Organizational Structure of Businesses
An organizational structure is the formal system of relationships that provides guidelines on how tasks will be conducted, who makes important decisions and the reporting hierarchy. Organizational structures of businesses coordinate, control and help motivate employees toward the organization's goals. The most common business structures include functional, divisional, matrix, hierarchical and horizontal.
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Significance
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The organizational structure of a business affects workplace culture, employee motivation, performance and cooperation. Selecting the correct structure that compliments your business goals and objectives can positively affect employee behaviors and attitudes, as well as lead to more effective teamwork and networking opportunities that build stronger worker relationships throughout the company. Planning and implementing an organizational structure will help determine the necessary workforce talent to build a successful business.
Functional Structure
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A functional organizational structure is based on job functions. Grouping employees by the positions they hold, tasks they perform or skills they use is the simplest form of organizational structure and allows for better communication between specialists. "Functional organizations have the advantage of being simple to understand with clear lines of command, specified tasks and responsibilities," according to Alan Price's book, "Human Resource Management in a Business Context." A functional structure can lead to more effective teamwork and cooperation within specific divisions but can also cause a mindset of us vs. them between different divisions within the same company.
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Divisional Structure
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A divisional organizational structure divides employees by product, market, or geographical location. Product divisions are popular for companies that produce or sell a wide array of products or services and need employee specialization, such as grocery stores or department stores. Structuring an organization by market divisions allows companies to be more responsive to particular customer needs and increase customer satisfaction. Geographical structures group employees by location and are popular for international companies; this structure looks to provide high quality service and products to customers in every geographic region. Large companies who use divisional structures want the ability to react as quickly to business environment changes as small businesses.
Matrix Structure
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A matrix structure is a complex division of labor that uses a combination of functional and product structures. Matrix structures group employees by job function, which includes position, tasks and skills, as well as their specialization within their product team. Matrix structures attempt to increase product development through improved communication, innovation, creativity, and responsibility. Matrix structures can have some negative influences on employees: having multiple bosses can increase workplace stress, role conflict and role ambiguity.
Hierarchical/Horizontal Structures
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Hierarchical business structures have many levels of management and formal reporting processes while horizontal organizations are more common for smaller businesses with fewer employees. Horizontal organizations are better for companies that need to make quick decisions and want to focus on innovation and creativity; hierarchical organizations are more effective for businesses that have established business processes with high levels of standardization.
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