Organizational structure defines the lines of authority, supervisory relationships, grouping of employees, and operational work flow of a company. A number of vital factors of success, including workplace culture and operational efficiency, are directly influenced by organizational structure. An effective and well-designed structure is important to the success of any business.
The most fundamental function of organizational structure is the delineation of lines of authority within a company. Company hierarchies can be relatively tall, with many layers of management, or relatively flat, with large numbers of employees reporting to a small number of supervisors. One hierarchy is not necessarily better than another; different hierarchical structures work in different situations. For example, highly creative industries, such as software development, tend to benefit more from flat hierarchies, whereas light-labor jobs with high turnover, such as in restaurants, tend to benefit from a taller structure.
Decision-making authority is influenced by organizational structure. In decentralized structures, front-line employees are often empowered to make on-the-spot decisions to meet customer needs. An example of this is the clothing store clerk who is able to offer a refund or exchange without management's authorization. In centralized structures, low-level employees pass critical information to managers, who make the majority of decisions.
Work Groups and Departments
According to a Lamar University Web page, organizational structure determines the physical groupings of employees with diverse functions. In a functional structure, employees are grouped based upon the type of work they do. An example of this is an accounting or marketing department. A product structure groups employees according to a specific product line. In this case, representatives from marketing, accounting, production and human resources, for example, are grouped together working on a single product line. In a market or geographical structure, employees from diverse functional areas are grouped according to the specific market they serve.
A well-defined organizational structure can serve to guide individual employees' career advancement plans. With clear layers of authority, the company hierarchy can serve as a map of career progress, with new responsibilities and higher compensation at each level. Some companies go as far as to create a formal advancement plan to guide employees from entry-level positions to upper management through years of outstanding service.
According to Organizational Culture, the culture of a company is highly influenced by its organizational culture. Companies with flatter hierarchies and wider decision-making authority tend to encourage a culture in which employees feel free to experiment and grow. Heavily bureaucratic organizations tend to stifle creativity in most employees, encouraging a stagnant and autocratic workplace culture.