Organizational Structure
Read each of the four sections of this chapter on organizational structure. Having a basic understanding of organizational design will help you strategize risk management, project initiation, leadership, and more. What is the most important aspect of understanding organizational design you would take away from this section? Why?
Basic Types of Organizations
Most organizations fall into one of four types: pyramids/hierarchies, committees/juries, matrix organizations, and ecologies.
Learning Objectives
Describe the basic types of organizations using four common structuresKey Takeaways
Key Points
- Organizations fall into one of four basic types: pyramids/ hierarchies, committees/juries, matrix organizations, and ecologies.
- From a business perspective, the choice of organizational design has substantial implications for strategy, authority distribution, resource allocation, and functional approaches.
- A pyramid/hierarchy has a leader who is responsible for making all decisions that affect the organization. This leader manages other organizational members.
- Committees/juries consist of groups of peers who decide collectively, sometimes by casting votes, on the appropriate courses of action within the organization.
- Matrix organizations assign workers to more than one reporting line in an attempt to maximize the benefits of both functional and decentralized organizational forms.
- In ecologies, each business unit represents an individual profit center that holds employees accountable for the unit's profitability.
Key Terms
- common law: A precedent or policy developed by judges through decisions of courts and similar tribunals.
- functional: A structure that consists of activities such as coordination, supervision, and task allocation.
- decentralized: A structure where business units operate autonomously and have greater decision-making power.
Basic Organizational Structures
An organization is a social entity with collective goals that is linked to an external environment. Most organizational structures fall into one of four types: pyramids/hierarchies, committees/juries, matrix organizations, and ecologies. From a business perspective, the choice of organizational design has substantial implications for strategy, authority distribution, resource allocation, and functional approaches.Pyramid/Hierarchy
An organization using a pyramid or hierarchy structure has a leader who is responsible for and makes all the decisions affecting the organization. This leader manages other organizational members. Pyramids and hierarchies often rely on bureaucratic practices, such as clearly defined roles and responsibilities and rigid command and control structures. Like a physical pyramid, these organizations need a sturdy base with sufficient members to support various levels of management within the overall structure so that the organization does not fall short of its goals.
From a business perspective, a hierarchy will often be divided according
to function or geography. For example, a global retailer may utilize a
geographic hierarchy at the upper level, with each geographic branch
creating a functional hierarchy beneath it. A smaller organization
operating in a single region may simply have a functional hierarchy.
The Iraqi Special Security Organization: This organizational chart of the Iraqi Special Security Organization illustrates a hierarchy. Note the multiple separate layers to the organization's hierarchy; the lowest layer includes individual branches, the next layer involves supervisory directorates, which report to the director's office, who is accountable to the scientific branch.
Committee/Jury
Committees or juries consist of groups of peers who decide collectively, sometimes by casting votes, on the appropriate courses of action within an organization. Committees and juries have a basic distinction: members of a committee usually perform additional actions after the group reaches a decision, while a jury's work concludes once the group has reached a decision. In countries with common-law practices, for example, a jury of peers render innocent or guilty verdicts in the court system. Juries are often used to determine athletic contests, book awards, and similar contests.In the business world, a committee structure is more commonly found in smaller institutions. A start-up company with three people, for example, may easily function as a committee in which decisions are made via discussion. Committees represent a decentralized approach to organizational design and tend to have a collaborative, often unstructured workplace. The more people involved, the more disparate and less effective committee structures become.
Matrix
Matrix organizations assign employees to two reporting lines, each with a boss representing a different hierarchy. One hierarchy is functional and assures that experts in the organization are well-trained and assessed by bosses who are highly qualified in the same areas of expertise. The other hierarchy is executive and works to ensure the experts bring specific projects to completion. Matrix organizations are by far the most complex and are more common in large corporations.Projects can be organized by product, region, customer type, or other organizational need. The matrix structure combines the best parts of both separate structures. In a matrix organization, teams of employees perform work to take advantage of the strengths and compensate for the weaknesses of both the functional and decentralized forms of organizational structure. Matrix organizations may be further categorized as one of the following types:
- Weak/Functional Matrix: A project manager with limited authority is assigned to oversee cross-functional aspects of the project. Functional managers maintain control over their resources and project areas.
- Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and functional managers, combining the best aspects of functional and project-oriented organizations. This system is the most difficult to maintain because of difficulties in power-sharing.
- Strong/Project Matrix: A project manager is primarily responsible for the project. Functional managers provide technical expertise and assign resources as needed.