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8TypesofOrganisationalStructures:theirAdvantagesandDisadvantages

8TypesofOrganisationalStructures:theirAdvantagesandDisadvantages
bySmritiChand

TypesofOrganisationalStructures:theirAdvantagesandDisadvantages!
Allmanagersmustbearthattherearetwoorganisationstheymustdealwithoneformalandthe
otherinformal.
Theformalorganisationinusuallydelineatedbyanorganisationalchartandjobdescriptions.The
officialreportingrelationshipsareclearlyknowntoeverymanager.
Alongsidetheformalorganisationexistsareinformalorganisationwhichisasetofevolving
relationshipsandpatternsofhumaninteractionwithinanorganisationthatarenotofficially
prescribed.
Formalorganisationalstructuresarecategorisedas:
(i)Lineorganisationalstructure.
(ii)Stafforfunctionalauthorityorganisationalstructure.
(iii)Lineandstafforganisationalstructure.
(iv)Committeeorganisationalstructure.
(v)Divisionalorganisationalstructure.
(vi)Projectorganisationalstructure.
(vii)Matrixorganisationalstructureand
(viii)Hybridorganisationalstructure.
Theseorganisationalstructuresarebrieflydescribedinthefollowingparagraphs:

1.LineOrganisationalStructure:
Alineorganisationhasonlydirect,verticalrelationshipsbetweendifferentlevelsinthefirm.There
areonlylinedepartmentsdepartmentsdirectlyinvolvedinaccomplishingtheprimarygoalofthe
organisation.Forexample,inatypicalfirm,linedepartmentsincludeproductionandmarketing.
Inalineorganisationauthorityfollowsthechainofcommand.
Exhibit10.3illustratesasinglelineorganisationalstructure.

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Features:
Hasonlydirectverticalrelationshipsbetweendifferentlevelsinthefirm.
Advantages:
1.Tendstosimplifyandclarifyauthority,responsibilityandaccountabilityrelationships
2.Promotesfastdecisionmaking
3.Simpletounderstand.
Disadvantages:
1.Neglectsspecialistsinplanning
2.Overloadskeypersons.
Someoftheadvantagesofapurelineorganisationare:
(i)Alinestructuretendstosimplifyandclarifyresponsibility,authorityandaccountability
relationships.Thelevelsofresponsibilityandauthorityarelikelytobepreciseandunderstandable.
(ii)Alinestructurepromotesfastdecisionmakingandflexibility.
(iii)Becauselineorganisationsareusuallysmall,managementsandemployeeshavegreater
closeness.
However,therearesomedisadvantagesalso.Theyare:
(i)Asthefirmgrowslarger,lineorganisationbecomesmoreineffective.
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(ii)Improvedspeedandflexibilitymaynotoffsetthelackofspecializedknowledge.
(iii)Managersmayhavetobecomeexpertsintoomanyfields.
(iv)Thereisatendencytobecomeoverlydependentonthefewkeypeoplewhoanperform
numerousjobs.

2.StafforFunctionalAuthorityOrganisationalStructure
Thejobsorpositionsinanorganisationcanbecategorizedas:
(i)Lineposition:
apositioninthedirectchainofcommandthatisresponsiblefortheachievementofan
organisationsgoalsand
(ii)Staffposition:
Apositionintendedtoprovideexpertise,adviceandsupportforthelinepositions.
Thelineofficersormanagershavethedirectauthority(knownaslineauthority)tobeexercisedby
themtoachievetheorganisationalgoals.Thestaffofficersormanagershavestaffauthority(i.e.,
authoritytoadvicetheline)overtheline.Thisisalsoknownasfunctionalauthority.
Anorganisationwherestaffdepartmentshaveauthorityoverlinepersonnelinnarrowareasof
specializationisknownasfunctionalauthorityorganisation.Exhibit10.4illustratesastaffor
functionalauthorityorganisationalstructure.

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Inthelineorganisation,thelinemanagerscannotbeexpertsinallthefunctionstheyarerequired
toperform.Butinthefunctionalauthorityorganisation,staffpersonnelwhoarespecialistsinsome
fieldsaregivenfunctionalauthority(Therightofstaffspecialiststoissueordersintheirownnames
indesignatedareas).
Theprincipleofunityofcommandisviolatedwhenfunctionalauthorityexistsi.e.,aworkerora
groupofworkersmayhavetoreceiveinstructionsorordersfromthelinesupervisoraswellasthe
staffspecialistwhichmayresultinconfusionandtheconflictingordersfrommultiplesourcesmay
leadtoincreasedineffectiveness.Somestaffspecialistsmayexertdirectauthorityovertheline
personnel,ratherthanexertadviceauthority(forexample,qualitycontrolinspectormaydirectthe
workeraswellasadviseinmattersrelatedtoquality).
Whilethistypeoforganisationalstructureovercomesthedisadvantagesofapureline
organisaionalstructure,ithassomemajordisadvantages:
Theyare:(i)thepotentialconflictsresultingfromviolationofprincipleofunityofcommandand
(ii)thetendencytokeepauthoritycentralizedathigherlevelsintheorganisation.

3.LineandStaffOrganisationalStructure:
Mostlargeorganisationsbelongtothistypeoforganisationalstructure.Theseorganisationshave
direct,verticalrelationshipsbetweendifferentlevelsandalsospecialistsresponsibleforadvising
andassistinglinemanagers.Suchorganisationshavebothlineandstaffdepartments.Staff
departmentsprovidelinepeoplewithadviceandassistanceinspecializedareas(forexample,
qualitycontroladvisingproductiondepartment).

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Exhibit10.5illustratesthelineandstafforganisationalchart.Thelinefunctionsareproductionand
marketingwhereasthestafffunctionsincludepersonnel,qualitycontrol,researchand
development,finance,accountingetc.Thestaffauthorityoffunctionalauthorityorganisational
structureisreplacedbystaffresponsibilitysothattheprincipleofunityofcommandisnot
violated.
Threetypesofspecializedstaffscanbeidentified:
(i)Advising,
(ii)Serviceand
(iii)Control.
Somestaffsperformonlyoneofthesefunctionsbutsomemayperformtwoorallthethree
functions.Theprimaryadvantageistheuseofexpertiseofstaffspecialistsbythelinepersonnel.
Thespanofcontroloflinemanagerscanbeincreasedbecausetheyarerelievedofmanyfunctions
whichthestaffpeopleperformtoassisttheline.

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Someadvantagesare:
(i)Eventhroughalineandstaffstructureallowshigherflexibilityandspecializationitmaycreate
conflictbetweenlineandstaffpersonnel.
(ii)Linemanagersmaynotlikestaffpersonneltellingthemwhattodoandhowtodoiteven
thoughtheyrecognizethespecialistsknowledgeandexpertise.
(iii)Somestaffpeoplehavedifficultyadjustingtotherole,especiallywhenlinemanagersare
reluctanttoacceptadvice.
(iv)Staffpeoplemayresenttheirlackofauthorityandthismaycauselineandstaffconflict.
Features:
1.Lineandstaffhavedirectverticalrelationshipbetweendifferentlevels.
2.Staffspecialistsareresponsibleforadvisingandassistinglinemanagers/officersinspecialized
areas.
3.Thesetypesofspecializedstaffare(a)Advisory,(b)Service,(c)Controle.g.,
(a)Advisory:
Managementinformationsystem,OperationResearchandQuantitativeTechniques,Industrial
Engineering,Planningetc
(b)Service:
Maintenance,Purchase,Stores,Finance,Marketing.
(c)Control:
Qualitycontrol,Costcontrol,Auditingetc.Advantages
(i)Useofexpertiseofstaffspecialists.
(ii)Spanofcontrolcanbeincreased
(iii)Relieveslineauthoritiesofroutineandspecializeddecisions.
(iv)Noneedforallroundexecutives.
Disadvantages:
(i)Conflictbetweenlineandstaffmaystillarise.

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(ii)Staffofficersmayresenttheirlackofauthority.
(iii)Coordinationbetweenlineandstaffmaybecomedifficult.
CommitteeOrganisationalStructureFeatures:
(a)Formedformanagingcertainproblems/situations
(b)Aretemporarydecisions.
Advantages:
1.Committeedecisionsarebetterthanindividualdecisions
2.Betterinteractionbetweencommitteemembersleadstobettercoordinationofactivities
3.Committeememberscanbemotivatedtoparticipateingroupdecisionmaking.
4.Groupdiscussionmayleadtocreativethinking.
Disadvantages:
1.Committeesmaydelaydecisions,consumemoretimeandhencemoreexpensive.
2.Groupactionmayleadtocompromiseandindecision.
3.Buckpassingmayresult.

4.DivisionalOrganisationalStructure:
Inthistypeofstructure,theorganisationcanhavedifferentbasisonwhichdepartmentsare
formed.Theyare:
(i)Function,
(ii)Product,
(iii)Geographicterritory,
(iv)Projectand
(iv)Combinationapproach.
Exhibit10.6illustratesorganisationalstructuresformedbasedontheabovebasisof
departmentation.

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5.ProjectOrganisationalStructure:
Theline,lineandstaffandfunctionalauthorityorganisationalstructuresfacilitateestablishment
anddistributionofauthorityforverticalcoordinationandcontrolratherthanhorizontal
relationships.Insomeprojects(complexactivityconsistingofanumberofinterdependentand
independentactivities)workprocessmayflowhorizontally,diagonally,upwardsanddownwards.
Thedirectionofworkflowdependsonthedistributionoftalentsandabilitiesintheorganisation
andtheneedtoapplythemtotheproblemthatexists.Thecopeupwithsuchsituations,project
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organisationsandmatrixorganisationshaveemerged.
Aprojectorganisationisatemporaryorganisationdesignedtoachievespecificresultsbyusing
teamsofspecialistsfromdifferentfunctionalareasintheorganisation.Theprojectteamfocusesall
itsenergies,resourcesandresultsontheassignedproject.Oncetheprojecthasbeencompleted,
theteammembersfromvariouscrossfunctionaldepartmentsmaygobacktotheirprevious
positionsormaybeassignedtoanewproject.Someoftheexamplesofprojectsare:researchand
developmentprojects,productdevelopment,constructionofanewplant,housingcomplex,
shoppingcomplex,bridgeetc.
Exhibit10.7illustratesaprojectorganisationalstructure.

Feature:
Temporaryorganisationdesignedtoachievespecificresultsbyusingteamsofspecialistsfrom
differentfunctionalareasintheorganisation.
ImportanceofProjectOrganisationalStructure:
Projectorganisationalstructureismostvaluablewhen:
(i)Workisdefinedbyaspecificgoalandtargetdateforcompletion.
(ii)Workisuniqueandunfamiliartotheorganisation.
(iii)Workiscomplexhavingindependentactivitiesandspecializedskillsarenecessaryfor
accomplishment.
(iv)Workiscriticalintermsofpossiblegainsorlosses.
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(v)Workisnotrepetitiveinnature.
Characteristicsofprojectorganisation:
1.Personnelareassignedtoaprojectfromtheexistingpermanentorganisationandareunderthe
directionandcontroloftheprojectmanager.
2.Theprojectmanagerspecifieswhateffortisneededandwhenworkwillbeperformedwhereas
theconcerneddepartmentmanagerexecutestheworkusinghisresources.
3.Theprojectmanagergetstheneededsupportfromproduction,qualitycontrol,engineeringetc.
forcompletionoftheproject.
4.Theauthorityovertheprojectteammembersissharedbyprojectmanagerandtherespective
functionalmanagersinthepermanentorganisation.
5.Theservicesofthespecialists(projectteammembers)aretemporarilyloanedtotheproject
managertillthecompletionoftheproject.
6.Theremaybeconflictbetweentheprojectmanagerandthedepartmentalmanagerontheissue
ofexercisingauthorityoverteammembers.
7.Sinceauthorityrelationshipsareoverlappingwithpossibilitiesofconflicts,informal
relationshipsbetweenprojectmanageranddepartmentalmanagers(functionalmanagers)become
moreimportantthanformalprescriptionofauthority.
8.Fullandfreecommunicationisessentialamongthoseworkingontheproject.

6.MatrixOrganisationalStructure:
Itisapermanentorganisationdesignedtoachievespecificresultsbyusingteamsofspecialists
fromdifferentfunctionalareasintheorganisation.ThematrixorganisationisillustratedinExhibit
10.8.
Feature:
Superimposesahorizontalsetofdivisionsandreportingrelationshipsontoahierarchical
functionalstructure
Advantages:
1.Decentraliseddecisionmaking.
2.Strongproduct/projectcoordination.
3.Improvedenvironmentalmonitoring.
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4.Fastresponsetochange.
5.Flexibleuseofresources.
6.Efficientuseofsupportsystems.

Disadvantages:
1.Highadministrationcost.
2.Potentialconfusionoverauthorityandresponsibility.
3.Highprospectsofconflict.
4.Overemphasisongroupdecisionmaking.
5.Excessivefocusoninternalrelations.
Thistypeoforganisationisoftenusedwhenthefirmhastobehighlyresponsivetoarapidly
changingexternalenvironment.
Inmatrixstructures,therearefunctionalmanagersandproduct(orprojectorbusinessgroup)
managers.Functionalmanagerareinchargeofspecializedresourcessuchasproduction,quality
control,inventories,schedulingandmarketing.Productorbusinessgroupmanagersareincharge
ofoneormoreproductsandareauthorizedtoprepareproductstrategiesorbusinessgroup
strategiesandcallonthevariousfunctionalmanagersforthenecessaryresources.
Theproblemwiththisstructureisthenegativeeffectsofdualauthoritysimilartothatofproject
organisation.Thefunctionalmanagersmaylosesomeoftheirauthoritybecauseproductmanagers
aregiventhebudgetstopurchaseinternalresources.Inamatrixorganisation,theproductor
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businessgroupmanagersandfunctionalmanagershavesomewhatequalpower.Thereis
possibilityofconflictandfrustrationbuttheopportunityforpromptandefficientaccomplishment
isquitehigh.

7.HybridOrganisationalStructure:
Exhibit10.9(a)illustratesthehybridorganisationalstructure.

Exhibit10.9(b)illustratesacombinationstructure

Advantages:
1.Alignmentofcorporateanddivisionalgoals.
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2.Functionalexpertiseandefficiency.
3.Adaptabilityandflexibilityindivisions.
Disadvantages:
1.Conflictsbetweencorporatedepartmentsandunits.
2.Excessiveadministrationoverhead.
3.Slowresponsetoexceptionalsituations.
Uses:
Usedinorganisationsthatfaceconsiderableenvironmentaluncertaintythatcanbemetthrougha
divisionalstructureandthatalsorequiredfunctionalexpertiseorefficiency
Thistypeofstructureisusedbymultinationalcompaniesoperatingintheglobalenvironment,for
example,InternationalBusinessMachinesUSA.Thiskindofstructuredependsonfactorssuchas
degreeofinternationalorientationandcommitment.Multinationalcorporationsmayhavetheir
corporateofficesinthecountryoforiginandtheirinternationaldivisionsestablishedinvarious
countriesreportingtotheCEOorpresidentattheheadquarters.Theinternationaldivisionsor
foreignsubsidiariesmaybegroupedintoregionssuchasNorthAmerica,Asia,Europeetc.and
againeachregionmaybesubdividedintocountrieswithineachregion.
Whilethefocusisoninternationalgeographicstructures,companiesmayalsochoosefunctionalor
processorproductdepartmentationinadditiontogeographicpatternwhileattheheadquarters
thedepartmentationmaybebasedonfunction.
TheInformalOrganisation:
Aninformalorganisationisthesetofevolvingrelationshipsandpatternsofhumaninteraction
withinanorganisationwhicharenotofficiallypresented.Alongsidetheformalorganisation,an
informalorganisationstructureexistswhichconsistsofinformalrelationshipscreatednotby
officiallydesignatedmanagersbutbyorganisationalmembersateverylevel.Sincemanagers
cannotavoidtheseinformalrelationships,theymustbetrainedtocopewithit
Theinformalorganisationhasthefollowingcharacteristics
(i)Itsmembersarejoinedtogethertosatisfytheirpersonalneeds(needsforaffiliation,friendship
etc.)
(ii)Itiscontinuouslychanging:
Theinformalorganisationisdynamic.

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(iii)Itinvolvesmembersfromvariousorganisationallevels.
(iv)Itisaffectedbyrelationshipoutsidethefirm.
(v)Ithasapeckingorder:certainpeopleareassignedgreaterimportancethanothersbythe
informalgroup.
Eventhoughaninformalorganisationalstructuredoesnothaveitsownformalorganisational
chart,ithasitsownchainofcommand:
BenefitsofInformalOrganisation:
(i)Assistsinaccomplishingtheworkfaster.
(ii)Helpstoremoveweaknessintheformalstructure.
(iii)Lengthenstheeffectivespanofcontrol.
(iv)Compensationforviolationsofformalorganisationalprinciples.
(v)Providesanadditionalchannelofcommunication.
(vi)Providesemotionalsupportforemployees.
(vii)Encouragesbettermanagement.
Disadvantagesofinformalorganisation:
(i)Mayworkagainstthepurposeofformalorganisation.
(ii)Reducesthedegreeofpredictabilityandcontrol.
(iii)Reducesthenumberofpracticalalternatives.
(iv)Increasesthetimerequiredtocompleteactivities.

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