type of business, or geographical
area
• Most firms begin with no formal structure, but as they
grow, split into functions reflecting the firm’s value
creation activities - functional structure
• functions are coordinated and controlled by top management
• decision-making is centralized
• product line diversification requires further horizontal
differentiation
8. TYPES OF ORGANIZATIONAL STRUCTURE
Functional Structure
A structure in which positions are grouped according to their
main functional (or specialized) area.
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MANAGERSMANAGERS MANAGERS
9. FUNCTIONAL STRUCTURE
ADVANTAGE
• In-depth expertise development
• Clear career path within function
• Efficient use of resources
• Possible economies of scale
• Ease of coordination within function
• Potential technical advantage over competitors
10. FUNCTIONAL STRUCTURE
Disadvantages
• Slow response to multifunction problems
• Decision backlog at top of hierarchy
• Bottlenecks due to sequential tasks
• Inexact measures of performance
• Narrow training of future managers
11. DIVISIONAL STRUCTURE
• A structure in which positions are grouped according to
similarity of products, services or markets.
12. DIVISIONAL STRUCTURE
Advantages:
• Fast response to environmental change
• Simplified coordination across functions
• Simultaneous emphasis on organisational goals
• Strong customer orientation
• Accurate measurement of performance
• Broad training in management skills
13. DIVISIONAL STRUCTURE
Disadvantages:
• Resource duplication in each division
• Reduction of in-depth expertise
• Competition amongst divisions
• Limited sharing of expertise between divisions
• Innovation restricted to each division
• Neglect of overall goals
14. HYBRID STRUCTURE
• A structure adopting both functional and divisional
structures at the same management levels.
17. MATRIX STRUCTURE
• A matrix organization structure is usually defined
as one where there are multiple reporting lines –
that is, people have more than one formal boss.
• In other words, employees have dual reporting
relationships - generally to both a functional
manager and a product manager.
19. MATRIX STRUCTURE
Advantages
• Resources can be used efficiently, since experts and equipment
can be shared across projects.
• Products and projects are formally coordinated across functional
departments.
• Information flows both across and up through the organization.
• Employees are in contact with many people, which helps with
sharing of information and can speed the decision process