Strategy through Organizational Design

This resource presents the four types of organizational structures (simple, functional, multi-divisional, and matrix) and gives examples of companies that have used them. It then explores some of the newer ideas about organizational design and delves into the reasons to change for setting up control systems. Note the discussion on management fads.

Creating an Organizational Structure

Within most firms, executives rely on vertical and horizontal linkages to create a structure that they hope will match the needs of their firm's strategy. Four types of structures are available to executives: (1) simple, (2) functional, (3) multidivisional, and (4) matrix. No two organizational structures are exactly alike. When creating a structure for their firm, executives will take one of these types and adapt it to fit the firm's unique circumstances. As they do this, executives must realize that the choice of structure will influence their firm's strategy in the future. Once a structure is created, it constrains future strategic moves. If a firm's structure is designed to maximize efficiency, for example, the firm may lack the flexibility needed to react quickly to exploit new opportunities.

Simple Structure	Simple structures do not rely on formal systems of division of labor, and organizational charts are not generally needed. If the firm is a sole proprietorship, one person performs all of the tasks that the organization needs to accomplish. Consequently, this structure is common for many small businesses.
Functional Structure	Within a functional structure, employees are divided into departments that each handles activities related to a functional area of the business, such as marketing, production, human resources, information technology, and customer service.
Multidivisional Structure	In this type of structure, employees are divided into departments based on product areas and/or geographic regions. General Electric, for example, has six product divisions: Energy, Capital, Home & Business Solutions, Healthcare, Aviation, and Transportation.
Matrix Structure	Firms that engage in projects of limited duration often use a matrix structure where employees can be put on different teams to maximize creativity and idea flow. As parodied in the movie Office Space, this structure is common in high tech and engineering firms.

Table 2 Common Organizational Structures. Executives rely on vertical and horizontal linkages to create a structure that they hope will match the firm's needs. While no two organizational structures are exactly alike, four general types of structures are available to executives: simple functional, multidivisional, and matrix.