How Does the Type of Organizational Structure a Business Chooses Affect the Business?
Organizational structures are put into place to manage people, and to obtain the best possible performance from a business's staff in order to meet its goals and objectives. These structures also determine how human resources will be allocated by considering where people will perform their best work. A business may choose its structure based on various different criteria, and the structures that it uses will have different effects on the business and the employees.
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Functional Departmentalization
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The functional departmentalization form of organization splits a business into departmental units based on the functions that each department must complete. Examples include sales and production, as well as accounting and human resources. This structure may have a positive effect on the organization by encouraging employees to enhance their skills that pertain to their specific department, thereby providing the employee a clear career path. Placing employees performing the same type of job in the same department also enhances collaboration and efficiency within the business. A disadvantage of this system is that it can encourage interdepartmental conflict, making departments work against each other and forget that they are all part of the same business.
Geographic Departmentalization
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Businesses may organize according to geographic areas, particularly if the business is spread out with global operations. These geographic departments may be given additional autonomy to increase efficiency in management and address the different business needs of different areas. This can also help overcome distance issues that may make a centralized approach to operating the business more costly.
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Matrix Structure
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The matrix organizational structure is a combination of different structures. Experts from several different departments, such as marketing and production, come together to perform a common goal, such as designing a new product and launching that product. A project manager is named to oversee this goal. The employees answer to this project manager, as well as to their own line managers.
This dual-management concept can cause problems within the business. Senior managers must work to be certain that all parties in the business communicate clearly to avoid redundancy and duplication as well as avoiding conflicts between the managers. An advantage of the matrix structure is that it allows the project to use highly specialized people and equipment, and even allows different people to use their expertise to work on several projects at one time.
Factors Affecting Organizational Choices
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The size of a company clearly affects the organizational structure that the company uses, with small companies able to use more informal structures, or even no organizational structure at all. As the company grows, more formality is needed, and clear structures are created, depending on the lifecycle of the business.
A business may operate in a stable environment, where customer needs are expected to stay the same, or a dynamic environment, where customer needs and markets are changing. Stable environments favor traditional structures -- with top-down management -- more than dynamic environments, which require flexible structures that can change at a moment's notice.
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