All businesses, both large and small, benefit from well-defined organizational structure. In order for a company to accomplish its strategic mission and reach its objectives, it needs to develop an effective structure. There are various forms of organizational structures, formal and informal, that can benefit companies, depending on their particular operating needs. Each organizational structure type has its advantages and disadvantages, but whichever style a company selects, a well-structured organization can not only grow as it meets customers’ needs, it can also adapt quickly to environmental changes.
Types of Organizational Structure
Many businesses use organizational charts that map their structures. An organizational chart guides managers and employees on their responsibilities, tasks and authority while reinforcing the company’s goals and objectives. Organizational charts usually detail one of the three main types of structure: functional, divisional and matrix.
Functional structure groups employees into departments based on the type of work they do, such as accounting, sales, marketing, production or human resources. An administrator with experience in the appropriate field usually manages each department. The functional structure works well for start-ups and small businesses, where departments may have only one or two people. A functional or departmentalized structure creates efficiency and accountability, but communication between departments can be poor.
A divisional structure organizes positions according to geographic area, markets, products or customer groups. These divisions can operate independently, often as separate companies. The biggest benefit of this structure is that it can better serve customer needs or needs specific to a geographic region. Employees can work more efficiently because of their specialization in a particular product or market area. As with functional structure, however, communication between divisions can be a weakness.
The matrix structure allows the functional and divisional structures to exist within one organization. Organizations divide themselves by both function and division, gaining the benefits of both. A worker belongs to a department, reporting to its manager, and also works for a specific divisional team or unit organized around a product or market, reporting to another supervisor. Matrix organizations are adaptable to changes in the business environment, but the drawback is that dual management can cause divisional and functional power struggles.
Properly organizing a company can help streamline operations, improve decision making, operate in multiple market locations, increase sales and customer service, and boost employee performance and creativity, so it is important that business owners and managers understand the importance and benefits of structure.
The principles of organizational structure are an important part of an online Master of Business Administration (MBA) degree program. MBA courses generally include managerial accounting, finance, economics, statistics, marketing strategy, information technology and legal issues in business. Students without an undergraduate degree in business can take courses in business foundations that cover essential MBA skills and competencies, such as quantitative accounting methods, business statistics and finance.
Learn about the Baylor University online MBA program.
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