Organizational Structure

Types of Organizational Designs

The three most commonly used organizational designs are simple structure, bureaucratic structure and matrix structure.

Simple Structure A firm with a simple organization structure has a wide span of control, few departments, centralized authority and a low degree of formalization. Simple structure (refer to refers to a “flat”organization with two or three levels of hierarchy). In a firm with a simple

organization structure, the decision making power for the entire organization is vested in one person. This structure is generally used in small organizations like retail stores and small consultancies. In this form of organization structure, employees have clear reporting relationships, decision-making is fast, maintenance costs are low and rules are flexible. But this type of structure is not suitable for large organizations. In small organizations, it is possible for   a single individual to run the business, oversee all the functions and take all the decisions pertaining to the business. But in large organizations, where a lot of information has to be processed and many functions require to be managed, a single individual cannot handle all the work and take all the decisions. A single individual, handling so much work, will take a long time to arrive at a decision. This delay in decision-making will affect the organization’s ability  to compete in the market. Moreover, as the entire power and authority is concentrated in  a  single person at the top, death or disability of the person is likely to have a negative impact on the business.

The Bureaucracy Max Weber, one of the pioneers of modern sociology, formulated the bureaucratic model of organizations in the early 1900s. Weber held the model to be rational and regarded it as consistent with the values of Western culture which emphasized rationality. He believed bureaucracy as an ideal structure for organizations. Many organizations across the world, including leading global companies like IBM had adopted the bureaucratic model. Unfortunately, when organizations attempt to restructure, bureaucracy becomes a major barrier to change.

The Matrix Organization Matrix structure is another modern organizational design. It is a structure which combines the features of a project design with those of a functional one. It is popularly used in sectors characterized by a high degree of specialization along with emphasis  on projects and other specific goals such as R&D organizations, consultancies, advertising agencies, hospitals, universities, etc. Functional departmentalization helps the organization gather specialized resources from each function (finance, production, marketing, etc) and makes them available for all the projects. Project design, on the other hand, facilitates coordination among various specialists by identifying employees with the requisite skills and bring them to work together to achieve on-time completion of tasks. The matrix structure combines the strengths of the two designs while eliminating their weaknesses. The main advantage of the matrix structure is that it facilitates coordination between the various complex functions of the organization. It also enables the organization to allocate functional specialists among different departments in an effective manner. However, the matrix structure is not devoid of weaknesses. The structure violates the principle of unity of command, due to which the employees report to two (or more) bosses. This could give rise to conflicts between the managers. For example, product managers have to fight to get the best specialists allotted to their products. This may eventually end up in a power struggle between two or more product managers. Sometimes such struggles may also develop between the functional and product managers. The conflicts, if allowed to continue without resolution, can demotivate employees, reduce their loyalty and preclude them from identifying themselves with the organization. Matrix design is also  criticized for the confusion it creates and the amount of stress it places  on  individuals. Reporting to more than one superior leads to role conflict and ambiguity among employees, which can increase their work-stress. As the superior changes from one project to another, superior-subordinate relationships also gets weakened. As the matrix structure embodies two structures, it often leads to duplication of activities resulting in increase in costs. Despite its drawbacks, many large organizations which use complex technology are increasingly adopting matrix structure. It could be mainly because of the multiple benefits offered by matrix  structures. Matrix structures enable organizations to make optimum utilization of employee skills, ensure that knowledge is available to employees in all the departments and projects, facilitate quick response to changes in customer demands and project requirements, and help organizations reduce costs and improve performance. The success of the structure depends on how effectively managers overcome its deficiencies and leverage its positive aspects

Organizational Designs and Employee Behavior

It is difficult to generalize the type of organizational structure that would lead to better employee performance and increased job satisfaction. Job satisfaction varies from individual to individual, depending on his/her personal preferences. Some individuals prefer to be guided in their work by standard rules and procedures. They are comfortable with tasks that require a low level of skills and can be performed mechanically. Such employees are most productive in mechanistic structures where there is a high degree of work specialization. But now-a-days, a significant portion of the workforce is educated and desires jobs that facilitate personal growth and provide individuals an opportunity to utilize their skills. A relationship between employee performance and elements like span of control and degree of centralization has not yet been established. Some employees are able to work to their full potential only when they are under minimum supervision. They are most productive in organization structures where there is a wide span of control (supervisors who have several subordinates under them, who are not able to closely supervise each subordinate’s work). Low level of supervision in these structures gives these employees the freedom to plan their work. This freedom motivates them and results in job satisfaction. But some employees like to be guided constantly in their work by their superior. Such employees are more productive in structures where there is a narrow span of control. Though it is generally agreed that decentralization positively influences employee performance and job satisfaction, there is no evidence to prove that it always improves employee performance. It has been observed that some employees who have low self esteem are not capable of taking independent decisions and prefer participative decision-making because in  such form of decision-making they are not held responsible for any wrong decision. But employees who have high self-esteem and confidence in their decision-making abilities prefer to take their own decisions.

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Organizational Behavior by Icfai Business School is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.